Issue 1.

Trading Discipline - Gerd Gwiss

I would like to introduce myself very briefly. I am involved in futures trading since 4-years. I am working
as a broker for half-a-year in Vienna, Austria. The topic I would like to discuss is a very old one:
"Discipline"!

I made a lot of trades in very different markets. My trading philosophy is basically 100% technical. I'm a
very big fan of technical analysis and technical trading systems. My very special trading vehicle is
candlesticks combined with stochastics or sometimes a different oscillator, but I don't concentrate on the
oscillators because they are more or less the same. I really concentrate on candles.

I am also using Swing Catcher because I think it is a really excellent program, but I use it in connection
with additional systems. Swing Catcher was the first software I used and I want to explain my experience
and show some big mistakes that I made.

I received the software and installed it immediately. I had it run very quickly. The only problem I had
concerned the data feed from CSI (Commodity Systems, Inc.), not due to CSI, but due to my modem. At
this point, I want to thank Dave because he really supported me in an excellent way!

I had a view at the performance of the last month and I was really surprised. I decided to trade the German
Deutsche Mark and Swiss Franc futures (in low risk trading mode) because they showed a wonderful profit
(the first nonsense, because these markets are highly correlated as I knew, but I was blind already seeing
the profit on my account).

The first order was placed to buy DM. The dollar was around 1.49 and from the fundamental point of view,
the buck was a buy but I decided to follow the system (that was ok).

The dollar came down to 1.46 and my DM-position was perfect. One day after the long-DM, the system
came up with a buy signal for SF and I decided to go long.

I have to mention that it was ok because I strictly followed the system concerning entering the market and
concerning the stops.

Both positions were winners, but on the same day the German Bundesbank crossed my trading plans. Buba
was intervening heavily by selling Deutsche Mark. I was stopped out on both positions with an absolute
crazy fill on the Swiss Franc.

The DM locked in a profit due to an adjusted stop, but the loss in the SF was bigger and I suffered a net
loss of about $1500. I was shocked. My account then showed a balance of $400 credit.

Now I recognize my second stupid mistake: I simply overtraded my account. Two positions in highly
related currency futures in a $1900 account doesn't make sense!

I stopped trading due to lack of money. As a poor student I could not afford to loose additional money.
Iwatched the system and a friend traded some signals for his account.

He made two loosing trades and then told me that the system is no good. After thinking about the whole
problem, I came to the conclusion that he was absolutely wrong. He and I already made our third big
mistake. You have to follow a system strictly for a longer time and not stop trading after two loosing trades.
These trades are simply not significant.

Then we watched the following signals, which were excellent and resulted in big profits, but we had no
positions.

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My friend revised his opinion concerning the system very quickly and became a big fan. That was the
fourth mistake, because these few winning trades were also not significant.

He started to trade the signals again and although he would have made profit on the next trades, he actually
did not because he did not follow the recommended stops!!! That was the fifth mistake. He generally is no
friend of stops, which is of course reflected in his account balance.

After trading two years without using the system from the beginning of the before mentioned trade, he lost
about $75,000. Of course, the system was called no good again after doing the before mentioned last trade
using the system but NOT using the recommend stop.

That was the next big mistake. He always shifted his inability to make profit. Although it was obvious that
he made a wrong decision by not using the recommended stop, he said that the system is good for nothing.

He then traded using his "feeling" and lost a lot of money. But of course, it was not his mistake. "The
market reacted the wrong way," he told me, "they are playing against you with the target to get your hard
earned money."

I told him that this was by far the biggest nonsense I ever heard in my life and asked him why he does not
stop trading if he knows this fact. He was not able to give an intelligent and satisfying answer. He is still
trading and of course still loosing money.

I won't continue, but believe me I could tell you a lot of stories which would make your hair stand.

I really believe that a successful trader needs three things:

1. Important - A trading system to find buy & sell signals that fits to the trader, which he is comfortable
with. (It need not necessarily mean a computerized system.)

2. More Important - Money management techniques. That means you have to define your risk before
entering a position and then place the stop and do not change it once the market is trading near the stop
level. If you get stopped out, wait for the next signal to step in again, but do not alter the stop 20 times. It
does not make sense. Don't trade to big numbers in relation to the size of your account.

3. Most Important - Discipline, discipline and discipline! Trade the signals as they occur. Use the stops
under consideration of the risk you are willing to take and do nothing else! This "nothing else" is maybe
the most complicated matter overall.

The most successful traders are those who comply 100% to the system they are trading. If the system does
not show the results you are looking for, choose or develop a different system with a new approach. Don't
make the mistake of having a system and not complying with signals! If you can manage your mental
environment to follow these three points, you can bet on your trading success.

Amazing & Hard-to-believe it can happen

Computer Problems - Peter Speck

I feel compelled to offer you an explanation of the predicaments/complications I've encountered during the
past two months chronologically:

1. Late December 92 - Purchased Trendx

2. Early January 93 - Purchased new 486/33MHZ/213MB etc, computer system and modem to run Trendx

3. Early to mid-January 93 - a. Modem wouldn't function; b. Modem (FAX Type) would not connect to
CSI; c. Computer store had incorrectly internally set jumpers wrong on initial set-up - hence modem would
not call out.

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4. Returned computer to store for investigation and repair of modem problem - after several days of
trail/error, changes, etc. to no avail got modem operational (mid-January 93 plus 3-4 days)

5. Retrieved computer from store - modem internal switches supposedly now operational and set correctly.
However, CSI computer would not connect with my FAX modem and transfer data. After further
consultation and resetting some commands recommended by CSI, still no go.

6. After several more frustrating days with numerous attempts with the FAX modem (FAX & comm
modem more specifically). I finally removed the FAX/com modem and replaced it with a 1200 baud
(commonly no FAX) modem I had at home. Low and behold, it worked and connected with CSI computer
and downloaded data - a very bright day. (Now I'll not throw the $3,000 system out the window). (CSI
indicated FAX TYPE MODEM wouldn't operate with CSI system).

7. Several days TRENDX worked, getting signals following with my normal manual analysis in parallel to
gain insight as to TRENDX trading scheme. (One needs to do that daily to gain confidence before putting
$$ on the line). Things were working for about a week. HAPPY!

8. Very early February 93 weekend, Sunday, operating TRENDX for familiarity, reading manual, trying
different options - all of a sudden everything shut down - Bottom Line - Lost HARD DISK - everything is
gone - high degree of frustration. "I bought this system and software to save time. All it has cost me is $$
and additional time devoted to get it operational, yet I still had to continue my manual analysis to keep up
with the markets."

9. Took computer back to store - they replaced HARD DISK - assumed all was OK. I brought home and
then - modem which had worked, again would not operate. Several days of further consultation with
computer store and CSI to try to get operational, ended in fruitless effort and failure.

10. I had called Trendx, to inform him of my problems in obtaining old data and he indicated that he would
send me additional software updated parameters and data. Installed update upon receipt.

11. Mid-February 93, I had to return computer to store to troubleshoot Modem not operating (note @9., I
purchased a tape backup system, to backup all files, programs, data, etc., in case I again lost hard disk. Loss
of all on hard disk results in insurmountable problems w/loss of data, software, etc. and time consuming to
install everything). When hard disk replaced, several jumpers were not correctly installed/set, hence the
reason the modem would not operate.

12. February 12, 93 - I retrieved the computer from the store and supposedly all is OK. I had them checkout
operations w/CSI and download data before taking system home. I'm very frustrated and tired of
dismantling system. What a nightmare this has been, and I'm sure other obstacles lie ahead.

I've only been able to operate the TRENDX program for about 1-week since I've received it. I've not made
one "DIME" so far, but I've spent >$4,000 for the system, software and data. The cost to me emotionally
cannot possibly be valued and measured -but I am "fit to be tied."

None of this is Trendx's "fault" all the circumstances of course are unfortunate. The hard disk failure is
extremely unfortunate, but the other problems are human interface with components in the computer and
lack of attention to details I'm sure, from people at the Computer Store. I'll have to chalk that up to "life" or
"that's life." Quality of service is a rare commodity.

Back-Up and Hard Disks - Paul Kirchhoffer

I'd like to share a little story and say a few words about a nifty computer product that may be of interest to
the group:

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Bart struggled to his feet the instant he heard the door open. He was barley able to focus his eyes, as a man
in a white lab coat walked down the hall towards him. For Bart, it had been a very long night. As a
commodity trader, he was accustomed to dealing with bad news. He tried to push aside thoughts of that
recent string of limit days in lumber and those New York fills that came back outside the official daily
range.This situation demanded all the courage he could muster. It was beyond the emotions of fear and
hope and greed. This had become a matter of life and death.

The man in the white coat paused for a moment and motioned for Bart to sit back down. There was no need
for words. Bart knew instinctively his hard disk was dead. Major bummer, he thought to himself. Then
slowly, the reality of the loss began to sink in. It wasn't just that his hard disk was gone, it was the fact that
everything on it was also gone. There was all that price data - daily data, weekly data, monthly data and
even tic data.

There were program files and personal records. And then there were at least a half dozen of those Holy
Grail systems - you know the kind with nosebleed equity curves and $3,000 price tags. The technician at
the computer store told Bart that he was lucky because his drive was still in warranty. Bart didn't feel so
lucky.

The salesman who had sold him the computer hadn't spent much time explaining the concept of making
regular back-ups or why they are necessary. Which brings me to the point of this little story - when your
hard disk dies, what will you do?

There are several ways to back-up your hard disk before disaster strikes. The simplest and least costly way,
is use your floppy disk drive and a backup utility program. In addition to being very slow, the disadvantage
of this method is that it requires you to be physically present to insert and remove a bunch of floppy disks.

A better solution is to install a special cassette tape drive designed for just this purpose. Remember, when
buying a tape drive, you get what you pay for. Some inexpensive tape units require that you pre-format the
tape cassette first and then make your back-up. This can take several hours on a fair sized drive.

Still another solution is to add a second hard drive just for back-up purposes. Hard drive prices have come
down and it's the fastest way to back-up your data. If you choose this route, you can even get a special hard
disk controller that keeps a mirror image of your primary hard drive on the second hard drive. With this
type of controller, if your primary hard drive should fail, your computer will continue to function with no
down time at all. The disadvantage to using a second hard drive is that your backup will always be with
your computer. If, heaven forbid, your computer should grow legs, your back-up data will be gone with it.

Which brings us to what I consider to be the ideal backup solution. It's called the removable media drive.
These drives combine the best features of tape drivers along with the speed of a hard drive. There are
actually hard drives that use removable media cartridges. They are available in 45, 90 and 150 megabyte
sizes. Think of them as super-fast giant floppies. Simply pop in a cartridge and copy or manipulate data.
After making the copy, you can pop the cartridge out for safe storage or you can put it into a second
computer at another location. It's great if you like taking your work between home and the office.

Good prices on these units and other types of drives can be found at Hard Drives International (800-998-
8028). And now that you're thinking about your hard drive, why not check out a utility program like PC
Tools or the Norton Utilities. They contain programs to de-fragment your hard disk and to scan a disk
marking and deleting any potentially bad sectors before they become a problem. Good trading and may
your back-up always be with you.

Finding the WAY - Danny Nip

In late November, after studying the Bible, was baptized and became a disciple of Christ. Little did I know
that my priorities are much different now than they were back then. You know that I do not have the funds

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to trade, or lack sufficient "investment" funds. I still owe about $7400 as of today. My lust for money and
materialism has put me through some tough times, it'll be another year before I can get out of my debts.

At the time of purchase of Swing Catcher, I assumed that there was a possibility that I could find the time
to paper trade it during the morning. Little did I realize that my priority is GOD, and that I spend my
morning studying the Word. It has changed my life considerably. I now have a full time job, which I didn't
have at the time of purchase, and my life has been great ever since.

Having an on-going and supportive relationship with your customers is certainly a great part of your
business, and has contributed to its great success.

My original intent of having somebody manage my funds is more appropriate, as I rarely have time to do
these things now.

God has worked wonders in my life, and I hope to stay in contact with you. Because of the kind of
customer support that you provide, I can safely assume that your program is outstanding based also on the
performance records.

I have installed the program on my computer, although I haven't used it. Perhaps there will be a time, when
I can trade for fun and enjoyment rather than for money and materialism.

Serious Problems with Globex - Dave Green

The commodity exchanges have recently added markets that previously traded during the day only, to the
Globex, for trading during the evening and late at night. Most of the data vendors and newspapers (Wall
Street Journal, etc) are reporting the day session and Globex prices, combined together. In fact, the
exchange itself ONLY reports the COMBINED session and I have been told does not even maintain or
keep a record of the day prices!

Quite possibly, a reason the exchanges do not want to report the day session separately is because they
think by only maintaining combined prices it may force traders to eventually start trading the Globex.
However, every trader I have spoken with over the past few months have said they have never and likely
will never trade Globex, for following reasons: (a) Globex does NOT allow limit orders, good until
canceled orders, or allow stop-loss orders, thus placing the trader at great risk because of no stop-loss
protection; (b) Orders are good for one Globex session only, and do not even carry-over to the day session,
thus forcing orders to be constantly replaced. For example, if a trade lasts 5 days, just 1 open-order is
necessary for the normal day session for the 5-day period, but a total of 6 separate orders would have to be
entered by both you and your broker to effectively trade both night and day, during the same 5-day period;
(c) Very likely poor liquidity and subsequent poor fills, with great slippage potential. That's because there's
very few speculators and private traders using Globex. Most of the volume consists of occasional large
block trades from overseas banks, etc.; (d) It's mentally exhausting and stressful simply trading during
normal business hours. Few traders (myself included) have the desire, time or energy to trade around-the-
clock!

If the trader is not actually trading around-the-clock, but night session data is included in his data files,
many trading systems are subject to incorrect trading reports, and more likely losing trades! For example,
there have been some actual trades where the Globex/night data has a high price about 100 points higher
(made late at night) than the high made during the DAY session.

When running P&L Reports, the trading system may report incorrectly that either the target or stop-loss
was hit, resulting in either a large loss or large winning trade, when actually neither target or stop were
touched during the day session! The major difference in daily ranges can also cause incorrect signals,
targets or stops, with many different and diverse trading systems and methodologies.

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Some clients have told me that due to Globex/night data, on some recent real-time trades, a System may
report a loss of $1,250.00 but the trader actually made $1,250.00 (a $2,500.00 swing difference) on the
same trade (the opposite can also occur). In addition, the exchange reported opening price is almost always
different than the actual day session open, sometimes by huge amounts, because the prior night-ending
price is reported as the days open. Once again there is great likelihood of serious distortions in trades and
P&L Reports, unless the trader is actually trading Globex/night session.

The current day/night session markets are: JYen, DMark, SFranc, BPound, Canada$, US$ Index, TBonds,
Eurodollar, TNotes-10yr, TBills. Other markets such as S&P and possibly other exchanges and other
markets may soon be trading on Globex. Note: US$ Index is not on Globex, but has its own night session.
Night session TBonds still distort the data but not quite as seriously as it will when TBonds also gets listed
on Globex, because the Globex hours are much longer.

Globex System is Vexed by Low Trading Volume,

Overseas Competition and Technological Glitches
by Jeffrey Taylor 12/14/92 - reprinted with permission of The Wall Street Journal

Nearly six months after its launch, the highly touted Globex after-hours futures trading system is plagued
by low volume, stiff competition and technological glitches.

The system, intended to be the world's first truly global electronic trading network, is a joint venture
between the Chicago Mercantile Exchange, the Chicago Board of Trade and Reuters Holdings PLC.
Reuters put up the vast majority of the estimated $70 million to get the computerized system up and
running. The Merc and CBOT offer their most popular contracts - including interest-rate and currency
futures and options - for purchase and sale after regular trading hours on Globex.

But so far, after-hours trading is slow. Last month, Globex trading averaged only 2,771 contracts a night;
that's a drop in the bucket compared with the 551,854 contracts a day that trade during the regular trading
session at the Merc, and 596,709 contracts a day at the CBOT. And Globex's November average nightly
volume was down 9% from 3,041 contracts a night in October.

"It looks as if it's just nickel-and-dime retail (small investor) business so far," says David F. DeRosa,
portfolio manager at BEA Associates, a New York investment firm which manages more than $16 billion
in assets. To become the world's favorite after-hours futures market, "you want to attract institutional
business, so that there's a big flow through the system; you want to get overseas business," Mr. DeRosa
says. But Globex's low volume "shows they're not getting the trading they need from institutions."

Leo Melamed, chairman of the Merc and CBOT joint venture board that oversees Globex, acknowledges
that it is off to a slow start. "Clearly, there are problems," he says. "It's a complex system." But he argues
that six months of Globex trading isn't a fair test. The system can't be declared a success or a failure, he
says, until it has operated for about three years.

Yet the six months in which Globex has been operating have shown that it faces big hurdles. For the system
to provide any kind of adequate return on its startup investment, Globex trading volume must swell to
many times its current level. And for that to happen, traders have to be confident that Globex will provide
the kind of easy access that can already be found in busy futures pits both here and abroad.

Even the CBOT, one of the partners in the joint venture, concedes that it sees Globex as nothing more than
an adjunct to its traditional exchange-based trading.

"There's no question that the commitment of the CBOT is to our open outcry method of exchange-based
trading," says Dale Lorenzen, first vice chairman of the CBOT. "I just don't think (Globex) is ready to take
the volume that we can generate with open outcry. Any electronic trading system is several years away
from major success."

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A lack of trading liquidity and stiff competition from foreign exchanges are the biggest hurdles facing
Globex. Big investors in Europe and Asia typically use Merc and CBOT products such as Eurodollar and
Treasury-bond futures and options contracts to offset the risks of their holdings in dollar-denominated
securities. The Globex system offers these products after the Chicago markets close through a network of
about 250 computer terminals in Chicago, New York, London and Paris. But the banks, trading firms and
insurance co. that use futures contracts tend to send their orders to the biggest, most liquid markets they can
find, which during off-hours in Chicago are foreign markets. For example, the biggest after hours market
for Eurodollar futures contracts, a hugely popular product that tracks short-term interest rates, is the
Singapore Monetary Exchange, also known as Simex.

Recurrence Trading System - Mr. Smith

I purchased the Recurrence II Trading System from Avco Financial Corp for $2,500. What I got was a
loose-leaf notebook of 50-100 pages and an IBM disk containing a small program to calculate retracement
numbers.

After I received the system, I was told by Avco I would have to lease software from Aspen Graphics and
sign up with a real-time quote service to operate the system at a cost of between $400 and $500 per month.
Nowhere in their advertising do they specifically say this.

The retracement calculator program runs in a few seconds and produces a half-page printout. I mention this
because their advertising emphasizes the software as being a major part of the system, which led me to
believe I was buying a sophisticated software package which would give me trading signals. (I have been
told retracement calculator programs can be purchased from several sources for just a few dollars). For all
practical purposes, there is no software.

The trading system requires the user to note trends in the ADX and stochastics, consider the effects of
previous oscillator values, apply one or more of several filters, and determine if one or more rule
exceptions are present in order to make a trading decision. All of this must be done mentally in real-time,
working with 5-minute quote bars.

As a 58-year old novice who has never made a commodity trade, I found these mental exercises
overwhelming and beyond my capability.

What all this leads to is that after about 45-days, I came to the conclusion I could not cope with this system
and started making attempts to return it to Avco. I shipped it to them twice via UPS insured and they
refused delivery both times. I spoke to Anthony of Avco by phone and he stated he would not take the
system back (no reason given) but the call.

The word "Guaranteed" appears in boldface type several places in their advertising. To me that means the
product is guaranteed to be satisfactory for use by me as an individual. In this instance, it appears not the
case.

Lets play astrology - Carol Murphy

Many years ago during a cigarette break at a financial seminar, I over heard a very interesting conversation
on Financial Astrology. For weeks I thought about the planets and the market. After all, for hundreds of
years man has used the sky to sail ships (stars) plant food (moon) etc. If the moon can control the tides,
perhaps it makes us bullish or bearish, since the body is 97% water. I purchased two Ephemerids, one Geo
and one Helio (standing on the sun). I knew nothing about astrology.

Out of curiosity, I started putting the location of the planets on my charts at major Hi & Lo's on all
commodity charts. See examples of how some of it works. Chart #1 is Helio (Venus). The _:4 means Venus
is 180° Jupiter (the money planet). _s 4 means Venus is 360° , as you can see within 4 days we have a

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major change in trend. You can also see when _ is a 180° or 360° or 72° from itself, again we have a
change in trend. Chart II is Helio _ and aspects to Mars (_) and Pluto ( ) It's not the holy grail, but you
definitely get a C.I.T. with 4 days. I'm retired & have lots of time to monitor all of this and just love it. It's
like a giant game.

Special Symbols and Charts in Print Copy

'Gunning' Plays Can Claim Victims in the Futures Pit

by Elyse Tanouye 6/17/92 - reprinted with permission of The Wall Street Journal

Just a few minutes before trading closed on New York's Commodity Exchange one sleepy autumn
afternoon, all hell broke loose. Another of the many games traders play was afoot.

In the cooper futures pit, a surge of buy orders cascaded onto the floor. Normally such late activity barely
budges prices. But on this day, 10-8, so many top dealers and left early for the London Metal Exchange's
gala annual dinner that there weren't many sellers around to accommodate the buyers. Copper prices soared
nearly three cents a pound.

The few junior traders still at their posts quickly concluded that someone was trying to exploit the market's
inattention to push cooper futures prices about $1.07 a pound, a level deemed crucial by traders who use
technical analysis. A price move above $1.07, it was widely assumed, would trigger "buy" signals amount
trend-watching commodity funds, prompting the automatic execution of a heap of standing purchase
orders. Such ahead-of-time orders are known as "stops," which is why this game is called "gunning for
stops." The idea was to induce a flood of buying above $1.07, whereupon cooper would soar even higher,
at which point the trader who started the game could sell out at a profit.

The game probably fails more often than it works, traders say. In this case, the price touched $1.07, but
didn't rise any further; it fell back a penny at the close. That's the risk people run in gunning for stops,
traders say. Yet the game can pay off handsomely, and it is much in evidence in many of today's
commodity markets.

Gunning can work because so much of futures trading nowadays is based on systems that use widely
available technical indicators such as moving averages and momentum yardsticks with authoritative-
sounding names such as relative strength and stochastics. In some cases, traders can guess from market talk
and by looking at price charts where the key levels are. And they know that traders usually place stops
around those critical areas.

Money managers and other futures traders have complained privately for years about floor traders
engineering price movements to trigger stops and computer-generated signals to buy and sell. But in this
and other cases recently, they suspect, very large players were trying their hand at the game. If so, they say
it is a disturbing development. "This is a very controversial issue," says one commodity futures money
manager. We're very, very unhappy about it."

Who gets hurt by traders playing the game? Anyone whose stop was triggered artificially. Those people
may be forced to take profits too early, sustain losses they wouldn't otherwise incur or take positions based
on false price signals, traders and analysts say. And when those traders are money managers, their investors
get hurt. Technical traders are particularly vulnerable to getting whipsawed by these short-term price
swings, says Fred Demler, metals economist at PaineWebber Group Inc.

Sumitomo Corp's Yasuo Hamanaka later confirmed he had placed buy orders at the end of the 10-8 session,
but denied they were speculative. Mr. Hamanaka has a reputation as an aggressive trader. He made similar
denials - met with skepticism - when he was rumored to be behind squeezes in the London market last year.

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In recent years, Middle Eastern syndicates are thought to have used the stops-gunning strategy in precious
metals markets. And some people think big U.S. commodity funds have figured out how to profit either
from riding the coattails of other players using the strategy or by doing it themselves.

Traders won't admit they gun for stops. And regulators say it's next to impossible to prove that a price move
was the result of manipulation, which is illegal. But few people in the market deny that it goes on, and
some say they've noticed it occurring more frequently in the past year.

"It happens all the time," says a sugar trader. In the past year, he adds, he's seen more investors "getting
stopped out" by a sudden-moving market that triggers their stop orders. That could simply be the
unorchestrated result of a choppy, thinly traded market, he says, but people are blaming traders for gunning
their stops.

"When it's happened to me, I've been extremely angry," says George Milling-Stanley, precious metals
analyst at Shearson Lehman Brothers. Trade recommendations he has made to individual investors have
lost money, he says, because traders went gunning for stops. For example, suppose he thinks gold will rise
and recommends clients buy it at $335 an ounce - adding that they should put in a stop-loss order at $333 in
case he is wrong. Then suppose some traders gun the market down to the stop levels, which sells the
investors out of their positions at losses, and the price subsequently rises above $335 as originally expected.
"You feel like someone's stolen the march on you," he says.

Jeff Nichols, a Boca Raton, Fla., precious metals consultant, says a well-capitalized floor trader can
occasionally pull off such a move in small, thinly traded markets, particularly if other traders sense what's
going on and join in. But in larger markets, such as currencies, it takes a lot of money to gun for stops
successfully because the player has to be able to buy or sell contracts in significant quantities, Mr. Nichols
says.

Well-known commodities trader Richard J. Dennis says he tries to anticipate where technical traders have
placed their stops and gauge the effect that activation of the stops will have on prices. "If you look at charts,
you can make a reasonable guess about where the stops are," Mr Dennis says, adding that he uses this
information to avoid those areas. "They're a little bit like land mines going off, and you don't want to walk
into the mine field."

Some Wall Street "rocket scientists" have honed the quesswork more precisely. They are able to identify
which technical system is prevailing at the moment and what signals the system will give out at different
price levels, Mr. Nichols says. These sophisticated traders then use that insight to devise trading strategies
accordingly, he says.

One futures money manager thinks stop-gunning traders neither guess nor use computers, but instead are
learning through their brokers and other sources where the big orders are sitting. "I wonder if this were the
securities industry, if (traders who gun for stops) wouldn't be in jail for this type of thing," he says.

Brokers who disclose such information would be violating federal regulations and exchange rules. But
there are more subtle ways the information leaks out, traders say, such as through winks and nods and
euphemisms. "They don't come out and say "I have an order at six," says a former New York trader. "They
say, I think there's good resistance at six."

In the crowded trading pits, traders can also find out about stop orders when they catch a glimpse-
accidentally or intentionally-of other brokers' order cards, says an analyst. Because they have little hope of
a regulatory crackdown, gunning victims say they have learned to accept it as just another risk in trading
commodities. "If you want to play with the big boys, that's the way it works," Mr. Nichols says.

To avoid being stung, many money managers no longer place stop orders, says Jane Martin, executive
director of the Managed Futures Association. Other market players, says Mr. Milling-Stanley of Shearson,
have learned to protect themselves by placing stops further away from current prices. Experienced traders
recommend moving stops when activity looks suspicious. Market users must be especially alert during

9
slow-trading periods, such as during banking, international or religious holidays, says Mr. Demier of
PaineWebber.

Still others try to take advantage of the strategy without actually playing it. Malinda Pinson, partner of
Fundamental Futures, an Ankeny, Iowa, money management firm, says her firm watches for such things as
gunning stops for opportunities to execute trades that it would have made anyway. "We have learned to
wait until the technical traders' stops are triggered," she says. As the "big machine traders" start selling, her
firm starts buying, she explains.

Trading Strategy & Commissions - Ashley S.C. Howes

There are some simple facts about commissions that are often overlooked or ignored. If you are like me,
when you see the published results from futures managers (in Future Magazine) and observe that for 1992:
76 funds were up, 141 were down, you wonder why the industry exists or think: "all the more reason to
trade one's own account."

All you need is $20,000.00 per contract and a method that will make 4 points a year in the DM and you are
way ahead of 90% of the pros. What are they up to anyway?

It's not that they cannot do it. It's that they make more money by trading for commissions. If a manager
makes only $10 a trade - and many of them make many more - and manages a $100,000 account which
trades 1 contract of the S&P, 3 wheat, 3 Euros, 2 DM and 2 Crude and each contract on average trades
twice a week, he will execute about 100 trades a month=1200 per year=12% of your account equity is gone
right there.

And we didn't mention fees to the FCM, the agent who introduced the fund to you etc. So most of these
managers are actually making 30% or more just to break even.

That is why the managed futures performance tables are on the whole so lackluster. This is also why it is
still true that it's reasonable to expect superior returns from disciplined futures trading. They are there, but
they are being hidden in commission costs and management fees.

The reason I wanted to write about all of this is because I want to introduce an idea. I have been a private
trader for years and like all of us have had to learn the ropes, develop a method that works for me etc. One
aspect of what I came up with is simple. I do not follow the markets intra-day any more, and my partner
executes the trades. We have been making about 10% a month trading a couple of very simple models
using PBS software. (We have other software, but PBS is the main one I use. PBS is quick, easy, the break-
out signals are all up there on the chart in no time, and it is easy to add in your own signals based on
oscillators, bar patterns, etc. right up on the screen, without having to program anything.) The fact that my
partner executes the trades and I have no input intra-day means that there is impeccable discipline and the
strategy is implemented professionally.

We are currently entered in the National Investment Championship. For the first quarter, we were up about
25% and we are already up 50% in the second quarter as of the time of writing (April 25). As of January
31, I have been a licensed CTA.

My partner, Mr. Thomas Stroud, and I would like to offer our services to other traders. However, I want to
offer a service that I would want for myself, i.e., use strategies that I can follow at home, has minimal fees.

At the same time, the reason I feel that it is good to offer this service from a potential client's point of view,
is that I have found that having other people take care of the execution is extremely helpful for my
discipline and the success in our account.)

There are three ways that this can work: One - we raise enough money so that even with low fees it is
worth our while to administer this fund; Two - we charge higher fees in the beginning when the

10
transactions are less in number, and then lower fees later on, going at some point to a minimal fee structure
that covers basic expenses and overhead and only earning extra income on a profit-sharing basis; Three -
and this is the ideal, I think, if the fund size permits, we could function simply as the employees of the
partnership.

The commissions will be minimal ($12.00 or less). Each month the fund will pay out Ba fixed amount to
cover expenses, salary, etc., but no additional management, commissions or profit-sharing fees.

In this way, we can cut through the inherently anti-client set-up that exists in the managed futures industry
such as it is and thereby provide a service that will give you, the customer, excellent returns.

Another juicy bonus, since it is a partnership, the trading strategy and tactics can be shared and discussed.
This will make the whole process informative and interesting, so that each partner can feel actively
involved in the ongoing activity of the account. At the same time, since others are involved, nobody can
arbitrarily start changing the system.

We are open to numerous forms of strategy. The partnership could solely trade the models developed by
my company, Stroud & Howes, or it could trade some signals from Swing Catcher, PBS or follow a
newsletter's recommendations. Or a combination, combining some day-trading with some trend-following
with some counter-trend models, to smooth out our equity curve.

If any of you are interested in being involved in a partnership fund like this, please write and let us know,
giving us an idea of what type of strategy and/or structure you would like to see and how much money you
might be interested in placing with it.

Remember, this is your fund and you can help to design it. One idea I had for the planning, I got from
talking to Dave Green a year or so ago when I first bought Swing Catcher. He was thinking of participating
in seminar on a cruise ship for a week or so.

Maybe we should have a $20,000.00 cruise for one week, which pays for the cruise and the balance of the
account goes in to start the partnership fund. With the lawyers on-board as part of the cruise, is essentially
put together and most of the trading strategies introduced, picked and then agreed on during the course of
the cruise. Guest managers can be invited, either to lecture or solicit our funds for their management service
of our partnership. That was just one idea.

Alternatively, I live in Europe and know of a couple of private chateaus that are for rent. We could spend a
week in the French countryside and take a trip to Luxembourg for members to open accounts there, so that
the fund can be set-up offshore, this could be part of the program.

In addition, if anyone wants us to execute trades from Swing Catcher, PBS or a System Writer end-of-day
model, we could do so on a simple fee basis depending on the number of trades per month, complexity of
the model, etc. You might find that having someone do your execution, though you are still calling the
shots is an excellent way to improve your discipline.

I look forward to hearing from you about this and wish you all success in your trading. Mr. Howes can be
reached at 57604 Forbach Cedex France

COMMENTS FROM THE EDITOR

Reference the Globex article. I have been told Globex volume has improved a little since that article was
written. However, it's still far too low for good liquidity and very few small/medium size traders have ever
traded on Globex. That's a major reason why the CSI/TRENDX Portfolio only uses Day Session price data
and ignores both Globex and Night Sessions, such as the Night TBonds.

11
The interesting submission by Mr. Gwiss really impresses the major impact discipline and money
management can have on your trading. In fact, many expert traders claim discipline is even more important
then the trading methodology used!

The Wall Street Journal article on how traders gun the stops reminds us that by not actually placing the stop
it can't be "gunned." However, by using a 'mental stop-loss' it results in much greater risk because the stop
may not actually get placed due to lack of discipline. Another possibility is the market may move far
beyond the mental stop resulting in a much larger loss that if the stop-loss was actually placed.

The submission by Danny Nip reminds us that some things in life are more important than trading!

The articles about computer problems should make us aware that the problems referred to are rare but can
happen to anyone. The severity and magnitude of Mr. Speck's many computer problems in particular are
extremely rare but does occasionally happen.

Paul Kirchoffer's article would sure have helped Peter Speck, if Peter read it before-hand!

The Editor hopes you enjoy this Premier Issue of CTCN. Thanks to all who made contributions.

12
Issue 2.

Only Part of this issue in On-Line - The remainder of the issue will be added asap.

Wisdom & Knowledge - Roger Roehrig

We started our relationship in 1992 when I purchased Swing Catcher. I want to tell you of my experience
as a young trader and hopefully as a new member of the CTCN.

I began acquisition and trading without any experience for a German company in January 1987. Three
weeks later I got my first client and money for trading in the stockmarket (S&P 500).

The first money I earned I spent it all on books, articles and brochures, etc. I decided to learn everything
about the markets. There was nobody who helped me to learn, so I became a do-it-yourself trader.
Everything was cool in this time, because we have had a bullmarket in stocks.

My first really bad experience came in October 87 on that bloody Monday. I lost all the money in the
market and was really shocked and depressed. But this situation gave me one of my most important rules, I
discovered later, that the trees never grow too high into the sky and the markets are not a one-way-road. So,
I stopped trading and left the company and went out for a holiday in Spain. There, I had much time to think
about what I really wanted to do.

All I wanted to do was trade! So I went back to Hamburg, changed the company and started again, but I
was so afraid of losing money, that often I stood apart of the markets. It took so much time to lose my fears,
but slowly I listened to my feelings (intuition) and a small success in trading helped me during this difficult
period.

At this time, I read an article in a German commodity newsletter, concerning mechanical and trend-
following computer systems. I was very interested in that and I spent money for a system called "MESA"
and an additional program called "EPOCH." I had bad experiences with these programs, so I was generally
disappointed in computer forecasts. I stopped the trading with these programs and decided to use my own
program (intuition and psychology).

The trick is that a trader always uses a system (consciously or unconsciously) but he has to find his
individual system or method. I found this for myself as I started trading with Swing Catcher in 1992 and
was surprised how precise it was and is! With Swing Catcher System, I need not ignore my feelings about
market moves, so I combined technical research, technical forecast, individual intuition and some important
rules for best results.

My most important rules are: taking small losses - taking big profits - discipline on money management!! -
not to break rules and to know when to break rules!

These are the results of 5-years trading experience and I hope I can share the wisdom and knowledge of
other club members and traders.

Globex Data - Luis Lobo

I believe the hypothesis about using non-globex data and excluding Globex/Night Session Data is correct. I
was beginning to get some nonsensical signals when globex data was included in the financial data from
CSI. In fact, one of my losses in the Japanese Yen could have turned quite profitable if I had been receiving
globex-free data at that time.

But one lives and learns. I was lucky that I only had one currency position at that time.

13
 Gann & Fibronic Trading Technique - George Cooper

This program, Advanced Get squares time and price to supply a reversal date, in this case, the 26th of May.
It is usually within a day, one side or the other of the protected reversal.

The program enables me to draw the trend line from the (7102) down to 26th of May. When the price
breaks above both the trend line and the DMA Line (divergence measuring line) I then consider going long.

I usually draw a trend line hitting as many tops or bottoms as is possible to the G.E.T. projected reversal
date.

I would expect that there would be much more down move since the D.M.A. line is so distant from a
(1085) minus B (1310)=(225 x .62=139.5 plus C (1193)=1333.

The .62 retracement projection. 225 plus C,=(1193)=1418 for a 100% retracement if the 1418 projection is
penetrated. I then multiply 225, the distance from A to B by 1.618 and add the result 364.05 to CDR, 1193.

The result is 1557 for a 1.62 retracement if the 100% is broken. I use this method when G.E.T. projections
are off the chart, as they are on sugar at this time. Charts in Print Copy.

A Unique Way to Reduce Commission Costs - Ashley Crowell

The booklet by George Angell "The Essential Secrets of Day Trading" in which he says: "A little-known
method of cutting your commission cost is to join an Exchange." This doesn't mean that you have to trade
on the floor in Chicago or New York. But it will give you an opportunity to trade like professionals at a
very low cost.

Now, the price of some exchange seats can be in excess of a half million dollars. There are less valuable
seats selling for a fraction of that cost.

Take the MidAmerica Commodity Exchange, a division of the Chicago Board of Trade. The MidAmerica's
seat price varies. Right now, it is considerably less than $10,000. Once you own the seat, your only
obligation is to pay the $1,000 annual dues.

As a MidAm member you will be entitled to commissions as low as $8.00 per round-turn on non-MidAm
contracts. If you want to trade MidAm contracts, you would pay just $1.00 a round-turn if you accomplish
the trade in the pit or just $3 or $4 if you call in your order and have a floor broker fill the order for you.

For any active trader, purchasing a membership on an exchange - even if you don't plan to be a full-time pit
trader - makes a lot of sense.

For more information contact: MidAmerica Commodity Exchange, Memberships, Chicago Board of Trade
Building, 141 West Jackson Blvd., Chicago, IL 60604

Angell's text continues with: "Another very inexpensive membership is that of the Chicago Rice and Cotton
Exchange, another affiliate of the Chicago Board of Trade. CRCE memberships have changed hands for
just several hundreds of dollars. The real cost of the seat, therefore, comes from the cost of the annual dues
which are payable on a quarterly basis.

At $1,000 a year, MidAm dues are just less than $85 a month - hardly the cost of two or three trades with
the average broker.

Lastly, the purchase of a seat membership is an investment. The value of the purchase price could easily
rise in value . . . Huge capital gain opportunities exist for the intelligent purchaser of exchange seats."

14
 Trident System - Andrew Pustay

I just want to preface my comments with letting you know that the TRENDX Program continues to operate
flawlessly.

I know it's been awhile since we touched base, but I want to bring you up-to-date about what we talked
about in reference to the Trident System.

I know we had many discussions in the past about the Trident System and how difficult the algebraic
formulas are in terms of the P3 qualification, at least for me.

What I've done was to sidestep that qualification procedure and look just for the Trident P1, P2 and P3
formation in conjunction with the TRENDX signal to go long or short and therein, I believe, lies the road to
profitable trading.

Two recent successful trades which gave off just that type of signal was a short position in Wheat in
January and a long position in Corn in March. The signals don't often line up but when they do it is hard to
ignore and something that I will continue to watch for as an entry into a successful trade.

I believe that this Trident pattern as it sets up with the TRENDX signal deserves further study and research.
You may want to pass this info along to your other TRENDX users, especially those who may have the
time to do the necessary research.

Good Timing - Paul Brown

Great idea Dave, this new Commodity Traders Club News. I wish that there would have been a letter like
this when I started trading.

One thing that I have had the misfortune lately to do is over trade. By this, I mean risking too much capital
when trading. It is very easily done when you get caught up in the everyday routine of trading.

It will reduce your overall efficient because you can't follow a slow or weak trade as long as you could, if
you were capitalized correctly.

CSI Gets an A+ by Paul Brown

During my trading adventures so far (8 months) I have found that receiving daily data from CSI is very
convenient. There is never usually more than a

30-second wait and the data is very reliable.

I have also purchased Quick/Plot Quick/Study programs. It is a very good bargain for $99.00. It will do an
array of things like moving averages, weighted RSI and there own CSI trend. I have found it very useful
and worth the money!

ROLLOVER CALENDER - Rick Lorusso

This easy-to-use commodity contract rollover calender was developed by member Rick Lorusso as a
convenient way to keep track of the recommended contact months and the dates contract
rollovers/switcovers should be done. Calendar in Print Copy

15
Issue 3.

Amazing & Hard To Believe, But True: I Had 50 of 55 Winning Trades

But Still Lost Money! - Jim Ford

I'm a money manager and private trading advisor (non-registered) who had about a dozen accounts under
management during November 1991.

At the time, I was trading these managed accounts using a combination of several indicators and chart
analysis. Plus a degree of subjectivity and judgement. My trading was in a number of markets, including
TBonds, S&P, Live Hogs and Currencies.

Everyone talks about the importance of winning trade percentages. Many traders think if they can achieve
even 55% wins they will make good money. The idea of someone having 90% wins seems inconceivable.

Most traders would think 90% wins was an impossibility. No one could imagine that if 90% wins was
possible, the brilliant trader could possibly lose money in the process of 50 out of 55 winning trades!

During the 30-day period, I made a total of 55 trades and had 50 winning trades. In spite of that amazing
feat, I still was a net loser for the month. How is that possible? First in importance is that I did not have
adequate discipline and did not follow my trading plan.

My many winning trades were mostly very small winners. Most of the winning trades were between $50.00
and $300.00. In addition they were all one- lots. However, I had too much confidence in the 5 eventual
losing trades and doubled up on those positions...resulting in double exposure.

I compounded matters by not actually placing my stops but using so called "mental stops." I then lacked the
discipline to get out of the eventual big losers when my small mental stops were hit.

I held the contracts in the hope they would eventually go my way. For example, my methodology called for
a stop equalling say $300.00 but because it was a mental stop and not actually placed with the broker, I let
the small loss become much worse (to $1500.00) before finally getting out.

In addition, the fact I decided to trade two contracts (due to over-confidence) on 4 out of the 5 losing
trades, but one contract on most all the winners, resulted in much larger losses on the losing trades.

For example, a loss of $3,000.00 on one position ($1,500.00 times two contracts). However, if I was
following my plan, I would only have had one contract and only a $300.00 loss on that position, or ten
times less!

That occurred to the same or somewhat lesser degree on all 5 losing positions, so that my losers (mostly
two-lot trades) added up to about $10,000.00 negative. However my 50 winning trades were mostly small
winners (one-lot trades) that added up to about $9,000.00 positive, including commissions. Thus, even with
50 of 55 winners during a one month period, I still ended up losing about $1,000.00 for the 30-day period!
If you factor in the cost of my expensive on-line Bonneville Quote Machine and some other expenses, I
actually lost close to $2,000.00.

I know this is all hard to believe, but it really happened to me and can easily happen to anyone who doesn't
follow a consistent trading plan and does not have sufficient discipline.

The 50 of 55 winners will be very difficult for me to ever duplicate again. I have been trading with about
the same frequency and similar techniques from time that occurred Nov 1991 to now (1 2/3-yrs). But I have
never even come close again to that amazing winning percentage.

In addition, from what I hear and read, it appears that it's next to impossible for other traders to achieve
90% wins out of 55 trades.

16
I'm still not sure how I did it and I likely could never repeat the achievement again, even if I continue
trading for the next zillion or so years.

I don't know what is more amazing, either my percentage of wins or my losing money in spite of it.
Probably the fact it was possible to lose money after achieving 90% wins is the more amazing thing!

Catch a Trending Market - George Hallmey

This one comes from the KISS school of trading systems - designed for the part-time trader who hasn't time
or inclination to constantly monitor the markets and probably is still computer illiterate!

All systems are trend following - it's just that the length of trend may be long or short. My intention was to
find a system that catches the long swings, filters out as many go nowhere whipsaws as possible and can be
monitored without the use of a computer and with the minimum of time spent studying chart moves.

W.D. Gann inspired the use of swing charts as a filter for indicating trending movements. He used a
combination of time frames, the most well known being 3 days, 7 days and his quarterly swing chart. Gann
taught that the longer the time frame used, the more reliable the signal given.

My analysis uses a 14-day trend reversal. How do you plot it? Simply mark on some chart paper a vertical
line when today's price is higher than it was 14-days ago and keep drawing on up until today's price is
below that 14 days ago when you show the line coming down again. What could be simpler? (see chart)
Chart in Print Copy

How then is a swing chart used? First, it gives a broad indication that the trend could continue in the
direction of the current swing. Support and resistance areas are clearly shown and once the swing passes
previous swing highs or lows greater weight is given, Gann teaching that new highs should be bought and
new lows sold.

However, as with all long term trend following systems - first pick a market with prolonged trending
action.

The British Pound is my current favorite - frequently embarking on long term trends with a minimum of
whipsaws.

Using the swing chart to place trades, the system is always in the market. Over three years prior to the 1992
bull, then spectacular bear run, the system has produced 48 trades with an impressive 2:1 win loose ratio.
This producing a profit of 29.5 cents or $18,437.5 per contract. However the maximum drawdown was 19.5
cents - more than most would stomach.

By adding a simple rule of setting a maximum stop loss of 2 cents, the maximum drawdown became 8
cents with profitability boosted to 49.5 cents or $30,937.5 per contract. After deducting $100 slippage and
commission per trade, this easy to monitor trade system shows how a simple technique can produce
impressive profits.

The Importance of Doing What's Right - Mike James from New Zealand

Like most people, when starting out trading, I focused on the selection/prediction aspect of trading.

Most traders spend their time analyzing the market to predict where it is going instead of developing low
risk ideas in which the potential loss is small. Spend time developing low risk ideas, instead of trying to
study every aspect of the market. Although a system of some sort is important, it is by far the least
important aspect of being a profitable trader.

17
Profitability is solely dependent on money management and discipline. Center yourself calmly through
exercise, diet, meditation and generally leading a balanced lifestyle. Let go of your attachments to the
outcome of the trade and look at the trade as an objective event.

Concentrate on sticking to your entry and exit rules for each system and the profits will take care of
themselves. Your management of the emotions of greed and fear are vital.

Markets move due to fear, greed and ignorance as much as any other reason. You have to realize that as a
trader, during rough times, as much as 70% of your trades will be losers. Profit will generally come from a
relatively small number of trades.

True winners make a point not to let their ego (don't dwell on large profits of open or closed trades),
emotions, tips or gossip get in the way of what their system tells them to do.

To beat the market go about your business in a disciplined way. DO NOT start to think that "I am smart and
can easily make a million." It will cause you to forget to use the wise, patient and conservative RULES you
need to follow to make a profit.

Your loss of confidence is the greatest loss you can suffer, so don't overtrade or step in front of a freight
trains. Stalk the market as deadly game or else you will become its prey.

Mark Douglas in his excellent book 'The Disciplined Trader' insists that you trade with the goal of doing
the right thing (sticking to rules!!), not making money.

Paul Tudor Jones sees his strengths as a "trader who is able to take loses quickly and thinking defensively."

Make time to study and organize a trading plan for each and every trading day. The markets you hold a
position in are the ones to concentrate on.

In Jim Slomans book 'The Adam theory of Markets' he says, "To succeed in the markets we must surrender.
Never ever let any opinion about the market get in the way of trading."..."Analysis is great, but when
analysis and reality diverge, we must always go with reality."

"Knowledge is great, but when knowledge and reality diverge, we must always go with reality."..."We must
allow ourselves to mirror the market, follow it surrender to it. We must be willing to let go of what we
think we know about it so that we can see it directly."..."Price is reality. Price reflects everything. Price is
all we want to look at because price is what the market is doing."

Professional traders know that money is important, but unlike hobbyist, they focus on the market. Don't get
greedy and count dollars, ignoring what the market is telling you. To make it you have to level your
emotional peaks and valleys. That requires dedication.

Patience is the key word. My experience is that the fewer the number of trades, the more profitable the
method. It goes without saying that you must not second guess your system. Take every trade according to
the rules.

Now comes the important part - how to handle the inevitable drawdowns. Back testing has told you what
kind of a maximum drawdown you can expect. If you can't emotionally or financially handle at least this
much drawdown, don't trade the system in the first place. And don't be greedy and overtrade, buying or
selling too many contracts (you should have rules for the precise amount of contracts to trade) in an effort
to make a lot of money in a hurry. Under capitalization is one reason so many are losers.

Once you have a system that works, don't change it. If you have other ideas, develop another system!

18
If your goals are not met or if you feel tired or stressed -- STOP and reevaluate the situation. Either close
out all positions or let those in profit run their course without adding to them

Richard Wyckoff gave the following advice, "There are several clear signals to pull out of the market and
take a break. The first is a technical warning - the situation in which your analysis gives unclear, confused
signals. The other two are emotional - relying on 'instinct' rather than research and a growing or chronic
indecisiveness about executing trades."

And don't forget the importance of exercise, of the mind and body. The importance of friendship and
making time for these friends. The importance of balance, taking time out to watch the flowers grow, not
just working/trading. That only achieves a goal in a very narrow focus and achieves nothing but leads to
unproductively and unhappiness.

Be good to yourself; don't be too hard on yourself. Areas you can improve on simply provide you with
valuable feedback.

Anything you do gives you experience. As a result, you can look at your decisions and resolve to change
them in the future, using them as a learning experience, rather than accepting the failure judgmentally, by
thinking 'I have failed.'

Victories, I pat myself on the back, often. I dwell on them as they are the building blocks of my future
accomplishments.

Proper Mental Attitude - Walter Mandl from Canada

I've been a futures trader for 15 years and although that's a short period of time relative to other fields, in
the futures industry that's a long time.

The message I wanted to relate to the readers is the importance of the proper mental attitude when it relates
to futures trading. I found out by reading and through my personal trading account that a good mental
attitude reflects a good trading account and visa versa.

Futures trading extremely highlights the best and worst in people. When a trader wins a certain amount, he
goes on a natural high, far in excess than normal producing behavior.

This can cause the trader to make large purchases or go on vacations, not realizing that at the next trade
they might not be able to afford that purchase or vacation. It will eventually send the trader in such a
depression that their ability to trade in a proper positive way is all but lost.

The point I wanted to make is that to lessen destructive behavior you must have a plan. The plan must
include when to enter and exist markets, whether it be for profits or losses, but also have a plan to
conservatively spend profits.

This must be done so you don't produce ever increasingly natural highs to defend bad behavior which
eventually will lead to losses in the trading account.

Incredibly Demanding, Detailed and Complex Requirements to purchase "adequate" Trading

System Software - B. Fitzsimmons

I am searching for some adequate software. Here is list of requirements. If your system cannot perform the
following, don't bother sending me a demo disk, for my records, just send a letter saying your system
cannot perform as needed.

19
If your software can meet these specifications, send me a brochure, demo disk if necessary, a salesperson's
name and how I can get in touch with him. Plus, your system's or statistical guru's name and how I can get
in touch with him.

This is no joke. I have an MBA in Management Science, been a stockbroker, studied the futures market and
technical techniques for the last year, designed but not built my own system for futures, want to start
investing in futures or options ASAP.

Criteria in order of importance:

1. Stat tests or procedures included:

a. J. Welles Wilder's

1. DMI - ADX

2. RSI, KST or like double-smoothed Stochastic

3. if possible Reaction Trend System, or some other tracking, not trending system

4. if possible Swing System, Volatility System

b. MACD

c. Commodity Channel Index or MII Price Channel, and std. dev. capability

d. Rudimentary Charting Methods

e. K%D Stochastic

f. Some type of Momentum statistic, also Rate of Change statistic

g. Statistical Methods, including Exponential Smoothing, linear and non-regression, if possible ARIMA,
multiple decomposition and XII (now using SPSS for Windows)

h. independent modules to test degree of:

1. Volatility

2. Open interest (seasonally adjusted, if possible)

3. Volume (seasonally adjusted, if possible)

2. Some type of feed from Lotus and/or CompuServe or like data utility to translate data files to your
System

3. Some type of historical investigation, evaluation or profitability system to test different decision rules
against history to be included with evaluation system:

a. system to handle multiple, complex decision rules

b. if possible, capability to manually or batch change parameters for statistical techniques, e.g. DMI has 14
day moving avg., change to 12, 9 or 5 and price channel width, RSI overbought, Oversold Parameters, by
Batch Commands

20
 c. if possible, comprehensive Command Language with batch capabilities, I hope I can build feeds from/to
other programs

4. good graphical capabilities (have a SVGA monitor)

5. good DBMS, ability to store multiple commodities by daily, high, low close or weekly, close time
periods, for several years

6. if possible, some capability to on command evaluate data files searching for option opportunities, or
arbitrage opportunities

7. if possible, package works with Microsoft Windows

We'll I think that's it, the if possibles amount to a wish list. Good luck, I don't want to be writing
spreadsheet macros for the next year.

I have a 486/33 Mhz Computer, Hard Disk, Color Monitor, floppy drives 3.5 or 5.25.

Sorry, I will not pay for demo disks or manuals. If you are unable to tell me what your system does, or how
it matches my specifications, it's your problem --not mine!

Product Review on PowerBasic 3.0, Much Faster Market Research

is Now Possible - Clifford Murphy

I would like to comment on computer performance improvement resulting from a system upgrade.

An IBM-XT operating at 4.77 Mhz, was replaced with a 386DX-40 with a math coprocessor. This
hardware upgrade resulted in a 18.2 fold speed improvement on math intensive BASIC programs.

Microsoft GWBasic was replaced by me with PowerBasic 3.0, a BASIC compiler. This software upgrade
resulted in a 11.5 fold speed improvement on the same math intensive programs.

To eliminate any misunderstanding, the combined hardware and software upgrades resulted in an over 200
fold speed increase. Needless to say, this has opened up new vistas for market research.

My 386 system is a standard system with a math coprocessor added.

PowerBasic 3.0 is a BASIC compiler that performs like an extremely fast GWBasic with enhanced
features. Features that should satisfy the most demanding programmers. I am speaking here, in particular,
of the advanced debugging features.

An additional benefit of PowerBasic 3.0 is that the limit of 61K that GWBASIC places on the maximum
amount of program and data that can be loaded into memory at one time in PowerBasic is increased to
162K.

PowerBasic 3.0 documentation is good and the program has performed well during 2-months of heavy use.
PowerBasic 3.0 can be obtained from the publisher, Spectra Publishing, 1030D East Duane Ave,
Sunnyvale, CA 94086 (813) 625-1172, or purchased at a substantial discount from a mail order company.

COMMENTS FROM THE EDITOR

Jim Ford's hard to believe, but true contribution will be truly amazing to many traders. However, many
professional or experienced traders probably find it less amazing than you would think.

21
That's because very experienced and knowledgeable traders have likely had the same type of occurrence
happen to them, though likely to a much lesser degree. They have had periods of good success as far as
percentage of wins is concerned, but still lost money due to the reasons referred to in Jim's contribution.

However, as mentioned by Jim, it is extremely rare for any trader to have anywhere near 90% wins for a
lengthy period covering over 50 trades. That truly amazing feat makes the fact Jim still lost money seem
ever harder to comprehend!

I have talked to Jim and a trading associate of his who I know very well, about how Jim accomplished his
90% wins and they can not actually explain it. That's because a lot of the trades involved a certain degree of
judgement or subjectivity. Unfortunately, subjectivity can not be used successfully by others or used with a
mechanical trading system.

This reveals how poor money management and lack of discipline can bankrupt even the best traders in the
world. If this can happen to excellent traders like Jim, can you imagine how easily poor money
management can ruin less skilled or mediocre predictors of the markets!

George Hallmey's article reveals how simple techniques using Swing Charts can be highly profitable. It is
correct that W. D. Gann did in fact use Swing Charts quite extensively in his trading.

As referred to by George, one of the problems with Swing Charts is that stops are frequently too large for
most small or medium size traders. However, as alluded to by George, assigning a somewhat arbitrary stop-
loss to make the risk less has very good potential.

Gann refers to Swing Charts a number of times in his Trading Course, and in his valuable book "How to
Make Profits in Commodities."

The book is very likely Gann's best book and many traders (myself included) say it's the best book ever
written about commodity trading...the 412-page hard-cover book is available from: Trading Tools Co.,
Box 1, Altoona, WI 54720 for $35.00 (+ $3.00 US S&H, + $15.00 Foreign S&H).

How to Make Profits in Commodities book not only covers Swing Chart methodology, but also goes into
great and highly valuable detail on cycles, seasonals, resistance and support methodology, money
management and discipline.

This excellent book places great emphasis on discipline and the importance of always using stop-loss
orders to keep losses small, so you can recover your equity thru eventual winning trades.

The book was written in two parts, in the 1940's and 1950's by Mr. Gann. The type of markets traded then
and commodity prices have changed greatly since then. However, the principles and lessons taught by
Gann are timeless and are as applicable in the 1990's and they were in the 1950's.

The interesting submission by Mike James about the importance of money management, discipline and
emotions and other mental aspects of trading, really hits home.

I recall many trades I made myself or that were referred to by clients, where we either lost money or made
less than we should have, due to discipline, etc.

The importance of the proper mental attitude and having a trading plan, as referred to by Walter Mandl, is
very significant.

Mental attitude can often make the difference between being a winner or loser. That is true not just with
commodity trading, but also true with other areas of life.

The letter written by Mr. Fitzsimmons about his specifications and requirements for Trading System
Software is as mentioned by him, "not a joke." He sincerely believes he must have and also use all those

22
complex and specific capabilities and technical indicators. If not, he will not buy the system, and apparently
doesn't think he can be successful trading unless all his demanding, specific and complex requirements are
met.

The problem is his requirements are far too specific and involved. The software package (if it in fact
exists), and the subsequent analysis and usage requirements, would be far too complex and involved to
easily operate or trade with. Due to the complexity of his requirements, I doubt if anyone could possibly
trade successfully using it.

It is also interesting to note that most trading experts and experienced traders will tell you the many
technical indicators on his wish-list simply do not work consistently in real-time trading. They are referred
to as "canned" indicators and have been studied extensively over the years. Lots of computer runs have
been done on them by many well known commodity experts.

Unfortunately, all the results of the testing I have reviewed using the indicators Mr. Fitzsimmons refers to,
including magazine articles and trading books, and including my own research of "canned" indicators, has
been very disappointing. The many "canned" indicators for the most part correlate highly with each other
and all tend to go positive or negative usually at about the same time, and usually with the same dismal
results.

The results are inconsistent, have lengthy losing periods, and drawdowns are usually far too large for the
average trader to withstand.

There's one rather humorous observation about the demanding expectations. He refers to software that
meets his stringent and complex requirements as merely "adequate!"

He is not a CTCN Member, but I have published it because I believe Members may find his letter and the
subject matter interesting.

The Product Review by Mr. Murphy shows how fast the latest Basic Compilers are compared to old
programs like GWBasic.

PowerBasic is no doubt a good product. However, QuickBasic by Microsoft is still likely the leading Basic
Compiler and is used by many traders who have the need and occasion to use a Basic Programming
Language.

To use these Compilers, a certain degree of computer and programming skill is required. I personally have
been using QuickBasic for many years and find it easy-to-use and more than adequate as far as features and
speed are concerned.

I am still using the old version 3.0 because it seems to be faster and have more memory capacity than the
more recent upgrades. There have been a number of upgrades since 3.0, but I still prefer the old 3.0.

The last page has a message about the importance of having a trading plan. I took the exact same wordage
to a local Awards/Trophy type of store and had it etched into brushed aluminum and attached to a hard-
wood backing. It's hanging in my office as a reminder. The Page 8 message is a photocopy of my actual
wall plaque. In Print Copy - The plaque reads "If You Fail to Plan . . . You're Planning to Fail"

Thanks to all who made contributions to this July 1993 issue of Commodity Traders Club News.

23
Issue 4.

Bollinger Bands as a Filter - Dr. Michael Miller

In our ideal world there would be a method for eliminating trades that had a high probability of generating
a loss.

From June 92 thru July 93, real time trading using Swing Catcher Daily files generated profits of $14,362
on 52 trades and $10,862 on 61 trades in German Mark and Swiss Franc, respectively.

One might consider it a foolish endeavor to try to improve a system that has generated profits in excess of
100% per year, but the use of Bollinger Bands clearly eliminate some trades that would have produced
loses.

Bollinger Bands are upper and lower envelopes around the 20-day moving average. The bands are based
upon 2 standard deviation units of the commodity.

Prices tend to remain confined with the upper and the lower bands. Any move outside the band indicates a
short-term overbought (sold) condition. Consequently, it would not be recommended to initiate a new
position at this time.

Charts in Print Copy

The above chart represents March 93 German Mark for the month of January. On January 25, Swing
Catcher generated a long position. The following trade if taken would have generated a loss of $1,387.
Clearly, the price is above the upper band and one would assume that the DMark is overbought.

In order to quantify the overbought/oversold situation, the following formulae are used:
long positions--(upper band-price)/price
short positions--(price-lower band)/price

In the above example, the upper band is 62.50 and the closing price is 63.00. Consequently, (62.5-
63.00)/63.00=-.79

This number quantifies how far above (or below) the price is from the band. Further research needs to be
done in order to determine the optimal filter level.

The following represents all trades that occurred when the price was outside the Bollinger Band for both
Swiss Franc and German Mark.

In summary, 16% or $4087, in losing trades would have been saved if one had avoided making a trade
while the price was outside the Bollinger Band.

Charts & Table in Print Copy

Review of Buran's Grand Combo - Matthew Chiang

I recently responded to Bob Buran's promotion and was impressed by his "record book" of trade statements.
I also reviewed the video tape (preview but no methodology disclosed), and I talked to Bob himself before I
decided to buy the system.

I believe Bob is an honest guy, and he was helpful in answering my questions. I was very concerned with
drawdowns and consecutive losing trades, so I specifically asked Bob on this aspect, and his answer was
"once in a blue moon."

24
I then bought the System. However, when I ran the software and studied the logic, I found that the system
was not what I had expected.

Suffice it to say that Bob's Grand Combo system works similar to a volatility breakout system (VBS). Like
any VBS, Grand Combo can get a lot of whipsaws if the market is non-trending, but overall, consecutive
losses are mild and manageable (there are exceptions, of course).

For each trade, Grand Combo has a volatility-type and statistically sound stop-loss, but the program is not
specifically engineered to reduce risk in this aspect, except an advise to diversify.

I have used Essex's ACE Currencies (a VBS system) and it performed poorly in this aspect (7-9
consecutive losses, could you believe this!). Plus, Futures Chart's Mini-Trend Setter also has significant
consecutive losses (3-5 while trying to catch the major change in trend). So Grand Combo is better than
others.

Overall, I should say Grand Combo is average to above-the-average on loss management - typically 2-3
losses in a row, sometimes as much as 4 losses, but they are not that frequent. Then you have 2-3 or even 4
wins to patch up.

So what's the catch? Grand Combo has a weakness I cannot accept. Unlike other VBS or trend-following
systems, Grand Combo has very tight profit targets.

I was rather surprised that for some markets, the profit target is typically some 30-50 ticks, and you will be
lucky to get over 100 ticks (depending on market, of course, the BP has more ticks, for example).

I ran some historical tests, and found that most markets made money, as are claimed. But I was not that
impressed because most of the trades made very small profits, and you have to trade a lot to make enough
money.

The average profit per trade (again, depending on markets) is $300-$500, some are over $600 and a few are
over $1,000. The losses are similar.

I also dislike the idea that Grand Combo pays no attention to underlying market trend. It simply trades
breakouts on either side. You could end up buying near market tops or selling near market bottoms.

I always struggled whether to obey the counter-trend signals or not while in a defined trend, or seeing a
top/bottom is near. Even if the signals are in trend, you usually end up buying/selling near swing
highs/lows.

This is common to VBS. But unlike other VBS, Grand Combo does not attempt to ride the trend. It is
content to take small and quick profits.

Most trades are typically short term, from 2 to a few days. That's why the average profit is small. Even
though the tests have made paper profits, I wonder if I could trade the system with such attention and
frequency.

Bob and the brochures do say that you don't need to watch the market, it is true. But with such tight profit
targets and trade frequency, I don't think I can afford a full service broker to watch the trades for me.

A plus about Grand Combo is, while wins are small, losses are also small, only occasionally do I have
losses over $1,000 per trade (Grand Combo does not trade S&P or its like).

After paper trading the system for 5-6 weeks, I decided to give it up. I pay much attention to drawdowns
and consecutive losses, because I am a novice trader with limited experience and trade capital. I don't yet
have the nerve nor the pocket to take 2-3 losing trades in a row while scalping small profits on others.

25
It would be different if I have some big winners to cushion the losers, but I don't see this a frequent event in
Grand Combo. I prefer trading for short to medium term (a few days to weeks), and perhaps have some that
can ride the trend.

Also, you need around $25,000 to trade Grand Combo effectively because it's diversified among 30
markets. Somebody suggested that Bob's good results were not achieved 100% mechanically, and judgment
calls were involved. There has been some controversy over this and other issues (on system drawdowns) in
Club 3000 recently, and Bob has spoken a few times to defend his case, I believe one allegation is false.

I do not want to comment on this, as I respect Bob as an honest and good trader, but I would hesitate to put
down real money trading his system, unless I cannot find another better one.

The principle behind Grand Combo is sound, and I think it works, but not for every style. It would be very
suitable for very short-term traders who require a lot of action, and perhaps more suitable for over-nite
traders with 50 to 60 tick targets.

Observations & Stop-Loss Technique - Brian Radke

The following statements are my opinion only:

In thin, wild markets, such as "Bellies," do not enter "on the open." It is not unusual to see 40 to 70 point
opening ranges in this market! Try to time your entry to catch as much favor in your direction as you can.

A little over a week ago, I took a "Swing Catcher" signal which later proved to be right, and entered about
the time of the day the lows were usually "in" by. The market slapped me with a $600 loss in about an hour
(I was trading smaller than the recommended stop), but I believed in the signal and re-entered.

This is a vital key to any new trader. You must not become gun shy in markets such as these. If you have
done your homework (or even if you haven't and you own "Swing Catcher"), you should begin to have a
feel for the market you are attempting to trade, and re-enter after being stopped out. That re-entry was a
winner!

It was simply a matter of believing and not being scared. Futures are not for you if you are searching for
100% winners. But again, don't feel you have to enter on the open.

The following is a little stop placement yardstick I use in some markets. It has just experienced some good
results.

To avoid redundancy, this idea is based more on the open and closing prices to aid in stop placement. Also,
I try not to use daily or true range as this again would be redundant, as most traders have thrust or breakout
systems already in place although you could use an average daily range as a multiplier.

This is not a system for entry timing! Please refer to Feb. Bellies from 93/07/16-93/07/26. This only works
during a trend and is not designed to determine the direction of the market, rather simply a guide to good
stop placement. Look also at soybeans, gold, cotton and whatever else you wish.

I have this programmed on a spreadsheet for ease of use. The following is for a "bull" trend. Begin using
after a confirmed swing low and once you have entered long. It is extremely simple.

In this idea positive or negative is not the point, treat all figures as positive.

1. Subtract yesterday's open from today's open=

2. Subtract yesterday's close from today's close=

26
3. Add the resulting numbers from #1 & #2 together and divide by 1.8

4. Subtract the answer from #3 from today's close. Place your open order stop at this point.

Reverse the process for short positions, i.e. add to today's close.

When today's stop is much below yesterday's (above in a "Bear"), leave your stop where it is to protect
profits. This often signals the end of a swing! Don't be afraid to re-enter if the trend continues however.
Markets such as bellies are known to bend your eyebrows often. Hang tough.

Variations:

1. For short positions add your result to today's open.

2. Use a balance price (0+h+l+c)/4, minus a percentage of today's range

3. Use a 22 day (or any length you wish) average range in place of the 1.8 multiplier.????

I'd like to see your readers variations! Why 1.8. Ask your readers if they can determine why.

TRIDENT . . . A Trading Strategy - Brian Radke

I too, like many seem to have a weak spot for "ringed high or low" systems, and that is what Trident is. I
believe the mesmerizing effect is due to the ease in which anyone can look at a chart and see without
question, P1, P2 and P3. I am not about to slight Charles Lindsay, as it is very apparent that he is very
articulate and intelligent.

I've literally, without exaggeration, spent well over 100 hours on my computer trying to make this type of
system work in many markets consistently.

"Trident" is based on the "zero sum formula." This algorithm has been used for decades by statisticians and
mathematicians as a measuring tool, and a reader should not be confused into thinking that it is or was
designed for commodities as a market system.

It is foremost a yardstick, and one should not get overly excited about its predicative capabilities. It is very
easy to see where all of the rest of the system, i.e. CP, EP, SD, etc. come from. They are all derived from
looking at the personality of the markets and applying fail-safe in the form of equations.

I have no problem with this approach, but it is very apparent that the system becomes very cyclic in nature.

Leading cycle researchers always relate the same dilemma, cycles seem to disappear as quickly as they
appear, and no one can seem to predict a market's swing high or low with any consistency in many markets.
This is why there are exceptions (P2=I3 etc.) in the rules of these types of systems.

Read the first few chapters of the book and then the last few. You can see that the author has almost totally
abandoned the ringed high, ringed low, approach, replacing it with "factor analysis" which is more similar
to where our many oscillators of today come from.

Trading "Trident" must encompass all of its tools. One must use B2 & B6 and most importantly the
variance rules. Even with that done, you will miss many moves and constantly be second guessing your
next move, because of the subordinate nature of the minor swings.

Look at Jan-March 1992 Cotton. "Trident" made fantastic three day trades then came unglued at the seams
in April. Even having said that I can say I enjoyed the book and it is very good reading.

27
FINDINGS: Use DP and TRP as an oscillator and not to form a price window. When trading minor swings,
any change in measurements are helpful.

Since a ringed high or ringed low is not confirmed until the next day it is too late, so one must try to tilt the
odds looking at today's prices. I had a system in place long before reading "Trident" that is surprisingly like
DP & TRP.

In this system, I do not have to wait for confirmation of a P3. I have it programmed on a spreadsheet and
my computer does all the daily crunching. It is not by any means perfect, but I'll share the portion of it that
is similar to "Tridents" DP-TRP.

TRY THIS: Take nine days of prices, with today being day #1. Now construct two opposing Tridents using
max and min. prices over a specific time frame, (9 days in this example). The multiplier used in "Trident"
(0.625) can be changed! I have various figures "tweaked" for various markets.

You'll need to create 4 columns;

column # 1=call this DP #1 (or whatever you wish).=This is the lowest low of days 3, 4, 5 & 6, (remember
today is day #1), minus the highest high of days 6, 7, 8 & 9. Multiply this by 0.685. Then add the highest
high of days 1, 2, 3 & 4.

column #2=TRP #1=Lowest low of days 3, 4, 5 & 6, minus the highest high of days 1, 2, 3 & 4. Multiply
this by 0.795 then add the highest high of days 1, 2, 3 & 4.

column #3=DP #2=highest high of days 3, 4, 5 & 6, minus the lowest low of days 6, 7, 8 & 9. Multiply this
by 0.675 then add the lowest low of days 1, 2, 3 & 4.

column #4=TRP #2=highest high of days 3, 4, 5 & 6, minus the lowest low of days 1, 2, 3 & 4. Multiply
this by 0.795 then add the lowest low of days 1, 2, 3 & 4.

What to look for: In a normal market column #1 should be below column #2 and thus #3 below #4. Instead
of looking at the actual number each column offers, I choose to forget about the "window" and look
exclusively at the relationship of the columns.

On the day that #1 goes above #2 AND #3 goes above #4, a minor swing top is occurring. Note that #3 may
be above #4 for a few days before #1 goes above #2 and vice versa. On the days that #1 falls below #2 and
#3 below #4 a minor swing bottom should be occurring. Use this as a reversal system very short term (even
day-trading).

Couple these crossovers with 4 day highs and lows and you have a fair to average system, i.e. #1 goes
above #2 and #3 above #4 and today's high is a NEW FOUR DAY HIGH, sell the next open. The opposite
is true of course for long trades.

DRAWBACKS: This type of system trades blindly at times and gives no help during a strong trend. It does
not work well in all markets with one set of multipliers.

It should not be traded without looking at daily support/resistance and momentum. I have many more facets
built into my system but am offering this much to hopefully inspire someone to crunch the numbers for
themselves, and maybe get some new ideas to a very old problem.

I would not feel at ease trading this system alone, although it can be brilliant at times and I do look at this
when I get a computer generated signal I feel uncomfortable with.

I have two other systems to handle the facets that "Trident" type analysis overlooks, and the three together
are very helpful.

28
I strongly encourage anyone to spend the time and effort to research on their own. System writers are not
always smarter than the average trader, rather they usually have spent countless hours staring at a computer
screen to come up with new and workable systems and hoping to find that "right combination."

What do you suppose might happen looking at Swing Catcher Harmonic files????

FutureLink Review - James Weber - Canada

This article is written to assist prospective subscribers select a commodity futures quote service, and to
elicit some feedback from current users.

When I decided to turn my hobby into a full-time career, I checked out several quote services. My location
near Winnipeg, Latitude 50 degrees North, ruled out telephone and hand-held quote services. My trading
did not require "live" quotes, nor did the size of my account justify the added expense. The choice easily
narrowed to only two vendors. I chose Futurelink because it had connections I was familiar with - Futures
Magazine, Futures Update, FutureSource - and because the service supplied my basic requirements.

FutureLink provides futures and futures option quotes for all U.S. Commodity Futures Exchanges and also
the Winnipeg Commodity Exchange. The New York markets are on a half-hour delay basis, updated every
10 minutes. The rest are "snapshots" every 10 minutes.

FWN supplies current news updates from around the world relevant to all futures, as it breaks, to assist in
making decisions. FWN also has regular reports from each exchange separately for most commodities, so
traders can be aware of what is happening.

Several important technical indicators are calculated and transmitted after the markets close each day.
Daily, weekly and monthly bar charts for each commodity and contract month are updated daily. An
overlay indicator assists in checking back on prices, volume and open interest. Recommendations and
market analysis are provided by selected analysts. Supplementary commentaries and current weather maps
can be added at extra cost.

A custom screen can be set up to keep track of positions along with profit and loss factors. Another custom
page can be set up to follow specific commodities through the day without having to go to each page. The
entire program is simple and easy to use, has most information required for regular trading, and is well
recommended.

There are times when one might like quotes more often, a wider range of technical indicators updated
through the day as needed, move overlays on the charts, faster reporting of news at critical times, and
access to stock quotes, but of course these would be more costly and available through other services
available through Oster Communications. Some computer programs are available through Futurelink to
enable end of day quotes to be used in various spreadsheet and charting programs.

Support is provided through a toll-free number. There seems to be sufficient staff, all knowledgeable, very
helpful and courteous. In most situations, I have found this to be a very good service.

The problems I had were in receiving the signal. Subscribers must supply their own satellite dish and
computer. The receiver itself is purchased from FutureLink and imported with appropriate duties and taxes
paid. Once purchased, it is yours. The recommended receiving dish, a four foot offset, is also available
through FutureLink and may be cheaper than purchased locally even with duties and taxes. Subscribers
should compare before committing.

This dish is equipped with a simple feedhorn which has a clear plastic bubble on the receiving end. This
bubble fogs up at any opportunity - cloudy days, rainy days, misty days and overnight. The signal cannot
penetrate this fog. Either you wipe it clean several times a day in poor weather conditions, find some way
to cover it, or do without a signal.

29
I installed the dish myself. It seems local installers have these in their catalogs but have had little
experience with them. On questioning them about the foggy bubble, I was advised occasionally to remove
it and not to be concerned about dust, dirt or bugs making webs.

I have my doubts considering the vagaries of the signal. This dish is recommended because it picks up the
KU signal very well. FutureLink is not available on the C band, only KU band from Satellite K2 and
difficult to get from this latitude and region.

Apparently it is also available on the ANIK satellite, but I got very poor reception when I tried it, not to
mention the expense of importing and returning the trial receiver. While C band signals are forgiving and
allow for some degree of misalignment, the KU band signal is not.

At this latitude your dish must be right on the signal - exactly! If there is any deviation - at all - there is loss
of signal and you might get the quotes but not the news stories or charts.

For better or worse, my dish was struck by lightning, frying the dish, the receiver, and the I/O card in my
computer. On questioning, installers scoff at protecting your dish from lightning. You be the judge. I was
out of business for several weeks getting straightened around.

I went to an Alpha 10 dish with an all-weather protected feed horn. If there was any room for deviation
with the other dish, there isn't with this one. It must be exact.

Be prepared to adjust your dish after a severe storm, large rapid temperature changes, and in deep sub-zero
weather. Some days the signal does not come clear until after the sun is up for awhile. Forget about news
stories during a heavy snowfall or rainfall.

The signal receiver is virtually trouble free. Your computer can be a basic XT or AT with a hard drive, but
increasingly there will be more sophisticated transmissions such as color weather maps so you will need a
more advanced unit.

Although you can use the computer for other duties you must run the resident program 24-hours a day to
avoid missing any information pertaining to the commodities you follow.

Occasionally the program stops dead with no data units getting through. It wasn't a problem until an
updated program was sent out. It can happen anytime during the day or night. I am assured it is not the
program's fault. Luckily it is relatively easy to remedy.

At first, I used to call FutureLink about the poor reception on certain days as I didn't understand that clouds
in the sky or frost in the LNB creates unsatisfactory reception. It was not very reassuring to hear that
everyone else in Canada was getting satisfactory signals.

There seemed to be no explanation as to why my equipment was functioning unsatisfactorily. By chance, I

learned that some people north of me were using the ANIK satellite and were getting very good signals.
Well, I got worse when trying it.

Releasing the names of subscribers close to me to contact for discussion about the FutureLink reception
seems to be a breach of confidentiality. I have to conclude there aren't any, no one is using it to trade, no
one cares about the reception, or they are making the best of a poor situation.

I really like the FutureLink program and until I am ready to advance to more sophisticated programs, I
would like to keep it. However, I am not happy with the reception.

If anyone is considering subscribing to the service, or already has it, and would like to discuss it with me
for western Canada, I would welcome their calls or correspondence. Perhaps someone has some useful

30
suggestions for me to use. I would appreciate any input. Now really, can I be the only one with these
problems?

Using Ensign/Bonneville/CSI Data Formats, Data Conversion - Frank Seitzinger

I can use my Trading System as early as 3:34 PM, after the markets close, by converting from my
Bonneville Quote Machine, from their data format to Swing Catcher's CSI data format.

I use Swing Catcher's Utility/Edit menu selection 7 from the main menu. Then press F2 key and then press
the F key to edit a QMaster file.

Next, select the file number to edit. Then simply change the file name to conform with the
Ensign/Bonneville data format, for CSI/Ensign conversion.

In the Ensign System Setup Program, be sure to change the CSI to your new file name. Plus, add lower case
c to the historical update time, i.e.: (1545c), for Ensign to convert data to CSI format with your CSI data
file of choice.

I subscribe to Trend Index Trading Co. monthly parameter-on-disk Service. When I get the disk I install
both parameters and included data files for the easy way to be sure all my data is correct and I have the
current parameters.

P&L Report on Bob Buran's Grand Combo System - Matthew Chiang

I choose only 17 markets because I did not have time to follow more. Out of the 17, I only choose around
4-5 for actual trading.

Of the remaining 10 markets that Grand Combo trades, there are 3 markets that I don't have data on:
Platinum, NYFE, Unleaded Gas. Cocoa's data is so bad, I discarded the results.

Since Genesis data is not 'clean', and that I do not follow the 10+ markets, I did not attempt to correct any
error in the data files. Even for the 17 or so markets that I follow, I am uncertain if the data is clean enough.

Sometimes the error is very obvious and I can correct them daily. Other times the errors are not that
discernible, and I don't even know where they occur. Therefore, the test results may not be a true reflection
of the system's performance, but I think they are close.

From $60.00 to $80.00 round-turn slippage, and $30 round turn commission is what I am experiencing
now, because I don't trade that often to get good attention.

I ran some more tests today and have come up with the following list (appearing at the top of next page):
Chart in Print Copy

(NOTE: These figures make NO ALLOWANCE for slippage & commission, which has a major impact!)

EDITOR COMMENTS

The excellent research done by Mike Miller on Bollinger Bands reveals how a filter can effectively be used
as a way of making another methodology work even better. In this case, Mike is using Bollinger Bands as a
way to bypass some losing trades, by avoiding trades if price is outside the Bollinger Band.

31
Mike's methodology seems to have excellent merit as a way to make his system work better. The
techniques are also likely applicable to many other trading systems.

Matthew Chiang's comprehensive contribution and review about Bob Buran's Grand Combo goes into great
detail. He must have spent lots of time working on it.

From what I understand and have been told by very reliable sources, Bob Buran is likely the number one
trading system vendor (based on both sales volume and dollar amount of sales, during the time period he
has been selling systems) of all time.

System Writer/Trade Station may have sold more copies but they are not Trading Systems, per se. They
come under the classification of 'Toolbox' type of Programs, where the user can design his own system
using the programming shell. Grand Combo/Trabos is a stand alone system that does not require the user
to design the methodology or make algorithm modifications.

I believe Buran's System was available to the public for the first time less than 2-years ago. From what I
gather by talking to numerous clients of Bob's and from very reliable sources, an amazing number have
been sold.

It is interesting to note that very few opinions on Buran's methodology have been written. A large number
of commodity traders have purchased Bob's Grand Combo/Trabos, yet very little has been written about it.

The readers of CTCN would be greatly interested in reading more reviews of Buran's methods.

Trading Observations and Stop-Loss Techniques submitted by Brian Radke are very interesting. Brian says
that re-entering a trade in the same direction, even after being stopped-out at a loss, can be very profitable.
That seems to be true, and in fact I have noticed it seems to occur often. However, one problem with re-
entering after a big loss, is the fact many traders lack the discipline or nerve to actually do it!

Brian's stop-loss methodology could be quite valuable. It deserves to have some extensive research done on
it to determine its validity. Does anyone know why Brian is using a division factor of 1.8?

Brian Radke's in depth research based on Trident Strategy, reveals he has put a tremendous amount of time
and effort into researching Trident. He has shared with us some very detailed technical methods that may
get the Trident Strategy to work better.

It looks like James Weber spent lots of time and effort trying to get FutureLink to work properly
(apparently unsuccessfully). It seems very surprising that Jim says he 'likes the FutureLink Program'
(second paragraph from end of his review), in spite of the many problems and great aggravations he seems
to have experienced.

However, Jim also states he is not happy with the reception, which of course is the most important item!

Note: I experienced similar problems involving DTN. The most serious problem was losing data due to
weather conditions.

Frank Seitzinger's ability to convert to CSI Data Format from Bonneville/Ensign should be applicable to
many other software programs that use CSI Format.

Matthew Chiang's spent a lot of time putting together his detailed Grand Combo P&L reports. They do
NOT include any allowance for slippage & commission, which unfortunately is a major factor in
commodity trading! Matthew say's he averages $60-$80 slippage and $30 round-turn commission per trade.
Upon updating Matthew's P&L data by taking into consideration his (low-end) slippage and commission
deduction of $90.00 per trade, the figures change as follows:

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Total trades 766 X $90.00 for slippage & commission per trade=-$68,940.00 deduction. Thus, instead of
Net Profits of +$31,857.00, the adjusted Net Profits becomes negative -$37,083.00. Quite a significant
difference!

Some trading systems only deduct $50.00 (rather than Matthew's recommended $90.00/$110.00) per trade,
for slippage & commission. However, even if we only deduct $50.00 per trade for slippage & commission
(766 X $50.00=-$38,300.00), from the +$31,857.00 Profits, we still arrive at negative Net Profits of -
$6,443.00.

The accuracy of the Grand Combo P&L reports submitted by Matthew, is not and can not be assured.

I am sending a copy of this Newsletter to Bob Buran and asking him to check the P&L reports for accuracy
and make comments, if he desires. If Bob responds, his reply will be published in the next issue of CTCN.

33
Issue 5.

Fundamentals Alone are not Enough - Ken Galloway

Enclosed is a true story of my recent experience in commodity trading. I hope it will be informative to your
subscribers.

Fundamentals alone are not enough. Although most traders use technical today, some fundamentalists do
surprisingly well.

My discretionary day trader was employed with an old family company that had all the facts on hogs, cattle
and particularly pork bellies. He knew how many hogs there were, when they would be slaughtered, and
how much hogs and bellies were in storage.

Amazingly, within 5 months my account increased from $1728 on Feb. 1st to $26,115 on June 30th.
Naturally, I was very impressed. I had been trading commodities on some options since 1978. In my first
few trades I made about $18,000. It was only beginners luck, because in the next 14 years I had a net loss
of about $150,000.

In Canada, I am allowed to make 100,000 in capital gains without paying income tax. Similarly to rules in
the United States, I could not claim my loss because I had no gains. I understand that Americans can at
least write-off $3,000 per year against other income, and claim some costs of courses and trading programs.
The 1/4 million, income tax-free opportunity was happening. The pain of loosing so many thousands of
dollars using Tradex 21, Commodity Trend Service, Robbins, Jake Bernstien, Seasonal Trades, Various
Managed Funds, CTA's and a dozen other brokers (and of course, plenty of my own trades) was soon to be
erased from memory.

Technically, I had already paid income tax on my losses, because it was tax-paid money used for trading.

Pork bellies had come down a long way. Personally I was very disturbed that my broker wished to hold
short positions. Using my simple computer charting program, "Wilder's One Day At-A-Time," I noted the
stochastic was very low, and the MACD was confirming a change.

Trusting my broker, and obviously too greedy, I reluctantly stayed with the fundamental plan.

The government livestock report came June 30th after the market had closed. It was all bad news. We were
short 6 contracts of July and August pork bellies. My broker phoned and explained that the market would
probably open limit-up on Thursday July 1st. It surely did.

Bellies were limit up for 3 days, and by July 6 I had lost 6 x 3 x 800, or $14,400. Naturally, I was
absolutely livid. My broker assured me the government report was over done, and that there would be a
sharp correction.

Then the Missouri flood, jump in soybean and corn prices, and Russian purchases put the finishing touch to
my account, and I am left with only $411. That's a $25,700 fundamental mistake ($34,000 Canadian).

So, what should I do now? Give my pork belly trader another chance? Why should I dream that things
could be better in the future? I am 65 years old, so there certainly isn't a lot of time to replenish my losses.
Swing Catcher may be my best chance for now. After all, the trend is my friend (maybe !)

Experiences of a French Trader - Gerard Savry

I begun to study futures in 1986 with a oscillator and plans to trade Stock Indices. My first trading system
was Magnus, a methodology created by Michael Chisholm, for S&P 500 and OEX options.

34
The system promised that for $895, I would make lots of money! If the daily and weekly stochastics
smoothed (%K/%D) with 3 units go in the same direction and the daily pointed in a new direction, 25 to
30% to buy, and 75 to 80% to sell. Then buy a call or go long and vice versa. It's God in a trending clear
market, not good in very erratic markets...too slow and signals comes late.

I have read many books and gone to seminars and what can I think about all that is available out there?
80% of the systems are good for a moment, but not all the time. 90% of the traders can't follow a system,
and they lose money.

Not a month goes by where I don't receive a Holy Grail system information packet for making a fortune
from Windsor Books. We can get many ideas about trading stocks and commodities, or making a fortune,
by building our own unique and personal system.

With shared ideas and techniques with other traders we gain time and avoid mistakes. This CTCN
Newsletter is very valuable and I thank Dave for creating it. I'm impatient to get it.

Members can contact me with a letter c/o CTCN or fax (My English is not perfect). I am interested in
having contact with members who have experimented with Trident and Options Investment - a Hotline with
great 'false' information. My fax number in France is 33.134.28.01.47.

Product Reviews - Scott Russell

Here are a couple of reviews of some products out on the market for futures traders. Before I get to them,
however, here is a brief history of my trading career. I started trading at the beginning of 1990.

My first approach was to trade the seasonal patterns outlined in the Seasonal Trades Portfolio by Frank
Taucher. The results were pretty mediocre, mostly due to my meddling with the system and making many
beginner's mistakes (buying when I meant to sell, forgetting to cancel good till canceled orders ... etc.).

During the last few years I also purchased several of the popular systems, including Swing Catcher and
PPS (Pattern Probability System by Curtis Arnold). Again the results were somewhat mediocre, this time
mainly due to the lack of time to consistently follow the system. Thankfully I didn't make all the mistakes!

The big mistake that I did not make, and why I am still trading today, is that I did not overtrade. Not
making this mistake will allow you to make all others and still be around so that you can learn more from
them. And now to the reviews:

It includes all the popular indicators, functions and studies that a trader could want with the ability to
modify any of these. The program contains some very simple systems and gives the user the capability to
either modify these systems or create and backtest one's own.

As I mentioned earlier, the program runs through Windows. This makes it pretty easy to use for those that
are already familiar with the Windows conventions, and in its basic charting mode hardly needs a manual.

The graphics are very good and include a zoom mode to easily investigate any area of the chart.
SuperCharts, from what I understand, does most of the things that its big brother System Writer does only
at a more basic level; this is especially true in the system writing department where SuperCharts capability
is limited to much simpler systems.

The manual also falls a little short in the area of system writing and I have spent hours re-writing systems
in order to get them to do what I want them to, sometimes with no success. More examples and a little
clearer explanations would help.

I use the CSI data in my Trendx (Swing Catcher) directory to update my charts and the historical data in
my Trendxhd directory for back-testing - very simple.

35
I have not used any of the other charting programs on the market so I can't compare; but for the price, the
flexibility, and the educational value, I would say that SuperCharts is a very good bargain.

Day Trading With Short-Term Price Patterns and Opening Range Breakout by Toby Crabel. Book $279,
video $29. Although I am by no means ready to start day trading on my own, the subject always sparks my
interest. So I took the plunge and forked over the cash for both the book and the video.

The best way for me to describe the book is to quote from its own introduction:

"This book began as a series of research reports presented in the Market Analytics Monthly Market Letter.
The book is divided into five sections; titled 1) Opening Range Breakout 2) Short Term Price Patterns 3)
Contraction and Expansion 4) The Integration 5) Other Useful Patterns. Each chapter appears in the
original form of the research report. While I hope to have minimized any problems which may arise from
the article format, the reader should note that there may still be certain redundancies and omissions which
have gone uncorrected."

The book is full of short-term pattern studies and the results they produce in various markets. There is a
wealth of short-term system ideas that can be used individually or combined to produce what should be
winning systems. If anybody is developing or already has a day trading system, this book should be in your
library.

The video attempts to do just that. Combine several of these ideas, along with a money management
system, into a short-term trading system. The video itself is kind of plodding and could easily have been
done in half the time. (Since I was skiing on my Nordic-Trac though, I did not mind too much.)

Whether it actually does this is not for me to say since I haven't tried to trade it. I have tried to program the
system into my SuperCharts, but due, perhaps, to my own bungling have been only partially successful.
What I was able to do was program in some of the components of the system separately, and back-test
them.

These tests do show that some of these components are valid short-term indicators.

Ok, that does it. I haven't (as may be evident) written anything more complicated than a grocery list in
probably 15 years. What some people won't do to get a free upgrade!!

Review of Data Services - Matthew Chiang

I am a subscriber to Genesis Data Services. It's data is not that "clean," so I started looking for a more
reliable quote service a few months ago.

After comparing prices, dial-up costs, early access surcharge and other facilities, I decided to focus on
delayed quotes from Signal, DTN, Bonneville (BMI) and Future Source, which, despite the large start-up
fees, give a much better cost-per-quote and availability ratio than any dial-up service.

I live in Vancouver, Canada, and I decided to try Signal FM first. The major reason being that Signal is
transmitted via FM, which means much less fuss and installation problems. All others require KU-Band
satellite and none has a local office in Vancouver, and I have no knowledge on satellite reception. Signal is
therefore an obvious choice. There are 2 versions of Signal receiver, Enhancer (stores 900+ quotes) and
Enhancer Plus (stores 12,000+ quotes with 4MB RAM). I obtained the Enhancer and set it up with the
accompanying software within 20 minutes.

Signal is transmitted from Mount Symour, the highest mountain in Vancouver, and I can see it from my
house. So I should enjoy high fidelity signal, much like my FM radio system.

36
Much to my chagrin, I had to move the receiver and the antenna around the house to get the best reception,
and I still had missing data.

I purchased a FM signal booster from Radio Shack but it wouldn't help. Reception got worse in the
evening, during rainy or cloudy days, which is a common problem with FM transmission.

The Signal downloading software also has a problem, such that not all the quotes can be downloaded (all
can be displayed though).

I set the software to collect around 60 symbols, each with 2-3 contract months, a total of around 200
commodity-month downloadable quotes per day. But the software would download around 60-70% and
spent "hours" looking for the missing quotes from the Enhancer.

I had contacted Signal a few times and a few suggestions were offered, but none worked, so I sent the
Enhancer and the software back after trying for 3 weeks.

I was more convinced that FM or satellite transmission are all unreliable. So I focused on BMI which is
transmitted via Rogers Cable in Canada.

In terms of cost-benefit, DTN seems to be offering the best value. A third party company also has a
spectrum of add-on software for you to convert DTN data into other formats, and it also allows
simultaneous downloading and conversion to other format, while still using DTN under DeskQview.

You can use your favorite software together with DTN, provided it runs under DeskQview. I was tempted
to subscribe to DTN, had it not been of the FM problem.

I was surprised that BMI has a local technician that could be a phone call away. I did not know until he
personally delivered the receiver. If you have a hardware or BMI software problem, he could actually test
and troubleshoot on-site, with a 800 phone link to US!

Signal via Cable TV data is clear and stable. The only trouble I had was when Rogers technicians went on
strike, they sabotaged the FM transmission network, which caused me 2 down days. The BMI guy took 2
receivers to my house trying to get a better reception over the weakened signal.

BMI officially endorses Ensign 5 technical analysis software, which is bug-free and has all the studies and
requirements that a demanding trader needs. Its system's writing section, however, is a minus-minus.
Instead of easy language or human language, it uses mnemonics typical of assembler or low-level
programming languages. You have to manipulate the memory registers and write simplified yet brain-
taxing mnemonics that only a hacker would enjoy. Otherwise Ensign 5 is a good choice, especially that it
can convert data into CSI and MetaStock, and each directory can store unlimited number of contracts (Both
CSI and MetaStock has 120-contract/directory limits).

It can also store tick or intraday data, as well as daily or weekly ones. Cost is $1,250 + $10/month.

Since I am using Swing Catcher and backing it up with Relevance III and Super Chart, I would not require
Ensign 5 or its like. I therefore use BMI's own quoting software: Market Centre 5.

At $195, it's a good bargain: quotes + news + portfolio (simplified trade recording, up-to-the-tick P\L, total
commission, margin amount and account balance) + simplified tick, 5, 15, 30, 60 minute, day, week, month
charts! Market Centre 5.0 is an early release, and full of bugs. But I can still use the basics. Version 4.0
(without the charting function) is mature and working well, and their technical support is excellent.

I called them up 5 times since I installed the software, and they helped me come around the problems and
sent me new release via modem. Meanwhile, they stopped the billing clock until the next release. BMI
delayed quote costs $49 per month, plus a one-time setup fee of $500. A 12-month contract is required.

37
Market Centre 4.0 and its successors have an ASCII transfer function that allows transfer of data at a
specified time interval (be it 5-minute, 30-minute or daily), so that you can convert into and run other
analysis program.

However, it has no conversion utility and I am looking for a cheap solution (any help?) to convert into CSI
and MetaStock formats - ASCII comma delimited, with symbol first (such as BP3U, S3X), followed by
date (e.g., 08/25/1993), O,H,L,C, Vol, OI. The order is user definable, and you can include 20 other fields.
Quote Butler costs $695 and is too much money. If I can't find a ready solution, I will try to write my own
utility so that I can stop my dial-up service soon.

I was told by BMI that a few of the dial-up services use BMI as their source and resell to the public, while
limiting the number of contracts, access time, and charge more or less as BMI. Given all these support, and
the final shape of Market Centre 6.0 to come, I think it is much more desirable than any end-of-day limited
dial up service. (Provided the ASCII conversion utility is ready).

If you have a satellite reception problem, try BMI via cable. There are already many software out there that
use BMI data feed, if you are not sure, check with your software supplier.

Day Traders Take a Fast and Costly Route by Stanley W Angrist - 8-31-93 - reprinted with
permission of The Wall Street Journal

Every day is not a payday for most traders. Day traders are investors who open and close market positions
within the same trading day. They hope their market insights, trading skills and speed of action will allow
them to take some profits home each day. In reality, most day traders find that what looks easy on paper is
hard to do in the market.

Consider Jeffrey Needleman, a wholesale stamp dealer from Ann Arbor, Mich., who has been investing for
25 years, most of that as a day trader. He says that during the past 10 years he has run a $10,000 account
into more than $100,000 in a few months "7 or 8 times" but always manages to collapse it back to below its
starting value in a few weeks.

"When you have 30 or 40 winning trades in a row you begin to believe you are onto something and so you
start to overtrade and the market takes it all back," explains Mr. Needleman.

Most market professionals shun day trading, arguing that the costs of getting in and out of trades that
usually produce only small profits and some inevitable losses will eventually deplete the equity in the
accounts of all but the most skilled.

But traders like Mr. Needleman don't much care about expert opinion. He says he is neither a high liver nor
consumed with a desire to have great wealth. What he likes, he says, are the "big video game aspects" of
day trading. When brokerage firms ask what his goals are, his stock response is that "I just want to have a
wonderful time losing my equity."

Other investors explain their affection for day trading in more expected ways. Kent Taylor, an Austin,
Texas, investor who traded stock options before he began day trading futures full time in August 1992,
says, "I like to go to sleep at night and not worry about the market 'gaping open' against me." An opening
gap is when market prices begin the day at a substantially higher or lower level than the previous day's
close.

Day traders can play in all the financial markets, but most of them deal in futures contracts, especially
financial futures such as the contracts based on the Standard & Poor's 500 stock index or on currencies,
such as Swiss franc.

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A futures contract is an agreement to buy or sell something in the future, say 62,500 British pounds for
each contract, at whatever price prevails on the exchange. Investors who believe prices are going lower sell
future contracts, while those who believe prices are going to rise buy futures contracts.

Two things determine whether an investment is attractive to day traders. One is liquidity, or the volume of
trading. The other is volatility, or the size of price moves. When the volume of trading is heavy the bid-ask
spread for an investment is small, meaning day traders can profit on small price moves. For example, the
S&P 500 contract usually trades with only a $25 to $50 difference between what sellers will accept-the "bid
price"-and what buyers will pay-the "ask price."

The second requirement, volatility, means the investments must move enough during the day so that the
traders will be able to overcome their costs and still be left with a profit. Linda Raschke, a full-time trader
and a sometime day trader, says day trading isn't something that can be done everyday. "You do it when the
volatility is there," she says.

More than any other individual investors, day traders see their activity as a business. They believe that if
they do their homework they will spot a significant move in the market before the rest of the trading world,
capture a part of that move, and then exit with a profit.

Anthony Eck, 39 years old, who trades out of his home in Austin, says that getting out quickly is an
absolute necessity. So is a strict control system that limits both profits and losses. Trading mostly currency
contracts, he will risk no more than $125 a contract. His average loss generally is no more than $50 and his
average profit is a minuscule $62 per contract. While many traders would scoff at such numbers, Mr. Eck
says that 71% of his trades have been profitable since he started trading about a year ago, making his
trading profitable overall.

Tom Meadows, who has been day trading full time only since March, hopes he can make a living doing it,
but so far his losses exceed his profits. Mr. Meadows, 50, a former software manager in Austin, says day
trading is appealing to him because "I like the idea of having my finger on the pulse of the American
economy."

Day trading requires constant attention. In addition to the frequently changing bid-ask spread, day traders
also must cope with the time differential required for brokers to fill their orders. It's a business where
seconds count.

Mr. Taylor, who trades mostly currency and the S&P stock futures, says he places his orders by phoning
clerks stationed in booths along the periphery of the trading pit. He says the clerks can execute an order and
report the price to him in less than a minute from the time he picks up the phone to place his order.

Although all day traders claim they kiss the losers good-bye fast, the general lack of success for most
suggest they might be a bit slow on the exit.

David Morse, trades from his home in Atlantic City, N.J., says he has been far more successful at the
blackjack tables, which he visits after the markets close, than he has been in day trading. After 10 years of
trading, "I would give a pint of blood to be able to trade successfully," he laments.

Brokers love day traders because they can generate huge commissions. But brokers openly encourage few
clients to trade. "If I saw more success stories I might be more willing to encourage people to try," says
William Mallers Jr., president of First American Discount futures broker in Chicago. A day trader can
generate as much active a day in commissions, he says as $1,000.

Gann on Astrology - Eugene O'Sullivan

While the charts still resting in Pomeroy, WA show numerous astrological marketings, the only written
manual concerning Mr. Gann's financial astrological methods were in correspondence to some of his

39
clients, and this came a year or so before his death at 76 years of age. Here are excerpts from these Gann
letters:

Letters of W.D. Gann - Active Angles and Degrees:

By live or active angles is meant Prices and Time Periods where the Longitude of the major planets are or
where the squares, triangles, oppositions are to these planets.

The average of the six major planets Heliocentric and Geocentric are the most powerful points for Time
and Price resistance. Also the Geocentric and Heliocentric average of the five major planets with Mars left
out, is of great importance and should be watched.

You should also calculate the averages of eight planets which move around the Sun as this is the first most
important odd square. The square 1" gives 9, the square of 3 and completes the first important odd square,
which is important for Time and Price.

Examples of live, active angles: at the present writing, Jan. 18, 1954, Saturn Geo, is 8 to 9 degrees Scorpio.
Add the square or 90 degrees gives 8 to 9 degrees Aquarius and equals the price 308-309, for May Beans.
The planet Jupiter is at 21 degrees Gemini, which is 81 degrees in longitude from "0" the square of 9.
Subtract 135 degrees from Jupiter gives 306 or 6 degrees Aquarius. This is why soybeans have met
resistance so many times between 306 and 311-1/4. The price resistance levels come out strong around
these degrees and prices and the Geometrical angles come out on daily, weekly and monthly, but the power
of Saturn and Jupiter aspects, working out Time to these price resistance levels, is what halts the advance in
Soybeans.

24 Revolutions of Time and Price - The earth makes one revolution on its axis in 24 hours, moving 360
degrees in longitude. One hour of Time equals 15 degrees in longitude, and for one hour of Time, we use
one cent of Price. This is for highly active markets but can be used for weekly and monthly time periods, as
you can see by the Master Chart.

The longitude of the Planets and the longitude of the average of the Planets determine the Resistance
Levels as the price moves around each cycle of 24 cents per bushel.

You mark on the Master Chart all low prices with a red circle around them and place around all high prices
a green circle. Then note the angles of 45, 60, 90, 120, 135, 180, 225, 240, 270, 300, 315 and 360 from
each high and low.

Then check the Longitude of the Planets and the Longitude of the average of the Planets to see when the
Price reaches these degrees or aspects and meets resistance.

Example: Dec. 2, 1953, May Soybeans high 311-1/4. This equalled 18 degrees 45' in Pisces, close square or
90 degrees of Jupiter, 135 degrees to Saturn and 180 degrees of the averages, and 120 degrees of Uranus.

300 Price equals 30 degrees Virgo. 302 equals 30 degrees Libra. 304 equals 30 degrees Scorpio. On Jan 18,
1954, the planet Saturn Geo. is 8 degrees 30' Scorpio, and 15 degrees Scorpio gives a price of 303,
therefore when May Beans decline to 302, they will be below the body or longitude of Saturn and will
indicate lower.

At the same time, using the Earth's annual revolution of 365-1/4 days to move around the Sun, a price of
308-1/2 is 0 degrees or square to Saturn. As long as the price is below 308-1/2 it is within the square and in
position to go lower.

But by the 24th revolution, when the price breaks below 304, it is in the bear sign Scorpio, a fixed sign and
will indicate lower prices.

Study and analyze all options of all commodities in the same way as we have analyzed May Beans.

40
Remember, when these Resistance Points are met you must give the market time to show that it is making
tops or bottoms and getting ready to make a change in trend before deciding that the main trend has
changed.

You can buy or sell against these resistance levels and place a stop loss order. Having before you all the
information outlined above, you would certainly have gone short of May Soy Beans on Dec 2, 1953 and
cover your shorts on Dec 17 at 296 because the price was down to the 45 degree angle from 44 on the
Monthly high and low chart.

24 Cent Moves or More - It is very important to watch the action on the daily and weekly chart when the
price is up or down 24 cents from any high or low, 48 cents, 72 cents most important because three times
24, 96 cents, 120 or 5 times 24; 144 of great importance because 6 times 24 - very important. You can also
use 1/2 of 24, which is 12, and watch 36, 60, 84, etc. which equals 180 degrees or half the circle or cycle.

May Coffee - March 19, 1954 - High 8729. Using a scale of one point to one degree, 8729 equals 29
degrees Gemini. Using a scale of 30 points to one degree, equals 7 degrees 30' Aries. Using one cent to one
degree, equals 27 degrees 16' Gemini.

The dollar value is $28,171.00, which equals 11 degrees 45' Capricorn. The average price of 5 options on
March 19, 1954 was 8663, which equals 28 degrees Aries, or 60 degrees from the Heliocentric Jupiter.

Heliocentric Jupiter is 20 degrees 35' Gemini, which means that the price of 8729 was at this degree.
Heliocentric Uranus is 21 degrees 52' Cancer and the price at 21 degrees Capricorn is opposite to this.

April 16, 1954 is 276 months from April 16, 1931, low 435. Using 50 points per month, the 45 degree
angle crossed 8715 on March 19, 1954, and the Sun has moved 8253 degrees from April 16, 1931. Add this
to 435 gives 8688 as the resistance angle.

March Coffee - October 1, 1936 low 300. Time to April 1, 1954 210 months at 30 points per month, the 45
degree angle crosses at 5600, and at 40 points per month, it crosses at 8700.

1931, April 16 to March 19, 1954 - Geocentric Saturn moved 285 degrees 38'. This would give a price of
8572. 1936, October 1 to March 19, 1954 - Geocentric Saturn moved 231, which would equal a price of
7230.

1940, May 15 to March 19, 1954 - Saturn moved 181 degrees 35', which gives a price of 6990 and using 45
points to one degree would give 8715.

1940, August 19 - Saturn moves 173 degrees 23'. At 45 points to one degree, this equals 8760 price.

HELIOCENTRIC SATURN - 1931, April 16 to March 19, 1954, Saturn moved 287 degrees 15' which
equals 17 degrees 13' Capricorn, price 8632.

1936, October 1, Saturn moved 225 degrees, which gives a price of 7150.

1940, May 15, Saturn gained 179 degrees 44', price 5940.

1940, August 19, Saturn gained 176 degrees 14', price 5842.

HELIOCENTRIC PLANETS, March 19, 1954 -Jupiter 89 degrees 35' equals 29 degrees 35; Gemini.
Saturn 214.44 equals 4 degrees 44' Scorpio. Uranus 111.52 equals 21 degrees 52' Cancer.

The average of these 6 planets is 164.17 or 14 degrees 17' Virgo.

41
GEOCENTRIC PLANETS - Neptune 204.35 equals 24 degrees 35' Libra. Pluto 144 equals 24 degrees Leo.
Mars 221 equals 11 degrees Scorpio.

The average of the 6 Geocentric planets is 173.26 or 25 degrees 26' Virgo.

One-half of Jupiter to Saturn Helio is 152.09 or 2 degrees 9' Virgo. The average of Saturn, Jupiter, Uranus
and Neptune is 155.10 equals 5 degrees 10' Virgo. 1/2 of this average is 17 degrees 35' Gemini, Jupiter,
Uranus 1/4 is 100.43, equals 10 degrees 43' Cancer Heliocentric. 1/2 of Geocentric Jupiter to Uranus is
93.48 or 3 degrees 48' Cancer.

IMPORTANT DATES EACH MONTH - 1st, 15th, 18th, and 19th. The present market is running close to
these dates.

The extreme high was 9 months from June 19, low 2 months from Jan 19 low, 6 months from Sept 15,
1953 low and 5 months from Oct 19 high at 5860.

GEOCENTRIC MAPS MOVEMENTS from low prices on Coffee.

1931, April 16 to August 7, 1953 - Mars has made 12 round trips.

1954, October 29 - Mars will be opposite or 180 degrees from its place on April 16, 1931.

1936, October 1 to September 19, 1953 - Mars made 9 round trips of 360 degrees each.

1954, Dec. 9 - Mars will be 9-1/2 round trips or opposite its place Oct. 1, 1936.

1940, May 15 to June 12, 1953 - Mars made 7' round trips or complete cycles.

1954, April 9 - Mars is 7-1/2 cycles or opposite its place on May 15, 1940. Due to the retrograde position
of Mars, it will again be 7-1/2 on July 7 and on Aug. 17, 1954 or the third time in opposition to its own
place, which is very important.

1940, Aug. 19 to Sept. 15, 1953 - Mars has completed 7 round trips. Note low on Coffee on that date. 1954,
Dec. 4 - Mars 7-1/2 round trips or opposite its own place on Aug. 19, 1940.

If Coffee starts to decline between March 22 and 24, 1954, it should continue down to around April 15,
when the adverse aspects of Jupiter to Saturn and the Sun to Neptune are completed. From these dates, you
should watch for the possibility of a rally up to April 26, 1954, when Jupiter is 120 of Neptune and the Sun
130 of Saturn. This might cause a quick rally followed by a sharp quick decline. By studying all of the data
outlined and applying it to Coffee, you will learn more about trend change causes.

March 20, 1954 - W.D. Gann - Apply the same rules to grains or any other commodity and by study and
practice you will learn how to determine a change in trend from a strong to a weak position to a strong
position.

Remember that you have signed an agreement not to reveal these rules and instructions to anyone, and by
keeping these secret discoveries confidential for your own use, you will later receive the very important CE
AVERAGE, and the MOF FORMULA which is only taught to students who have taken the same course as
you have and we do not reveal it to students who take the minor courses and pay less money.

Chart in Print Copy

EDITOR COMMENTS

42
The excellent submission by Ken Galloway reminds us how difficult it is to use fundamentals in the
commodity markets. In addition to the problem of proper interpretation, there is the concern of the insiders
having the knowledge before you and I.

For example, the large slaughter house operators may know beforehand that a large number of animals will
be coming to market next week. That will subsequently depress the cash market prices. He can then hedge
or sell Futures before the public traders realize the excess meat supply is at the market. Similar valuable
and early insider information is available to large grain processors, metals dealers, oil firms, food
merchants, banks, etc.

It is very unfortunate that Ken lost about $150,000 trading commodities over a 14 year period. However,
it's interesting to note that Ken has not given up like many others would. That reminds me that persistence
and determination are the keys to success in life. We must keep on trying, and never give up, on
commodity trading or other areas of life.

Gerard Savry's contribution teaches us that many systems work in a trending market but fail when the
market goes sideways, choppy or changes trend.

That is why we should look for systems capable of actually evaluating the trend of the various commodities
and then picking the actual markets to trade that have been pre-qualified as likely good trending markets.

We all would like to believe there are profitable systems for trading non-trending, volatile or choppy and
direction-less markets. However, the truth is that it's much easier to make money trading a good trending
market rather than a trendless choppy market. It only makes sense that would be true.

The Product Reviews done by Scott Russell are very good and informative. Scott has done a good job
pointing out the major features and benefits of the systems and products.

The review of data services by Matt Chiang points out once again the problems many traders have had with
on-line quote services. Your Editor also had many problems with a couple different on-line data services he
tried in the past (DTN via satellite, FutureSource via FM, and Signal via Cable TV).

With DTN the problem was constant loss of data due to weather conditions, such as snow, rain, fog and
even heavy cloud cover. Those weather related problems did not occur with Signal for Cable but there was
still considerable data loss, mostly missing ticks.

The Signal and FutureSource problems cause was unknown and was never resolved or cured.

My experience with FutureSource was some years ago and perhaps is working better now. However, the
DTN and Signal problems were fairly recent. Also, many other traders have told me about identical or
similar problems involving them (also FutureLink).

Unless you truly need or want an intra-day quote service I would advise against it. In my opinion, and for
various reasons I will outline in a future issue of CTCN, most traders are better of with an end-of-day
service via a modem, such as CSI in Florida.

The interesting article appearing in the Wall Street Journal teaches us that day trading is very difficult. In
fact, the article is more optimistic about your chances to do well in day trading than is actually the case!
Remember, overnight position traders normally go against other position traders, but day traders likely are
competing directly with the Floor Traders, who have a huge advantage over off-the-floor day traders.

Such as paying no commissions, access to the actual prices at least 30 seconds or more before the on-line
quote service sends it to you, and the fact they may know what their colleagues standing next to them are
going to do next. Plus, certain other presumed advantages and edges they have other you. If they don't have
the 'edge', why do you think their Seats are worth almost a half million dollars!

43
 Gene O'Sullivan's long submission written by W. D. Gann is quite involved and extremely complex but
very valuable if interpreted and used properly. Unfortunately, that is true with much of Gann's writings.
Gann's work is quite unique, and works great at times, if done properly, but requires lots of studying,
research, interpretation, hard work and imagination.

Thanks to all who made contributions to this issue. Notice: Please consider making a contribution to our
next issue. You may not realize the value of your knowledge and experiences. However, I am sure you can
contribute something of value to the members.

Issue 6.

Elliott Wave Theory - Owen Cramer

In Elliott Wave Theory, the largest waves within a price move are often referred to as impulse waves.
These would be either wave 3 in a 1-2-3-4-5 sequence, or wave c in an a-b-c sequence, in both cases these
waves or movements are usually the most powerful in the direction of the trend.

The following is a discussion on this pattern and a vehicle to use when a trend has started and you want to
get into a market.

The first step in identifying an impulse pattern buy signal is a four day low. This means that the intraday
low of the latest trading day must be lower than each of the intraday lows of the previous days. It may be
lower than more than three, but it must be at least lower than most recent three.

The second requirement after a four day low is that an up-close must be achieved. There may be more than
one up-close in a row. Also, the up-close may be achieved on the same day as the four day low.

The final pattern set up after one or more up-closes is a down-close which does not make an intraday low,
lower than the original four day low. There may be more than one down-close in a row.

Sell entry signals are the reverse of buy entry signals. The preconditions for a sell entry are a four day high
followed by a down-close followed by an up-close, without a violation of the original four day high.

This indicator or vehicle can be used to initiate long and short positions, but it is recommended that you use
it in conjunction with an overbought or oversold oscillator. You can also use it with a moving average.
Through optimization you may find that you can dramatically increase the reliability of this indicator in a
particular market.

My Trading Software and my Portable Computer Trading Station Setup

William J. Armstrong

First, I will report about my trading experience with my Swing Catcher System. Since June 10, 1993, when
I took my first position in the market based upon a signal from Swing Catcher, thru mid-October, I have
made 13 trades, 11 of which have been winners.

They are actual trades generated by the system, not paper trades, and 11 trades went as the system
predicted. I have been trading commodities for 18 months and this is by far my best record.

I recommend Swing Catcher for the following reasons: 1. First and foremost, it works. 2. Support is
excellent; the monthly update of parameters is essential. 3. The system reviews the main commodities and
ranks them on profitability. 4. The system gives targets (I have given a lot of open profit back to the
market). 5. The system is easy-to-use, the manual is complete and you don't have to watch the market all
day. 6. Finally, and perhaps this should have been first on the list, Dave Green is honest, truly cares about
his trades and works hard to provide good value.

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One of the criteria I looked at in selecting a trading system was portability, because I like to travel. I have
set up a portable trade station that fits into my computer case. I have a Toshiba laptop T4500C with a
Hayes 2400 baud pocket, external modem.

As an accessory, Toshiba offers a Fax/Modem chip to put into the laptop. CSI can not assure accurate data
transmission with a combination fax/modem. This may change soon, in which case the external mode will
not be necessary.

As Trendx/CSI Portfolio users know, in the QuickTrieve Program under User Constants, you set the
telephone number to be dialed by the modem. In my travels from one hotel to another, you modify the
telephone number to be dialed to comply with the hotel dialing-out procedures, usually a 8 or 9 to get an
outside line.

One problem that presented itself early in this process was the fact that there is usually a 4 to 6 second
delay before the dial tone comes on after you dial 8 or 9, at which time the first 3 or 4 digits of the CSI
telephone number are lost and the connection fails. CSI has allowed for this by use of commas, each
comma equals a 2 second pause in dialing.

For example, if your hotel requires a 9 to get an outside line and there is a 4 second delay, you program the
following in the user constraints: 9,,,1-407-392-0572.

You can determine the delay by dialing 9 yourself and counting the seconds for the tone. I usually add a
comma for good measure.

I spent 2 weeks this summer trading from the beach using my portable trade station.

O stands for Orange Juice in October - Robert D. Edwards

I started trading February 28, 1980. On my broker's advice I put on position trades of going long Oats, and
some other grains and watched as every day I lost money. In a couple of weeks I took my losses in the
grains (actually sold Oats on the low of the year--how embarrassing).

I have never been a position trader since. I am a short-term, 1-3 day trader. After some initial success, I was
so excited I quit law school at the University of Illinois, two weeks before the end of the 1980 spring
semester. I had to quit because I couldn't stop studying commodities long enough to get ready for finals.

I have never made big bucks trading and although in recent years I am starting to make some headway, I
still am an overall net loser in commodities. However, I attribute the lessons I learned in commodities to
helping me make an excellent return on my mutual fund accounts. It also taught me how to take calculated
risks and to believe in myself. This allowed me to start and run a very successful business. I feel
commodities has rewarded me several times over.

Still, I would still like to be able to make some real money in commodities as well. I have gotten to the
place where I can tread water for months and stay in there without making or losing hardly anything,
although I am trading every day. I'm told this is good. If you are around to trade tomorrow, you are in a
position to hit that home run. In the last few years I tread water until I hit the home run. Then I forget
everything I know--the rules and methods go out the window and I remain reckless until I give it all back.
Hey, I am playing on their money, I must tell myself. When the profits are all gone I get serious again and
start working methodically and get back on course.

I'm expert at working out of messes. But handling a winning trade drives me crazy. To get rid of the
anxiety I try and take my profits quick, way too quick.

Well, I do my own independent research and anyone who doesn't will never, I repeat, never be successful.
As a true entrepreneur, I am my own person. I trade solely on my own advice. Oh, I gather information

45
from sources, but I never take anything at face value. I do my own research. If my research agrees, then I
will go for it.

I assume fundamental information is already factored in and am more likely to trade opposite what the
news would tell me to do. I am a 100% technician.

I enjoy having a system like Swing Catcher because I like to bounce off the trades this system gives me,
against my own research. Like any trend-following system, Swing Catcher does great in a trending market
and poorly in a choppy, trend-less market. I do best trading in a choppy market because I never let my
profits run anyway, remember.

In a choppy, sideways market, the intelligent thing, is to do the opposite of what the trend-following system
signals tell you to do. I would venture to say there are more choppy and sideways markets than there are
trending markets.

Within a trading range, I will go long at the bottom of the range and then reverse and go short at the top of
the range, and I do it quite effectively because I place double reverse stops to go with the trend if there is a
breakout up or down.

Still you need to find those trending markets because they will let you hit the home run. Most successful
traders have only 40%, 30% or lower winning trades, but the occasional home run puts them way ahead.
You have to get that occasional home run. I will therefore, give you some insight on a possible home run I
see and will be trading in my own account. Again, this is my own independent research and I am not giving
advice. If you are asking, I am telling you not to take this trade. But watch and see how it works out, just
for fun--going long orange juice in October 1993.

Long November 93 Orange Juice - I am a seasonal and cycles man, a pattern trader, a technician. I start by
looking at the long-term monthly charts and then go to the weekly charts and finally to the daily charts.
Beginning in 1967, you will see Orange Juice started out low in the beginning of the year and then rallied
until December.

Don't take my word for it, get a long-term monthly chart out and look it up right now as you read this. You
will see that March was the low of the year and then going up in April/May, we went sideways until the
big move up at the beginning of October. Bingo!

In 1993 we hit a major 15 year low in Orange Juice in February and went up until the beginning of July and
then went sideways. Then at the end of September, OJ has broken out to new highs, closing on 9/29/92
above the old 131.00 high in the November contract. I am going with the breakout and see the first
objective on November OJ of about 145 with a possible ultimate target of 170 to 200 by May 1994. For
confirmation of this pattern I studied all the years from 1967 to present and picked out the years you had
either a Nov or Dec low of the previous year or a major low in the first quarter of that year. This is what I
consider the seasonal upward trending year. However, when you start out at a high in January and fall most
of the year, then you are in a contra-seasonal trend and you should not go long in October because the trend
is solidly down. Still, it is amazing that in many of these down years, orange juice would have an upward
correction in October. Now for the years in which there is a seasonal upward move (like 1993), the results
are as follows:

1967 - As mentioned before, going long October 1st would have caught a big move. By staying long until
mid-December, one could have made a move from 38 on the October contract to almost 64 on the January
contract.

1968 - September was the break-out up month but ended with a major correction allowing October to be a
major up month from $63.50 to $74.00. However, November was a killer down month followed by another
big up move in December. This started a high January 1969 that began a counter-seasonal 1969. Again,
even in a counter-seasonal year which had nearly all down months, Oct. was an upper. Then 1970 was
another down year which should be ignored because it is counter-seasonal.

46
1971 - After going up Jan. through May, there was a correction with a strong up move in Sept. and yes an
October straight up move which ended in a November new high. This was followed by a counter-seasonal
1972 with a major low in Oct. followed by a good rally into November.

1973 - Another perfect seasonal move up with a July and Aug. correction allowing a Sept. rally, a strong
October upward break-out and November high. 1974 & 1975 - In both of these years September was the
big break-out month so October was a correction month. However, buying the October low allowed a nice
rally into Nov.

1976 - Being a contra-seasonal down year, this year was ignored.

1977 - This year was a strong up trend for the whole year. With a high in Sept., there was a correction in
October with a new high in November.

1978 - A sideways topping year saw a major correction and low in September, allowing a major rally in
October. 1979 and 1980 were down years and ignored. In 1981 a strong January rally made this a basically
down year and a contra-seasonal year that should be ignored. The same goes for 1982.

1983 - The classic year. From a Feb. low, a big rally followed with a Sept. breakout and correction, leaving
a strong Oct. rally into Nov., another correction and then a big rally carrying into May 1984.

This made 1984 and 1985 contra-seasonal years to be ignored.

1986 - A classic year again. With a Sept. break-out and minor correction, October was a solid up mover
carrying into December. 1993 closely resembles 1986.

1987 - Another excellent upward year but Sept. was the break-out month and after an October rally,
November was the big up month.

1988 - At already high prices, this was a topping year with July and August rallies. Still, after a Sept.
correction down, October was a good month to buy.

1989 - It was another contra-seasonal year with Sept. a major downer. The markets bottomed at the
beginning of December 1989 for an explosive rally into January 1990.

1990 - This made 1990 a counter-seasonal year and October was a big downer. Still, the last week of Sept.
and the first week of October on the weekly charts was a small upward correction before a big drop.

1991 - A classic pattern with October the big break-out month, after a rally the last couple weeks of Sept.

1992 - A contra-seasonal year brings us up-to-date.

1993 - In late September, we are breaking out to the upside in preparation for a big October explosion.
Could this be a repeat of 1986? I think it might!

Of the twelve upwardly moving years that followed the seasonal patten, October was the month to go long
every single time.

With the 15 year low early this year and the nice rally we have seen since, this looks like a classic year.
Right on time, the market is now breaking out on really strong volume this week. Lets watch and see how
far it will go.

I would be curious if any other readers can divine an upcoming seasonal trade which can be backed up by
historical data. I always try to check out the seasonal tendencies on both a monthly and weekly basis prior

47
to initiating trades. Although there may be over a dozen other filters which I might employ, this is the
starting point.

If I was writing a book on technical analysis, seasonals would be covered in chapter one because it helps
one get an overview of the market and establishes the framework of a trade.

On a very short-term basis, there are many other technical factors which were used for timing of the entry
point. However, that is another article. Suffice it to say that everything looks good so far. With any luck, I
might be able to make this an intermediate term trade of a week or more. Who knows? Wouldn't it be great
if OJ locks limit up for several days in the near future! With this market, that's always a distinct possibility.

Money Management Questions & Guidelines- Daniel M. Frieders

I am using Trading Recipes System Testing & Money Management Software by RW Systems, which I
purchased last Spring.

I've not been able to come up with a formula of my own which showed any kind of a consistent profit.
However, I feel it was still a good investment as I understand money management, which should be the
first concern of any trader.

Here's my point, if I have a $10,000 account and Swing Catcher System signals a buy in corn and a buy in
silver, should I buy one corn and one silver? Or, should I buy a number of each based on a percentage of
my margin account? i.e.: The margin value of all open positions will not equal 50% of margin account and
at the point that the 50% mark is reached no new positions will be taken.

Good money-management guidelines are as important in increasing an account size as they are in
protecting it. So therefore, I use 4 to 7% of account size to determine the number of contracts when taking a
position. Whereas, if I only take one contract each time the system says take a trade, my account size will
take forever to amount to anything.

I hope you will find this of some interest and the subject can be discussed further.

P.S. Robert (Bob) Spear, the developer of Trading Recipes, is a super guy and great to talk to.

The 'Best' Ways to Make Money - Dr. Satish Arora

It took Bob Buran 6 years to make 1/2 million dollars trading futures. I believe he then made 5 million
dollars selling his Grand Combo/Trabos Trading System in 6 weeks!

Larry Williams made millions teaching people how the commodity market works and his hotline (he
charges money for this service) made $27.00 per trade.

Jake Bernstein made millions selling books and hotline 900 numbers, but his track record stinks.

George Angell, Welles Wilder, Stanley Kroll, Bruce Babcock, Futures Truth, Futures Magazine, Dennis,
Andrews, Lou Mendelson, Quote Services, Investment Educators, Charles Chen, etc. They all made money
selling books, magazines, hotline subscriptions, etc. In my opinion, none of them have anything worth a
dime.

Addendum and Follow-up to my Previously Submitted

Orange Juice Article - Robert D. Edwards

48
The morning I sent Commodity Traders Club News my Orange Juice article, I expected November O.J. to
add to its 132.30 close by spiking up on the opening. However to my surprise, it opened the morning of
9/29/93 a couple dollars lower. Each day that followed, O.J. would sell off each day on the close.

My broker kept goading me to change my "mental stop" into a physical one, so I finally placed the sell stop
under the 129.50 support that had developed.

Well-placed stops are a financial necessity, especially when trading O.J., the "pork bellies" of the soft
commodities.

Well I was stopped out and the market continued a little lower, showing no strength at all. A couple closes
above 130.00 had previously made me want to go long. With closes now mounting below 130.00, I was
wanting to go short. However, it was hard to go short O.J. when my "official" position that Dave was going
to print in this newsletter said I was going long! I was quickly regretting having ever written the CTCN
article. I believe that had I not written the article, I would have taken profits in my long position when it
rallied briefly over 132.00 and would not have held out until the stop kicked in. I could smell a rat from the
time the markets opened down on 9/29. Finally on 10/12/93, I decided to short Nov. O.J. if the contract
closed below 130.00 on that date. At 1:00 p.m. that day I opened up my Commodity Trend Service charts
which I got a day late due to the 10/11 holiday, and read Joe Van Nice's Market Sentiment comments on
O.J.

Van Nice reported there was bearish divergences on both the daily and weekly charts and commercials had
added heavily to their short positions (you can't win for long fighting against the powerful commercial
interests). "Market Sentiment is reaching a bullish extreme." These comments confirmed that "gut feeing" I
already had.

I immediately phoned my broker to sell November Orange Juice but my broker informed me O.J. is
included in the crop report coming out after the close. SO I DIDN'T SELL!

Well, the report turned out bearish and with all those bulls trying to stampede out the door at one time,
well, suffice it to say the market opened about $8.00 lower than the previous day's 129.25 close.

From the $121 area the market rallied to the day's high of 123.00, down $6.25. Selling up against that big
gap looked easy, but I was paralyzed from acting. Soon thereafter, O.J. broke below 120.00 and finally hit a
low of 109.25, down $20.00 for the day.

Had a person sold on a 120.00 stop, around 110.00 would have been a good place to cover and then go long
with a 112.00 buy stop order. The low of the following day was 113.55, so a 113.50 stop would protect the
profit on the long purchased at 112.00.

I never place stop orders to get into positions but more and more I can see how a properly placed buy stop
will get me long on a short-term breakout and a sell stop will get me properly short.

When gold recently traded above $400.00, I was afraid to pick a top to go short. However, a stop placed at
$399.90 on the December Gold contract would have gotten me short at near the top of the move, but only
after the market had turned down.

I am trying to come up with the perfect price to place a sell stop to get me short the December T-Bond
contract which upon hitting it, the market will quickly fall several more points and allow me to then place a
buy stop to protect the short.

Since I tend to take profits too soon, a buy (sell) stop order when I am long (short) will help me add a
position when I am starting to be successful on a trade. I can then day-trade that second order and leave the
original order on to help allow my profits to run. I would appreciate hearing from other readers about their
use or misuse of stop orders.

49
 Essex TradeFAX Free Trial - Robert Edwards

I received a free 3-day trial to Essex Trading Co. TradeFAX ph. (708) 416-3530 for voice or ph. (708) 416-
3558 for FAX.

Has anyone out there had any experience with Essex's programs or FAX service. The results of those 3
days of trading in the agricultural markets were very impressive.

All orders to open positions are placed by use of buy or sell stops. I have since started hypothetically
placing stops in several markets and am finding it may improve my trading.

Superstar Trader John Henry Credits Psychology for His Financial Success - reprinted with
permission of The Wall Street Journal

Even by the wild-and-wooly standards of commodity futures trading, John W. Henry stands out as unusual.

He attended five California colleges in the early 1970s without ever graduating. He devised a card-counting
system for playing blackjack and dabbled in parapsychology. And he eventually applied the ideas of such
thinkers as Carl Jung and J. Krishnamurti to choosing his own commodity trading strategy.

None of this has stopped Mr. Henry from becoming a superstar trader. Last year, Mr. Henry's biggest
investment fund soared 62%. And thanks to his hefty share of investors' profits, Mr. Henry earned more
than $50 million in 1991-a sum that Financial World magazine says ranked him as the sixth highest-paid
person on Wall Street.

The only certainty, he believes, is that trends tend to repeat themselves. And so do people's reactions to
them - a notion he developed from the Indian philosopher J. Krishnamurti and the author William D. Gann.

As Mr. Henry puts it, "Man is mechanical in certain scenarios." For example, he says, people who get
slapped "tend to get upset." Mr. Henry is a trend-follower, making his money by leaping on market moves
already in progress, with huge, leveraged bets on everything from soybeans to currencies.

But for all his eccentricities, the 42-year-old Mr. Henry is all too typical of many big-time traders who rack
up a few years of spectacular returns, get showered with money by large Wall Street securities firms, and
then suffer losses that stagger investors.

This year, with more than $900 million under management, he had losses of as much as 45% by the middle
of May after trends in currencies and international bonds turned suddenly and slammed his portfolios.

Although Mr. Henry has since come back strongly, rebounding 22% in June and another 26% in July, he is
still down 2% to 3% for the year. And Merrill Lynch & Co., which has poured more than $150 million of
its clients' money into several of Mr. Henry's futures funds, plans to cut back his role in Merrill's
commodity trading pools because of the severity of his trading losses this spring.

Mr. Henry trades out of a three-story glass and stone office building nestled in a secluded, wooded glade on
the Aspentuck River in Westport, a wealthy suburb an hour's drive from New York City. A round-the-clock
trading staff is there to execute buy and sell orders in 70 commodity markets that spew from minicomputers
programmed by Mr. Henry to spot market trends.

Although he maintains a home in nearby New Canaan, Conn., Mr. Henry lives in Boca Raton, Fla.,
apparently for tax purposes, where he is building a new house near the local polo club.

Threat of wearing Jester's Hat - Employees are reminded of his demanding and exacting attitude. In a
window outside the trading room stands a multicolored jester's hat, which Mr. Henry brought back from

50
Paris. "He threatened that if anyone made an error in trading, they would have to wear the hat for a day,"
says Kenneth Tropin, president of Mr. Henry's firm. The former top Dean Witter Reynolds Inc. futures
executive was hired by Mr. Henry in 1989.

Mr. Henry says he would not have been successful in financial markets "had it not been for my studies of
psychology and philosophy." He adds, "If you don't understand yourself to some degree, it's difficult to
make money," crediting such self-knowledge with helping him ride out market downturns.

"What you're really pitted against in the market is your own self, how you react to what's going on in the
markets," he says. Unfortunately, he says, his penchant for intellectuals "paints a picture of a money
manager who's a weirdo. But at least, I was able to translate the search for what is not tangible into
something tangible."

Thin, pale and wraithlike, Mr. Henry prefers reading books to dealing with people. And he says some Wall
Street brokers prefer that he stay away from clients because he describes the volatile ups and downs of his
trading style so frankly. Indeed, his accounts have fallen by 35% or more on at least three occasions.

In 1976, Mr. Henry was yanked into the commercial world after his father died and he began managing
family farmland in Arkansas and Illinois. An early foray into hedging a soybean crop lured him into
commodity trading, where he did so well that brokers in Memphis urged him to trade for other farmers as
well. After studying 100 years of grain price trends, he devised a formula and began trading in 1981 from
an office near his home in Newport Beach, Calif.

The fund that catapulted Mr. Henry into the top ranks of traders, Financial and Metals Portfolio, has been
sold heavily by several Wall Street firms since it reported price gains of 252% in 1987, 84% in 1990 and
62% in 1991. In the two years ending in December, the fund's assets multiplied tenfold to $619.2 million,
or more than two-thirds of Mr. Henry's total managed assets of $906.8 million.

However, Financial and Metals began 1987 with only $1.2 million under management. In a footnote to its
annual report, Mr. Henry says that year's results were "inflated" by the timing of additions and withdrawals.

Financial and Metals scored its sizzling 1991 returns mainly by selling the dollar short (selling borrowed
dollars in hopes of profiting from a price decline) and owning French, German and Japanese bonds. When
the Federal Reserve lowered U.S. interest rates late in the year, the dollar fell, and foreign bonds soared -
producing a 45% gain for the fund in December alone. However, those trends reversed sharply in early
January, leading to the 45% decline.

Mr. Henry says this year's hugh drop wouldn't have occurred if it hadn't been preceded by the December
runup. But the drop was keenly felt by newer investors as they "took it more seriously" because they hadn't
experienced earlier drops in the fund, he says.

One big securities firm, he says, cut the leverage - or efforts to boost returns by using borrowed money - on
his accounts in half near the bottom of the decline, thereby missing out on half of the rebound.

In addition to Merrill, Financial and Metals has also been sold to clients by several other brokerage firms,
including Dean Witter Reynolds Inc., usually in commodity "pools" that divide their assets among different
traders. Merrill has given Mr. Henry more money than any other trader.

Fees in such pools are steep. Individual investors must pay Mr. Henry an annual management fee of 6% of
assets; institutions and pools pay 4%. Brokers who sell the pools may get 6% in one-time commissions plus
another 2% annually in "production credits." On top of that, Mr. Henry gets to keep 15% of profits. And
investors may also have to pay as much as 10%.

By comparison, investors in stock mutual funds pay fees totaling only about 1% annually. Mr. Tropin
argues that Mr. Henry's fees are justified by the fact that he usually uses borrowing, or leverage, to control
assets three to four times the amount under management.

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Merrill asked Mr. Henry to come in to discuss the reasons for his big losses. Unlike other traders who may
fidget, fret or consider changing their trading system, Mr. Henry calmly explained what was happening and
expressed confidence that he would bounce back. He was assured of bouncing back after the springtime
bloodbath.

Still, Merrill doesn't plan to use Mr. Henry in the same proportion of its commodity trading pools in the
future because the latest "drawdown," or loss, was his most sever in both size and length of time, according
to one Wall Street executive.

At Shearson Lehman Brothers Inc., managing director Charles Nastro says Shearson did "a lot of soul-
searching" before deciding to continue using Mr. Henry as a trading adviser. He adds that Henry may be
unsuitable for clients who don't "have the stomach" for big losses, or don't want to pay the high fees.

But Dean Witter, which has put more than $150 million in clients' assets into Henry-run futures funds, is
standing by Mr. Henry.

My Unique Trading Methodology Programmed

into CompuTrac Snap - Gerry Stonehouse

The following computer algorithm I have programmed into my CompuTrac/Snap Software. It was fairly
easy to do and I believe the formula works very well in certain markets but not that good in dull, sideways
or choppy markets.

It seems to work best in volatile and trending markets, such as Lumber during most of 1993 and the past
several months in particular. My method relies heavily on the ADX indicator and on Welles Wilders well
known Parabolic Stop. My actual computer code is as follows:

Computer Code in Print Copy

Market Wizards on Money Management

Daniel M. Frieders

The best writing I've ever seen on the subject is the chapter on Tom Basso, in the Market Wizards 2 book.
No one should trade without first reading Tom's comments.

EDITOR COMMENTS

Owen Cramer's explanation of Elliott Wave theory is informative and valuable. Owen's article reminds me
that though waves definitely exists in the markets, there's a major problem with correct identification.

Most traders use subjectivity and judgment to identify Elliott Waves. It's easy to look at charts using 20-20
hindsight and count the waves, but doing it correctly in actual trading is MUCH more difficult!

The submission by William Armstrong must make many of us envious that Bill was able to sit on the beach
and make great money trading the markets, using his trading system and portable computer.

Notebook size computers are now extremely popular. That's because they can do most everything a large
desktop can do but are usually weigh less than 9 pounds and can run on re-chargeable battery power.

Your Editor recently received his new IBM ThinkPad 350C Portable Notebook Computer, but had to be
extremely patient and wait 3 entire months before IBM was able to ship it out, due to their huge order
backlog. Most of this issue of CTCN was written using Word Perfect and my new ThinkPad.

52
 The incredibly detailed research done by Robert Edwards, using Orange Juice Market, demonstrates the
importance of extensive research and seasonal studies. His work closely resembles the work done by W. D.
Gann. In fact, the layout and verbiage is very similar to Gann's detailed and valuable work.

Dan Frieders' questions and comments on the important subject of money management reminds me that
frequently it's even more important than the technical side of trading. Many times I have heard about
traders losing or making money, mostly due to poor or good money management.

In reference to Dan's question...the money management Portfolio Manager built into his system will tell
him how many contracts to trade based on his account size. A good rule-of-thumb is to not risk more that 5
to 10% of account size on any one position.

We should all realize that in spite of Dr. Arora's brief and highly negative submission, some traders do in
fact make excellent profits. I believe he may be wrong about Buran's sales and the time frame in which he
made all that money selling his system. According to some very reliable sources, I have been told Buran
appears to have made (approximately) between 1 to 2 million dollars selling Grand Combo, etc., in about a
1-1/2-yr time period.

That is less money and greater time than Dr. Arora indicates, but still astonishing sales. Likely more money
in system sales, in a such a short time frame, than anyone else has ever accomplished. A published personal
track record and extensive, expert and incredibly good professional marketing efforts did it.

Robert Edward's follow-up to his OJ article is most appreciated. Because Bob was incorrect in predicting
Orange Juice would go up in price, he naturally was a little hesitant having his original submission
published. However, it was fairly easy to persuade Bob to let it be published and for him to write an
addendum. That situation should be beneficial to CTCN members.

It also teaches us that in spite of intensive and valuable market research, you still can be wrong on
predicting the market direction. That's why using stop loss orders at all times are so important!

The Wall Street Journal reprint about John Henry again demonstrates huge profits can be made trading
commodities but there's inherent drawdown potential.

Even one of the largest and most successful traders of all time like John Henry can have a 45% decline or
drawdown in one month, but conversely can also have a 45% gain in one month.

Reference to Gerry Stonehouse's submission and his use of the ADX indicator, and Dan Frieders
recommendation of Market Wizards 2 book. I have talked to some traders who like using ADX as a long-
term trend indicator. I have also heard from several traders that the Market Wizards 2 book is excellent.

Information Wanted

Frank Morgan would like to hear from anyone with positive or negative experience with Cross Current by
Steve Briese or Dollar Trader by Dave Fox.

Issue 7.

How To Select a Trading System - Ashif Jumma

The selection of a winning Trading System is a process a lot of technical traders go through. Some seem to
have no problem, while others get tied in knots even after spending a small fortune.

Some of the checks I would use to select a winning system are:

53
1. I would look at two or more independent reviews. I would not rely on back-tested computer-simulated
performance results. Only forward tested performance results without the benefit of hindsight would come
close to real-time.

2. Note the number of parameters of the system, the less the better.

3. Check to see how often does the developer optimizes the system. An over optimized system is unlikely
to work in the future.

4. Commission and slippage. A profitable S&P 500 day-trading system trading aggressively using a $50
commission and slippage might in real-time turn out to be a loser.

5. I would prefer a 'white box' system.

6. Paying more money does not necessarily mean you will get a better system.

7. A trade-by-trade performance report will give a better picture of drawdown than the monthly or yearly
performance.

8. The system has to be time-tested. I would like to see a system be around for 2-years to consider it.

9. The developer himself should be trading the system. There preferably should be a real-time account with
account statements available and/or references.

10. The system should be based on sound market principles.

11. If a vendor is turning out different one commodity systems periodically, like one for Coffee, another for
Pork Bellies, third for T-Bonds. I would be very careful of curve filling. I would prefer a system that trades
different markets.

12. Finally, I would compute the drawdown to see if I can handle it, the money required to trade the
system, time required to trade system and the objectivity of the system. I would also paper trade for at least
3-months before risking my money on it.

Risk of Ruin and Dealing with Probabilities ... The Importance of Doing What's Right - Mike James

Thank you Robert Edwards for your frank dissection of your orange juice trade, which appeared in the
October issue of CTCN.

It reminds me that it doesn't matter how much time and effort we put into analyzing the market, the market
will choose to do what 'It' wants to do.

Obviously, the market doesn't set out to cause any particular trader to loose (although it may seem like that
to you sometimes!) when you put on a position. It's the trader himself that decides the potential loss, by use
of a stop.

You may say that this is not true, due to such events as limit moves and gaps. However when initiating a
position, if you ALWAYS define where the market has to go to (your stop position), to prove your current
market position to be incorrect, BEFORE you put the trade on AND then either:

1. Enter the stop when you put the entry order in or;

2. Watch the market and IMMEDIATELY this price is hit, phone in the Exit order - either a market order
or a 2 or 3 tick stop - and let nothing deter you from this action even for a split second.

54
Your risk is defined rather than being unlimited i.e., the stop order will get executed as soon as the market
allows it (probably immediately), rather than when you decide it's time to get out.

If your anything like me, I prefer option 1. It helps me to sleep better and makes it more difficult for me to
sabotage myself.

I've tried option 2, and besides raising my stress level, I didn't ALWAYS end up doing the right thing i.e.,
in this case exiting at my pre-defined Stop point.

As Robert Edwards says, right at the beginning of his letter "If you are around to trade tomorrow, you are
in a position to hit a home run." To do this you must use stops, and I would suggest be reluctant to risk
more than 1-2% of your account equity on any one market position. That isn't much, so smaller accounts
may have to look at using mini-contracts or a system that uses very tight stops.

If you think that's too small, take a look at risk of ruin calculations. Whereas your expected return increases
proportionately to the leverage, your risk of ruin increases exponentially. So one of the worst things you
can do is overtrade.

Any trading system lives with the possibility that independent of market conditions, it will self destruct.
Computer Analysis of the Futures Market by LeBeau & Lucas covers this and other points well.

For example, a $25,000 account has a 9% chance of bombing out, if your system has 40% winners and a
2:1 profit/loss ratio. (A reasonable system?)

However,if the same account with a 2:1 profit/loss ratio only has 35% winners your risk of ruin increases to
35%! I'd guess that sort of figure is unacceptable to most people.

The other point I'd like to offer, is that you need to be very careful that you don't 'own' the trade - (Stops
entered in the market help here!).

I'll repeat that it does not matter how much time and effort we put into analyzing the market, the market
will choose to do what 'it' wants to do.

After all, when we put a trade on, aren't we just dealing with probabilities? Even if our system gives us
60% winners, a rare gem indeed, what we're saying is that the system will loose 40% of the time.

So wouldn't the biggest mistake we could make, be to take a market view that's fixed, when we already
know that we're going to be wrong A LOT?

I've already offered the quote below in an earlier issue, so Dave may choose not to repeat it.

In Jim Sloman's book 'The Adam theory of Markets' he says, "To succeed in the markets we must
surrender. Never ever let any opinion about the market get in the way of trading." -- "Analysis is great, but
when analysis and reality diverge, we must always go with reality." -- "Knowledge is great, but when
knowledge and reality diverge, we must always go with reality." -- "We must allow ourselves to mirror the
market, follow it surrender to it.

We must be willing to let go of what we think we know about it, so that we can see it directly." -- "Price is
reality. Price reflects everything. Price is all we want to look at because price is what the market is doing."

Everyone would like tomorrow's issue of the Wall Street Journal, just once. But in the meantime, when we
trade we must realize that we are only dealing in probabilities, not certainties. So in a nutshell, surrender
and go with reality!

Why Shorting Options Makes the Most (Sense) Cents, 90% Wins Are Possible - Robert Edwards

55
I recently read that 90% of options expire worthless and about that same percentage of option buyers lose
money. This coincidentally corresponds to the roughly 90% of commodities traders who also lose money. I
feel that the easiest way for the average trader to join the ranks of the winners is to sell options, to short
puts and calls.

If 90% of options end up worthless, one would expect that if options are sold, and the short option positions
are held until near expiration, one would collect virtually the entire premium on about 90% of the trades.
Well, those are phenomenal statistics. But based on my personal experience, it is now rare that I ever take a
loss on out-of-the money options I sell.

There are never any "sure things" but utilizing a carefully planned strategy which accounts for virtually any
contingency, I think there is a way to come up with an option selling plan, that if properly implemented,
will bring results much better than 90% winning trades. I am working hard to try and refine my trading
methods to try and accomplish this.

Let me reveal some background information and then describe what I see as a golden opportunity now
unfolding. The background information is very important as there are many pitfalls that must be avoided in
order to be successful.

I keep adding to my knowledge every time I put on a trade. I am writing so like-minded traders can contact
me and we can learn together.

A few years ago, I only had to look at my own trading account to conclude that trying to make a profit from
buying commodity options was a rough road to travel. I was consistently losing. It was then that I reasoned
that I should do "naked" call and put selling. I decided to try a new approach.

Now, every time I felt I should buy a call because I thought the market was going to go up, instead I would
sell a put. Instead of buying a put when I felt the market was going down, I would sell a call. My results
instantly and quite dramatically improved.

I had a lot to learn though, and continued to lose money because I combined futures contracts to do covered
writing when the market would go against me. Whenever I covered a call by going long the underlying
futures contract, often the market would immediately turn lower and the loss on the futures contract
exceeded the gain from the decay of option premium.

I was an overall winner on the options I sold, but lost a great deal of money on the futures contracts I
purchased as a defensive measure to protect the options which seldom needed protecting.

Today I only combine futures contracts with my option writing, in very limited, special circumstances, and
I near totally balance the number of contracts to become what they call 'delta neutral'.

One of the secrets I have found is to sell options that are "less rich" meaning further out of the money.
Well, I went to the library a few years back and started doing research, manually back-testing several
strategies. I immediately recognized that there was definitely something there. But doing the testing by
hand became so tedious and hypothetical I gave it up and went back to day-trading.

A year ago I began intensively studying the markets to try and find a winning strategy. My study revealed
that selling options had several advantages. I just love getting paid up front with an immediate profit the
day I sell an option, and then my task is to try and keep as much of the money as possible.

Also, option selling allows one to do more long-range planning and does not require near as much scrutiny
and close attention as buying and selling futures positions. And option trading is much more forgiving. I
have done the most stupid mistakes when employing my option strategies and somehow was able to make a
net profit.

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Believe me, if I can't make money selling options with the time decay working in my favor, the guy trying
to buy options and fight the time decay is in real trouble. The option seller is like the gambling house. One
has to be well capitalized and willing to make small, slow profits. But those gains add up.

In search of a perfect strategy, I started from a premise that I wanted a market that spent a lot of time going
sideways. I like trading Live Cattle options because when the market sells off, it usually springs back.

There is good underlying support from traders to always go long cattle, taking advantage of the
backwardation that is often present in this market and the generally upward bias of cattle prices. Up moves
are seldom straight up with ample backing and filling of prices.

There are rhythms and cycles present and the support and resistance levels are clearly defined.

There are few false break-outs as there is usually follow-through when a support or resistance level is
breached.

Most of what follows relates to Live Cattle options but the information is generally applicable to other
markets as well:

Let me begin by setting up the conditions of my personal method for option trading. You might be able to
learn something from this that will make you a better trader. I would love to hear some suggestions which
might help me improve my methods, heaven knows there is plenty of room for improvement.

When I originally sold uncovered calls and puts, I began by selling a call and a put at the same strike price,
known as a short straddle position. I was taking the opposite side of the trades of persons who were buying
a put and a call, waiting for a violent reaction. I was hoping the market went to sleep. To help expedite this,
I decided to sell sleeping markets that were going nowhere.

What I didn't realize was that with a dead market, the volatility was low and thus the premiums I got from
selling were at reduced prices. When the market finally erupted, the values of both the puts and calls
increased.

That increase in volatility killed me when I was shorting volatility at the bottom when there was no room to
diminish further. Therefore, to do well selling options which always involves shorting volatility, it is
important to sell right after a strong move has occurred.

After the market advances a few days, the call premiums expand and that is an excellent time to sell. I like
to sell right into that strength. When the markets decline I like to sell puts, selling right into that strength of
increasing put premium, as well.

Suppose December Live Cattle is in a trading range from $72.00 to $78.00. Then suppose that the market is
in the middle, say at $75.00. If the market rallies to the top end of the trading range and then one sells out-
of-the-money calls, and then the market retreats to the bottom of the range and one sells out-of-the-money
puts, if the market returns to the middle, one can have an extremely wide range of prices where a profit is
assured.

I like to sell calls first because I find selling puts more tricky. This is due to the fact that markets drop much
faster than they go up, about 3 times faster I think.

By waiting for a rally before I sell calls, I get the benefit of the fact there are more buyers of calls when the
market is rising than when it is falling. Selling into strength allows one to sell to traders rather than local
market makers, who virtually control the pits when liquidity is low.

You also want to sell into strength because when the market turns at a top, the premium diminishes very
fast, because the call buyers are trying to quickly take profits the same time you are trying to initiate your

57
short trade. There is an order imbalance and only a market order is filled and that can be several minutes
later at a very unfavorable price. It is better to sell a little early rather than late.

The same holds true with puts, you want to sell into price weakness when the put premiums are the highest.
This goes back to being short volatility. You want to be a lion tamer, putting your hands around the jaws of
a wild, ferocious lion, selling options when you can still hear the roar. When things are quiet premiums
disappear.

I call these options 'sleeping bears'. Let sleeping bears sleep. If you should awaken them they will rip you
apart from both ends as the puts and calls both gain premium. When a market is limit up (down) is the best
time to sell calls (puts), as the premium of the option continues to rise.

The next day the option premium shrinks down, virtually guaranteeing a profit. Often the panic buying of
options causes a high during the day of the locked limit move and if you time it right, you are making a
nice profit even that first day with the market still locked limit.

I have found that selling an option in the last hour of the day works out best for me. Option traders, the next
day wait around trying to figure out which way the market is going and often don't trade for several minutes
after the market opens. Price fills are usually very poor.

They also often lag the market which gives them an excuse to either fill you at a lower price than you
theoretically deserve or not at all. On the other hand, during the close I believe that someone is there to try
and keep the markets orderly so there is more credibility in option fills by the locals at the end of the day
because prices are going to be printed in the newspapers and the trading prices have to roughly correspond
to the estimated values of the options.

The fills have to be in the ball park at the end of the day, whereas during the day the options market is free
to trade about anywhere. That is just my theory.

I like selling options 7 to 8 weeks before expiration to maximize the time decay of premium and try to get
out about 1 to 2 weeks before expiration.

Because the options expiration of the meat and livestock options often correspond to a meat report date, I
never like to be in at the end when someone gets to find out the results of the report and then decide at the
end of the day whether or not to exercise the option if it is in or very near the money.

Near expiration, volatility can actually increase rather than decrease. When I have recouped about 2/3rds of
the option premium I look for a place to take profits. Many times this has made the difference between a
winning and losing trade.

Numerous times the market rallies and the puts are almost worthless. I take my profits and then the market
tumbles a couple limits down and those puts are now worth as much or more than I paid for them. But I
don't need to worry, as I already took profits.

I have predicted the wrong trend direction many times but because I was able to take profits or a small loss
during a correction, I am able to get out of the losing positions in good shape and the winning options more
than make up for the losses.

As I described briefly above, I like to sell calls and puts at different strike prices. This is called a 'short
strangle'. I leg the position on by doing one side or the other, depending on market conditions, my bias of
where I think the market is headed, and several other factors I consider.

I already mentioned how I usually like selling the calls after a counter-trending rally and then later selling
the puts. If on the other hand you think cattle is going to trend up shortly and you don't mind getting long
the market, you can sell puts and effectively get a lower price than you would have gotten equal to the
premium amount received.

58
That would occur if the market trended strongly lower and the put was exercised. If however the market
reversed and went up, the put will lose value and although you did not get exercised, you make money that
way and that is all that matters.

This time of year (Fall) is a good time to sell April puts on any weakness as I wouldn't mind getting long
the April contract if the market trends lower and the option is exercised. On the other hand, the downside is
limited on the April contract due to the fact seasonally April cattle has in recent years rallied to $80.00 or
more during the January through March or April rally. You win either way.

Today as I write this (10/15/93), December Live Cattle options have 7 weeks to expiration. Cattle has just
rallied from lows and a very oversold condition. Today, December cattle closed at 74.70, very near the last
swing high just around 75.20. The contract should begin to run into some resistance.

With the couple dollar premium that December is trading over October, when October goes off the board
next week and December takes over, it is already a couple extra dollars higher than cash. Either cash has to
rally to the futures or the futures will need to come down. I believe the futures will come down.

Feeder Cattle has a lot of problems in the cash market which should also negatively impact on cattle prices.
I am looking for sideways to possibly higher prices near-term with a final break into December when cattle
has to compete with turkey for Thanksgiving and Christmas.

This slackness in demand comes at one of the worst times, when seasonal slaughter numbers are up.
Although I will be selling calls lightly at this time to initiate the position. If we bottom early, I will be a
very aggressive seller of December and later February puts should the market retest the bottom soon as I
expect it to. I want to be effectively long the market by January 1, 1994 so I can take advantage of the first
quarter rally.

I am experimenting with some different strategies right now, so I am not strictly following my basic
scenario. But for the readers I will go through a dry run of what I anticipate will happen in the coming
weeks. I will keep the numbers in single units, but a person with sufficient capital can double or triple these
numbers while more conservative traders could cut these positions in half.

Since Dec Cattle broke above the resistance today at 74.20, the next resistance is around 75.20 and it is
likely we will see that price on Monday. However, there is a down-trending line which could contain the
contract right at today's closing price of 74.70.

So what I would do is to sell a set of two 76.00 Dec. Live Cattle calls into today's close, placing a limit
order during the last hour of trading with a cancel replace at the market if I am not sure I got filled, about
15 minutes before today's strong close.

One should have been able to do this at a premium of about 75 cents or more today. As long as Dec Cattle
does not go off the boards above 76.75, I will be in a profit situation, less the commission of course.

However, this would require that December makes a new high which is of course possible, but it is unlikely
that it will happen immediately with a move straight up with no correction.

Upper resistance will begin to mount above 75.00. If the market can close at 75.20 or higher, I would sell
an additional set of 2 Dec. 76 calls at a premium of $1.00 or more. If the market never reaches 76.00 I pay
absolutely no attention to the premium I may be losing on paper, as my account is well margined.

I do not get concerned until the options begin going into the money as I intend to keep these options close
to the time of their expiration. When the market reaches 76.00 which I doubt will happen, but if it did, I
could double my original position. Since I have already sold 4 options with a 76.00 strike price, I would
now sell 4 77.00 calls and 4 78 calls.

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If the market appears that it is going to close at a price of 76.00, I am concerned only about the 4 original
76 strike calls as they are the only ones going into the money. To balance out 4 calls one would roughly
buy 2 futures contracts based on a delta of about .50, meaning the option premium of the calls rise 50 cents
when the futures price rises a dollar. However, I have gotten burned so many times buying 2 futures
contracts to balance this and gotten stung, that I will only buy one now, leaving myself only half balanced.
I have somewhat cured this problem by buying earlier on a stop, say at 75.25 or 75.30 stop. Then by the
time the market reaches 76.00 I can stop myself out of the 75.30 futures contract if the market takes a dive.

I don't want too many futures contracts going long, as I want to be able to still improve my position if the
market retreats. What I would do if the market started rallying past 76.90, the approximate break-even for
the two 76 calls sold for 75 cents, and the two 76 calls sold for over a dollar. That is not an easy question to
answer. I guess I would have to hang tough and maybe say a little prayer.

If sufficient time passes, before we hit these prices, I will have the time to remove some options at little or
no loss, reducing my exposure and allowing me to sell ever higher priced calls.

If we reach these levels very near expiration, the time premiums are greatly reduced and the 77 calls will be
making money and the 76 calls sold for over a dollar will be making money so I will still net a profit even
when I was selling calls and the market kept going up.

A move into new market highs in the December Cattle contract would just be a tough break. I would call it
a worse case scenario. I believe the market will find resistance at today's close, or somewhere above 75.20
and it will quickly begin dropping, putting me in great shape. Then as the market tests the lows, I would
sell puts.

If the market goes sideways, and the chances of the 76 or 77 calls getting into the money, becomes very
remote, I would sell more 76 or 77 calls, making sure I get at least 50 cents premium, and hopefully 70
cents or more premium for any options sold.

If the market drops, I would more aggressively sell puts as I want to be long the market going into the new
year. I want to be long cattle going into February so in late November or early December, I will begin
selling February puts on any weakness.

It may ultimately turn out that I will have to move up a strike price, and be further out of the money as I
may be selling options that are too close to the money. Some readers may not be aware that in the nearby
option month, the odd priced cents options trade so there is an option strike every dollar rather than $2.

I believe the Wall Street Journal still prints only the even numbered strikes, causing many traders to ignore
the odd numbered strikes and greatly reducing the volume, open interest and liquidity in these odd
numbered strike options.

How it will come out, only time will tell. As I'm still trying to figure this out, I would gladly accept any
suggestions readers may have about this trading strategy as well as hearing about an options selling method
that someone else has found successful.

Trading Paradoxs - Dr. Satish

This is what I have discovered and you should know about if you want to trade commodities:

1. They will never fill you long, if prices come down and touch your entry price and then go up.

2. They will always fill you short, if prices come down and touch your entry price and then go up.

3. They will never fill you short, if prices come back up and touch your entry price and then go down.

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4. They will always fill your long, if prices come back up and touch your entry price and then go down.

5. In T-Bonds, in the first 10 minutes after the release of any report at 8:30 am New York time, even if
prices go through your entry point, they will deny you a fill if there is profit after that fill.

6. However, they will always fill you if there was a loss after that fill!

Where is the F.B.I...Brokers don't prevent this rape, all they do is come after the rape has taken place and
harass you to go over the whole thing again and again, and torture your agony.

Viewpoint of a Commodity Trade - Roy W. Longstreet

The Right Stuff - Contrary to popular opinion, the most important factor in trading profitably is not
"knowing" where the market is going. Nobody knows for sure exactly what a given market will do next!
The most important thing is to have a plan of attack that will allow you to successfully cope with the
uncertainty that is an inherent part of trading or investing in anything.

It is a well-documented fact that the world's most consistently successful investors and traders (in any
market, including stocks, bonds, commodities, etc.) do not have any inside information and do not know
what will happen next.

What they do know is that they have an excellent chance for success in the long run if they can develop the
discipline to stick to their plan. Their "secret weapon" is that they have survived their mistakes long enough
to develop a good clear common-sense trading plan. Any they survived long enough to learn that even
though their plan isn't perfect, it is more profitable to exercise the discipline to stick to the plan through
thick and thin, than to deviate from it after some losses.

So you see, this discipline to follow a plan even when the chips are down, so crucial to success, comes from
the confidence that comes from experience. If you do not have the time and/or inclination to develop your
own trading plan, develop supreme confidence in that trading plan and the discipline to stick to that trading
plan, then the odds will be stacked against you. That is, unless you can join forces with someone who does
have the time, inclination, plan, experience and discipline to trade successfully.

"There are those who sit and wait for the world to change for them. Some few guess correctly that they are
the ones who must change. In commodity trading, one usually gains by yielding, by admitting that he needs
help, that here is a better way."

Surprising Differences in Data - Randy Stucky

The bar charts that follow on next page contain data that I have obtained from 3 different data sources,
Peter Aan's data, Trend Index Trading Co data, and Genesis Data Service. They are all CSI continuous
contract data files. All 3 have the same price patterns but different absolute levels. Note: Peter Aan says his
is initially high to avoid zero prices - says it works OK, except if a system uses a "% of price" formula. See
Chart on next page.

Editor Comment: As long as you maintain the same data, the actual old price level is normally not
important when analyzing back data, as long as its done consistently and current prices are correct. Chart in
Print Copy

EDITOR COMMENTS

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In the last issue of CTCN, Dr. Arora said that in his opinion, 14 well known participants in the commodity
business have nothing of value to offer. Of course, he is entitled to his opinion, but I must strongly disagree
with him. Many of the parties he referred to have things of great value they offer to traders.

For example, Jake Bernstein has written many books dealing with psychology of trading and trading
methodology, including great research on seasonals. I have read some of Jake's books and found them
extremely informative and of excellent value.

Larry Williams has also contributed much to traders' knowledge, especially with his many educational
trading seminars.

Welles Wilder is one of the pioneers of commodity technical analysis and wrote one of the first books
about various technical indicators that can be used to trade commodities.

Futures Truth Ltd has done extremely useful work involving the highly complex and difficult day-to-day
tracking of hundreds of trading systems. John Hill, John Fischer and George Pruitt are extremely
knowledgeable and of the highest integrity. They have done a superb job reporting on all those trading
systems, with a small staff and limited budget.

The ideas on how to select a trading system submitted by Ashif Jumma has some excellent suggestions. In
particular, I believe you should only buy a trading system providing it is in fact a fully disclosed 'white box'
system. That is because discipline is a major problem. If you are going to trade a system correctly you need
to have confidence in it by being aware of the principals behind the system and the actual algorithm. An
undisclosed system makes the discipline problem we all seem to have, much more severe than is involved
with a disclosed trading system.

I also strongly agree with him on his point #6 that paying more money does NOT mean the system is better.
In the past, I have received calls from traders who told me they bought System X over system Y because X
was $3000.00 and Y was $1000.00, so therefore X must be 3 times better than Y! That premise is
completely incorrect. The cost of the trading system seems to have little or no bearing on its actual value.

Lastly, I would like to comment on Ashif's point #11. The fact most systems are only designed for a
specific market or market group gets me very concerned. A system based on sound principles and NOT
heavily curve-fitted, should as a general rule work in all markets, not just specific markets.

At times a system will work much better in certain markets, but that is because that market happens to be
performing in a way that benefits the system, such as trending well or volatility that happens to conform to
the system's algorithm. Also, at certain times the same or other markets will perform poorly due to the
contrary happening, i.e.: non-trending or very low volatility, etc.

Generally speaking, a trading methodology should 'work' in ALL markets, as all the markets have basically
the same or very similar price behavior, except at times different trends or volatility.

I challenge anyone to look at a series of old daily bar charts, with the price scale not shown, and identify
which market belongs to which chart. It is impossible to do, unless just by luck you happen to remember a
certain price pattern evident on a chart, based on 20-20 hindsight.

Mike James has written a very informative discussion about preserving your capital and risk of ruin, and
how the market will do what it wants, regardless of how good our analysis is.

It was also very nice of Mike to compliment Robert Edwards submission in the October issue, in which
Bob admitted his very thorough and extremely good research on Orange Juice price direction turned out to
be incorrect.

Robert Edwards latest submission on trading commodity options will be extremely valuable to option
traders. Bob's point that about 90% of options expire worthless, I believe is correct based on what I have

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 heard in the past. Therefore, it only makes sense that 90% of the puts and calls that are written make
money. If in fact that premise is correct, there is a potential gold mine involved here!

Dr. Satish's criticism and paradox examples involving trade executions are I believe exaggerated, but it is in
fact true that the fills or lack thereof, will go against your more often than not.

Issue 8.

Clinton/Kennedy: Amazing Stock Market Similarities

reprinted with permission of The Wall Street Journal

Flip on your radio. Do you hear "Moon River"? Check the marquee at your local movie theater. Is "West
Side Story" playing?

Well, it's not 1961 in the real world, but in the stock market it's late 1961 revisited, says Ned Davis.

Are Striking Similarities a Great Opportunity for Huge Profits on the Short Side during 1994?

Mr. Davis, a Nokomis, Fla., stock-market researcher who is respected for his technical and historical
insights, sees striking similarities between the stock market's behavior so far under Bill Clinton.

Chart in Print Copy

Similarities Began Early

The similarities began during the election campaigns of 1960 and 1992. As it looked increasingly likely
that a young Democrat would replace an older Republican, stocks dipped. Once Mr. Kennedy and Mr.
Clinton took the reins, stocks reversed and began to climb.

During Mr. Kennedy's term, stocks topped out in December 1961, drifted sideways for a few months, and
began to tumble in April 1962. A nasty bear market dragged the Dow Jones Average down 27%.

Is history about to repeat itself? Mr. Davis thinks so. He points to a flock of similarities between the market
climate then and now.

More Similarities

In 1961 stocks were selling for over 20 times the prior 4-quarters' earnings. The same is true today.

The high stock prices, in 1961 as today, had pushed the average dividend yield on stocks down to well
under 3%, a traditional warning zone. By almost any measure, both 1961 and 1993 are among the most
expensive markets in history. And in both cases, the high valuations had persisted for an unusually long
time - a year or more.

"People who are saying we're safe now (from a market decline) are pointing to low interest rates," says Mr.
Davis. But, he adds, "interest rates were much lower then," and that didn't prevent the scorching 1962 bear
market.

In November 1961 inflation was running at less than 1% (vs. perhaps 3% today), the interest rate on
Treasury bills was about 2.5% (vs. just over 3% today) and long-term Treasury bonds yielded about 4%
(vs. about 6% today).

Foreign Affairs Dominate Over The Economy

Both Mr. Kennedy and Mr. Clinton came into office intending to concentrate on domestic affairs and get
the economy moving again. Mr. Davis says. But both had to devote considerable time to foreign crises. Mr.

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Kennedy had to deal with the Berlin wall and the failed Bay of Pigs invasion in Cuba. Mr. Clinton has
wrestled with problems in the former Yugoslavia, Somalia and Haiti.

Mixed Technical Indicators

The stock market today, as in fall of 1961, is characterized by mixed technical indicators and "a lot of
churning," Mr. Davis says. Technology stocks were leaders in both markets, and in each case the pipeline
was gushing with newly issued stocks.

Gann Techniques Trading Course - John Brown

I suspect there are a great many traders who feel that some of Gann's techniques have something to offer
for chart analysis.

Learn How To Use Gann in Actual Trading - Traders then wonder exactly how to apply these methods in a
way to actually profit in actual trading situations. I would recommend Dave Green's Gann Techniques
Trading Course as a good source of practical applications of Gann tools.

Principals of Gann for Reasonable Price - For a very reasonable price of $75.00, this spiral-bound book
(Angle Tool included) offers many chart examples which illustrate entry and exit strategies based on
principals from Gann's methodology.

Useful in Real Trading Situations - This course offers for the trader a concrete and practical approach to
using Gann's tools that might be far more useful in real trading situations than some of the more esoteric
(and far more expensive) applications which are offered for sale.

Editors Note: Gann Techniques Trading Course can be purchased from Trend Index Trading Co. -
Telephone 715-833-1234. FAX 715-833-8040

A Successful Momentum Based Method I Use for S&P

Gerry Stonehouse

I developed this mechanical approach to using a momentum indicator as a way to get on board a market
that was starting to accelerate its trend. I then programmed this using Snap by CompuTrac. Charts in Print
Copy

Surprising Data Differences - Randy Stuckey

Here is another bar chart which displays the surprising difference in continuous type data between 3 data
sources: CSI, Peter Aan, and Trend Index. Chart in Print Copy

Profitable Performance of Swing Catcher System - Martin Thomassen from Germany

Here is a copy of the real-time performance of my Swing Catcher Trading System, as maintained on a
spreadsheet, trading the recommended 35 commodities. Out of those 35 markets we are always following
the best 18 commodities, based on the Trend Ranking module, which is built into the trading system and
accessed from the main menu.

Successfully Trading Only the Recommended Markets

We are only trading the commodities which are ranked in the top 18 on the Trend Ranking list, and in
Conservative Trading Mode. Note: 'Kons' is German for Conservative.

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A copy of my detailed spreadsheet which has all my real-time Swing Catcher trades follows: (Please
excuse the fact that the copy is not very clear). Chart in Print Copy

My Experiences with Various Trading Systems - Dr. Satish Arora

Larry Williams turned $10,000 into $1,000,000 but he could not repeat it again. The next year his
performance was unmentionable.

Charles Chen made 1300% in 1989. After that year he does not even talk about his performance anymore.

Good Records Before The Sale but Big Losses and Negative Figures After The Sale - Mike Chalek made
hundreds of thousands of dollars by selling his Dual Thrust and Talon Trading Systems. They had very
good track records before the systems were sold, but big losses and negative figures after the sale of his
systems.

Data Dot System worked well before its sale to the general public. After the sale of the system it did not
work anymore.

Essex Trading Co sold many different systems, and they may have made many millions of dollars selling
systems but none of them have worked after their release.

The Get System by Tom Joseph did not make money after it was sold.

About Profit Taker System...the developers are the ones who are taking (making) all the profit by selling
the system year after year.

Volatility Breakout System located in Colorado, worked well before it was sold. After the sale nothing
worked and they made lots of money and then went out of business.

Don't waste your money on Taurus System by Michael Chisholm. So far it has only made money in the
hypothetical track record. Red Line System did not work.

Money Was Made by Switching From System Sales to Toolbox Type of Programs - Bill Cruz from Omega
Research spent 10 years working on various trading systems for Pork Bellies, Live Cattle. S&P, TBonds,
only to find out they didn't work after the sale, so he stopped selling them. He then developed System
Writer and Trade Station and he has made hundreds of thousands of dollars selling them, but not a penny
from actually trading the markets.

George Angell sold many different systems for hundreds of thousands of dollars. None of those systems are
making money now.

None of the many books sold by Windsor Books has made any money for the book buyers.

Jeff Rickerson made money selling his Market Optimizer System, not trading it.

Is Gann Methodology Too Subjective? Some 'Gann people' have given up trying to trade Gann's methods
because they found it too subjective.

In my opinion if a system has a good track record prior to being sold to the general public, after the sale it
then falls apart.

Keep on subscribing to Commodity Traders Club News if you want to make money.

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 Random Thoughts on Trading and System Design
Part 1 - Adam White

When designing a trading system or trading methodology, some curve-fitting is unavoidable.

Nearly every trader has had the frustrating experience of seeing a "can't lose" trading method fall apart
when it is applied in real time.

Carefully Designed & Tested System Should Bring Success - The system can be carefully designed with
the best of intentions. It seems to incorporate all the elements of a successful system. It controls risk and
lets profits run. In testing it shows tremendous profits in nearly every market you intend to trade.

You have back tested, forward tested, and analyzed statistical measures that are supposed to ensure
robustness. You have even paper traded for a while, adhering strictly to your trading rules, and the paper
trading has been reasonably profitable, although not up to the standards of your test results.

Did Market Conditions Make It Less Successful? You can rationalize this by saying the markets have been
tough lately and difficult to trade. You make money for a short time but then, incredibly, you experience a
loss that exceeds any of the losses that your system saw in five years of testing and six months of paper
trading. The drawdown continues, and eventually you stop trading the system.

This often-repeated scenario is almost certainly the most common trading experience among system
traders. Ironically, the introduction of personal computers and sophisticated analytical software has not
contributed to the solution of the problem but has probably made it more likely to occur.

With Advantage of Hindsight, Markets Appear More Orderly Than They Are - It is extremely easy to sit
down in front of a screen and devise a trading system that seems, in hindsight at least, to be unbeatable.
Most oscillators, for instance, look like they call market bottoms and tops pretty well. Most trend-following
indicators hug major trends very nicely, With the advantage of our hindsight, markets usually appear to be
much more orderly than they are, so buying dips in an uptrend, for example, seems to be an excellent
strategy.

Effective Looking But Overly Curve-Fitted - Any trader with a PC, some data and some analytical software
can devise an effective looking trading system with very little effort. The problem is that, more likely than
not, the system will be overly curve-fitted and useless for real-time trading.

Defining curve-fitting isn't as easy as it may seem. It's a bit like art appreciation; it's hard to describe what
you like, but you know it when you see it. In fact we curve-fit lots of data in our non-trading endeavors and
think nothing of it. After all, if you stop and think about it, the line between experience and curve-fitting is
a very fine one.

Examples of Curve-Fitting - A couple of examples may help define curve-fitting. Let's say you're a creative
sort of person and you devise five new and different technical indicators that you hope will generate
profitable trading signals.

You program them carefully, and display them one at a time against several favorite markets. Much to your
chagrin, you find that four of the indicators seem to have no relationship to the markets at all. The fifth,
however, follows prices very nicely and often seems to anticipate major moves. You decide to use the fifth
indicator and discard the others.

Curve-Fitting Without Realizing It - Believe it or not, by choosing the study that best agrees with your
perception of what a technical indicator should do, you have curve-fitted.

You might reply that this is the method by which virtually every trading system, whether mechanical or
discretionary, is invented and you would be correct. After all, there are trading systems that work, and they
have been put together by observation, not by luck or guesswork.

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Some Curve-Fitting is Appropriate - Some fitting of a trading method to price movement is natural and
beneficial. To the extent that we do this and still retain flexibility and the ability to handle future events,
curve-fitting is entirely appropriate.

There is a vague line that is all too easily stepped over, however, and to cross that boundary brings certain
failure rather than success. We find it difficult to come up with an exact definition and perhaps the line is so
fine that there isn't a clear definition of where experience and common sense leave off and unproductive
optimization sets in.

Two Mice and a Maze Analogy - Here is an analogy that may help to explain the phenomenon. Construct a
maze that is relatively intricate and that requires a fair amount of twisting and turning to get to the center.
Train two mice to navigate the maze.

The first mouse learns that if it turns left twice, then takes five steps, then turns right three times, takes two
steps, turns left once, and then turns right twice it will be at the center of the maze.

The second mouse learns that at every junction it first turns left, and if it bumps into a partition it should
turn around and go the opposite way.

The first mouse, once it has learned the pattern, negotiates the maze flawlessly every time. The second
mouse is slower, although it eventually arrives at the proper destination.

Contrary to How it Appears, the First Mouse Does Not Have The Advantage - The first mouse seems to
have an obvious advantage. It finds its way to the center of the maze with ease, while the second mouse,
handicapped by a much simpler navigation system, struggles and makes many wrong turns before finally
reaching the goal. The second mouse clearly seems much less capable than the first mouse.

A Similar Maze but A Difference - Now let's build a new maze...make it similar to the first for a few turns,
but different thereafter. The first mouse will proceed confidently for a while, but will soon be hopelessly
lost and disoriented, much like some traders we have observed.

The second mouse won't notice the difference between the first maze and the second. The mouse that had
previously seemed inferior plods along and treats every twist and turn in the new maze the same simple
way. Slowly and inexorably the second mouse will find its way to the center, no matter how the maze is
configured.

Rewards Providing the Maze Doesn't Change - The first mouse either performs perfectly or terribly because
it has been taught an overly curve-fitted system, while the second mouse has learned a crude system that
enables it to get to the center every time.

The first mouse will perform extremely well and will be rewarded as long as any maze the mouse
encounters is substantially the same as the original maze that it memorized so capably. The second mouse
will be slow but it will eventually be rewarded no matter what changes you make to the maze.

Trade Successfully With Crude Methods - The principles in our analogy hold true when trading systems are
applied to the maze of futures prices. If we are going to navigate the markets successfully, we must create
relatively crude systems that will work no matter what maze is created by tomorrow's prices.

Make Your Trading Less Complicated - We should be very careful about how we use computers to test and
modify trading systems. Changes that merely improve the numbers without adding to the logic of the
trading plan should be questioned. Try to find ways to make your trading less complicated and more
adaptive to changes in market conditions.

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In Futures Trading the Correct Answers to Questions seem Contrary - One of the underlying reasons why it
is so easy to fall into inadvertent curve-fitting is that in futures trading the correct answers to even the
simplest questions seem counter-intuitive.

New Traders Wrongly Want To Trade Contra-Trend - For example, one of the most basic decisions a trader
makes when first conceiving a system is whether to be a counter-trend trader or a trend-follower. Almost
all beginning traders, in our experience, opt to be counter-trend traders. They won't buy until prices appear
"cheap" to them, and they won't enter a position unless there has been a reaction or some form of correction
that allows them to buy on a dip or sell on a rally.

They buy only when there is a bargain to be picked off and sell only after prices have reached an apparent
peak. They are constantly looking for signals like key reversals, support and resistance levels, and any other
pattern that will allow them to get into the market at a major turning point.

Traders Want To Buy the Exact Bottom and Sell the Exact Top - It is only natural that such a trader
gravitates toward counter-trend indicators like stochastics or RSI, and may become a devotee of Elliott
wave theory, percentage retracement calculations, and methods that can forecast or identify tops and
bottoms. If buying bottoms and selling tops is good, then buying at the exact time the market turns must be
even better.

Picking Tops/Bottoms Easier Providing there's an Underlying Structure - It would be much easier to find
tops and bottoms if the market had some form of underlying structure or order that made highs and lows
predictable.

It seems that trading at tops and bottoms is so impossible using conventional methods that these traders, out
of sheer desperation, must eventually fall prey to methods that presume some underlying orderliness to the
markets.

Searching For Tops & Bottoms Forecasting Methods - Methods such as Gann angles, Fibonacci ratios,
cycles, wave theories, or even such totally absurd approaches as astrology or the "delta phenomenon" offer
the only hope of forecasting tops and bottoms on a regular basis.

Take any hare-brained idea and write a book about it or program it into a software package and suddenly it
has instant credibility. Desperate top and bottom seekers will flock to it.

The Desire To Pick Bottoms & Tops Has Caused More Failure than Anything Else - After many years of
observation, I have come to the conclusion that the natural desire to buy low and sell high is more
responsible for failure among futures traders than any other behavior.

Successful Traders Are Trend-Followers - Almost every successful trader we are aware of is a trend-
follower. This includes both private traders and professional Commodity Trading Advisors who trade
billions of dollars worth of public funds.

Unfortunately, trend-follower is counter-intuitive. At first it seems to make no sense at all. It is the direct
opposite of how we have been taught to succeed as shrewd traders.

Inexperienced Traders Think they Could Have Made the Trade Earlier than Trend Followers - Why buy at
or near new highs when we obviously should have bought earlier at much better prices? Trend-following
methods are usually scorned by less experienced traders who always assume that they somehow could have
bought days ago, at the bottom.

The fact is, however, that a market must make new highs and lows continually in order to get anywhere
important. When gold went from $200 to over $800 in 1979 it was making new highs all the way. When
soybeans broke $5 and went to $12 in the early 70's the same thing was obviously true.

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Trend-Following Approach Is Best - We won't go so far as to say that anyone who is successful at counter-
trend trading should abandon it, but we firmly believe that the vast majority of traders should concentrate
their efforts on the trend-following approach.

Using Too Many Indicators Result in Poorer Results - Another common theme that runs through system
design is the search for confirmation of a trading signal. Simply put, this means that a trading signal given
by one technical indicator or chart pattern must be confirmed by one or more other indicators in order to be
valid.

For example, if a stochastic dips below 20 and then turns up, the trade won't be taken unless an RSI or
another oscillator confirms the stochastic signal. This can be taken to absurd ends; we have seen trading
systems with as many as thirty elements that all have to fall into line before a trade is taken.

Physiologically You Feel Better With Extra Filters - It is easy to see how that can happen. No one wants to
take a loss. It is comforting, after a trading loss, to tinker with your trading system and add another filter or
confirmation that, in hindsight, eliminates the loser. Software that emphasizes optimization makes it even
easier.

Probably the best way to handle this sort of situation is to avoid redundancies. For example, if you are
using one oscillator to signal market exits, it is better to decide exactly how the oscillator should be used
and stick to your rules rather than adding several more oscillators to your system and requiring that they
confirm one another before you exit.

Additional Rules Detract From System Performance - The same is true of any other type of indicator.
Remove any indicator that essentially duplicates the information from any other. Remember the mice and
the maze. Every new rule you add that makes your trading look better in hindsight detracts from your
system's ability to handle future price aberrations.

One of the areas that is most easily abused during system design is data; specifically, which markets and
time periods to test over and which markets to trade in a portfolio.

Some Systems are Designed to Only Work in Specific Markets Using Hindsight - It is a favorite technique
of system sellers to design systems to fit specific markets, create a track record based on a complicated
system with lots of rules that eliminate losers in hindsight, and market the hypothetical track record giving
the impression that the results are reproducible in real time.

This is akin to teaching the first mouse how to navigate one maze, and then selling it as a mouse that can
navigate any maze.

. . . part 2 of article appears in next months CTCN.

EDITOR COMMENTS

With reference to the interesting article about Clinton vs. Kennedy similarities, in my opinion, the most
amazing similarity is the DJIA chart itself. The high correlation of the price swings between the Kennedy
and Clinton time periods is truly amazing.

The chart was published early Dec 1993. At that time both patterns were in a high area after a long overall
upmove that had lasted about 14-months.

According to my interpretation of the DJIA charts, right now (Wednesday Dec 29, 1993) the stock market
is at an extreme high and is in the process of topping out now, as these words are being typed!

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 If in fact the correlation continues, the market should go down a little between now and late winter. A
secondary swing high should come within 3-months, followed by a steady, precipitous and huge drop
starting in the Mar/Apr 1994 time frame.

Kennedy era DJIA dropped 27% from the mid 700 area in Dec to the mid 500 area by June. If the current
DJIA drops 27% from its current level of 3792, it would drop to 2768 by June 1994.

Needless to say some gigantic profits can be made on the short side, if in fact the amazing correlation
continues. Can you imagine the profits that can be made by shorting the S&P 500?

If the S&P 500 Index drops 27% from its current level of 470, it would drop to 343. The profit on 127 S&P
500 points would be $63,500 per contract! However, a warning is appropriate here...there's a strong
possibility the correlations could be just a coincidence! Only time will tell for sure.

Issue 9.

How Diversification Can Help You Trade Better - Ashif Jumma

Diversification is one of the crucial factors in the success of a trading plan besides having a good trading
system and sound money management. It may in fact make the difference between success and failure of a
trading plan.

1. Most of the trading systems available are trend following in nature.

2. Commodities trend for a fraction (say 30%) of the time. The rest of the time they are in a sideways
market or a small trading range.

3. It stands to reason that most of the good systems will do well in a trending market and get choppy in a
sideways market, unless they have devised a way to keep out of a sideways market.

4. What the system hopes to do is to make enough money in a trending market to offset the losses made in a
sideways market.

5. What the trader hopes to do is to have enough confidence and money left to make a trade when the
market is trending and be profitable.

6. However, a lot of traders being undercapitalized dump their system after a series of confidence shaking
losses.

7. By diversifying, a trader can hope to avoid or minimize some of the above problems.

8. The aim of diversifying is to substantially lower the drawdown, minimize the equity swing and hopefully
increase the profit.

9. Thus a $10,000 trading account, trading one commodity having a drawdown of $4,000 and profit of
$4,800 may be diversified to have a lower maximum drawdown of say $2,500 and better net profit say of
$5,700. This represents a more efficient use of equity capital.

Avoid Highly Correlated Markets Avoid Highly Correlated Markets To Increase Your Chance of Success

10. Let me first define a trade - to me trading Soybeans, Soybean Oil and Soybean Meal does not represent
three different trades, but one trade so does Swiss Franc and Deutsche Mark.

A trader who puts on such highly correlated trades will have a bigger drawdown and increases his chances
of ruin.

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11. Different markets trend well at different times. Some markets may be going nowhere for an extended
period of time. Gold may be in the doldrums for say a couple of years at a stretch before it becomes
tradable, soybeans may do the same.

A trader who is trading only Gold or Soybeans may become so frustrated with the losses, the time lost, the
trading system, he will give up before the market becomes tradable again.

12. So a good diversified trading plan implies lower maximum drawdown, better profit, more winning
weeks and months, generally more consistency. It means trading non-correlated commodities. It means
sleeping better at night.

Gann's Amazing Trading Record- Reprinted from the December 1909 Edition of Ticker Magazine

To make a success investing in stocks or speculating in commodities you must have a well defined plan and
must know the rules that have stood the test of time for 50 years or more. After you learn the rules you
must eliminate guess work, hope and fear and follow rules and you will make profits.

When you buy a course of instructions, look up the record of the man who has discovered and developed it
and if he has made a success with it and made money, you can afford to buy the course and follow the
rules.

1902 August 25th, made first trade in commodities and started studying mathematical principles to
determine the future trend.

1905 Sept 12th, the daily Texarkana, Texas, printed an article giving Mr. Gann's view on Cotton prices.

1907, he predicted the panic in stocks and the decline in commodities and made large profits.

Turns $130 into $12,000 in 30-days

1908 May 12th, left Oklahoma City for New York City. August 8th made one of his greatest mathematical
discoveries for predicting the trend of stocks and commodities. Started trading with capital of $300 and
made $25,000. Started another account with $130 and made $12,000 in thirty days time.

1909 December, the Ticker magazine (now the Magazine of Wall Street) printed an article titled
"remarkable predictions and trading record." The article was written by the late R.D. Wyckoff, owner and
editor of the Ticker Magazine at that time.

The following is a copy of part of the article:

"In order to substantiate Mr. Gann's claims as to what he has been able to do under this method, we called
upon Mr. William E. Gilley, an inspector of imports.

Mr. Gilley is well known in the downtown district. He himself has studied stock market movements for 25-
years, during which time he has examined every piece of market literature that has been issued and
procurable in Wall Street.

When asked what had been the most impressive of Mr. Gann's work and predictions, he replied as follows:

"It is very difficult for me to remember all the predictions and operations of Mr. Gann which may be
classed as phenomenal, but here are a few:

Made 23-Points Profit on an 18-Point Move

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In 1908 when Union Pacific was 168-1/8, he told me that it would not touch 169 before it had a good break.
We sold it short all the way down to 152-5/8, covering on the weak spots and putting it out again on the
rallies, securing 23-points profit out of an 18-point move.

Predictions Made On Scientific and Mathematical Formulas and Calculations,

Time Cycles and 'Natural Law'

Mr. Gilley encouraged Mr. Gann to study out the scientific and mathematical possibilities of the subject.
"Mr. Gann's calculations are based on natural law. I have followed his work closely for years. I know that
he has a firm grasp of the basic principles which govern stock market movements, and I do not believe any
other man on earth can duplicate the idea or his method at the present time."

Predicted Exact Day of High Months in Advance

"Early this year Mr. Gann figured that the top of the advance would fall on a certain day in August and
calculated the prices at which the Dow-Jones averages would then stand. The market culminated on the
exact day and within four-tenths of one per cent of the figures predicted."

"You and Mr Gann must have cleaned up considerable money on all these operations," was suggested.
"Yes, we have made a great deal of money. He has taken half a million dollars out of the market in the past
few years. I once saw him take $130, and in less than one month ran it up to over $12,000. He can
compound money faster than any man I ever met."

Wheat Closes At Exact High Price Predicted One of the most astonishing calculations made by Mr. Gann
was during last summer (1909) when he predicted that September wheat would sell at $1.20. This meant
that it must touch that figure before the end of the month of September.

At 12 o'clock, Chicago time, on 9-30-09 (the last trading day) the option was selling below $1.08 and it
looked as though his prediction would not be fulfilled. Mr. Gann, said "If it does not touch $1.20 by the
close of the market it will prove that there is something wrong with my whole method of calculation. I do
not care what the price is now, it must go there."

It is common history that the September Wheat contract surprised the whole country by selling at $1.20,
and no higher, in the very last hour of trading, closing at that exact figure. So much for what Mr. Gann has
said and done as evidenced by himself and others. Now as to what demonstrations have taken place before
our representative:

An Amazing 264 Winners out of 286 Trades

During the month of October, 1909, in 25 market days, Gann made in our representatives presence, 286
transactions in various stocks, on both the long and short side of the market. 264 of these transactions
resulted in profits; 22 in losses.

The capital with which he operated was doubled 10 times, so that at the end of the month he had 1000% on
his original margin. In our presence Mr. Gann sold US Steel common short at 94-7/8, saying that it would
not go to 95, it did not.

On a drive which occurred during the week ending October 29th, Mr. Gann bought Steel common at 86-
1/4, saying that it would not go to 86. The lowest it sold was 86-1/8.

We have seen him give in one day, 16 successive orders in the same stock, eight of which turned out to be
at either the top or the bottom eighth of that particular swing. The above we can positively verify.

92% Winning Trades

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Such performances as these, coupled with the foregoing, are probably unparalleled in the history of the
Street. James R. Keene has said, "The man who is right six times out of ten will make his fortune." Here is
a trader, who without any attempt to make a showing (for he did not know the results were to be
published), establishes a record of over 92% profitable trades.

Mr. Gann has refused to disclose his method at any price, but to those scientifically inclined he has
unquestionably added to the stock of Wall Street knowledge and pointed out infinite possibilities.

We have requested Mr. Gann to figure out for the readers of the Ticker a few of the most striking
indications which appear in his calculations. In presenting these we wish it understood that no man, in or
out of Wall Street, is infallible.

Mr. Gann was born in Lufkin, Texas, and is 31-years of age. He is a gifted mathematician, has an
extraordinary memory for figures, and is an expert Tape Reader. Take away his science and he would beat
the market on his intuitive tape reading alone.

Endowed as he is with such qualities, we have no hesitation in predicting that within a comparatively few
years William D. Gann will receive full recognition as one of Wall Street's leading operators."

'You Can be Your Own CTA' and Avoid Troubles With CTA'S & Managed Accounts
Matthew Chiang from Canada

I am a novice trader with 2-years trading experience. Over the past 4-years I have purchased and read
enough books, newsletters, magazines, and software to make me talk like a pro. Yet in actual trading up to
1992 I have a loss equalling a new Mercedes Benz!

Plagued with a burnt pocket and frustrated with losses, I turned to professional newsletters, advisers, CTA's
and managed accounts. I concluded that futures trading is only for the pros. I was more convinced when I
visited the CME and CBOT pits in January 93. In Feb/March, I was shopping for a good broker-advisor
while searching for the holy grail.

Fact 1: Without Proper Verification, Published "Track Records" can be False

I was attracted by the splashy, cover-page ads on the Futures Magazine put up by Broker "A." They have
engaged professional advisors (with combined 20 years floor experience and numerous titles) formerly
providing services only to floor brokers at $12,000 annual fees.

Their service was then available to the small investors at a fraction of this price. They sent me splendid
trade "records" and simulated performance sheets. I subscribed to their service and opened a managed
account with them.

Within 5 weeks, from June to early July, my account was down 60%. I immediately stopped their trading.
Concurrently, their published trade "records" showed only -10% in June and positive other months.

I challenged their record and protested against their poor management, their answer was even more
startling: They insisted on impeccable records, and they admitted only one "calculating error" of using
1/16th instead of the 1/32th tick value for the Bonds! They circumvented my claim by defending on non-
discretionary exemptions, and the advisor took the blow to relief the broker (the accused). Finally they tried
to mute me with a defense hearing and a possible counter suit.

To damp down their damaging acts to others. I decided to pursue an arbitration case with NFA, and
prepared myself to legal nightmares and counter claims. As expected, they defended the case with legal
might!

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After weeks of worry and exchanges of legal firepower, I finally settled with them before Christmas for a
mere 45% ($3,000) recovery of my loss. I withdrew the case.

Fact 2: Hypothetical Results REALLY bear no Resemblance to Actual Performance While I was shopping
around, I was wooed by no less then 2 other CTA-backed brokers. They kept sending me advise and
hypothetical trade performances from March to now.

Broker "W" is a CTA-backed full service broker situated in Iowa; they claim to have their ears on the
grazing grass and cornfields. I followed on paper their recommendations. A $10,000 account taking all of
their cattle and grain trades would become $2,000 from March to Sept. 93!

Now I still receive their regular mailings and I use them, jokingly, as counter-position tools. Perhaps their
ears are too close to the fields to be full of grasshoppers.

Broker "S" who sells CTA-managed futures sent me piles of trade results and managed futures reports,
claiming that CTA "K" topped the April 93 managed futures survey of his category.

I was attracted by the reprints and so I followed a few more issues of the survey. A few months later, CTA
"K" disappeared from the list and Broker "S" stopped sending me promotional letters on that managed
account. I am not sure how that CTA performed lately.

Correct me if I am wrong, most CTA's are like the ebbs and tides. I do not see many repeating names on
annual surveys.

Fact 3: Psychological Barrier Kills, Not Your Losses

With the "pros" looking after my financial health, I felt safe and I ventured out on my own analysis. I still
maintain a small account at discount broker "I" and a bank currency trading account, and I traded on 9
occasions throughout 1993.

Surprising, these 2 order-desk accounts were up by $3,500 from Jan to Aug 93, while I lost mega-bucks
with Broker "A" and paper accounts with Broker "W" and "S." All these trades were technical, without any
regard to fundamentals nor report forecasts; I did not even read the newspaper.

Psychology Makes Hotline Trading Difficult

Thrilled by these results, I persisted, I have learned the hard way that good trader psychology is more
important than a top advisor (try this: Futures Chart's Trend Setter, Commodex and Larry William's hot
lines are verified big winners, but can you trade them? Why not?)

Small but Positive Step . . . Brokerage Account is Now Up

I stopped looking for advisors, and in August, I purchased Swing Catcher. My first Swing Catcher trade
was a small loser ($450 in Pork). Then I applied my other tools to filter the Swing Catcher signals. I made
numerous paper trades and a few actual trades between then and now. My actual account at Broker "L" is
now up by another $1,200. Small but positive.

Discipline, Self-Analysis & Emotions are Vital I will test my cash currency trades with Swing Catcher and
other tools and hope to see better results. Discipline, self-analysis and emotional detachment are vital to
survival, not a CTA nor a holy grail. They can help, but they are not the main key.

Courage and Pulling the Trigger is Difficult On paper, Swing Catcher trades were doing much better. In
actual trade, I did not do as well because I still lack the courage to trade more than 2 markets at any one
time, nor would I take every signal that comes along, I also have difficulty in pulling the trigger. Thanks to
mega-ton losses by the "pros", I have gradually overcome the fear of manageable losses. These endeavors
and huddles have become my 1994 training goal.

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I am far from earning back what I have lost in these years, but I am glad that time and experience has
finally shed light in my trading path. I am also bold enough to assert that small traders can still make it in
the futures markets. With proper tools and a good trader's mindset, a novice may even out-perform the
pros!

Swing Catcher is not the best system available, but it works. If you apply properly your own trading filters
and styles, you may improve your trades.

Finally, when you feel frustrated by your own losses and want to call in the prose and let someone take
over your fate, or simply want to become a brain-dead trader, remember this ad:

"What does your broker get when he makes a mistake? A full-commission!" This is the crux.

Random Thoughts on Trading and System Design

Part 2 - Adam White

Some Systems are Designed to Work on Data for a Short Time Period Based On Hindsight

There is a much less obvious but equally dangerous form of curve-fitting that involves curve fitting the data
to the system. We are referring to the increasingly popular practice of using a computer to pick out short
time periods during which chosen markets have historically acted similarly.

For example, we might be told that over the past ten years buying silver on May 10 and selling it on June 1
has resulted in a profit every time. The obvious inference is that if we do it this year, we have a 100%
chance of winning. There are tables and tables of this meaningless coincidental data being offered to traders
in books and almanacs.

Seasonal Characteristics Are Highly Questionable

Part of the theory is that there is some sort of very short term seasonal or cyclical basis for the similarities,
although this is patently unprovable.

A properly programmed PC will find literally thousands of "trades" like this over any fairly extensive set of
data, just as an optimization involving a great number of variables will almost always find a great number
of "profitable" combinations.

Data Optimization Can Fit a System to Arrive at a False

Impression of a Seasonal Characteristic

The optimization fits the system to the data, and the seasonality testing fits the data to the system. Both
practices result in overly curb-fitted trading results that offer no hope of success in real trading.

The Trouble Is . . . The Markets Don't Listen

Here is another example of something that initially seems conceptually wrong. We are continually told that
every market has its individual character, and that therefore a trading system must be tailored to each
market.

We are also told: "Don't trade too many markets because it is difficult to watch more than a few at a time,"
and: don't test more than a few markets because it is unreasonable to expect a trading system to work well
over a range of markets."

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All of these concepts seem logical at first. The trouble is, the markets won't listen. They are not predictable.
They will not act tomorrow in the same way that they did today or yesterday, and you are fooling yourself
if you expect them to.

Trading Systems Should Operate on a Wide Variety of Markets and Market Conditions

Trading systems should be designed to operate profitably over a wide variety of markets and market
conditions. They should be simple and flexible enough that they won't be thrown for a loop by changing
conditions.

There Is No Best Indicator While we are reasonably convinced that there is no best technical indicator,
some are less likely to lend themselves to unwanted curve-fitting.

First, we can divide indicators into two major categories: static and adaptive. Static indicators are technical
studies or other entry or exit methods that do not "flex" with changing market conditions, especially market
volatility.

Good examples of static indicators are those technical studies, stops, and profit targets that are denominated
strictly in dollars or market points.

Systems that Use Changeable Targets and Stops are Likely Less Curve-Fitted

Adaptive indicators change stops and targets as the markets change. When these adaptive indicators
generate a trading signal, you can say that the market put you into or took you out of a position.

Examples include volatility-based entries and exists, channel breakout systems such as Donchian's weekly
rule, entering or exiting on an 'n' day high or low, and using recent swing highs and swing lows as entry,
exit or stop points.

As a general rule, adaptive indicators are less likely to become overly curve-fitted to the markets than static
indicators because the system designer will not feel the need to optimize them.

This is not because they are any less amenable to over-optimization than static indicators, but because they
adapt to changing market conditions while retaining their integrity.

Changeable Target & Stop Methods are Less Likely to

Strictly Limit Losses or Profits

The main disadvantage of adaptive indicators is that they do not strictly limit a loss or accurately lock in a
profit.lock in a profit.

For example, if your exit to limit a loss is a 10-day low, the 10-day low could be $500 away or $5,000
away. If your account is $20,000 in size, it seems unwise to risk as much as 25% of it in one trade, although
2.5% seems acceptable.

The same is true if you are fortunate enough to be locking in a profit. Adaptive indicators expand with
volatility, making it easy for a hard-won profit to disappear as quickly as it was created.

A reasonable compromise might be to allow the markets to dictate your entries and exits under normal
conditions, but if a particular market becomes too volatile, limit your potential loss by using a static dollar
stop (perhaps keyed to your account size) or avoid the market altogether.

Some Systems are Designed to Work on Data for a

Short Time Period Based On Hindsight

76
There is a much less obvious but equally dangerous form of curve-fitting that involves curve fitting the data
to the system. I am referring to the increasingly popular practice of using a computer to pick out short time
periods during which chosen markets have historically acted similarly.

For example, we might be told that over the past ten years buying silver on May 10 and selling it on June 1
has resulted in a profit every time.

The obvious inference is that if we do it this year, we have a 100% chance of winning. There are tables and
tables of this meaningless coincidental data being offered to traders in books and almanacs.

Seasonal Characteristics Are Highly Questionable

Part of the theory is that there is some sort of very short term seasonal or cyclical basis for the similarities,
although this is patently unprovable.

A properly programmed PC will find literally thousands of "trades" like this over any fairly extensive set of
data, just as an optimization involving a great number of variables will almost always find a great number
of "profitable" combinations.

Data Optimization Can Fit a System to Arrive at False

Impression of A Seasonal Characteristic

The optimization fits the system to the data, and the seasonality testing fits the data to the system. Both
practices result in overly curb-fitted trading results that offer no hope of success in real trading.

Don't Trade Nearby Contract At Expiration or It May

Cost You A Lot - Dr. Satish

Date 1/20/1994, the crude oil market was not a fast market that day. I decided to day-trade crude oil. I gave
order to sell February Crude Oil one-hour before the market opened. It was the last trading day for
February Crude Oil.

I put in an order to sell at a price. I wanted to exit before the close if I had a fill. Remember again, Crude
Oil market on 1/20 was not fast. LIT America clears through same brokers in Crude Oil pit.

The wheelers and dealers in the pit did not return my fill until after the market closed. What do I do now? It
cost me $3,100 per contract to take care of my problem.

Why was I trading the February contract on the last trading day? Because nobody advised me against it or
warned me not to do it. Somebody else was also buying and selling February Crude on the last trading day.

By the way, Mike Chalek, sold Dual Thurst System for $3,000 (it does not work anymore). Talon Trading
System for $3,000 (it does not work anymore). He is now selling a new system for about $2,000, will this
new system work. If he sells 100 systems worldwide, he makes $200,000. It will not work again in the
market.

Magic Numbers For More Profitable Trading and How

30 Samples Are Needed For Statistical Validity - Tom Cunningham

There are "magic numbers" that are quite helpful in making commodity trading more profitable. There are
fibonacci retracement numbers such as .618, .500, 1.618, and so forth.

In opinion polls, the magic number used to be around 1600...meaning that in order to have an acceptable
amount of error in these polls, a researcher would have to poll about 1600 persons who fitted the profile of

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the average US citizen. After all, one could hardly take the opinions of those entering or leaving a high
school, as there would most certainly be an age bias, a geographic bias, an ethnic bias and an educational
bias.

If 82% of the country's citizens are high school graduates, then the poll should be adjusted so that high
school grades have 82% of the weight of all poll respondents, and so forth.

Better profiles have allowed that 1600 number to be lowered to around 600, with only a slight increase in
the probability of error.

In trading, we should have a number to tell us whether the information we get when we back-test is the
result of random action, or the result of our system finding an opportunity. (one successful trader observed
that every person he knew who believed the "Market-is-infinitely -efficient" concept also happened to be
poor!)

30 Samples Is Sufficient For Testing Purposes

After all, the purpose of a system or practice is to find something that's NOT random. So we need a number
to help us know randomness from opportunity. That number is thirty.

That means we should get at least thirty random samples before we conclude whether, say, buying the day
after a new high is made would likely be profitable.

Coins Do Not Have a Memory By way of explanation, suppose there is a young fellow flipping pennies.
Each time the coin comes up "Tails" he puts the coin into his pocket to spend, for he is looking for the
magic penny that, when flipped, will only come up "Heads."

After numerous pennies have been discarded, he has a penny that has come up "heads" five times in a row.
Delighted, he ceases his search, ready to bet the next fellow into a three-to-two bet that the penny will come
up heads.

Of course, we know that the penny's chance of coming up heads is exactly 50%, regardless of previous
flips.

The reason that our young man has erred is that his sample is not large enough. Had he flipped 30 times, he
would have come pretty close to 50% heads, at least close enough that he would have tested that penny
much more extensively before wagering (and losing) with it.

Vigorous Testing Is Required

So when I read that someone has discovered some new indicator or rule that greatly improves profitability,
I first ask "How many trials has this been given?" If it is a one variable idea that worked seven out of eight
times in randomly selected markets, it's worthy of more testing, and I'm glad to read about it. But it's not
ready to be incorporated into my methods until it has passed vigorous testing.

Any Trading System Should Have A Minimum of

30 Actual Trades To Judge It

Of course, one should not judge any trading system on less than 30 trades, unless the drawdown is so bad it
is disqualified earlier! Even then, a bad drawdown may only indicate overtrading by the tester, for taking
the system to 30 trades may well reveal a decent profit-to-drawdown ratio. We just can't know much in less
than 30 trials!

By the way, the 30-test rule is one reason why we should have a bias toward shorter term trading rather
than the once-a-year concept requires at least 30 years if tested in real-time!

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 'Questions to Ask Before Buying a Trading System'
Richard Thiessen

1. If the system is that good, why is it for sale?

2. What is new and different in this system?

3. What color is the "box"?

4. How is the system operated?

5. Has the vendor actually traded the system himself and if so when?

6. How does the vendor define accuracy?

7. How does the vendor define drawdown?

8. How consistent is the system?

9. How does the vendor define profit?

10. How was the system tested?

11. What is the guarantee?

12. What is one buying?

13. Is there a cutoff date?

14. How useful is the manual?

15. Are references available?

16. When is the improved system coming out?

The USA Is Better Than Japan, At Least In

The Field of Trading - Tokiyuki Yokoi

I'd like to introduce myself. After graduating from my University, I joined First Chicago Bank, Tokyo
Branch, and I learned currency option and short-term debt market. Now I'm registering as a CTA, and this
month I begin to manage $500,000 for my company. This is my first challenge as a money manager.

I'm a system trader and most of my knowledge comes from books and systems published in USA. I think
the USA is far superior to Japan in the trading area. I believe following USA traders is the best method for
success as a trader. I subscribe to Futures Truth Reports and found Swing Catcher Trading System to be an
excellent program.

EDITOR COMMENTS

The excellent submission By Mr. Jumma on the importance of diversification is extremely relevant for
successful trading. Many times I have talked to traders who have lost money or made less money than they
should, due to diversification issues.

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 Gann's early trading history is truly astonishing. Almost all of Gann's work and writings are from later in
his career. It's very unfortunate there seems to be little or nothing detailed ever written about the techniques
he used to achieve his amazing trading record from 1902 thru 1909.

Dr. Satish's large losses as a result of trading the spot month on the delivery date is very uncommon.
Normally, the broker will warn you not do that. However, he can't just blame the broker, as he has done. It's
also his fault for not being aware of that readily available information.

Tom Cunningham's article on the importance of a statistically significant number of tests is very valid. A
very important point raised is the fact you can't judge a system on less than 30 actual trades.

Issue 10.

Can Money Be Made Based on Price Movement That Takes

Place Just Prior To The Close? - David Stone

This research was done using data from the Live Cattle market over a 4-1/2 month period. The results
probably would be similar using data from other markets but I've not verified that to be correct.

Using my Quote Machine I made a note of the price exactly 30-minutes prior to the close each day. On the
next day I noted the opening price, the days high/low range above or below the open, and closing price.
Days were ignored if the 30-minute price and subsequent close were the same.

During the test period a total of 61 trading days had up-trends the last 30-minutes, and 78-days had down-
trend the last 30-minutes.

Next Days Close Higher 62% of Time

Next Days Close Lower 56% of Time

The results were bullish for the next day if the price trend was up during the last 30-minutes, a total of 38
out of 61 times, or 62% of the time.

If the last 30-minute trend was down, the next day was likely to be bearish 44 out of 78 times, or 56% of
the time.

This test has some good statistical validity. It seems to me that a good trading system could easily be
developed based on this research.

Unfortunately, the percentage numbers may not be quite strong enough to make the potential trading
system that reliable or profitable. However, with more extensive research done in a number of varied
markets, and good money management skills, any potential system based on this research could in fact be
highly profitable.

Additional research needs to be done on this subject to decide on the reliability of any potential system
based on this concept.

Can Money Be Made Based on Difference Between Closing Price

and Settlement Price? - David Stone

Did you now that the official settlement price and the actual closing price are frequently different and quite
often are changed some time after the actual trading ceases?

Some Club Members may not be aware of this fact. However, if you have a quote machine I am sure you
have noticed this regular occurrence.

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The market stops trading and perhaps Soybeans last tick at exactly 679. Usually, about 10 to 20-minutes or
so AFTER all trading stops, the Exchange gives the day's so called settlement price, of say 678-1/2.

Official Closing Price Not Necessarily Based

on The Last Actual Trade That Took Place

Thus, even though the last actual trade was at 679, the official closing price will be 678-1/2 that will be
published in newspapers and data vendors.

Another example is TBonds last trading at say 113-04, but about 15-minutes AFTER trading stops the
Exchange reports they settled at 113-03.

Why does that occur? The exact reason is somewhat unclear. However, it seems to be related to the fact the
Floor Brokers do some type of settlement between themselves after the actual close of public trading.

It's Possible To Make Money

Based On Close/Settlement Phenomenon

Is there any way money could be made based on this common settlement procedure? Quite possibly! I
tested this concept in the Live Cattle market and discovered the following:

A total of 30 closes were observed where the final settlement price was higher than the last tick actual trade
price. On 22 days the next day's closing price was bullish, or 73% of the time!

A total of 28 closes took place that resulted in the days final settlement being lower than the day's last tick.
On 21 days the next day's close was lower, or 75% of the time!

This analysis is far from complete. Additional markets and a greater time period need to be analyzed.
However, there's a reasonable chance money could be made using these observations and concepts.

Opinion on Swing Catcher - William Taaffe

I wanted to let you know that I am quite impressed with Swing Catcher System and the level of support
Dave Green have provided me following its purchase.

The system really does a marvelous job of standing on its own. I found it very easy to set up and operate.

In fact, I am not sure that the well prepared manual is really needed for successful set up and operation of
the system. However, I appreciated the in-depth work put into it, because I love to read all I can about the
background and operation of what I am doing. It has satisfied my appetite.

At the personal level, Dave Green being available to me every time I have called with computer or trading
related questions is most appreciated.

Many people and companies make attractive promises of support after purchase, but many do not deliver.
Dave Green has lived up to his advertised promise.

By Not Quitting When Down - You Too Can Trade Successfully - Robert Edwards

For most traders, commodity trading is a roller coaster ride. Climbing the hill is often slow and tedious, no
sooner do you get to the top, you fall off a big drop and end up below where you started.

The slow back and forth climb can take weeks, but a large loss comes so fast and carries our wills to win
with it. A loss can be so devastating!

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Realize then that you have made money before and you can do it again. Keep following your plan if it is a
proven plan, or try to make the necessary adjustments, but don't quit when you are down!

The sun will come out tomorrow. It is always the darkest just before the dawn. I have made some of my
biggest trades right after big losses.

I may be unique, but when I get down, I really get serious and disciplined and trade my best.

I have to watch myself when I get in a hot streak. That is when I get reckless and play hunches rather than
stick to my plan. Or I will not be selective and take marginal trades; or I will refuse to get out when a
mental stop is hit and add to a losing position and really get clobbered.

Quit When You're Ahead and Never Quit at the Bottom

Quit when you are at the top of the mountain, after a big win. A roller coaster rider can be saved a lot of
grief by quitting at the top of the hill before the big plunge. After the plunge, it's too late.

Stop when you are ahead or after you have come back substantially. Never quit at the bottom!

I once gave up commodities for good (I thought). I could trade and make money, but after a big loss I
always quit. Then I began trading mutual funds and I discovered a secret that has made all the difference. In
March 1990, I began mutual fund switching in an IRA account and because it was my retirement money I
could not quit. Also the account wasn't leveraged so I had staying power.

Losses Made Me Feel Like A Complete Failure

On my first trade, I bought gold shares and quickly lost over 12% of my capital. I started with $8,000 and
was down $1,000 within two weeks. I stayed in and in August, 6 months later, the Iraqi invasion of Kuwait
rallied the gold market enough to let me out. I was so relieved.

I switched to technology and health section funds and by January 1991, I was a thousand dollars ahead at
$9,000. Just before the Iraqi invasion, I again bought gold shares at the top of the market.

When gold plunged the next day, I was down over $1,100 to $7,900. I jumped out at the bottom and put my
money in a money market account. I buried my head in the sand. I was a failure. Not only could I not trade
commodities, but I couldn't even trade mutual funds that were not leveraged.

I saw the stock market rally and I stayed out because I missed the bottom and thought I couldn't afford
another loss. I stayed in cash until late April, thereby missing a major stock market rally.

However, I then realized if I lost my money in the market, the market was the only vehicle that could ever
bring me back.

You Must Trade With A Plan and Diversification

I got serious and began trading with a plan and used technical analysis timing and S&P to switch back and
forth from sector funds to cash.

I learned to put only 1/4 of my money in on any trade any day and to diversity. In a correction, I would then
have money left over to buy at lower prices and average down.

However, when the market exploded, I bought 100% in one day, knowing the momentum would carry me
up for a few days.

Because I was in a no-load account, a $25 gain was meaningful because there were no commissions.

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 50% Gain Thanks to New Approach
But Lost Money on First Commodity Trades

By the end of the year my account had started at $9,000 and grown to $13,500. I had a 50% gain for the
year and a 70% gain from the low.

Over the two years I had averaged a respectable 25% annual gain. But had I quit at the bottom, it would
have been different.

With these lessons I learned from trading mutual funds, I was ready to tackle commodities in August 1993.
I started with $9,424. I began trading because I wanted to get in on the seasonal rally in Wheat. The market
was very sloppy but when it started to get support around my $3.02 to $3.05 target, I quit day-trading to
finally buy Wheat. I ended up buying December Wheat within 1/2 cent of the Sept. low. But then it started
down, I jumped out just before it made a new fractional low. That same day the market reversed strongly
back up, but I was already out.

I never got in Wheat again. I was frustrated and quickly lost money in Soybeans. I was devastated. My
account was down to $5,500.

Made Money by Not Quitting At the Bottom Winning and Winning Big
- All My Losses Recovered and New Equity High

I always have a $5,000 yearly limit to what I am willing to lose in commodities in a year. Once my account
was down $5,000 to $4,400, I would have pulled out, based on my yearly $5,000 money management stop.

I only had $1,100 more to lose and it was all over for the year. But this time, I remembered the gold losses
in my mutual fund account and told myself I could not stop at the bottom.

I almost immediately started winning and winning big and caught the Cocoa rally on a couple contracts and
in just a few weeks I had all my money back.

In November I hit my high water market of $11,200. It was time to quit now. I was at the top.

But with success, I became reckless since I was playing now on the market's money. I threw away my
discipline and over-traded. A small move against me in a couple trades knocked me back to a low of $4,990
by mid-December.

That was when I had a real day of reckoning. This time my wife found out how bad I was doing and she
was devastated. We went over 80% of my trades but a few losses killed me.

Success Made Me Reckless but Stopping Big

Losses Allowed the Gains For Successful Trading

If I could just stop the big losses, the big gains will put me on top. I got serious and decided I would only
buy at support levels and would try and get out when the support levels were breached.

I would quit giving my hard fought gains back. I started on the road to recovery. By January 1, 1994, my
account had $5,490 in it, a $500 gain the last couple weeks of December.

I Quit My Job Thanks To Trading Successfully

I have continued to gain and on Friday, January 28, 1994, my account registered an equity total of $10,544.
I made over $5,000 in the first 4 weeks of 1994, nearly doubling my account for the first month. That
weekend I quit my job at Employment Dynamics Inc., a private rehab company my wife and I started.

83
Confuscious said that you should choose a job that you love and you won't have to work a day of your life.
In commodities I will work night and day because I love it so much, it isn't work.

Now Taking $2000 A Month Out Of Profits

I am taking $2,000 per month out of my trading account to pay my share of the household expenses. If I
lose all my money I will have to go back to work with my wife. I now have real incentive to keep my
commodity account above water (HA-HA).

Profits above the $2,000 drawdown I am going to place in a mutual fund account at the end of each month,
so that I will have a nest egg to start over with if I have to and so I won't over-trade. I am very excited. My
goal is to average $200 per day or $1,000 per week.

Had to Bypass Some Large Winners Due To Having A Small Account

On paper I made thousands and thousands of dollars in January, thanks to a new indicator I have
developed. However, I could not take but a few of the trades because I had a small account. Things should
be better in February, with the additional capital which should allow me to better diversify.

I am using the Swing Catcher program as a filter. I place my trades intra-day and look to get a confirmation
with a corresponding buy or sell signal from Swing Catcher. If I get the signal from it I add a contract the
following morning (adding to an already winning trade). If I don't get a confirmation from Swing Catcher, I
will quickly bail out.

Making Money By Pursuing Winners and Getting Rid of Losers

By doubling up on my winners and getting rid of dogs and losers, I am hitting a home run or two each
week. Despite the hours and hours of technical research, my trading boils down to my intuition.

I have recently been able to quantify what I am doing intuitively, into a set of indicators which gives
objective buy and sell signals. I make daily calculations on 35 Futures Markets.

Each day after the close I calculate if I should go long or short or do nothing, based on what I perceive the
market should do. Every time I am wrong I learn something. I really do believe it is possible to repeat what
Gann did. Richard Dennis did it recently, as told in the Market Wizards book.

Mr. Dennis is my inspiration. He took a small amount of money and turned it into large amounts of money.
Without dangerously pyramiding. He did it based on mathematical probabilities. I hope to do it too. If I fail,
it won't be because I quit at the bottom. I have only one goal this year, that is I never allow myself to get
over a $5,000 drawdown, no matter how much money gets into my account. I made money in January
based largely on loss control. Now I need to learn to let my profits run a bit more. I am making progress.

Became Profitable By Not Quitting When Down,

Learn From Mistakes and Stick To A Plan

If I had quit when I was down to $5,500 or $4,990 mark, this would not have been possible. I wonder how
many possible millionaires quit just before they learned that last secret which could have made the
difference between mega-success and failure.

Get a plan and stick to it. Learn from your mistakes and don't get down on yourself. If you did it once you
can do it again. It requires confidence. Richard Dennis lost money early when he started on the Mid-Am,
yet he never lost confidence in himself. When he was interviewed for the first Market Mavens book he was
in the middle of a horrendous losing streak, with accounts he managed losing millions. Yet he never lost his
confidence. He was unshaken.

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In November 1989, I had the confidence to start Employment Dynamics, Inc. and had the audacity to
predict a million dollar gross by December 1994. I reached that goal early, in January 1994, after only 4
years and 2 months.

On A 5-Year Plan To A Million Dollars Trading Commodities

We billed our one millionth dollar. When I started the company my family laughed at my predications.
They are not laughing now. I am now on a five year plan to net rather than gross, one million dollars in
commodities. Go ahead and laugh now. We will see who is laughing in 5-yrs.

I have always had impeccable confidence in my paper trading. I now need to get that confidence in my real
trading. Since I started my mutual fund account in March 1990, I have not traded well. Often my timing
stunk. But I have managed to average over 20% gains per year in my mutual funds. In my commodity
trading, a 20% gain compounded monthly, would increase my January 1, 1994 initial $5,490 to nearly
$50,000 this year. This is the goal I have set.

I will keep you posted, so you can see how things turn out. But one thing you can be sure, no matter what
happens, I will not quit when I am losing. I will not pull out at the bottom. Remember, you must never quit
when you are down.

How I Lost Money By Trading Perpetual Data Instead of Actual Contract Data
Dave Montgomery

When I first started trading commodities some years back, I decided to build a computerized data base by
buying Perpetual Data. I had read that CSI Perpetual Data was a wise choice for a data base because of
several reasons.

For me, the most important reason was the fact I could save both money and time by simply maintaining
one permanent data file per commodity. I would never have any reason to acquire back-data because the
perpetual data was good for back-testing. I also read how well Perpetual Data mimics the actual signature
of the specific contract months.

Therefore, I started trading April Live Hogs using my computerized charting software, trend lines and cycle
analysis. After careful and detailed chart analysis, I determined with great confidence the Hogs were bullish
and would continue moving up. Consequently, I decided to trade April Live Hogs strictly on the long side
based on my bullish chart analysis, etc.

How's It Possible To Be Losing When I'm

Trading In Same Direction As The Trend?

Much to my chagrin and light pocketbook I had a string of consistent losing trades. After each loss I looked
at my Perpetual Data bar chart in amazement and said to myself "how did I possibly lose on that trade when
my chart is obviously in a bullish trend and my trade was betting it would in fact go up"?

After 7 out of 8 losing trades, all on the long side of Hogs, the reason for the loses suddenly hit me.

The Reason For My Losse Was Due to Not Using The Correct Data

As I was looking at my bullish looking Perpetual Data Live Hog chart I also by chance happened to look at
chart of April Hogs from a charting service. It immediately dawned on me what was going on. The chart
service specific contract month chart of the April Contract had a decidedly bearish look to it. However, my
Perpetual Chart had a definite bullish look!

Why was my Perpetual Data chart bullish looking but the April Chart bearish looking? That's because the
Perpetual Data was based on a blend of the two near contract months, April and June.

85
Due to seasonal factors, the June Contract happened to be strongly bullish but the April Contract I was
trading was somewhat bearish.

In addition, since the Perpetual contract is weighted based on 'X' number of days into the future, the bullish
June Contract was getting much more weighting than the nearby April Contract. Thus, the Perpetual price
was based on a blending of the 2 contract months and it was heavily favoring the June Contract. That
resulted in the perpetual data looking considerably more bullish than the April Contract I was actually
trading.

Trading Against The Trend Without Realizing It and Why Perpetual Data Should Not Be UsedBy Itself For
Actual Trading

Consequently, all my losing trades on the long side were going against the negative trend of the April
Contract. The trend was bearish, but I thought it was bullish because my Perpetual chart looked bullish. I
can't blame CSI for this because their sales literature did not say you should trade using the Perpetual Data,
which is artificial data. In fact, CSI infers Perpetual Data is most valuable for historical testing, rather than
actual usage for real-time trading.

Now I know to only trade using actual contract month data. In fact, I use back-adjusted Continulink
(Continuous) Data, which is based on the actual contract month being traded.

What I Didn't Like About A Competing Newsletter ... Too Many Vendors - Also, Information
Wanted - Phil Baker

I like the idea of a newsletter like this. You and the readers should help each other through this Commodity
Traders Club News each month to learn how to trade properly and give ideas.

I subscribed to another competing newsletter once for about a year, but the writers and readers were always
pushing products of their own, or if they wrote in about a product they didn't or did like it, but they never
told why. Also, I don't want to pay for a newsletter unless they tell why they do or don't like a system and
how the system works.

I would think CTCN has some subscribers who use SuperCharts by Omega Research. So I would like your
readers to give trading ideas each month to be used with SuperCharts. I would also like you and your
readers' opinion on Nature's Pulse System from Ed Kasanjian Research.

How I Made Enough Money To Pay For the New House I Am Building - Don Smeathers

I'm very happy with the Trend Index Trading Company's Dow Jones Trading System for trading OEX
Index Options.

The strategy I have found most productive is to put on credit put spreads each month using the total number
of contracts from the buy date with 5 contracts for each buy.

The target is usually the strike price I sell and the current spot (cash) is the puts I buy. It takes $1,000 for
the first 5 points spread difference and $500 for each additional 5 points.

Thus, $5,000 will permit 5 contracts to be written with a five point spread (sell 445 puts buy 440 puts). The
short puts are the only contracts bought back when the stops are hit. Using this strategy with the Dow Jones
System, in 4 months I have made enough money to pay for a new home. I started with $50k - I now have
over $100,000!

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 My T-Bond Trading System - Frank Morgan

I want to share some information and make an offer. First, by way of introduction, I have been following
various commodities for many years and have been a trader since 1990. I have been a diligent searcher and
have had some success and some failures.

Recently, I have come upon an approach to trading T-Bonds that was quite rewarding, yet surprisingly has
had no drawdowns to-date. This is not my system, nor is it available to me on disk yet. After looking into it,
I've started to trade it. The negation of drawdown is accomplished by scaling the number of contracts
available; an account of about $25k is needed to take advantage of this scaling potential.

I would like to have partners and co-traders with me. I am offering a return of 40%, payable as 10% per
quarter to be sure there are issues of trust and success here.

The most effective way I can think of to address those issues is to offer to send by phone/fax the trading
signals as they are generated and to do this for some reasonable period of time to potential co-investors.
Realistically, the position we are going to take tomorrow and then the analysis of how that position
performs at some time in the future is the most effective way of convincing myself and/or anyone else what
a system can be expected to do. If interested, please call me at 404-525-1130.

Solving The Problem of How To Get On Board A Run-Away Market,

Thrust Trading Method - submitted by C. R.

The problem with getting on board a runaway market may be solved by using what is called the thrust
method, which is useful in establishing positions in runaway markets with definable risk.

The thrust method helps you overcome the problems of catching a running bull (or bear) market. If you buy
(sell) at any price, you might buy the high day just before a significant correction.

Getting on board just prior to a big correction would require additional margin money to stick with the
position. On the other hand, if you buy during a correction, you never know how many days the reaction
will last.

To use the thrust method in a bull market, you must first have a down day where the high is lower than the
previous day's high and the low is lower than the previous day's low.

Three days are marked on the March NYSE composite index chart which satisfy this requirement. (There
are also some others that are not marked, such as the setback on December 6, which gave another profitable
signal.)

Runaway Bear Market Entry Technique First Requires An Up Day

In bear markets, use a reverse of the method for a bull market. In runaway bear markets, you must first
have an up day where the high is higher than the previous day's high and the low is higher than the previous
day's low.

Let's take the setback into the December 2 low as an example. The December 2 setback has a high that is
lower than the November 29 high and a low that is lower than the November 29 low.

After the first down day, a buy stop is placed over the high of the down day. In this example, the buy stop
is at 118.30, which is just above the December 2 high. If the correction continues, lower the buy stop to just
over the high of the next down day as long as prices retreat.

87
 Prices did not make a new low on December 3, so the buy stop could not be lowered. (Inside days are
ignored, and the previous day's highs and lows are used as your key chart points.) The buy stop was filled
on the December 4 rally to new highs.

You Always Know Where Your Stop Is

Whenever you enter the market using the thrust method, you know exactly where your protective stop will
be. Once the buy stop is filled, the initial stop loss protection using the thrust is just under the reaction low.
For the entry at 118.30, the protective stop is at 116.95. End.

P.S.: The Thrust Method is reprinted with permission of Commodity Closeup. However, I (C.R.)
personally differ a little with it because I believe that a market does not have to be a "runaway" for this to
provide some help in managing money positions. Chart in Print Copy

EDITOR COMMENTS

A special note from the Editor: For a number of years Futures Truth has done a great job of carefully
testing some 200 different trading systems.

For your information, Swing Catcher was tested by them for 4-yrs from 1990 thru Jan 1994. Their latest
ranking in January 1994 had Swing Catcher Trading System ranked as the 5th best trading system tested
by them, since release date, with a 78% return.

However, starting with the Feb/Mar issue, Swing Catcher is no longer ranked by them. There are several
reasons for my asking them to discontinue the tracking. The main reason is because as a result of their
admitted lack of resources, they were only able to trade it using a fixed portfolio of just 4-markets that were
originally randomly selected.

The system in actuality follows 35-markets, and then ranks the best 18-markets to be trading based on their
trending characteristics and profit potential. Due to their being able to only track 4-markets (DMark-
BPound -TBonds-Euro$), it resulted in their published results being considerably different than actual
results. That's because some (possibly all) of the markets Futures Truth was tracking may not have been the
same markets being traded by system users.

System users are in fact using the built-in Trend Ranking capability to isolate the best markets to be
trading, and then selecting from that list of 18 recommended markets, ranked in-order.

The Futures Truth ranking (though quite good and complimentary overall), was nevertheless at certain
times, considerably different than the results system users were achieving. Thus, to avoid any confusion or
discrepancies, I thought it best if they stopped ranking it for now, or until we can figure out a solution to
this problem.

With reference to Dave Montgomery's contribution about how he lost money due to using CSI Perpetual
Data for actual trading. I just read the CSI Version 4.05 Manual and will quote some of the contents about
their Perpetual Data: "Many traders have found it very helpful as both an analytic and trading aid...It
represents a weighted average of the two contracts that lie adjacent to a given period-ahead point in
time...Traders employ this concept to study a markets characteristics, etc".

Unfortunately, Dave realized too late that this data is not recommended or suitable for actual trading. As
stated by CSI, it's only a trading aid.

Thanks to all who made contributions to this issue. All members are invited to share their knowledge by
contributing to the next issue of CTCN.

Issue 11.

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 Just in Time For The April 15th Tax Filing Deadline -
A Summary on How to Qualify for Trader Status - Ted Tesser

In this article, we will explore some of the criteria which have been deemed essential for one to qualify for
this classification.

First of all, there is no IRS Code section which clearly identifies this election. The Code defines an Investor
as "a person who buys and sells securities for his own account." (IRC 263A.) On the other hand, the IRS
Code also defines a professional Dealer or Market Maker as one who holds "securities for sale to customers
in the ordinary course of business..." (Reg. section 1.471.) The Code does not specifically define what a
Trader is.

The definition of Trader has evolved through various court decisions over the years which create and define
this hybrid category. Basically, a Trader is an investor who trades with such a high level of activity, that the
investing becomes a business to him. And, although he does it for his own account, he is still afforded some
of the benefits of the professional.

Over the past few years, many cases have been decided in favor of the trader status, and several of these in
particular stand out as landmark decisions. As early as 1935, the Supreme Court decided on the Trader
designation in Snyder vs. the Commissioner. The Court stated that "a taxpayer can be involved in the
business of trading securities."

In 1967, in the case of Reinarch vs. the Commissioner, an option writer did not even have to prove that he
was running a trading business, because the nature of option writing lent itself to the basic definition of
Trader. In 1978, in the case of Marlowe King vs. the Commissioner the same was decided for a future's
trader - even though some of his transactions were long term!

More recently, in 1991 two cases were decided in favor of trader status, and each was significant. In Nubar
vs. the Commissioner, it was held that the extensive trading of stocks and commodities constituted
engaging in a trade and business.

In the most significant of decisions, Ropfogel vs. the U.S. District Court-Kansas, the criteria were
specifically identified which qualify a person for this coveted status.

These factors were determined to be the following:

1. The average holding period of the security (or other trading instrument.)
2. Whether long or short-term profits were expected.
3. The extent of financial leverage was employed.
4. Taxpayer's intent to collect dividends and interest.
5. The expectation to derive profit from frequent trading.
6. The presence of the Schedule C on the tax return.
7. The existence of an office.

To summarize, to be classified as a trader, an investor should file a Schedule C, engage in very frequent
trading, and profit from short-term transactions. If the trader is engaged in futures or options activities, they
will, however, allow longer term transactions.

Interest and dividends should not be a significant part of income, and the trader should not be buying
investments for reasons of fundamental under-valuation in the market. He should be doing so to capture
short-term swings in market movement. For this reason, technical rather than fundamental analysis gives
more support to the Trader status.

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Frequency of trading is an issue, and daily trading is best, although not required. Also, trading should
involve substantial amounts of time tracking and analyzing investments, but a full-time profession is not
necessary for trader status.

In short, not everyone will qualify for Trader status, but many people do. It is better to cover as many bases
as possible in qualifying, and well worth the effort to do so.

A More Detailed Explanation To My Article of Last Month On How

I Used Spread Profits To Buy My New House - Don Smeathers

The goal of this letter is to describe the way I use the Dow Jones Trading System program to trade OEX
options.

This is not to be interpreted as to be the only way to use the program, but I have found it to be reliable and
profitable.

I use credit spreads using OEX put options of the current months expiration as the trading vehicle. I
determine how many contracts by using the Dow Jones Systems Trend Index, aggressive variable mode
total contracts, the most recent trend. Thus, the most contracts that I would have ever use is 65, based on 13
positions of five contracts maximum exposure during the recent bull trend.

Then I would buy the nearest in-the-money put and sell the nearest out-of-the-money puts and take in the
credit. I hold the contracts to expiration and pocket the profit.

If a trend is just starting on the Dow Jones (aggressive variable, actual Index), I add to my positions as your
program indicates (five contracts at a time) using the same parameters for entry.

As the market continues to move thru strike prices I buy higher strike puts or continue to add to the current
long strike puts and sell higher strike puts depending on the market.

The cost to add positions with a five point strike difference is $1000 per contract, therefore adding five
contracts at a time requires $5000 (less the credit money that's generated). This program requires $15000
minimum equity and level two trading at Charles Schwab & Co.

At the end of each month's expiration I start with the total number of contracts that the Dow Jones program
indicates to hold in open equity. That way I can continue to profit if the trend continues and even add
additional contracts if they are generated by the system.

This program has permitted me to achieve a high degree of success in trading the OEX with reasonable
confidence.

I check every day to see if the Dow Jones System confirms my trading action, but the OEX actual index
and the OEX Harmonics seem to be too conservative.

I think that investors can use this system of trading using deeper in-the-money OEX contracts and achieve a
more conservative return if they feel uncomfortable using the at-the-money and nearest strike of puts. The
following is supporting documentation concerning spreads:

Monetary Requirements: $15,000 (Broad Based) minimum equity - $5,000 (Narrow Based/Equity Options)
minimum equity - Cash or MCA to cover the difference in strike prices. Plus any other requirements.

Tips on Entering Order - (Chart Referred to is in Print Copy)

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Enter the buy side first. When to use: If you think the market will go up somewhat or at least is a bit more
likely to rise than fall. Good position if you want to be in the market but are unsure of bullish expectations.
You're in good company: This is the most popular bullish trade.

Profit characteristics: Profit limited, reaching maximum if market ends at or above B at expiration*.

If call vs. call version (most common used), break-even is at A divide net cost of spread. Loss
characteristics: What is gained by limiting profit potential is mainly a limit to loss if you guessed wrong on
market.

Maximum loss if market at expiration is at or below A. With call vs. call version, maximum loss is net cost
of spread.

Decay characteristics: If market is midway between A and B, no time effect. At B, profits increase at fastest
rate with time. At A, losses increase at maximum rate with time. -Short side carries the risk of early
assignment.

The Bullish Put Spread

In the put market, the bull call spread has an equivalent - sell the higher strike put and buy the lower strike
put.

This would create a net credit because the premium of the sold put is higher than the one of the purchased
put. The maximum profit of this position is the credit.

If the price of the underlying is above the strike price of the short put at expiration, both options expire
worthless.

The bullish short put spread can have a distinct advantage over the bullish long call spread. Because the
long call spread results in an initial debit, it must be paid for in full when it is established.

The short put spread results in an initial credit. Under current margin rules, it is only necessary for the risk
of the spread, i.e., the credit received minus its maximum value, to be available in the account. There need
not be an initial cash outlay if the margin account has excess equity.

Special Risks of Early Assignment

The second special situation that a spreader should be aware of involves spreads of American index
options. If the short option in an index spread of this type is assigned early, the cash settlement mechanism
of index options creates a debit in the account for the amount that the short option is in-the-money at the
end of that business day, adjusted by the multiplier of the index.

When the long option is exercised, the amount credited to the account will be determined by the settlement
value of the index on the DAY it is exercised. There is a full one day's risk if the long option is not sold at
some time during the next trading day!

Summary of Spreading

The general rules of spreading are simple:

1. A spread can only be worth as much as the difference of the strike prices of the options that
define it.
2. If a spread is sold, the maximum profit is the net amount received. The maximum loss is the
maximum value of the spread minus that amount.
3. Spreads must be done in a margin account. If a spread is sold, the difference between the credit received
and the maximum value of the spread must be available.

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 The Trade-Offs of Spreading

The major trade-off of spreading is the elimination of the unlimited profit potential that goes with a long
option position. The spreader trades in immediate performance for a lower cost of entry.

Ways to Improve A System's Rollovers & Contract Months

George Glendenning

These are some of my thoughts on ways to improve a trading system I am now using. These ideas could
also be implemented by other systems:

Why not improve the data in particular with regard to rollovers. I have three suggestions:

1. Provide for automatic "close-to-close" rollover adjustments; 2. Include all "active contracts for each
commodity and; 3. Revise rollover dates to better coincide with the current dates for the switchover to "lead
contract" in the pits.

I've been using this system for almost two years and have developed ways of "fooling the system" to
overcome the first two deficiencies noted above.

I believe these changes are essential; and I believe most "serous" system users, e.g., those trading "real
money" will not object to changes which better reflect what is happening in the real world even if it means
an extra rollover or two per year for certain commodities.

After all, my system's automatic rollovers are so quick and easy that a few more rollovers and rollover
dates would be little if any bother. Certainly this would be a lot less bother than the extra procedures I now
go through in order to assure that the data I use doe not have artificial gaps.

These gaps introduced by the "close-to-open" rollover adjustments (instead of close-close) can be quite
large and also there's usually artificially reduced levels of volatility associated with rolling to a more
deferred contract rather than the next month.

Dealing With Ever Changing Parameters By Using

Multiple Computers - Bill Taaffe

My following ideas may not be terrific for the hobbyist that needs everything boiled down to a "no brainer"
situation. But for the trader whose family and personal future depends upon his success (is that you, too?),
there may be some promise here.

First, what would happen if we operated with two or three separate computers, each receiving the same data
downloading?

Computer #1 operates just like we are now doing: downloading, reharmonizing, rolling over contracts,
market tagging, trend ranking, generating trade signals/initial stops, targets/follow-up stops & targets.

At the appropriate time, the next parameter set is determined and installed. The data base on this computer
will be lengthy and additive as each month passes.

During each new calendar month new trade signals and follow-up stops & targets will be taken from this
computer as well as trades from last month which DID carry over under the new parameter set (i.e., trades
which did not disappear and are still open carrying over from last month).

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Computer #2 runs just the same as computer #1, except for only one thing: it always operates on last
month's parameter set.

So, when active trades disappear (due to new parameters) or are no longer open on computer #1 they will
appear on #2, because #2 has the parameter under which the trade signal and any follow-up was originally
generated.

Computer #3 simply extends the time frame open trades could be properly maintained.

It could turn into a lot of hardware all lined up, but it would be impressive to show your kids and friends!
But, seriously, what does a person do when his working life is soberly devoted to making money and
building capital through the futures markets.

I can say that I wouldn't look forward to acquiring more machines. But, if my trading system is otherwise
as good as it appears to be, must its utility extend only to the amateur and hobbyist appetite?

A related solution...I am definitely not in love with the idea of a multiple computer operation. It's just that I
can't seem to give up on being able to solve the changing parameters set challenge.

So to avoid having to have all that hardware, how about this alternative (which you could profitably sell)?
What I have in mind is a drastically cut down version of my trading system, a "shadow" software program.

This same program could have two or more versions with the difference between them only being the name
which the computer would recognize, such as "Shadow1" - "Shadow2" - etc.

As I said, this would not be a complete, full-featured program. Rather, it would only contain the modules
which read price data files, produce trading signals, and produce updates for trades still open from the
previous one or two months.

As I see it, virtually everything needed for the "shadow" programs should already exist on the real trading
program.

We would mostly be eliminating what is not needed, such as trend ranking, over-night runs, charting, some
or most of the utilities, etc. Parameter sets would be generated by the real program and manually backed up
on floppy disk. They would be manually installed on the "shadow" programs as needed to keep them
operating on "today's" price/volume data but using the parameters from last month (on Shadow 1), and the
month before (on Shadow2).

Following this strategy, the needed on-going minimum of 19 days of patterns would always be present.

Weekly trend ranking used in trading all contracts from current and prior months would be as generated by
the real program.

Hard drive size would be a factor, but big ones are available. Also, there is the possibility of a second hard
drive of a more moderate size being installed as a "D drive."

I hope that you can see my level of enthusiasm for all that my trading system has accomplished. I admire
the system developer's work very much and quite obviously want to use it as my vehicle to do well for
myself and my family.

If anything I can come up will help, then terrific!

If Hillary Clinton Made Money in Commodities, Why Can't You? Well,

Let's Count the Reasons . . . reprinted with permission of The Wall Street Journal

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Looking for a way to make some money in a hurry? You could always hit the lottery, or go to Las Vegas
and bet on red seven. Or you might play the commodity markets.

That's what Hillary Rodham Clinton did back in the late 1970s. Much of the money she and Bill used to
buy a home and invest in securities and real estate came from commodity speculation, it was recently
reported.

According to an account in the New York Times, Mrs. Clinton began trading live cattle futures in mid-
October 1978, and generated profits of $100,000 over the next 12-months.

If Mrs. Clinton can do it, why not you? Well, for a start, you could easily lose your shirt. During any one
year, three of every four individual investors who trade commodities lose money, says Charles K. Levitt,
senior meat analyst at Alaron Trading Corp., a Chicago commodities broker.

And over the long run, an estimated 95% of individuals who speculate in commodities futures lose money,
according to Bruce Babcock, editor of Commodity Traders Consumer Report, a Sacramento, Calif.,
newsletter.

Fierce Competition

The lousy odds come from the nature of commodities futures themselves and the fierce competition that the
individual trader is up against. A futures contract is an obligation to buy or sell a specific quantity of a
commodity - in Mrs. Clinton's case, live cattle - at a fixed price at a particular date in the future.

For example, when Mrs. Clinton bought cattle futures, each contract she bought called for the delivery of
40,000 pounds of live cattle, or one truck load. Obviously, she didn't do that; the delivery of even one
contract would produce the raw material for a lifetime supply of Big Macs, one of President Clinton's fast-
food favorites.

Chart in Print Copy

Rather than actually take delivery of the underlying commodity, most investors hope to make money by
selling the contract at a higher price than they bought it.

The potential for huge profits - and devastating losses - comes from the fact that traders only have to put up
a small percentage, usually between 5% and 10% of the contract's value to play the game. As the price of
the underlying commodity rises or falls, the value of the contract surges or plunges, magnified by the
leverage involved.

Small Beginning Stake Results In Big Profits

It wasn't reported how much money Mrs. Clinton started with. But Mr. Levitt, a pro who has been trading
and studying cattle futures for 30 years, speculates that a beginning stake of $10,000 could have produced
profits of $100,000 during the period she was in the market. (Note: It was later revealed that she started
with just $1000)!

Small investors like Mrs. Clinton are competing against pros from giant agricultural and food companies
trying to hedge their firms' food costs and price risks, as well as against institutional traders and investment
banks. These pros have access to even the most arcane information about fundamentals that might affect
prices.

So, if you plan to take a flier in commodities futures, you better know what you are doing. A spokesman for
Mrs. Clinton was quoted as saying she "consulted with numerous people and she did her own research,"
including reading The Wall Street Journal. According to published accounts, she also had a very good
adviser: James B. Blair, a friend who at the time was the primary outside attorney for Tyson Foods Inc. of
Springdale, Ark., one of the nation's largest poultry companies.

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 Made Millions Trading Commodities and
Told Mrs. Clinton to Start Trading Cattle Futures

Mr. Blair told reporters that he had made millions of dollars trading commodities for his account, and that
he had advised Mrs. Clinton to get into cattle futures, because "I thought I knew what I was doing."

It also helps to be lucky. "My guess is that an awful lot of her success was luck," says Mr. Babcock, the
Sacramento newsletter editor. "She happened to get into a good trending situation at the right time."

Mrs. Clinton did her trading during one of the great cattle bull markets. "It was relatively easy to make
money in cattle futures," says Mr. Levitt. "You didn't have to do a lot of trading. All you had to do was
hold your position."

Mrs. Clinton "was also lucky that she stopped," Mr. Babcock says. "If she had continued to trade cattle
futures after October 1979, the chances are she wouldn't have done so well."

A clear trend, such as the big 1978-79 cattle rally, gives a trader "a statistical advantage," the same kind of
thing you need in playing Black Jack in Las Vegas, Mr. Babcock explains. "If you play Black Jack, you
must be a card counter. Otherwise, the longer you gamble, the more your lose."

Working With FutureLink Data and Updating in CSI Format - Ken Thompson

Flip-flopping between import and export commands, many FutureLink subscribers save data in ASCII files
in order to maintain portfolios.

Most trading and analysis programs do not read ASCII files directly. This necessitates the use of additional
computer commands, creating a complicated portfolio update procedure.

This procedure can be simplified by exporting the FutureLink data in CSI format. The use of the CSI
format, compatible with most trading and analysis software, enables direct access to data files, eliminating
time consuming file handling steps. After completing the procedure outlined below, unlimited portfolio
files can be maintained with one keystroke.

To utilize this approach, FutureLink's Links Data Export Software and data feed as well as Trend Index
Utility Software are necessary.

One word of caution: although Investograph analysis software claims an ability to read CSI files directly,
massive data loss occurred with this particular software's attempt to read files.

STEP 1: Trend Index Utility Configuration

This step sets up data files which will receive information from FutureLink.

• enter Trend Index Utility program's utility sub-menu

• verify data path and note, i.e. C:\TRENDXUT\
• enter the commend to start a new data file
• enter the correct symbol (found in the FutureLink manual) and the correct values (found in the Trend
Index manual) for each contract requiring CSI formatted data.

Note: A trading system with a pre-programmed symbol list can not read a data file without a matching
symbol. If this occurs, change the symbol in the pre-programmed list to match the data file symbol for that
particular commodity. Consult software manual.

STEP 2: FutureLink Configuration

This step reads chart data for export.

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 • enter configuration menu for charts in FutureLink
• turn on daily, weekly and monthly charts for contracts being followed

STEP 3: Links Data Export Configuration

During this phase, contracts to be updated will be specified.

• enter Links Data Export Utility and specify the portfolio contracts to be updated
• specify where data will be derived: charts or TSR; see note below
• specify fill or fix; see note below
• specify data format: CSI
• change data path to the location of CSI data files (derived in first step) i.e. C:\TRENDXUT (the
omission of the second slash is intentional)

*NOTE: Charts are appropriate for analysis programs which do not need an actual open. They also provide
150 days worth of historical data including volume and open interest.

TSR gives today's data only and offers an actual open but no volume and open interest. For 24 hour
markets, it is nearly impossible to export data at the settlement price using TSR. If neither charts nor TSR
are adequate, a combination of the two can be utilized within the same contract.

The following procedure will provide 150 days of data. The date of the update will be the 150th day. This
date and all future updates will include an actual open.

Procedure:

• list each contract twice

• the first time contract is listed, specify "TSR & fill"
• the second time the contract is listed, specify "charts & fix"; the fix command will overwrite the high,
low and close with the actual settlement prices, if the prices differ.

STEP 4: Change Software Path - to automatically read the data files, the data path of the trading and
analysis software must be changed to the location of the CSI data files. i.e. C:\TRENDXUT\

With this basic configuration complete, enter the Links Data Export program and press GO. Retrieving 150
days of historical data takes about one second per contract. A daily update for a 30 market portfolio can be
obtained in under one minute.

Editor Comments The Purpose and Objectives of

Commodity Traders Club News - Dave Green

My original idea was to start a newsletter similar to Club 3000, but geared specifically more to trading
ideas and info on how to trade profitably. In addition, I wanted it written almost exclusively by individual
traders, with more Editor comments about articles, and with far fewer articles by Vendors.

One thing I have heard many times from a number of Club 3000 members, is they were unhappy due to the
preponderance of space taken up in it by Vendors or by prospective Vendors. Certain Vendors it seems, are
constantly either pushing themselves or criticizing others.

Also, a lot of their members were disappointed or felt somewhat mislead (not by Bo Thunman . . .but by
the Vendors) due to many articles written by so called "vendors in disguise".

They then went on to use it as their main advertising media to promote themselves. After extensive free
advertising thanks to Bo, they suddenly became vendors and made lots of money. This is especially true of
one well known vendor, who made (in an approximate 2-year time period) an estimated 1 million dollars

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plus, and became likely the most profitable Vendor of all time. Most of his success was due to his
numerous Club 3000 articles, many of them free articles written as a "vendor in disguise".

He received lots of free publicity over a very long time period by writing a number of inordinately lengthy
articles praising himself and his seemingly profitable trading methodology.

After getting lots of free publicity, he subsequently then announced he was in fact a Vendor, only too
happy to sell his system to all those anxious Club 3000 Members. He then continued his publicity blitz after
announcing he was really a Vendor. All told he took up a staggering amount of space in that newsletter.

After selling many systems (manuals, video tapes and software) and making bushels of money (much more
than he made trading) he then announced in Club 3000 he's back to trading and no longer a Vendor.
However, he has changed his mind and is now back in the vendor business selling his system again and
managing money.

Now, he has a friend (who lives nearby in Reno) who has done the same thing. He wrote a myriad of
lengthy free articles over a multi-year time period, telling everyone just how great he is and what a
fantastically successful trader he is, and implying how much better he is than anyone else.

Subsequently, he announced he is now a Vendor and will sell his system, even after saying in Club 3000
while writing the barrage of articles, that he will never become a Vendor!

A number of others have done the same thing these two well-known parties did. They have taken up vast
amounts of space in Club 3000, mostly for the purpose of getting all the members hyped up about them,
and then announced they are all too willing to sell their methodology to the members.

It's been very lucrative for many vendors in disguise to use (or should I say misuse) Club 3000 in that
manner. That's why I started a different kind of publication, one devoted almost completely to articles
written by and for the benefit of small traders, and not promoting specific trading products.

Don't misunderstand, I'm NOT criticizing Bo or his fine newsletter. In fact, Bo Thunman is held in the
highest esteem and is very highly regarded. I recommend to all CTCN or Swing Catcher System clients that
they subscribe to it. My present system brochure also recommends subscribing to it and gives Bo's address,
etc.

Commodity Traders Club News Brochure states on Page 5 "we prefer not to publish many articles referring
to Swing Catcher." It goes on to say "we do not want or solicit letters devoted to praising the System." It
also says "CTCN will be segregated as much as possible from system sales, including separate phone
numbers."

I have actually received some complaints from system owners about that policy, because they wanted to
read some articles about the system. Therefore, I have in fact been occasionally publishing articles written
by members (not myself) referring to the system.

However, articles mentioning Swing Catcher have been kept to a minimum, and in fact some months we
have had zero references to my system. An audit of all back issues reveals that only 2% of the articles are
about Swing Catcher and just 9% briefly mention it. (Note: The actual lineage used is actually an even
smaller percentage). That is evidence that articles about Swing Catcher are kept to a minimum so members
can learn all about a large number of other products, services, systems and methodology.

I could have published many articles if I wanted to, because I have received a large number of
complimentary letters about it. However, I don't want to do that. I want Commodity Traders Club News to
be an unbiased open-forum which covers many different subjects so everyone benefits from a broad array
of trading information.

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 The article about claiming trader status for tax purposes was written by Ted Tesser, a Certified Public
Accountant in New York and also an active Futures Trader. He is the author of "The Serious Investor's Tax
Survival Guide."

It is my understanding that even if you are not trading actively enough to qualify for "Trader Status", you
can still deduct almost any purchase you make involving trading related products, if used to assist you in
your investments. That would include trading systems, software, books, seminars, newsletters, etc. Check
with the IRS or your accountant to be sure.

Thanks to everyone who made contributions to this issue of Commodity Traders Club News.

Issue 12.

Futures Truth Reports...Do the FT Rankings Constantly Change

Because the Systems Tested Are Curve-Fitted? - Vern Nord

Have you ever tried to pass up a rope? I have spent the last two days trying to analyze the Feb/March issue
of Futures Truth. I would like to share my conclusions with your readers to start a discussion.

I know we are all looking for the perfect system which works on all commodities with similar rules and
parameters, but are we really looking for the impossible.

The very best systems in Futures Truth were only good on a maximum of 4 commodities, and if you throw
out such things as Pork Bellies, Live Cattle, Soybeans and Eurodollars, then no system was any good on
more than three commodities.

The best systems all had three or less unrelated commodities at the top of their lists. I thought that a good
trend following system would test well on all the Currencies because they are very good trending markets.
None of the systems tested well on more than one currency.

No system worked well on any two commodities in the same group with the possible exception of Gold and
Copper. They both tested very well under Welles Wilder's Volatility Movement System.

There was no system that tested both T-Bonds and T-Notes, but they should test similar on a system.

As I expected, the few systems that tested well on the S&P 500 were very poor on all other commodities.
On non-trending markets like the S&P 500, Wheat, Lumber, Silver, Gold, etc., there probably is no perfect
system to handle the random nature of these markets.

So what I am trying to say is that there can never be only one perfect system for all markets. You need one
type of system for trending markets; one type for random walk markets and one type of system for
commodities that trend for a few months and then go into a trading range.

In all three systems you would need an indicator like the ADX from Wilder's Directional Movement to tell
when to shift gears from trending to trading range or to random markets when you should stop trading for
now.

Another surprise from my analysis is that pattern recognition systems don't test well in related markets.

Arnold's Pattern Probability System (PPS) tested well on the Jap Yen, Lumber & T-Bonds - all totally
unrelated markets. This reminds me of something that Hulbert said about his one-year ratings on stock
market newsletters and their track records.

After over 10-years of tracking all the best timers, he finally realized that his six month and one year
rankings were almost totally worthless.

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It seems last year's Guru is this year's goat. There's no consistency from one year to next, and you can't
make money following last year's expert. This leads to one last conclusion - Futures Truth rankings
continually change and I think this happens because all these systems are curve-fitted.

If you test any one system's across 36 commodities and stock indexes, you should get the traditional bell
shaped curve results which means that 10% or three commodities would test very good, and 10% would
test very poorly and the balance of 80% would fall in the middle inside the bell curve. This might explain
why only 3 or 4 commodities test well on any one system and why they are totally unrelated. They
probably found an algorithm and then curve-fitted it until they got good results in 10% of the commodities.

These price histories will never repeat the same way and systems are doomed to fail. Look at an old Futures
Truth and see how many systems are still around, or even compare the "Top 10 since Release Date" with
the "Top 10 for the past 12 Months". Only 4 out of 10 in the "Top 10 since Release" are in the current list
of "Top 10 for past 12 months".

Analysts Make Predictions, but Traders Make Money - Is Lesser

Degree of Analysis Better Than Great Analysis? - John Piper

One of the points which became clear when giving our seminars, was the almost total lack of analytical
input into the methods, which we are putting forward for successful market trading.

As I developed these systems, this was always fairly clear to me, but it came as something of a shock; I
think, to some of the delegates.

Indeed this is a fairly revolutionary idea, perhaps even sacrilegious in some quarters. One can imagine the
title of this article raising a few hackles at one of the monthly STA meetings - true though it may be.

The impact of this statement is that analysis is a red herring - just one more dead end in the road to trading
success. The purpose of this article is to examine this proposition.

I think the first point to make is that before we can dismiss analysis as a red herring we have to know what
is has to offer. So the novice perhaps has no choice but to get to grips with the full range of analysis, be it
technical, fundamental or both. After all it is only once he has mastered some of these techniques that he
can judge whether they are useful or not. The second point to make is that clearly analysis is useful to some
people.

90% of traders may lose money (perhaps pouring scorn on the title of this piece) and many of those will be
using some form of analysis - but of the winners, some of those also clearly use analysis techniques.

I'm not condemning analysis per se, indeed as I've written about it for some years, readers may consider it
somewhat absurd if I were to do so. I have always stressed that I consider trading and trading skills to be of
far greater importance - and in this I include reading market action.

For example, seeing and interpreting a failed breakthrough (or re-test) is not something I consider an
analytical function but a function of trading. Clearly this is open to debate but this draws the distinction
between the two for our purposes. Perhaps it would make the distinction clearer if it is borne in mind that
the trader may have to act pretty quickly if he's going to benefit from a failed breakthrough, there's not
usually enough time for an analyst to see pattern and then contact the trader.

However analysis can be the mother to the "view" and the view can be fatal. This is because we must not
allow ourselves to be swayed by our views, fixed views are invariably fatal - if not initially then over the
course of time.

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So why is analysis the mother of the view? Because we have a tendency to believe what we want to
believe. The more analysis we do the more we will be convinced of our original "view" - i.e. we may be
achieving precisely nothing, indeed worse than nothing.

Now we can overcome this problem by being particularly disciplined, but an enigma remains if first an
oscillator is giving an over-bought reading, suggesting a possible sale, then any trend following indicator
will be in "buy" mode - i.e. they will tend to always contradict themselves.

This article is not designed to cover "emotional" trading which is the root of most traders' losses - you can
hardly expect to make money if you have no system and act on impulse.

But analysis can fall into the same camp and it can be more subtle. All those knobs and whistles, all that
computer hardware and software, all that work - it must mean something, mustn't it - Yes!

For most it means more losses. Also the facts of the matter are that a good system will out-perform a good
trader.

This also may be a somewhat controversial statement and it must also be considered something of a
generalization. But if you are a super-trader you won't need a system - or you already have one. If not, this
statement is true.

However, let's make this statement even more specific. I have one account which I am trading which was
up 40% at the end of September - however, if I had been trading the system outlined in our recently
published "Trading Manual" then the gains would have been significantly higher.

So personally, I can say that methods utilizing very little analysis (and perhaps that little bit itself is a
negative) have outperformed my trading which involves a greater degree of analysis.

Hardly conclusive, I agree but significant to the extent that any trader who is not sure of the right direction
to take should carefully consider the points in this article.

Now you may say, "how can I trade the market without any analysis?" Well we are not going to explain the
details of the approaches outlined in our "Trading Manual" but both the IOP and the Options approach are
"market driven".

This means that the market determines what positions are taken. So you don't say, "my analysis says I
should go long", you say "the market has triggered me long".

This of course is the key - price is the most important feature of the market, it has no view, there is no
difference of opinion, the price at any one time is (usually) fixed and certain. Our systems are based on that
certainly.

John Piper is the editor of The Technical Trader, 76 Nunnery Lane, York, Y02 1AJ, United Kingdom.
Telephone: 44-904-636407

Here's A Form Clients Should Read & Sign At Time of Opening A

Trading Account With A Broker or Money Manager - Mike Coleman

I understand what commodity trading is, by nature, highly speculative and that while the system I am
trading has been successful in the past, there is no guarantee of success in the future.

I understand that in order to be successful in trading commodities, it is absolutely necessary to:

a. be totally oblivious to losing trades

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b. be completely firm in my resolve to be able to lose that which I originally committed to lose

c. be able to be "in the red" through extended periods of time and not cave in before the predetermined
amount of money has been lost

d. ignore any fears, doubts or misgivings of what I am doing

e. be able to keep the whole thing in perspective, i.e., this is just another business venture which can have
high returns for the risks taken, but only represents a tiny portion of my total net worth no matter what the
results of the trading might be

I understand how debilitating negative or unpleasant comments to the person doing the trading can be. That
person wants more than anything else for you to be successful, but negative comments only serve to create
hesitation, doubt and temerity in continuing.

These comments are 100% deleterious to any success that any trading program might have and must be
completely non-existent.

Finally, I understand that in order to be successful in trading commodities, I must think of how am I doing
in terms of 3-month periods, not how did I do yesterday, today and tomorrow.

The curse which has befallen our great country, instant gratification, has no place in a venture such as this.

If you are obsessed with having to win every time, everyday, every moment, if you are scared about what
you are doing, or if for any reason you simply are not comfortable with this, get out, stay out, and we will
still be friends.

I, the undersigned, understand and agree with the above premises and ideas and promise to the best of my
ability to conform to them.

I also expect the representative trading my account to honor the trades as the system dictates, to take every
trade as they come, but to do so with no fear of retribution, negativism or ill-will in case of loss or
temporary draw-down.

My Experiences & Reviews of System Writer & TradeStation - Don Wilson

In the hope of helping traders interested in using computers in trading, I would like to share my experience:

I'm an early retiree EE and began studying trading July 1992. Except for 8-months doing full-time
engineering consulting, I have devoted pretty much full-time to trading analysis and trading.

Because I had traded part-time for about 10 years, I was familiar with the details of trading but not with
system development and back-testing.

To start, I purchased a 486/33 mhz computer system from Gateway 2000 by mail ($3,030). It arrived, I
plugged it in and it has worked great for 21 months (I did have to swap out a monitor after 15 months -
$250).

I then bought System Writer ($975) software. I also bought 40 trading systems from CTCR (Bruce
Babcock for $500 at their "summer sale". None of them proved effective for me in their published form but
they did contain lots of good ideas.

Bruce Babcock's book, The Dow Jones Irwin Guide to Trading Systems, was also extremely helpful in
showing me the way to develop systems and to back-test them.

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After 8 months of system development and back testing, I felt that I was ready to begin trading. I began to
investigate ways to get real-time data into my systems that were written in System Writer.

Call me a novice - I had not realized it could not be efficiently done until I tried to do it.

So I called Omega Research. I happen to get Bill Cruz (Omega's President) on the line. After some
discussion, he explained that I could not get real-time data into System Writer. He said I needed
TradeStation. I said "Oh, no"!

I read an article in CTCR that said Tradestation was still full of bugs (this was December 1992). Bill said
"Not so". I'll prove it to you. You buy TradeStation and if I cannot get you up-and-running and satisfied
within 3 days over the phone - send it back for a full refund."

So I bought it ($1714) - installed it - and it has worked great ever since. (I have had very minor problems or
questions 3 times but they were resolved each time on my first call to product support at Omega).

(One item of contention I do have with Omega is that they now charge $495/year maintenance for
TradeStation. This is way too high in my opinion, but I'm sure they will back-off from it if and when some
competition arises.)

So, now a summary. I have found Gateway 2000, System Writer and TradeStation to be excellent products.

The System Writer and TradeStation software and 20-year historical data provide an efficient and easy way
to back-test trading systems.

Of all the systems I've tested, I've been able to come within about +/- 15% of the results published by
CTCR, Futures Truth, etc., for a given system.

I should mention that I do use Signal ($700/month - real-time or $100/month - 15-minute delayed) from my
cable TV for my data and have had no problem with it working with TradeStation.

One cautionary note I should make. Before anyone spends the time - 12 full-time months and money
($15,000) to replicate my experience, be aware that all of your testing and analysis may not provide a
system you can really use to make a profit or even to earn back the money you have invested. I estimate
that I have analyzed over 60 trading systems. Some I developed, some I bought ($6,000) and several I was
paid to evaluate by customers (for several months I offered the service of evaluating systems using
TradeStation and historical data).

I have yet to find a mechanical system that can be efficiently traded without some discretion. I believe that
any successful trader uses a type of mechanical system as a core guideline and then uses discretionary
intervention for money management and number of contracts traded, etc. But the reasons that mechanical
systems fail will have to be the subject of a later letter.

How Hillary Clinton Made $100,000 Trading Commodities - Kent Calhoun

In 1980 I moved to Fayetteville, Arkansas to conduct computer studies of commodity prices and to work as
a commodity broker. My reputation as a commodity trading expert, allowed me to attract a wealthier
clientele than average commodity brokers.

Many clients kept repeating the same story about how a market could be traded without losing money. I
was quite skeptical of these stories, until two ex-Refco brokers explained to me exactly how it was done.

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These brokers claim to had seen it being done everyday for several months in 1978 and 1979 at the Refco
office in Springdale, Arkansas. This is the office where Hillary Clinton established her commodity account
and profited $100,000.

Robert "Red" Bone was the owner of the Springdale office, and had close business connections with
Thomas Dittmer, the owner of the Chicago commodity clearing firm Refco. Both men had traded cattle
futures contracts to allegedly profit eight to sixteen million dollars in the 1970's.

Futures contracts allow speculators the right to buy or sell a specified quantity of a commodity at a
contracted price before an expiration date. Less than 3% of all futures contracts result in physical delivery
of any commodity, the majority of all contracts are liquidated before expiration. Since 40,000 pounds is the
quantity of a cattle contract, each one cent move is worth $400.

Mr. Bone's reputation as a successful cattle trader had spread far and wide, the number of new accounts at
his office grew dramatically. The Springdale Refco office became the largest Refco trading office in the
world.

WalMart and Tyson foods were fast growing billion dollar businesses with head corporate offices in
Northwestern Arkansas. These two companies pumped millions of dollars into the hands of their
employees, and into the Springdale Refco office.

Cattle prices have an average daily price range of less than one cent per day, so the average contract would
be able to lose or gain less than $400 per day. The $1000 amount that Hillary Clinton opened up her
account would allow her to margin only one contract. Margin money serves as an earnest money deposit
required for each contract by the Chicago Mercantile Exchange, CME, which regulates the cattle futures
market.

Major brokerage offices have a minimum net worth requirement of $250,000 minimum account size of
$25,000, and very few brokerage offices would accept an account under $20,000.

Opening a commodity account for $1000 from a couple whose AGI was under $42,000 just isn't done.
Commodity brokerages are well aware over 75% of all speculators lose money, and demand well
capitalized accounts against the dreaded "locked limit price movement" possibility.

A locked limit price movement is any day, or series of consecutive days, when a market moves the
exchange maximum allowable limit without a trader being able to exit his trading positions from the
market. His trading position is "locked" into the market and he can not exit until market trades again.

This limit price move in cattle 1.5 cents per day or $600 per contract.

If Hillary traded one contract and encountered two locked limit moves the wrong way, she would have
owed the brokerage office another $200 minimum besides her $1000 initial account equity. Locked limit
moves do not happen to the Governor's wife, when her account is traded in Omnibus Acct.

An Omnibus account is an arrangement between an office owner or trader and a clearing firm that allows
orders to be placed without account numbers assigned to priced orders.

The arbitrary matching of buy and sell orders with client account numbers is purely at the discretion of the
Omnibus account trader. This Commodity Futures Trading Commission, CFTC, loophole legally allows an
omnibus account trader to assign winning trades to any accounts he wants to have winning trades.

Eventually, White House will retract their statement that Hillary produced all the cattle trading profits for
herself. I believe an Omnibus Acct was used to produce Mrs. Clinton's commodity profits.

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Each commodity trade must be executed on the exchanges by a clearing member firm, like Refco. The
trader of an Omnibus account is allowed to assign trades, AFTER the trading day has been completed, thus
guaranteeing profits.

An Omnibus account might be used like this: a trader buys 20 contracts at .7000 sells 20 contracts at .7010,
buys 20 contracts at .7020, sells 20 contracts at .7030, and continues this buy-sell pattern all the way up to
.7100, or down to .6900.

At the end or during the day, winning buy and sell orders are paired, then account numbers are assigned to
the clients. An Omnibus account is a legal license to steal.

If cattle had a daily high of .7100 and daily low of .7000, a one cent $400 price movement, the trader
doesn't care whether the market moved up or down because he can pair profitable orders that had to make
money.

The trader could say; Hillary's account bought 10 contracts of cattle at .7000 and sold 10 contracts at .7090
for a profit of $360 per contract times 10 for a $3600 profit that day, minus the brokerage fees.

According to Mrs. Clinton's records, she profited $5300 on her first day of trading. If this in fact is true,
someone had to illegally violate CME margin requirements, since her $1000 could not legally fund more
than 1-contract for a maximum daily profit gain of $400. This also means, someone had a loss of $5300
that day because commodity trading, like chess, is a zero-sum game. For every winner there is a loser.

Mr. James Blair, Tyson's chief attorney and favored Refco customer, is largely given credit for advising
Mrs. Clinton's account. Why would Tyson Foods' top attorney want to make Mrs. Clinton commodity
trading profits equal to over 60% of the Clinton's 1979 annual income? Did the opposite buys and sells for
Mrs. Clinton's $100,000 come from Mr. Blair's account? Was this entire adventure an elaborate illegal
campaign contribution?

Mr. Bone received $50,000 commissions per month from Mr. Blair's account, of which he monthly paid
Thomas Dittmer about $20,000. Mr. Bone also received the largest fine ever assessed by the CFTC until
1980, $250,000, and longest suspension, three years from futures trading.

Is it pure irony that Mrs. Clinton, who had never traded commodities before in her life, makes a 1000%
return on her money and her broker turns out to receive the strongest sentence ever handed out by the
Commodity Futures Trading Commission?

Mrs. Clinton got $100,000. This lingering question remains, what did Mr. Blair receive on behalf of Tyson
Foods?

Pure speculation might include Tyson business contracts from the state of Arkansas, favorable zoning
regulations, or easing of environmental or OSHA regulations, or political favors yet unpaid.

Tyson Foods is now the largest poultry producer in the United States. Nobody gives a governor's wife
$100,000 without expecting a dividend greater than the investment.

Tyson stock grew over 4400% from 1980 to 1990, mostly during the Clinton governorship of Arkansas,
except for one term. That's a lot better return than you can expect from trading commodities.

The Markets - What and Why - Ken Turkin

It is a business. It is a money business. It has the best product line available, the promise of wholesale
money. Everyone wants some but at the expense of someone else. How hard do you work in your business
to get yours?

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Why should this be any different. There are 50,000,000 people out there waiting to charge you a fee again
and again to learn this business. The only way to learn this one, is from each other in all aspects.

When you go to a doctor, an exam will be performed to get your current state of condition. This by itself
can be informative but must be put in the proper perspective.

Knowing how you were in the past completes the picture. From here, your future can be evaluated given
your particular tendencies. The same analogy goes for any market. The main tool for examination here is a
chart of recent price activity.

Look at any price chart. Why does it look that way? Groups of people! Nothing else. Why? One idea is
there is something so-called "in the air" that affects human emotions which in turn alters our perception of
value when pertaining to things we own or want to own.

When dealing with the markets, these viewpoints show up as the price activity seen on bar charts. In this
respect all people are the same.

One of the things that separates us into groups is our type of trading style. We might be categorized into
one or more of the many different time frames of trading such as to scalp, daytrade, weekend watch, invest
monthly, adjust annually, long term buy and die etc.

For whatever the reason (our level of expertise or the amount of time available), we are attracted to some
comfortable time frame. Now we have something else in common.

Most of the time, each group seems to act together, moving to similar internal or external reasons. Some
might be confident while some confused. All of this shows up on the price chart because the markets are all
groups acting together yet independently.

Things seem to go in cycles of active then passive, positive then negative. People buy a stock, then
depending on their expectations they will hold it or buy more or sell it.

Each group does it again and again because people are habitually people. On the other hand there is always
the option of altering your trading style periodically. In essence, you join a different group to satisfy your
changing needs or realizations.

Let's say a rally just occurred, wouldn't you want it to happen again so this time you can get something out
of it. How about if something bad just happened, wouldn't you be cautions and wait for someone else to
prove it is safe again.

Whatever gets you excited or scared, you will play, trade or invest accordingly based on your future
expectations. Our job is to always try to find some of these group tendencies at the right time to take
advantage of.

Some types of market action has been called market noise or random activity. Noise is really the smallest
time frame of price activity for which you can not explain its motivation.

Someone's definition of what constitutes the noise level is also a reflection of their understanding of the
markets. Whatever your understanding of the markets are, they must be understood.

In any competitive business, you must know who your competition is and learn from them. Our job can be
made easier by trying to find some of the above group tendencies at the right time to take advantage of.

What we should also try to do is dissect the markets composite chart form into the groups of people which
made it in the first place. This can be done by putting yourself in their place.

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Each group is important but not always well defined. An interesting observation is how the smaller groups
tell us where the bigger ones are going, while the bigger ones tell us where the smaller ones must go.

Each group tries to obtain their goals while only a larger group might prevent this because their
expectations and needs are contrary to yours. Besides, they have more time and money to accept the risk of
proving themselves right.

People of all levels are quite consistent that a market chart becomes an excellent graphic representation of
human emotions and logic.

In summary, markets are groups of people with different expectations trying to do their own thing at the
same time in an arena where the strong will survive.

The professionals have better toys and tools, faster and cheaper executions and deeper pockets with more
time and money. They also seem to be deafened by the markets noise. For the rest of us, all we have is each
other to learn from.

The above is from the documentation of an interactive computer program which teaches a different
perspective on how all markets work.

Astrologically Based S&P Chart Carol Murphy

I did a lot of work on the S&P (astro) and this is my bar-chart forecast for S&P Cash (dated 940328): Chart
in Print Copy

Technical Indicators I'd Like Added To My Trading System

To Find More High Probability Trades - Ashif Jumma

Since I'm trying to separate the high probability trades from the low ones by using filters, I have the
following suggestions for some changes or additions I would like to see made to my computerized Trading
System:

Some of the suggestions may be difficult or not feasible, but they represent one person's opinion.

1. Divergence alert and ability to pull up charts of all commodity together to check for divergences
2. Open interest and volume graphs on charts
3. Bollinger Bands and C.C.I.
4. Up-down Volatility and Random-Walk Index
5. McClellan Oscillator, a seasonal index for seasonal commodities, Weekly Stochastics

This would of course change the approach from completely mechanical to a technical approach which may
not be suitable for everybody. They just represent my views.

More Notes on FutureLink - Ken Thompson

Here are a few notes concerning FutureLink and the Trendx Utility Program:

1. FutureLink customers can request a CSI data facts sheet from FutureLink
2. Two customer support reps verified to me that HG Copper's file number was 0006. FutureLink
may need to mention 0008 as the new CSI ID number, as stated to me.
3. NG Natural Gas file #0202 - Conv=+3 - Tick .001=$10.00 - Not price correlated to other
petroleum products
4. If FutureLink won't open a price file, suggest using "charts & fill" command only, on first export.

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 More on Hillary's Profits - Jeff Ramby

My contribution is simple and to the point . . . Hillary's trading was a no-lose situation. Broker 'Red Bone'
constructed a straddle program, whereas most winners were diverted to Hillary's account and the losers
wound up in less prominent managed accounts. This is very simple until you get caught. 60-65% of
politicians have No Ethics.

FastTrack - A Mutual Fund Traders/Investors Friend - Jim Hill

There are many monthly/weekly/hotline/software services available for individuals interested in trading or
investing in mutual funds.

Of course, you do not even have to use these if you access a data service and use technical analysis
software. But I find that there is a combination software/data service only for mutual funds that meets my
investment needs - FastTrack.

FastTrack (FT) is a data service that follows over 800 mutual funds and indexes and uses its own
proprietary software for analysis and charting. It has its own built-in data communication service and each
day you dial an 800 number to download daily info. In addition, one of the authors, Paul Charbonet, will
about once a week give his view of the market and his selection of mutual funds. For the last several years
his advice has been very good. In addition, there are comments about fund groups, select funds, trading
ideas and other useful info.

There are two primary approaches one can use: selection and timing. To help you decide which mutual
fund to select, FT divides the funds into fund groups (such as Fidelity, Fidelity Selects, Benham), indexes
(DJ-20, DJ-30, etc.), topical groups (such as Health, Aggressive, Schwab No Load No Fee, Muni-Bonds
and many others).

You can select one of the smaller topical groups, or fund groups, or the one category that has all the funds
in it. You can create your own fund group if you have your favorite funds.

So, how can you use FT for selection? I will assume you want to trade only Fidelity Select funds. You
would load the Fidelity Select Funds, and then choose an index to compare all funds against.

The index can be any fund or index in the entire list of funds. This method of selection is when you always
want to be in the market; you choose the best fund of a pair of funds.

You choose the time frame of analysis, and you look at charts in color. You can also use Stochastics,
MACD, Moving Average, Momentum and Relative Strength for technical analysis. However, I find the
best technical tool is their own; it is called AccuTrack Indicator.

It is a combination momentum and relative strength index that has two variable parameters. It is excellent
at enabling one to develop strategies for selecting the best mutual fund of a pair. The indicator is disclosed,
and you could program it with software such as TradeStation, but if you want a complete package, it is very
good.

As of the date I am writing this article, April 14, 1994, my indicator for the general market is still negative
and it will not be positive in the near future. It is an easy indicator to set up in FT and easy to follow each
day.

(This article is continued in next months CTCN)

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 Editor Comments

Vern Nord did lots of research and analysis involving the various systems tested by Futures Truth. It seems
to be true that it's rare for a system to perform well in a wide number of markets, even closely correlated
markets. A seemingly minor or insignificant variation in a pattern, or the markets volatility, can make a
major impact on a system's overall performance. That is especially true if the system has a number of
optimized parameters.

John Piper's article about too much analysis sometimes being detrimental, has lots of validity. That's also
true with the number of optimized parameters a system uses. For example, in my opinion a system with say
50 non-optimized parameters but only 3 optimized parameters, is preferred over a system with say 10 non-
optimized parameters but 5 of them are optimized.

Unfortunately, Mike Coleman's form that he has new clients sign is very difficult for traders without
discipline or patience to go along with. Many traders do not have what it takes to sit thru several losers in a
row or a couple weeks of losing trades and drawdown. They expect immediate and constant profits and
don't realize that's next to impossible, unless you happen to be Hillary!

Once again there's been much feedback about Hillary's trading. There can be little doubt that Hillary had
little (or anything) to do with it. Keep in mind, she was apparently a complete novice at the time of her
amazing feat. Note: I tend to believe Kent Calhoun's version on how she did it, as published in this issue.
Thanks to all who made contributions to this issue of CTCN.

Issue 13.

No Doubt All The Futures Truth Systems Are Curve-Fitted - Russell Sands

In response to Vern Nord's letter in the April issue, I thought I'd contribute my opinion. Although I have
never personally worked with any of the systems covered by Futures Truth, I have no doubt that they are all
curve-fitted. Any 'system' that purports to specialize in one market is optimized for that particular set of
data.

Some people will say that different markets have individual characteristics or personalities. This may be
true to a limited extent. However, in testing, a computer doesn't 'know' what market it is examining. All the
computer knows is a bunch of numbers (highs, lows, closes), from which it attempts to produce an
algorithm to explain or predict price behavior.

For a system to be valid, it should work over a given set of numbers (data). Whether those numbers have a
name such as 'Beans" or 'Bonds" is (and should be) irrelevant to the data and to the testing program.

Systems Make Money When They Trend and Lose Money When They Don't - No Surprise

The best that you can hope for is to create a system that is profitable over time over a wide range of
markets. Systems such as the Turtles use, makes money when the markets trend and loses money when
they don't (no surprise).

Since trendiness is a proven characteristic of commodity markets, given a long enough sample period (i.e.
ten years) almost all the markets yield positive results.

However, in any given year, since there are only a few good trends, most of the markets will prove
unprofitable. This is not a reason to abandon the system, or to eliminate (temporarily) unprofitable markets
from the portfolio. In fact, the markets that have lost the most money recently (due to being in a
consolidation) will probably be the best in the future (when they finally hit a trend).

Finally, I wish somebody could teach me how to know when the markets will trend and when they will be
in a trading range. If I knew this, I wouldn't need to know much else to make money. I can visually eyeball

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a chart and tell you if it's in a trend or consolidation, but that doesn't tell me much about the future. Unless
I've been missing something, Wilder's ADX, or almost anything else for that matter, is more of a lagging
indicator, telling where the market has been, not where it's going.

A Minor 1-Tick Difference in Price Makes A Gigantic 59-Tick

Difference in Trading Results - David Stone

Most traders fail to realize the major difference in a system's profitability as a direct result of its stop-loss or
its target price accuracy.

For example, I vividly remember a T-Bond trade I had with my system that called for a stop-loss to be
placed 29/32nds under the next day's opening price. That stop equaled a risk of $906.25.

The target price was 30/32nds above the opening. That could have resulted in a profit of $937.50 if the
trade went my way without my stop getting hit first.

For the first 2 days the trade went my way but did not reach my target price. Suddenly on the third day, the
market went sharply against me and my resting stop-loss order that I had earlier placed with my broker got
hit.

In fact, it got hit exactly! It turned out to be the exact low of the day and low of the entire time period. I lost
$906.25 plus commission on the trade.

After my stop got hit (the same day) the market rallied up rapidly and never saw that price level again, until
after the target price my system had generated was hit (the next day). If I was still in the market I would
have made $937.50.

The swing difference between the loss price and target price was $1843.75 ($906.25 + $937.50). That
means all because of a seemingly insignificant $31.25, I ended up with $1843.75 less in my account than if
I would have had a 1-tick larger stop-loss!

Do You Know That You're Not Guaranteed a Fill if the Price

Hits Your Order Price but Does Not Go Thru It? - David Stone

A few years ago a very similar thing (compared to my T-Bond trade) happened but in the reverse order, in
the Soybean market. I was long July Beans and had the position for 7-days total. On the 5th day the price
hit my pre-determined target price exactly.

However, my resting order to take my profits of 12-1/2 cents ($625.00) was not filled because it did not
stay at that price long enough to fill my order.

If the order price happens to be a resistance/ support area or the price is in the process of topping/bottoming
out, it's possible your order may not get filled at all, even if the price is touched. That's because the price
must go beyond the order price before a fill is guaranteed.

After my target price was touched, the price dropped steadily for the next 2-1/2 days and my resting stop-
loss was subsequently hit. That resulted in a loss of $550.00 (11 cents).

Consequently, I ended up with $1175.00 less money than if my original target order was filled. In other
words, if my target price had been 1/4 cent ($12.50) lower than it was, I would have ended up $1175.00
better off the price!

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I have talked to other traders who tell me similar things have happened to them. Perhaps it would be a good
idea to always place your target orders slightly closer than your system indicates...perhaps 2-ticks or so.
Also, perhaps place your stop-loss order 2-ticks or so farther away than indicated by your system.

However, I am not sure if in fact that will help. It's possible the market may then simply go 2-ticks more (or
less) than it would have if it were not for the adjustments. Do any of the other members have opinions on
this? Please write and let me know via the next issue of Commodity Traders Club News.

My Dealings With A Chicago Futures Discount Broker - Fred Montgomery

A few years ago I had an unfortunate experience upon opening a trading account at Ira Epstein & Company
Futures, a large discount firm located in Chicago.

The main reason I opened the account was because they offered me an extremely attractive rate of $17.00
per round-turn. However, the savings of $3.00 per trade compared to my previous broker turned out to be
incredibly minor, and ended up costing me thousands of dollars. That's because I ended up losing thousands
of dollars due to an odd series of events and Ira Epstein's alleged strange policies involving new accounts.

The very first trade made with Ira Epstein involved buying T-Bonds at the opening, with a fairly small 10-
tick stop-loss order. I did not actually place the stop because I was using a so called mental-stop loss. That
meant as soon as I saw the price hit my stop, I would call and exit at the market.

This is the story of the actual trade: I entered the trade on the opening at exactly 7:20 AM. I was watching
FNN (now known as MSNBC) on Cable TV and at 7:26 AM they reported T-Bonds were down 7-points
from the opening and they had slowly drifted down since the 7:20 am opening.

I knew an important government report was coming out at 7:30 am, so I decided to call Ira Epstein for a
price quote before the government report was released, especially since my stop order was fairly tight and
within 3-ticks of the CNN reported price.

At exactly 7:27 am, I called the Ira Epstein Price Quote Line to see if my stop was being hit. Ira only
offered quotes thru their Computerized Quote Line, which entailed pressing buttons similar to a Voice Mail
setup. You would enter your account number and codes for the commodity quote wanted and the
computerized voice would give the quotes.

To my shock, the Quote Line automated voice told me "sorry, you do not have enough money in your
account to get any quotes today." This was not true as I had over $20,000 in my account.

After this delay, I immediately (7:28 am) tried to call the main number to get the important quote.
However, by the time I explained what happened (to a very dense and slow person), and got switched to a
couple extensions to get my quote, it was 7:32 am and that important government report had already come
out.

As soon as the (construed negatively) Government Report came out, the market dropped like a rock. In
fact, it gaped down some 20/32nds instantly, and then dropped another 20/32nds over the next 2-minutes. I
know that because I got "time and sale" which showed the ticks and the times involved.

The time and sale also showed that at exactly 7:27 am the price was in fact at my stop-loss price (down 10-
points from the open). That was the exact time the Ira Epstein Quote Line refused to allow me any quotes
and over 2-minutes prior to the release of the critical government report.

If I would have been able to get that quote at 7:27 am, I would have immediately switched over to the
Order Desk and got out at-the-market because my stop was hit (and before the adverse government report
was released). There's little doubt I would have been out of the trade at 7:28 or 7:29 am and my loss would
have been only 10 or 11 ticks, or about $340 or so.

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During past experiebces with a number of T-Bond "Market Order" trades at a different discount brokerage,
my trades were always filled within one to no more than two minutes. Therefore, I know I could have got
out of the market in time before the U.S. Government Report came out.

Instead, I was not able to get out until 7:33 am and ended up losing 50-ticks ($1,562.50). That was over
$1,200.00 more than I would have lost, if not for the refusal of the Quote Line to give me my quote.

The next day I called Mr. Ira Epstein himself to complain about the apparent "computer error." To my
complete shock and bewilderment, Ira told me it was not really an error by the Computerized Quote Line at
all!

It was a deliberate planned event that took place. For reasons that still puzzle me to this day, Ira said they
"programmed their computer to automatically tell all new accounts on their first phone call that they have
insufficient money to get quotes," (regardless of whether it's true or not)! Of course, they did not pre-warn
the clients of this potentially costly asinine practice.

Apparently they did it so the client will be forced to then call them direct. By doing this they can then
manually double-check to verify a new client has money in his account and their check has cleared the
bank, etc. They subsequently program the Ira Epsetin QuoteLine to operate normally for new clients calls
for quotes in the future (after the first call deliberately fails).

I was originally extremely upset and annoyed, due to thinking the Epstein QuoteLines refusal to give me
the critical Treasury Bond quote was a computer bug or error. Subsequently, the amazing revelation that it
was not an error, but instead was an idiotic, deliberate and planned occurrence added salt to my wound and
caused extreme anger and bewilderment. I was shocked that Ira would have the audacity and nerve to do
something which could be so incredibly harmful to their clients' pocketbook.

When I asked for restitution for my loss, all Ira proposed was a token good-will settlement of $200.00. The
small offer was ridiculous compared to my plus $1200.00 extra loss, so I turned it down.

Another reason I turned it down was because I thought Ira would change his mind and give full restitution,
but they refused and I subsequently closed my account. I was also planning to complain to the NFA or
CFTC but unfortunately have never gotten around to it (but may still do so).

Note: After this incredible event occurred I still foolishly made several more trades with "Ira Epstein &
Company Futures." I ended up losing another $2000.00 due to more stupidity, incompetence and errors
involving their order-clerks and Ira Epsetein's order call back personnel. They did things like not bothering
to call back at all with fills or unables, or calling back an hour or so late, and after my stop had already been
hit.

One trade in Coffee involved a limit-order where they (admittedly) failed to call back at all with my fill. As
a result, I did not know I was in the position and ended up losing lots of money by the time I found out I
was in fact in the trade the following day. That was partially my fault for not calling them to verify the
order until late the next day. However, that should have not been necessary.

After going thru hell with Ira for about 2-weeks, I finally closed my account. At the time I realized they
were not going to reimburse me for my original large Treasury Bond loss they caused, and they were also
extremely negligent and incompetent in other ways, which compounded my losses.

I ended up losing over $3000.00 due to their stupidity, deliberate misinformation, incompetence and
negligence. This includes the infamous T-Bond trade loss due to their deliberate and planned computerized
programming problem with their Quote Line. In addition, I found some people on their staff to be sarcastic
and rude.

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It is said that over 80% of commodity traders lose money. With thongs like this occuring involving your
commodity futures broejr, the number is more likely near 100%. Good luck if you trade with them...you
will need it!

A Warning To Traders - Malcolm McNutt

There is a hot neural network program on the market called InvestN32, sold by an outfit called RaceCom,
headed by a guy named Joe Sheppard.

I bought this program about a year ago, and have been trying to get my money back ever since. The thing is
a joke. I was told it could accurately predict the Deutsche Mark to within one cent (well, that's only a
$1,250 margin of error).

The first time I tried to get a refund, Sheppard told me that my licensing agreement stated that once I
opened the package, I owned it. What is this, a China shop--you touch, you break, you buy? For all I knew,
the box could have been empty inside, how do I know unless I open it. This is not a valid disclaimer.

I was also told that I would be sent an update of the program that worked in real time with Tradestation, it
never happened. They were going to sell the 'real time' program to big New York institutions for several
thousand dollars, but I suspect that was just the dreaming and scheming of a small time hustler.

Then I read a review by Larry Williams, whose system testing experience I greatly respect, and he said he
came to the conclusion that RaceCom worked brilliantly in historical testing because it 'cheated' by peeking
into the future before predicting the next outcome. Wow!

So I called Sheppard and again requested a refund, which he again refused. He reiterated that the program
worked, and said he had several customers who told him they were currently making huge sums of money
in S&P's and other markets. But he would not offer any written proof, and when I asked if he had a real
time track record to backup his claims, he acted as though he didn't know what the words 'real time track
record' meant.

I don't think he knows what the word 'integrity' means either. Or probably a lot of other words. I told him if
he didn't send my money back, I would write this letter and circulate it all over the Futures industry. He
threatened to sue me for slander, and then hung up the phone on me.

This guy is bad news. The Better Business Bureau won't do anything, and I don't expect to get my money
back. But if enough people read this letter, then maybe guys like Sheppard will be forced out of business,
and we can regain just a little bit of integrity to our already tarnished industry.

A Sample Chart Showing How To Use Swing Highs and Swing Lows
(Market Structure) To Trade Successfully - Dave Green

The concept of only selling providing a "Swing- High" has occurred and only buying upon the occurrence
of a "Swing-Low" can be very profitable.

Unfortunately, the method is enhanced by using some subjectivity or by using charts of past data. Old
charts and subjectivity can combine to make it look highly profitable. In real-time trading it's more difficult
due to the issue of what constitutes those Swing-Highs/Swing-Lows, and their identification.

Sometimes saying 2 or 3 lower days on each side of a high point qualifies as a Swing-High, and can be
very profitable. Sometimes more days on each side of the swing day are better to more clearly define the
Swing-High and Swing-Low.

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The problem is the fact the more days on each side we have, the more of the move is over by the time we
can get into the market. Conversely, the fewer days on each side of the bar means the move has likely not
progressed far. However, it's more likely to be a false or minor Swing-High/Low and consequently less
profitable, or a loser.

It's fairly easy to draw the buy and sell arrows at Swing-High and Swing-Low points on the chart appearing
below. However, to do it in real-time trading is not as easy at it appears on the chart.

Nevertheless, the Swing-High and Swing-Low concepts (a.k.a. Market Structure) are in my opinion likely
the best way to trade the markets successfully. It will "work" in any market, the actual market makes
absolutely no difference. Of course, as always, trending markets make it work a lot better. However, keep
in mind the concept of buying/selling Swing- Lows/Swing-Highs is simple but it's not easy.

Sleazy Trades? reprinted with the permission of the Wall Street Journal

The Clintons have provided some commodity-brokerage printouts, than you. But they are not, as widely
believed, trading records. After spending two days with these incomplete numbers, we find that they
answer fewer questions than they raise.

That is, the printouts don't put to rest the suspicion that someone cut a lot of corners to steer Bill and
Hillary nearly $100,000 in commodities gains. These suspicions lurk because amateur commodities players
simply don't make such money, because of what the whole Whitewater affair tells us about the way
business and government mixed in Arkansas, because a powerful friend of Bill and Hillary loomed in the
background, and because the trades were handled by a broker who was repeatedly sanctioned.

The White House will have to go a lot further to demonstrate that Mrs. Clinton did indeed trade
commodities as she says she did and not with undue assistance from Tyson Foods lawyer Jim Blair and/or
his (and her) broker Robert Lee (Red) Bone.

What the Clintons released Tuesday were two types of monthly statements for the first eight months of
activity. One showed the gains or losses being posted to her account as positions were closed; they don't
reveal the types, the durations or the prices of the deals. The other statement showed open futures contracts
at the end of each month. Except on the open positions, we can't tell a cattle trade from one in soybeans, for
instance. Chart in Print Copy

Presumably these records were obtained from the Refco brokerage house or from the family files. Either
way, people in the business tell us, we should expect a third type of statement to be part of the package: a
record of daily trade confirmations, with amounts and prices.

Once upon a time there would have been time-stamped trading slips that would allow checking the trades
against exchange records of prices, but these are typically discarded after a few years.

But confirmation slips would tell us what exactly she was trading, what her price in and out was, and where
there were intra-day or adjusted trades-both of which would flag attention to possible misallocations by the
broker.

The issue of intra-day trades is particularly relevant because of Mr. Bone's history. One of his disciplinary
proceedings, according to sources quoted by Securities Week, "largely related to trade allocations, whereby
customers of Bone's choosing would be given the good, i.e. profitable, trades at the close of the trading day
and other accounts would get the bad trades."

Allocations are easy on intra-day trades, and very difficult to do on longer trades without raising "as of" red
flags. Mr. Bone was found to be playing with margin requirements, which also reflects on the Hillary
matter.

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To appreciate the essence of this, you don't have to go beyond the two first days of Mrs. Clinton's monthly
statements. On Oct. 11, 1978, she made a cash deposit of $1,000. This is a curious figure for a prospective
cattle trader, since the margin requirement for a single cattle contract was $1,200.

The next day she closed out positions netting a profit of $5,300. Margins apply to overnight accounts, and
since Hillary didn't meet the margin for a single contract, until we see the actual records, we have to
presume her Oct. 12 profits came from day trades.

We and others have been asking around for explanations of how one makes 530% in one day, given the fact
that, by exchange limits, the most a cattle contract (40,000 pounds) could move during that day was 1.5
cents up or down per pound. As best we can determine, the actual movement of the most volatile cattle
contract on Oct. 12 was 0.8 cents. In other words, to make $5,300, one would have needed to own about 17
contracts.

A contract was worth about $22,000. Even if not all of them were held at once, if broker Bone were
carrying off a string of amazing buys and sells as the day proceeded (with Hillary at his side, of course),
we're talking about a position at any one time that dwarfed the worth of a couple who had a $42,000
income the previous year and didn't even own a home.

The exposure to simply one day's swing would be many times the $1,000 Mrs. Clinton had put down. At
the least, any broker actually making these trades had to assume there was a lot more behind the Clintons
than showing on paper.

Or maybe they weren't her trades at all. That day's gains in Mrs. Clinton's account, says John Damgard,
president of the Futures Industry Association, "very well may apply to trades that were on for some time
and were liquidated that day." Indeed, the Washington Post quoted a White House official to the effect that
Hillary believed her gains accumulated over several days. But if so, according to the records, they had to
belong to somebody else, somebody who was willingly or unwillingly giving up his gain to her.

If Mrs. Clinton's account was cleared that first day, she survived the heavy exposure to loss. But if the
records released so far are accurate, on that first day she was able to show profitable intra-day trades that
seem wholly out of line with her financial resources.

This raises a question about the rest of her trades, since the released records are ambiguous on which were
day trades. Some trades, those held over the end of the month, are clearly of longer duration. But with the
bulk of trades, and the bulk of the profits, the positions were closed within the month, and perhaps within
the day.

It is true that Mrs. Clinton sustained losses, sometimes sizable ones, such as $17,400 on Nov. 22, but each
time the debit was made up with gains on what may have been more of those easily manipulable day
trades. It looks as if the inter-month positions were net losers and the intra-month trades net winners.
Confirmation records would address what the intra-month deals were.

And, of course, if the balance of the trades were indeed overnight, it again raises the issue of margins.
"Significant undermargining" at the outset, Mr. Damgard says, "raises the question of whether someone
was arranging her trades."

Trader Morris Markovitz, quoted recently in USA Today , calculated that at one point her account was
$90,000 short of margin, and commented, "I defy you to find any other account in the country where such a
tiny amount of cash was allowed to risk such massive amounts of money."

While true trading records would tell much of the story, it would also be helpful to hear soon from Mr.
Bone under oath. Especially so since he has told the New York Times, more than once, that he did not
confer with Hillary over her trades, as the White House says he did, and in fact doesn't even recall doing
them.

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Perhaps others in the Refco operation, past and present, could shed some light on whether it was standard
procedure for a broker to permit an amateur with $1,000 to control perhaps 400,000 pounds of cattle. Refco
itself was disciplined by the Merc in 1979 and fined $250,000 for record-keeping negligence.

Any such testimony would require congressional hearings, not yet set for Whitewater. Robert Fiske's
inquiry into possible crimes would appear to be irrelevant here, since the statue of limitations has long
since lapsed.

When confronted with the messy circumstances of deals by which Mr. and Mrs. Clinton sought to "get
theirs" earlier in life, this administration's habit is first to brush off the questions as an impertinence, then to
dribble out documents that purport to put matters to rest but (slyly?) don't, and finally to act victimized
when the inquiries don't cease.

The President and his wife are not the first to have suspicions about their personal finances follow them
into the White House. We remember a guy whose California "slush fund" hung over him for 20 years, until
he clumsily gave the press something really to write home about.

We're not suggesting this episode is pointed toward another Watergate, and for the sake of an unstable
world and shaky markets we surely trust not. But at the very least, we have to note that the coverup of the
Clintons' 1978 and 1979 tax returns got them past not only the statue of limitations but some important
political deadlines.

If the commodities trading had come out during the 1992 campaign, for instance, or 1993 tax debate, the
Clinton's effective rhetoric about greed in the 1980s would have been exposed as the hypocritical blather
that it was.

Now, we've drawn conclusions from two days with incomplete records, and while our inquiries at the
White House yesterday were unavailing, further explanations may dispel our suspicions. But by now the
administration has welcomed to Washington nearly every Arkansas ally this side of Red Bone and Jim
McDougal. So with the record so suggestive of sleazy trading, surely it is time for the Clintons to start
doing some real explaining.

If You Can Get In The Winners Circle, You Can Become

Wealthy By Getting All The Money The Others Lose - Jim Ford

It may be true that the majority of traders lose money. However, what happens to all the money that is lost?
The answer is, it must be made by the consistent winning traders.

If 80% or more lose money, that means the 20% that regularly make money trading futures are becoming
wealthy by getting all that money the other 80% are losing.

That is what makes commodity trading so exciting and potentially rewarding. If it were not for the fact
most traders do lose money, the reward for us winners would be far less lucrative than it is.

The fact is you can become wealthy much quicker and easier because of the preponderence of losers
money. That gives it great reward potential. You too can get in the winners circle by hard work, the ability
to weather the occasional storms and drawdown periods, discipline and money management techniques.

Broker Trading by Computer can be done thru Robbins Trading Co.

or Commodity Research Institute - John Bowley

Dave, your Traders Club News is really great! The following is submitted for publication:

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There are now many users with their own systems and those evaluated by Futures Truth. Robbins Trading
and Commodity Research Institute (CRI) offer to run these programs and make trades. Robbins uses
SystemWriter and CRI uses Excalibur to program, test and general signals. Robbins in Chicago will not
allow one to cancel trades or enter stops.

CRI in Atlanta is associated with Futures Truth and says they will offer a simple filter or stop which
improves percentage of gains or reduces drawdown. One must buy a system, most under $1,000 to
participate. Both charge about $50 per trade.

This type of service represents a big step forward for small users. It allows one to trade automatically
without placing orders, and one need run the program only if desired to choose actual trades. Futures Truth
publishes results monthly. Now one can trade them with little effort.

FastTrack - A Mutual Fund Traders/Investors Friend - Part II - Jim Hill

You can expand FastTrack's analysis (referred to last month) by developing a combination fund of the two
and then develop counter relationships using a new index. This is a very powerful feature.

You create a new mutual fund that represents the counter relationship of the two select mutual funds. Then
you develop a counter relationship with another index. If this second counter relationship is positive, then
you choose the strongest mutual fund; if it is negative you can be in another mutual fund or a money
market fund. This type of pairing is easy to establish, and you can determine its effectiveness, historically.

What type of historical information is provided? Besides the usual mutual fund pricing and dividend data,
you will obtain the composite return of the fund and index, paired, a total return of the fund and a money
market fund in case you want to invest in a money market fund when your selected fund is weak, the
fraction of time the chosen indicator was up or down, the number of sell/buy signals, the standard deviation
of volatility, the return unadjusted, correlation coefficients, and the expected return given the standard
deviation.

Assistance with FT is readily available from the company. Or, you can communicate with users on the
investment bulletin board in Prodigy. The bulletin board participants are helpful, and discuss more
advanced selection strategies.

What are some of the disadvantages of FT and its data service? First, the data only goes back to September
of 1988. And second, you can not analyze a group of different funds for net profit/loss (in other words, you
can not easily do asset allocation beyond two funds).

What is the cost? There is an initiation charge of $69 and a monthly data cost of $30 if paid monthly or
$240 per year, if paid yearly. They have a one month trial package. If you are interested, you can call them
at 1-800-749-1348 and obtain the most recent cost for a one month trial. This is the best method of
determining FT would be of use in your selection of mutual funds.

I will close this article with a comment about timing. I use FT for both timing and mutual fund selection. I
time the market as a whole, and when my indicator is positive, I invest in Fidelity Selects. I will leave for
another article how this is easily done, but I will give you the sell/buy dates using this methodology:
S,9/1/88 - B,9/23/88 - S,6/8/89 - B,6/20/89 - S,10/19/89 - B,04/30/90 - S,04/09/90 - B,01/04/91 -
S,08/28/91 - B,10/04/91 - S,04/03/92 - B,10/06/92 - S,10/12/92 - B,10/14/92 - S,05/27/93 - B,07/30/93 -
S,02/14/94

As of the date I am writing this article, April 14, 1994, my indicator for the general market is still negative
and it will not be positive in the near future. It is an easy indicator to set up in FT and easy to follow each
day.

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 Editor Comments

My goal is to make CTCN even more useful to members so we can all trade better and avoid the many
pitfalls along the way. With that in mind there are several good articles in this issue that reveals ways you
can lose money or not make money thru no fault of your own.

Thanks to all who made contributions.

Issue 14.

Concerns About Validity of Seasonal Trades

& Little Mention of Drawdown - Ed Forys

After being bombarded with many solicitations for seasonal trading advice being hawked by several
vendors, I sat down one day to think seriously about their track records. The one thing that struck me was
that often times, they would cite examples like "in the past 7 years, this trade was profitable 5 out of 7
times." There seldom was mention of paper loss (drawdown) while in the trade; drawdown is anathema to a
stress adverse trader like me (as well as undoubtedly to many others).

I then consulted my statistics textbook and found that with a simple random, stationary set of data, using
the Student "t" test, the calculation of a mean using 30 samples was accurate to about 5%. A smaller sample
size leads to a greater error.

That alone was almost good enough for me to reject all of the too brief track records being hyped as the
answer to the quest for a truly mechanical trading system since with less than 30 samples, the accuracy
level is unacceptable to me.

If you flipped a coin 3 times and it came up heads 3 times, would you bet the farm that it would come up
heads on the next toss? If so, you don't understand statistics and/or random processes and you need to do
some homework (besides money management).

Another point I found to be disconcerting with these seasonal forecasts was the complete lack of walk
forward testing. It appeared to me that the vendors were using up all of the available data to come up with
the magic dates upon which to enter and exit the market and had no out of sample test results. Is it because
the vendors don't know that they don't know? Or is it because they just don't care? I would rather err on the
side of caution and in the meantime, when I do get one of those oh so enticing solicitations, it goes without
hesitation into the round file.

Is Futures Truth Doing it Right on System P&L & Misc

Dr. Gerald Greenwald

It is distinctly uncommon for me to stick my two cents in, but I'm compelled by certain letters you printed
in CTCN: Re Russell Sands' comments on Futures Truth. Mr. Sands, from short conversations I have had
with him, seems intelligent and personable. However, I would like to relate my experiences with Futures
Truth. About two years ago, I went public with my Key to Currencies Software. Shortly thereafter, Futures
Truth sent me an equity curve they had decided fit my software.

They never bothered to consult me, but George, their programmer, claimed that between anonymous faxes
and working backwards from info he had, George "believed" he had reproduced my program and would
follow it in Futures Truth.

I told him I would send (and then did send) a copy of the program so that they could accurately track the
program. They did not bother to do this.

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Then I spoke to and faxed both John Hill and George depicting their lack of propriety and giving half-ass
representations of what they believed my program to be, albeit I had told them it was not. They did not care
a whit. In summary, I believe there is little, if any, credibility to Future Truth's evaluations. They are
incorrect and misguided, in my humble opinion.

Re Mr. Stone's lamentations: Is this really worth including in a newsletter? (Editor's Note: Yes it is! Mr.
Stone's contribution is especially valuable for new or novice traders). Also, Mr. Montgomery's jeremiads
about the Ira Epstein Co. Montgomery appears to have never traded before, and appears to have little, if
any, experience.

I would suggest that the $3,000, he says he lost was mostly due to his own "stupidity, misinformation,
incompetence and negligence." Before you play the game, Mr. Montgomery, you should make sure you
know the rules.

One of the rules I find valuable, is never be in a trade unless a protective stop is in place with the broker
(not in your mind). I might add that from the tone of your letter, I can't help but wonder if it wasn't you who
were "sarcastic and rude," and not them. Dave, keep up the good work.

Advantages of a Full Service Broker over a Discounter & Misc - Paul Diehl

I love your newsletter and wish I had found it a long time ago. Maybe misery loves company. I find great
value in reading the comments of traders just like myself that have nothing to sell and no axe to grind.

I wanted to comment on Fred Montgomery's problems with a discount broker. I have traded with both full
service and discount brokers. A full service broker will give you a discount if you trade enough and ask for
it, but you will never get it without asking. I have had my own problems with discounters calling back with
fills and have solved the problem by using a live quote machine (QuoTrek) and mental stops. This way you
can call in a market order and have it filled while still on the phone. Live quotes are expensive so you have
to find another system if you don't trade enough to make it worth your while. Yesterday I called to place an
order in the S&P 500 futures market just after the market had dropped 1.20 in fast market conditions. The
broker's quote machine was still showing the last trade at 455.15, while my machine showed 453.95. If you
had been depending on the quotes from the broker, you would have either lost money with a bad fill or
never have gotten into the market in the first place.

I have never had this problem with my full service broker, but each trade costs $50.00 or more. It all
depends on where you want to spend your money and how much you trade.

I have been considering the Pocket Quote Pro to replace my Quotrek. The PQP is a lot cheaper, but I'm a
little afraid to make the switch since the Quotrek has given me such good service. I'd like to hear from
anyone out there that has used PQP.

I am also the owner of the Right-Time Index Program for trading futures and options on futures. So far, I
have had little or no luck with trading this program, even though the vendor makes heavy claims about
profits. I would like to hear from someone that has had success and get some ideas on how its done. The
manual seems incomplete.

I also use the AIQ Trading Expert and find it to be very helpful, but I also find that you still have to use
some judgement in taking the signals. I have begun to believe that there's no perfect program out there,
because it would ruin the markets since everyone would own it and we would all be trying to trade the
same way.

Hillary Clinton - Kent Calhoun

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Since my letter postulating how I believed Hillary Clinton managed to produce her commodity profits,
many things I speculated have been confirmed as fact. The White House officially retracted the version that
Hillary produced her own profits. James Blair, Tyson Foods attorney, was credited with producing Mrs.
Clinton's $100,000 profits despite the fact he lost over $5 million dollars in his personal account.

Hillary's broker, Red Bone, was revealed in court testimony, regularly locked his office door and assigned
account numbers after the close of trading. These trades were carried in an Omnibus Account. Bone also
neglected to ask Mrs. Clinton for $20,000 additional funds to secure her under margined positions in her
account. Those trades were eventually taken off with a profit.

I concluded my letter by asking what return Tyson Foods received for their $100,000 contribution to the
Hillary Clinton coffers. The answer turned out to be $7 million in Arkansas State tax credits granted to
Tyson Foods, while her husband was Arkansas State Attorney General. I spoke extensively with USA
Today reporter Bill Montague, who verified all of the above facts in his series of articles on Mrs. Clinton's
commodity profits.

System Results Evaluation - Kent Calhoun

I would like to share some thoughts on system optimization. When I introduced my method of system
optimization and evaluation, in the November and December 1989 articles in Technical Analysis of Stocks
and Commodities Magazine, many system developers were upset that my high evaluation standards made
their systems look bad.

These values were based on "Calhoun Profit Ratio", CPR, which is an important ratio related to portfolio
risk and structure. CPR is the Cumulative Profits divided by Maximum Equity Drawdown divided by
number of years tested and traded. If a system makes $100,000, has a maximum equity drawdown of
$10,000 and has been traded for 5 years, the ending ratio is 2.0. This is an annual dollar return based upon
maximum risk.

The CPR assumes a maximum equity drawdown occurs the moment a trader begins trading, then looks at
expected return on investment one year after trading began.

A 2.0 ratio means that for every one dollar at maximum risk, two dollars should be returned to the trader by
the end of the year. Any system under 1.0 has a negative annual return.

Applying the CPR to the 10 most Profitable Trading Systems article in Futures Magazine 1993, only two of
the ten systems have a positive annualized return. Of these two, my Ultimate II produced twice the amount
of profits per dollar at risk than Time Trend II. Why? Because the manner in which parameters were
selected.

I tested over 260 trading systems only to find false track records or misleading trading results for 90% of
them. The most common deception system developers used was the equity spike optimization parameter
set. This is when a system has less than 5% of its trades generate over 20% of its profits.

Page 66 of Babcock's book on Dow Jones Guide to Trading Systems provides an excellent example. A
hypothetical Yen trading system is used by Babcock for teaching purposes and is not presented as a real
system.

The cumulative system profit is $37,062.52, but one trade made $23,562.50. When this trade is removed
from the other 9 winning trades, the average profit per winning trade drops from $4,620 to $1,500! Imagine
the shock a trader may experience making this discovery after buying a system like this for $1,000.

A dual parameter set of the system above may look like this; a 3% filter X a 20 day moving average=4620,
a 3% filter X a 18 .m.a=1500. This means a 10% one parameter value shift resulted in a 68% equity shift
decline!

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The key to all system optimization is to create equity stability in relationship to the parameter set. When
any parameter deviation produces a greater percentage equity shift, the parameter set should probably be
discarded.

Over 80% of the time, the parameter set that produces the maximum amount of profits are not the
parameter set that should be used due to equity shift instability.

It is the "buffer zone" around a parameter set that limits the equity shift relative to the optimal parameter
shift. So long as the optimal parameter shift still produces profits within two standard deviations from the
optimal parameter set mean, the parameter set will make money 95% of the time.

The Calhoun Method for Optimal Portfolio Selection will compensate for the other 5% shift, and 27%
standard deviation, when a commodities profits decline below a ten year annualized return. This is a lot
simpler than it sounds.

A computer doesn't recognize a bean from a bond. For a system to be valid, it should be profitable for both
markets? Maybe not. Since the market psychology of belly traders is different than those of currency
traders, it behooves the traders find out what works and what doesn't within the context of the same system.

Many commodities are prone to consolidation periods more than others. Currencies, financials and stock
indices offer more potential profits for trend following systems than agricultural and livestock markets,
which have the highest percentage or range overlap from one time period to next. A system that constantly
produces profits in some markets should not be discarded because it loses money in others.

Five Vertical Bars - Kent Calhoun

When the 5 VBTP trend is short and one particular vertical bar is generated for soybeans, 106 of 109 times
one range of that bar is violated before the other. We confirm the trade by two parameters. Make money
97% of the time when traders take the opposite side of our trades. There are 25 commodities that have 93%
probabilities or better. The choice of losing or learning from optimization is theirs.

Consider one 5 VBTP sell pattern for T-Bonds has never had a winning trade in over 10 years! A pattern
tells the trader to sell on daily vertical bars when the intermediate 5 VBTP weekly trend is bullish.

The sell signals per trade maximum equity drawdown has never dropped more than $1,400 per contract. A
trader may buy the market on the first sign of technical strength, after the daily sell signal has been
generated, and use a protective stop placement that has never failed in 10-years of testing.

The point is this - how a system loses money is just as important as how a system makes money. Not all
same system parameters need be profitable for all markets to profitably trade a system. The same principal
applies to price action. A market that falls 20 cents in five days, then rises 10 cents in five days should fall
below the 20 cent low, because the market fell twice as fast as it was rising, (without previous trend
considerations.)

Consolidation Period - Simple Analysis

When the trends are not obvious, a longer term time period should be used to define the trends and increase
the trading possibilities. Defining volatility in apparently non-trending markets can provide valuable
information, especially a major tops and bottoms are projected.

In January and February 1993, I recommended gold purchases below $330, based on the fact the market
had ran out of sellers according to the 5VBTP time and price objectives for daily, weekly and monthly
vertical bars. January's range for the entire month was less than $10. Thirteen years earlier, the monthly
range was over $300.

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The 5 VBTP weekly profit objective was 150% oversold, yet the monthly bottom was due the previous
month and had achieved only 62% of its objective. The 5 VBTP daily downside price objectives are usually
twice the upside objectives when the major trend is down. Both those daily price objectives were within $1
of each other at the major 1993 gold bottom.

Since the weekly trend was oversold, as soon as the daily exceeded a previous daily high, the weekly and
major bottoms assumed to be completed. Major bull markets begin with higher daily highs and lows that
become higher weekly and monthly higher highs and lows.

To Optimize or Not?

All trading systems are optimized to some degree, unless trading parameters at randomly generated without
any profit considerations. Would anyone in their right mind trade a system without knowing what the best
trading system parameters could possibly produce? I would not.

Consider what an optimized variable can be. Does the system enter intra-day or on the close? This is an
optimized variable. A channel breakout system, that buys above 14 day highs, may have tested to 100 days,
has 100 possible parameters; adding a sell below the 28 days lows creates 9901 possible parameter set
combinations. The point is this: not all optimized parameters are equal in terms of curve fitting or
optimization.

Richard Donchian, the father of modern technical analysis, created a 20 day channel breakout system
known as the four week rule. Buys were made whenever a market closed above the previous four weeks'
lowest low. Channel systems have historically been the most consistently profitable group of trading
systems.

The difference between the optimal number of days for the buy and sell parameters increased total profits
for portfolio of 24 commodities over 1210% and lowered equity drawdown over 73% for a 6-year period.

Less than 2500 possible parameter set combinations exist for a two parameter system like this testing up to
50 days. Any system using a fixed number of days to enter or exit trades would be improved by locating the
best parameters and using the CPR on parameter sets.

Correct usage and analysis of optimization is the most valuable trading tool available. Whether
optimization should be used, is never a valid question for any professional trader.

A Simple Way David Stone (May Issue CTCN) Could

Have Made Money Instead of Losing Lots of Money - Russell Sands

Use "Market if Touched" orders when attempting to take profit targets (rather than Limit-Orders).

Psycho Babble: Pluses and Minuses Russell Sands

Gary Smith has gone to great lengths to disclaim the validity of the (proliferation) of psychology guru's and
'coaches' that are charging a lot of money to 'help' people become better traders.

This letter is not meant to get into an argument with Gary, or anybody else for that matter, but to share
some personal insights on the subject.

Let me begin by agreeing that there are many charlatans out there who charge too much money for too little
(quality) services, then try to keep you coming back for more. There are people like this in every business,
from the carnival barker who wants you to come see the"private show," to the system vendor who wants to
sell you his "advanced updates."

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However, these few rotten apples should not lead one to conclude that the whole field is worthless. Gary
claims his real beef is that these psychology guys refuse to tell the truth that most people just aren't suited
to trading. I think this is wrong.

Maybe most people aren't naturally suited, but anybody can learn. Richard Dennis unqualifying proved that
a random group of people, having average intelligence, common sense, and good discipline, can learn to
trade for a living. And he did it by teaching simple rules of the markets, without psychological
programming or hypnotic mumbo jumbo.

On the other hand, many people need mental help (no pun intended) when it comes to trading. I am a great
believer in the power of the mind, and that anybody can accomplish anything if they put their mind to it.

But the reality is that most people need help in most endeavors in life that they undertake. They need
confidence. They need support and encouragement. They need to be told that they can do it. Yes, I agree
there are no shortcuts. And people should not be tantalized by the lure of quick and easy profits. But with
hard work, and a positive belief system, anything is possible.

Let me relate two personal experiences from outside of trading. In 1980, I won a World Championship in
Backgammon, with a trophy as tall as Jake Bernstein, and enough money to get me started in trading for a
living.

For those who think Backgammon is a "luck of the dice game," there is probably as much skill involved as
Chess. But the dice do play an important part, and for five days in a row I rolled dice that were absolutely
beyond normal statistical bounds of reality.

How did I do it? With transcendental meditation, mental dynamics, psychokinetics, and good old fashion
mind control. I saw the numbers I needed in my mind's eye, and rolled them accordingly. I had great help in
accomplishing this feat.

I had a psychologist, a psychiatrist and a hypnotist, all working with me for a month before the tournament.
The same type of 'gurus' that we talk about, and none of them even knew how to play Backgammon. But
they sure helped me with my mental abilities, both controlling the dice, as well as focusing and
concentrating on my game and being more aware of the technical aspects.

If that story is a little far fetched for some of you, try this one. A few years ago, I did something called the
Firewalk Experience, where you walk over a bed of burning hot coals. This was a famous 'fad' in the 80's,
taught by a pretty flamboyant Neuro Linguistic Programmer named Tony Robbins. But it was 100%
legitimate, and to this day I still can't figure out how I did it without burning my feet.

You're put in a different state of mind, change your whole psychology and physiology...it works. If NLP
can do that, and if meditation can help me roll dice, then I have to believe that some of these 'coaches' can
legitimately alter the mindset of a doubting trader and turn him into a self confident success.

Yes, the power of the mind is an incredible thing to experience. Of course, as Larry Williams has recently
said, if you have a system that's 80% accurate, with a risk reward ratio of 5 to 1, you don't need very much
of this psychology stuff. But if you do want to improve even more, you still have to differentiate between
the legitimate psycho gurus out there and the charlatans.

But that's no different than having to choose between legitimate trading teachers or system vendors, and the
many slimeballs in the industry. But even Gary Smith would agree that just because there are a lot of
slimeballs, it doesn't mean the whole field (vendors) is completely worthless.

Of course, some people will choose or prefer to do it on their own, i.e., develop their own trading systems,
and develop their own discipline and self confidence. But for those that need some extra outside assistance,
I think the psychobabble field does have some degree of merit.

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 A Critical Letter from Mr. Ira Epstein & Some
Order Placement Help & Advise

One of my clients, Ray Simpson, recently sent me a reprint from the May 94 issue of the Commodity
Traders Club News. (Editor's Note: There's no record of a Member named Ray Simpson, if such a person
exists, I would like to discuss with him giving an illegal copy of my copyrighted CTCN to Ira Epstein, in
violation of Federal Law.)

To say that I was disturbed upon reading this baseless and libelous letter, is a gross understatement. Your
publication of this letter without substantiating any of its allegations was irresponsible and seriously
damaged our reputation.

Based upon my experience as a journalist gained in 10 years of hosting the television show, "Stocks,
Options and Futures," which was broadcast on over 100 individual markets across the country, I believe
that reporters should examine the facts and verify that they are reporting something with substance before
publishing. I seriously doubt that CTCN undertook any such investigation before publishing the wild and
untrue allegations here.

We have just completed our initial search for accounts bearing the name of "Fred Montgomery" the
purported author of your letter. To date, we cannot find an account opened under that name. If, in fact, such
a person exists, we would like to discuss his allegations with him. If this person does not exist, then your
failure to investigate the claims in the letter becomes even more apparent.

Further, Mr. Montgomery's letter shows that its author lacks even a basic understanding of futures trading.
He claims that he lost money because he was unable to get a quote from Ira Epstein & Co. He initially
states that he was watching CNN cable TV at 7:26 a.m. and learned that Treasury bonds were down. CNN
does not run a business show displaying the markets tick-by-tick. However, that really isn't the key here.
(Editors Note: CNN was a typo...it was FNN). Montgomery alleges that our system wouldn't let him get
quotes. This is impossible.

Even if a customer has used up all of the free time allocated to him or her through the Ira Epstein & Co.
Commodity-Fone quote system, the system would still allow the client to hear quotes for a minimal price
per minute. I find it difficult to believe that anyone that has an active trading account with a $20,000
balance, as this man claims he had, would have expended his allocated daily free time so early in the day.
We build in sufficient free time so that most of our customers do not have to pay for quotes. The only
reason we set a limit at all is to prevent inactive traders from unfairly abusing our quote system. This policy
allows us to keep expenses low, which in turn permits us to maintain our low commission structure. In any
case, we do not lock clients out of the Commodity-Fone system, but rather give them the opportunity to
continue receiving quotes for a very small fee.

No client that has an active account with Ira Epstein & Co. is ever locked out of the Commodity-Fone
system. We do not treat new customers any differently than existing customers, with the exception that we
initially give all new accounts more free time so that customers can familiarize themselves with the
workings of Commodity-Fone. We certainly do not penalize our new customers as claimed in Mr.
Montgomery's letter.

Next, and more importantly, as any person even minimally familiar with the workings of the commodities
and futures markets would realize, Mr. Montgomery's expectations as outlined in his letter were unrealistic
and display an ignorance of this business. His letter states that he saw a CNN (FNN) report that showed T-
Bonds falling at 7:26 a.m. He next claims that he tried to get a quote from us at 7:27 a.m., because he knew
that an important government report would be released at 7:30 a.m. Apparently, his claim is that he could
have closed out his position before the government released its report at 7:30 a.m., if only he could have
obtained a quote after placing a call to our quote line at

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7:27 a.m. Even if these events took place, which I doubt, his expectations were completely unrealistic. Our
quote lines and order takers are fast and efficient, and the market operates quickly, but even if Mr.
Montgomery had placed his call to our quote line at 7:27 a.m., received a quote at 7:28 a.m., made an
immediate decision to sell and called our order takers at 7:29 a.m., it is highly doubtful that the order could
have been taken, relayed to a floor broker, and executed before 7:30 a.m.

Any experienced trader knows this, and places his orders at least 10-15 minutes prior to the release of a
major report to allow time for it to be executed. Mr. Montgomery was setting up his own debacle. Mr.
Montgomery apparently believes that from the time that a stop order is placed to the time it gets into the
trading pit is under one minute.

We use a computerized order entry system on orders that are not market orders and orders that are not
exceptionally close to the market. Even with our advanced system, it would have taken 1-1/2 to 3 minutes
to have placed his order that day. By that time, the report would have been out and the market reaction
underway. Mr. Montgomery should have had a resting stop order in the market. Mental stops, as
experienced traders know, are often the key to disaster.

Mr. Montgomery next argues that I should have reimbursed him for his loss. He claims that I offered him a
$200 goodwill settlement towards his loss. If Mr. Montgomery, in fact, did exist at all, I may very well
have made a gesture like that. It would not be uncommon for me to do so. At times, if the client has a
problem, due to their own lack of expertise, we step to the table, show that we are not without heart, and try
to help that client out. However, I have no recollection about this particular instance, if in fact, it occurred.

I have been in the futures business for 25 years and Ira Epstein & Co. has just celebrated its 10th year in the
business. We are one of the largest discount brokers in America. We do not get many client complaints.
Any check with NFA or CFTC will prove this point.

We have 1000's of accounts and execute 1000's of orders on a regular basis. We have review mechanisms
in place and strive to improve our service level at all times. Without excellent customer service, we
wouldn't keep the 1000's of satisfied customers that we now maintain.

I already know, from talking to the editor of Commodity Traders Club News, that several of the readers of
this newsletter have called or written to express their believe that Mr. Montgomery is in the wrong here.
They believe that he was uneducated and unsophisticated in trading futures. I hope that the CTCN will print
their letters and an apology for publishing Mr. Montgomery's letter without first checking the facts. I take
my reputation very seriously and am entitled to a statement setting the record straight.

Precision Commodity Trading Program John Maglovsky

I recently received a copy of a trading program that selects seasonal tendencies that are remarkably correct
(by their brochure). I have a copy of their trading recommendations for April. I evidently don't know how
to check this program properly and need the expertise of CTCN Members. I only checked four
commodities and 3 were losers with one with a marginal profit. I called Precision Commodity Trading for a
profit/loss statement of one following their recommendations. Their answer was, it is included on the
recommendation list. Their list does not tell me how much I would make or lose if I bought one contract of
each commodity on their list and followed their instructions.

I'm sure if this program can be proven to be profitable 79 to 100% of the time, as it claims, many of our
club members would be interested in it. I hope you or the members can help with information about this
program and its success or failure.

Thanks Dave, for your time and energies you put into your Swing Catcher Program, CTCN and your
personal time with callers like me, I appreciate it.

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 A Batch File for Data Backup - Verl Philliber

To paraphrase the 1970's tune, "Backing up is hard to do."

Many of us find backing up data files to be a bothersome task, so sometimes it just doesn't get done. Yet,
since good data is the lifeblood of our trading, it is essential that we protect it at all costs.

The backup program provided in DOS is not elegant, but it is adequate for most of us. Problems arise
because it is not very user-friendly, and uses arcane commands which are sometimes hard to remember. To
make the task less odious, and to help avoid errors, I wrote a batch file to make backup less of a chore. You
may find it useful.

Some background comments: I wrote this as a working program for my own use, so it is not "pretty," but it
does work.

I made some changes before submitting it to the CTCN newsletter to make it workable for most versions of
DOS. Pre-DOS 4.0 users will need to remove the "@" in the ECHO commands.

The directories are coded to match the same names used by Trend Index Trading Co. Probably, we should
all use the same directory names as Dave. This simplifies troubleshooting if we need assistance with a data
problem. It may also prove useful at some time in the future if Dave makes a program improvement which
affects file structure.

You can choose either C or D as the source drive, and either A or B as the target drive.

I followed the conventions described in the CSI manual. Thus, data stored with program files (18 month
Trendx, or Dow-Jones/OEX files) are backed up on two disks: QMASTER is stored on one, and data on the
other. Historical data files are not stored with program files, so can be backed up on the same diskettes as
the QMASTER files.

Non-CSI users will need to make changes as appropriate.

After keying in the program, you can run it without backing up any files to get a feel for the program, and
to see whether it meets your needs. Just press CONTROL-BREAK each time the program prompts you for
a diskette.

DOS 6.0 users have a new command called CHOICE to use in inter-active batch files. Others will have to
create a small program called REPLY.COM, and store it somewhere on your path (e.g. C:\, C:\DOS,
C:\BATCH, C:\UTIL etc.).

For those who don't remember how to create .COM files, I'm including the instruction. This is a two step
process:

1. Create a file named REPLY.SCR by typing the following lines EXACTLY as shown, pressing (ENTER)
at the end of each line. C:\>copy con reply.scr (ENTER)

e100 b4 08 cd 21 3c 00 75 02 cd 21 b4 4c cd 21 (ENTER) rcx (ENTER) e (ENTER) w (ENTER) q

(ENTER)

Now press the function key (F6), then press (ENTER). DOS will show 1 file copied.

2. Now type:

c:\>debug reply.com < reply.scr (ENTER)

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This small program was written by Van Wolverton, author of several books on DOS, including
Supercharging DOS.

With minimal changes this batch file can be used to create a restore program in case you ever need to use
the backup files. I didn't list the changes here, because of space constraints. However, if there's any interest,
I can submit them for a later newsletter.

You Alone Are Responsible For Your Actions - Russell Sands

To Fred Montgomery. You must learn to take responsibility for your own actions. Specifically, you should
always call your broker if you haven't had a call back within 10-minutes to see if you got filled, and you
most definitely should not use 'mental stops' if you are not in a position to watch the markets live all day.
Despite my own feelings about Epstein, the problems you described were 90% your fault. If you have
learned something from these sloppy mistakes, then it was well worth the cost of tuition.

The 1-2-3's of the Market - Ken Turkin

People are use to thinking and communicating in symbols. Life is made easier with complicated forms
being describing as some symbolic reference. All markets, being only comprised of groups of people, also
communicate in the same way.

Numbers are the most common symbols used and have a multitude of interpretations. The best numbers for
the markets are 1, 2, 3 and 4. ONE can be a dot, a single point or a obvious high or low point. TWO can be
a line with 2 end points or a single point which started to curve and come back to itself forming a circle.
The 2 can be a high-low or low-high swing on a price chart.

The number 3 is the first completion of something real. THREE is a Triangle, probably the most important
symbol of all. The 3 consecutive swing points on charts can form what is called a cycle. They can look like
a high-low-high or low-high-low. The 3 points can be squared off which in essence creates a fourth point.
Taking it another way, just add another swing to the two which made the triangle. Now there are 4 swing
points which will always show you the illusive TREND.

In other words, the 4 swing points (2 highs alternating with 2 low points) create 3 price thrusts or swings
which show 2 consecutive cycles indicating one trend. This can be generic to any time frame or price
movement. Only the scale perspective is different.

Editor Comments

As you can tell by reading Ira Epstein's letter, he is very upset over Fred Montgomery's letter in the May
issue. If in the future there's an extremely negative letter like that, I will likely try to get a comment or
rebuttal from the target of the criticism prior to publishing it. In fact, that should have been done in Ira's
case and for that I apologize.

However, Ira says CTCN should have "investigated the claims" and "substantiated its allegations" and
"examined the facts" before publishing Fred's letter. We are not the Police, nor the FBI. Unfortunately, we
do not have the capabilities or the power to discover and correctly verify the truth. I am sorry to say that it's
really unreasonable for Ira to think CTCN has an obligation and the authority and resources that would be
required to verify statements made by its Members. Furthermore, I have spoken to Fred Montgomery and
he says his letter was absolutely correct. In fact, he states he taped the specific call (and others) to the
broker, in which he was told their policy at the time was to automatically make the clients first call fail (so
they could check the account status and balance). He taped those calls because of a number of errors or
screw-ups attributable to several different brokers over the years.

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 He also says Ira couldn't find a record of his account because the account was under a different name (his
business name).

You should know that in addition to negatives, I have heard some good and positive things about Ira's
brokerage service. However, these positives were not submitted to me for publication. Therefore, I would
greatly appreciate letters (for publication) from CTCN Members who have had experiences with Ira
Epstein Futures.

Thanks to Verl Philliber, his excellent back-up program is available free to all CTCN Members.

The reverse side has details on an upcoming Dow Jones Telerate (CompuTrac) Seminar. It should be
beneficial to attend it.

Thanks to all who made contributions.

Issue 15.

Futures Truth's Numbers Are Accurate -

Key To Currencies System - John Hill

We standby the current numbers we publish on Dr. Greenwald's Key To Currencies System and firmly
believe they are correct. We initially published numbers based on back-engineered logic on Dr.
Greenwald's system.

We received a copy of his program logic anonymously from someone who has back-engineered the
blackbox. This was tracked in Futures Truth using actual contract prices instead of continuous data. He
decided to send us a copy of his blackbox system for a closer comparison. We were able to essentially
duplicate results during this period.

Our historical tests with our program showed very similar results to his advertised results, except British
Pound (see table below). His system is intended to be traded as a basket, thus the overall drawdown may be
less (or more) than that shown for individual futures.

We were not aware of his dissatisfaction until the article in last month's Commodity Traders Club News.
Because of his expression of displeasure and the possibility that he may have changed some of his basic
logic since the blackbox he sent us expired, Futures Truth will cease publication immediately of numbers
on his system in our Master Performance Table.

A private individual performance report will be available to investors on what we believe is his basic
methodology.

We have always told vendors to show us where we are wrong and we will immediately correct them. This
option is open to Dr. Greenwald and anyone else. We sincerely believe we programmed his basic
methodology correctly.

Obviously, we cannot keep up with day-to-day changes, if any, in the methodology unless the vendor keeps
us appraised of the changes and that is why we will cease showing numbers on his system.

If something is sold to the public, I believe Futures Truth has every right to publish results on those systems
for the benefit of it subscribers only, irrespective of how the methodology comes to us.

(see P&L report on page 8 -Report in Print Copy)

John Hill on Russell Sands & Curve-Fitting

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Russell Sands points out that all systems in Futures Truth are curve-fitted without every seeing a copy of
our report. I believe that to be true... including his system. Technical analysis is simply taking past data and
forecasting future results which is curve-fitting.

Mr. Sands' main argument is that his system does this better than others by money management or less
curve-fitting. This may be true, but I suspect there are a number of systems in our reports that will do jut as
good as his.

We also only present numbers without the benefit of hindsight, so this is an attempt to show the real-
world.

This Newsletter and It's Contents are

For Members Only - Wayne Roberts

For several years, I have subscribed to Club 3000 newsletter. Maybe you have too. Not long ago a
contributor (he's been in there several times, don't remember his name, but it definitely wasn't Fred
Montgomery) said he called the trading desk at Ira Epstein and got an answering machine.

As I understand it, he was trying to put on a trade, or maybe he was trying to get out of a losing trade, and
what he got on the other end was a recorded message. I couldn't believe it!

When I read those words, Ira Epstein Co. was immediately crossed off as a broker, where I would ever be
interested in opening an account.

Also I came to the realization that it's possible criticism could have been bought off via regular advertising
or maybe scared away, as in a lawsuit, so it was possible we would have never seen that letter.

Would send you a photostat of that letter, except to do so would be breaking the law. Just like "Ray
Simpson" broke the law. Unless he's a subscriber, Fred Montgomery's letter was never suppose to come
before Epstein's eyes.

CTCN is confidential, closed-circuit for members only. What somebody doesn't like, or even want to know
about these little insider tidbits, are one of the reasons we subscribe.

As I see it, Epstein's use of the word "publication" is a bit of a stretch. CTCN is more like a bunch of old
boys chewing the fat at the corner service station. Anybody can say anything, because what is said never
goes outside the group. The outside world never knows or cares what was said or isn't suppose to anyway.

Perhaps you've already taken care of this, but Commodity Traders Club News should be a separate
corporation, completely divorced from any of your personal assets or trading accounts. CTCN's assets
should be described, such as printing press, rented room, etc. Listen to me, I'm a high school graduate.

How to Trade Successfully Mike James from New Zealand

To be a success as a trader, I believe that several things are important.

A sound game plan is vital. It needs to define:

a. A trading method with a positive outcome;

b. A money management strategy, that prevents the drawdown that occurs from taking you out of the game;

c. The psychological makeup to follow your plan faithfully.

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I believe that investment success requires internal control more than any other factor. Unfortunately for
them, from what I can see, most novice traders stop at point (a).

Sure you need a game plan that gives you an edge, but more importantly you MUST control risk, but in my
experience that can amount to naught unless you make sure you don't sabotage yourself (read, not follow
your rules).

So presuming you've got a trading method that your happy with, what's the next step.

For a start I'd like to recommend a couple of books that I've found very helpful. If you haven't got them in
your library, I'd suggest you get them.

The first book is "Money Management Strategies for Future Traders" by Nauzer Balsara. For me, I found
this a lot easier read and more practical than Ralph Vinces' two books.

As well as chapters covering such ground as "Limiting Risk through Diversification" and "Managing
Unrealized Profits and Loses". The Appendix (which occupy some 80 pages) not only gives computer code
that can be used to calculate risk of ruin but also gives information on the correlation coefficient for 24
different commodities. This can help in portfolio selection to make sure that your open positions are not
unbalanced by being, say for example short three different currencies at the same time.

I would also strongly recommend the book the "Disciplined Trader" by Mark Douglas, which offers a lot of
useful information on psychology, as well as another book I've just read, "The Inner Game of Trading" by
Robert Koppel and Howard Abell.

The "Inner Game" has several interviews with top traders that make the book worthwhile just for that fact
alone.

We've all heard the statistics. 95-98% losers. So here we have a business that is a zero sum game where the
odds are, that at least 90% of people will loose! I'm sure if most of us were looking to start up a company in
an area with a known failure rate of at least 90%, we would not go ahead in the same blithe manner that so
many traders seem to.

Don't be fooled. This is a serous business that requires dedication and discipline to succeed. Arm yourself
with the best tools you can find and make sure your own personal amour has no weak points.

I read somewhere that those who choose to trade subconsciously choose elements in their trading that not
only complement their strengths, but will also confront their blind spots and weaknesses.

Think about that the next time your stress levels rise because you neglected to follow one of your rules.

What your trying to do on a subconscious level, is not necessarily gain financial reward but experiences
such things as facing fear, self-worth and increase or decrease of personal power.

We have the choice of confronting our blind spots to heal them and move on, or reject that process and
switch trading system or broker, etc.

You need to continually work on yourself. Just as markets change and must be adapted to, life itself for us
as human beings is an evolutionary process. Hard, questioning self-analysis will go along way towards
confronting our blind spots, to not only improve our trading results each month but also to enrich our
personal life as we discover more about ourselves.

Trading Discipline - Ed Forys

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I have found that the discipline problem is mainly one of exiting a trade. Therefore, before I enter the
market, I know exactly what parameters will get me out. When that time comes, I exit the market, no matter
what.

A trailing stop helps a lot to automate the exit.

I am not a "born trader" (most people aren't); this forces me to be a strict rule follower.

I think Larry Williams once said that one of his main winning characteristics is that he could follow a
mechanical system faithfully to the letter.

While I am in the market, I don't change any of my rules to exit the market, especially if the trade

is in a losing position. When the exit signal comes, very seldom have I been able to override the rules and
turn the losing trade into a winning trade (more so when trading S&P).

Sometimes, by overriding the rules, the losing trade becomes a big loser which one must absolutely avoid.
It also helps me a great deal to have a panic message appear on my screen like "Exit Now! Trend has
Reversed!"

Opinion on How Hillary Did It From A European Trader - Stuart from Sweden

Per the article in March 94 CTCN titled "If Hillary Made Money In Commodities, Why Can't You?" As a
non-American living overseas, I have to say that my instinctive answer is "Because my husband is not a
Governor."

I am not a jealous person, and I accept that Hillary is a highly intelligent women. But I simply do not
believe that anybody, not anybody, can turn $1,000 into $100,00 in a year, and then stop playing the
market.

There simply has to be fraud in there somewhere; whether it's her, Bill, someone else or whoever. This
neither interests nor bothers me, (although that money was stolen from the likes of you and me), nor does
the reason for such fraudulent activity, unless it eventually erupts into a Presidential scandal, which will
affect the markets.

Surely nobody is naive enough to believe that she seriously made that money honestly, are they? If
anybody is, what do you Americans know about politicians/lawyers that the rest of the world doesn't?

Precision Day Trading System - M. Kuhn

I purchased Precision based on its great track record published in its brochure and the fact it had a money-
back guarantee.

After trading it for a couple months, I came to the conclusion it was not profitable.

I returned it for a refund. It took lots of effort and letters before I finally received my refund. However, I
did in fact get the refund.

In my opinion readers of CTCN should avoid purchasing this system as it is not profitable as it's advertising
indicates.

Simulation - Playing What If - Verl Philliber

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Don't you sometimes wish that we could take an early peek at the effect of today's price action? It may be
helpful to know, for example, that today's price action will:

• Generate a Swing Catcher signal for the next day's Open

• Break a trend line on a daily chart
• Generate a signal in an indicator, such as Stochastics

Here is a way to use Swing Catcher's data management module to take a peek at the effect on today's
action.

1. Gather today's intra-day data. Your broker can provide it, or you can use data from CNBC.
2. Starting at the Swing Catcher Main Menu:

Press <7> Utilities/Update/Edit/Rollovers

Press <F2> Edit/Update data

Press <F1> Select file to edit

Enter the number of your contract. This will bring up the Edit Screen. Press <U>pdate. Use the arrow keys
to move the cursor, and insert values for Open, High, Low and Close (actually the last trade). Move the
cursor to the bottom of the screen and press <R> return to menu.

Now when you run your chosen program, it will treat the new data as if it were end-of-day. If the price
action is enough to trigger a trade for tomorrow, you may want to trade before the market closes today.

When you do your usual electronic download at the end of the day, most data services will simply
overwrite the manual entries you made, so it's unnecessary to manually delete the intra-day data you
entered.

Using this technique, you can alter the entries throughout the day as prices change. You can also insert
artificial prices to see what levels prices will need to reach before a signal is triggered. This might be useful
in setting stops.

Special Treatment of Hilary So She MadeMoney -

Reprint with permission USA Today

Hillary Rodham Clinton had some special treatment while winning a small fortune in commodities, a four-
week study by USA TODAY found.

Hillary Clinton's brief but spectacularly successful career as a commodities trader in the late 1970's looks
more and more like a story out of the Wild West.

Like most Western yarns, it's filled with colorful characters, money, greed and shady dealings just this side
of the law - and maybe a few steps beyond.

At an extraordinary news conference, the first lady told her version of the story: "The fundamental facts
are...I opened an account with my own money, I took the risk, I was the one who made the decision to stop
trading."

She denied knowledge of trading abuses by her personal broker, Robert "Red" Bone, or her brokerage firm,
Refco Inc. And she denied receiving preferential treatment from Refco's Springdale, Ark., office. "There's
really no evidence of that," she said.

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But court documents, regulatory rulings and other records reviewed by USA TODAY, and interviews with
brokers and customers in the Springdale, Ark., office where Hillary traded, continue to raise questions -
which she did not answer - about what she knew about Refco's trading activities, and when.

USA TODAY submitted a list of detailed questions to Clinton. In her news conference, Clinton and her
staff answered those questions but did not address all the details.

Hillary says she knew nothing about any trading abuses in the Springdale office until months after she
stopped trading with Refco. But records show many other Springdale clients, including her own investment
advisor, longtime friend James Blair, knew about those questionable practices - and hoped to profit from
them.

Court records and her trading statements also show Clinton repeatedly received preferential treatment from
Bone in posting margin. Those favors enabled her to avoid large losses in July 1979.

By now, the main points of the story are well know. Between 10-78 and 7-79, Clinton made almost
$100,000 trading cattle and other futures with Refco.

Her timing was perfect. In late 1978, the cattle market embarked on a wild ride, as prices first soared and
then plunged. Many Springdale traders, including Bone, a some-time professional gambler, made and lost -
small fortunes.

For the most part, Clinton correctly called each turn. She was aggressive, even reckless, sometimes opening
and closing trades in a single day. But in July 1979, she abruptly stopped trading with Refco.

It was a stroke of apparent luck. In early October cattle prices collapsed. Springdale traders lost nearly $20
million. The Blair family lost $5.4 million, records show.

A number of traders, including Blair, filed suit against Refco and its chairman, Thomas Dittmer, charging
they manipulated cattle prices in the summer and fall of 1979, causing the October losses.

Blair and Refco settled out of court. Records of the case were sealed. Arkansas juries ruled for the traders
in several cases filed in federal court. Those judgements were later overturned on appeal.

Clinton closed her Refco account in 10-79. She says now she was too rattled by commodities trading.

But at roughly the same time, she opened an account with Stephens Inc., a Little Rock brokerage. Trading a
variety of commodities, but not cattle, she made $6,498. She failed to pay taxes on those earnings until
recently, when she paid $14,615 in federal and state taxes and penalties. In May of 1980, she left the
commodities markets.

Clinton credits Blair for much of her success. "I trusted Jim Blair and it worked for me," she said. At the
time, Blair was the main outside lawyer for Tyson Foods, one of Arkansas's biggest firms. He is now
Tyson's general counsel. He is also a long-time activist in the Democratic party, and a donor to Democratic
candidates, including Bill Clinton.

Blair's role has proven sensitive. While Clinton was trading with Refco, her husband was state attorney
general, then governor. During Bill Clinton's time as governor, Tyson Foods received at least $7 million in
state tax credits.

Records from the Springdale office also show that in 1978 and 1979, Tyson was one of the office's biggest
customers, trading through three corporate accounts.

In 1977, Bone, a former Tyson executive, was barred from trading for a year by the Commodity Futures
Trading Commission after a probe of manipulation in the egg futures market. Similar penalties were levied
against Tyson Foods and its chairman, Don Tyson.

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Hillary disclaimed close ties to Tyson. White House officials say she was not aware Tyson was a customer
in the Springdale office. Tyson officials deny receiving any special favors from Bill Clinton.

Numerous efforts to reach Bone were unsuccessful. In interviews with The New York Times and The Wall
Street Journal, Bone has denied any wrongdoing.

But court documents contain extensive testimony from Bone and other figures. Some specific allegations in
those records:

Price manipulation. In 1983, Blair testified he believed Refco and Dittmer were manipulating cattle prices
during the time he advised Clinton. He said Refco brokers and customers, trading together, "helped" move
cattle prices, in part by controlling delivery of live cattle to market. "They wanted to see the market go up
or see it go down. There wasn't any money to be made if it didn't move," Blair said.

During that time, Refco and its customers accounted for up to 40% of all cattle contracts traded on the
Chicago Mercantile Exchange. Dittmer had sizable ownership stakes in cattle feed lots in Texas and
Kansas.

Refco and Dittmer have denied any manipulation. But they, along with Bone, were disciplined in 1979 by
the exchange for repeatedly violating exchange rules and reporting requirements while trading cattle in
1978 and 1979. The exchange levied a $250,000 fine against Refco, then the largest penalty ever imposed
on a broker. Bone agreed to a three-year suspension of his right to trade on the exchange.

Trade allocation. Court evidence shows Bone and other Springdale brokers routinely placed trades in Refco
house accounts, then distributed them to specific customers. Brokers and customers, including Blair, said
trades often weren't allocated until after the mercantile exchange closed for the day.

That's a key point. Testimony shows Springdale brokers often executed large "day" trades, a purchase and
sale the same day. By waiting until after the market closed, they would be able to tell which trades were
winners and losers - before allocating them to customers. For that reason, block trading is closely watched
by regulators. Holding trades until the end of the day is, and was, forbidden.

Blair now denies favoritism by the Springdale brokers. But David Jeffrey, a dentist who traded in
Springdale during the same time as Clinton, raised the issue in a suit against Refco, and in a complaint he
filed with the exchange against Dittmer, Bone and Jack Musteen, a Springdale broker.

"After the trading sessions...orders were allocated to various accounts," Jeffrey charged. "In this way,
defendants were able to illegally control the profit and loss characteristics of each account."

In 1983, the exchange ordered to Refco, Bone and Musteen to repay the $27,000 Jeffrey claimed he lost as
a result of their actions. His lawsuit was dismissed in 1986.

Backdated trades. Two Springdale brokers, Bill McCurdy and Steven Johns, testified they participated in a
cover-up of block trading in the Springdale office on a particular day in the summer of 1979. The pair were
testifying as friendly witnesses for one of the investors who claimed he was defrauded by Refco.

The brokers claimed they were told to lock the office doors after the market closed, set back the clocks
used to time stamp trader orders, and prepare phony customer order slips that could be substituted for the
block orders actually placed during the day.

According to Johns' testimony, the date in question was June 27, 1979 - the day Clinton opened a trade that
eventually would earn her $43,760 - her single most profitable commodities trade. It is also one of three
days for which the White House says it can't locate Clinton's daily trading statements.

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Johns and McCurdy refuse to discuss the incident. In their testimony, the two did not specifically claim
winning or losing trades were back-allocated to specific customers.

Margin Waivers. Court testimony shows Bone frequently waived margin calls for certain customers - in
effect, loaning them money to maintain their accounts. Clinton's records show she was repeatedly allowed
to avoid posting margin, including on her June 27 trade. That shortfall peaked July 12, when her account
showed a $61,000 loss. Under Refco's rules, she should have been required to add $92,364 to avoid having
her account liquidated. Records show no deposit.

By waiving Clinton's margin call, Bone made it possible for her to wait until the market turned back in her
favor. Ultimately, she made a profit of $24,631 on her trades.

Violations of account agreements. At her news conference, Clinton denied Bone could have allocated
trades to her, because her account was non-discretionary, Federal and exchange rules require brokers to get
customer approval before trading in non-discretionary accounts.

But numerous customers and brokers testified that Bone ignored restrictions on non-discretionary accounts.
Blair said Bone often placed trades in his non-discretionary account without permission.

Validity of Seasonal Trading John van Laar from the Netherlands

I have always been interested in seasonal trading. I have bought Frank Taucher's Almanac every year.

He claims good results, but there are so many trades in it. In his 1994 $upertrader's Almanac, there are 580
outright seasonal trades, 207 intra-market spreads, 389 inter-market spreads and 240 exotic spreads.

If you want to have positive results, you have to trade all the recommendations. You have to be a trader for
a living to follow his recommendations and you need $100K for margin and drawdowns.

A method to reduce these hugh amount of trades is to filter the trades. Maybe there are members who use
this technique. I'm interested in hearing from these traders.

A far better system of seasonal recommendations is the Moore Research Center, Inc., who publishes the
Moore Research Center Report. This is a monthly report with seasonal recommendations - spreads and
outrights. In this 60 to 70 page report, Moore gives trade recommendations and articles about trading,
trading techniques, etc.

What is the most important: he gives reviews of last month's trades, with per trade the trade equity, peak
equity and the largest drawdown. He has fixed entry and exit dates. In his review of the latest month, I
controlled, he used the close of the day.

I have purchased two reports April and November 1993. The results are: April 1993 - Review of the last
month's outrights: 36 trades: Closed 13 and Open 23. 13 trades Trade equity: $11,229.70 (without
commission etc.) Largest drawdown $460. Review of the last month's spreads: 38 trades: Closed 16, Open
trades 22. 16 Trades equity: $9,475.75 (without commission etc) Largest drawdown $2,710

November 1993 - The numbers are outright: 43 trades: Closed 16 and Open 27. 16 trades equity: $3,699.30.
Max. drawdown $1,887 - Spreads: 41 trades. Closed 14, Open 27. Trade equity: $5,044.10. Max.
drawdown $1,240

You see these are good numbers for the two random months.

I am not trading this year. Next year I hope to have time available to trade and will subscribe to the Moore
reports and see how the results are for a whole year. If the numbers are good, I will follow the
recommendations.

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Perhaps my trading system can help fine tune the entry and exit dates. Maybe someone out there has
experience with this matter of fine tuning? I agree with Ed Forys in the June issue of CTCN, that there is
much garbage in seasonal recommendations. I think the Moore Institute is a good exception.

Last remark - I don't have any connections with Frank Taucher or the Moore Research Center.

Editor Comments

Thanks to John Hill for his two contributions covering Dr. Greenwald's System and his comments on
Russell Sands and curve-fitting.

There is no way CTCN can tell for sure if Futures Truth performance reports are 100% exact and accurate.
However, John Hill and George Pruitt are very highly regarded and are extremely honest. They also try to
do as careful a job as possible in tracking all those systems and compiling their reports. Keep in mind their
job is very difficult and complex and they do an excellent job under difficult circumstances and with a
small staff.

In reference to John Hill's remark that all systems are in fact curve-fitted. I also believe that to be correct. It
seems to me that there really is no way to design a system without a knowledge of past prices or past
patterns. As a result, a certain degree of curve-fitting is inevitable.

However, if CTCN Members differ with that opinion, they are invited to share their opinion with all CTCN
Members. Subsequently we can all benefit from an exchange of ideas about the important subject of curve-
fitting.

About Wayne Roberts contribution covering Ira Epstein and CTCN confidentiality. I called Mr. Ira Epstein
about it and he has a very good reason and explanation for the so called answering machine. His reasoning
for it makes a lot of sense to me and his detailed explanation will be published in the August edition of
CTCN.

Reference CTCN confidentiality, Wayne is absolutely correct. The opinions and statements made are for
members only and NOT for the general public.

Ed Forys made an important contribution. Yes, you should never change the rules while a trade is in
progress. Your Editor and many other traders have unfortunately in the past deviated from that advise,
which then resulted in larger losses.

For example, canceling or changing a stop-loss order to a greater stop, because the original stop is close to
being hit, on the belief the market will soon go your way. Doing that almost always fails and results in a
small loser becoming a large loser, sometime becoming a disastrous loss.

Reference Mr. Kuhn's opinion of Precision. He is very fortunate that he received a refund. Most trading
systems do not have a money-back guarantee if dissatisfied or unhappy with it's performance.

There are many reasons for that, including the fact there's usually no way to tell for sure if the system was
actually removed from the buyers computer, plus the costs of filling the order, sending it out, and the
support and other expenses involved. In addition, all systems, regardless of their prior track record or their
cost, have losing time periods and drawdowns, which can sometimes last for a number of weeks, or even
several months.

It's always possible a newly acquired system entered a losing period about the time you received it, and
consequently you may want a refund. Keep in mind, it may take 6-months to a full-year to properly
evaluate a system. That's presuming you make every trade, rather than pick-and-choose, as most traders
unfortunately tend to do.

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 Also, many system developers (especially non-blackbox systems) feel that once you know their algorithm
and trading techniques, you were privy to confidential information that only system owners are entitled to.

An Error Correction: Last month there was an article titled Five Vertical Bars by Kent Calhoun. It stated
Donchian's 20-day channel breakout system made a buy when a market closed above the prior four weeks
lowest low. It should have said buys were made whenever a market closed above the prior four weeks
HIGHEST HIGH. It also should have also gone on to explain that sells were made when the market closed
below the prior four weeks lowest low.

Thanks to all who made contributions to this issue of Commodity Traders Club News.

Special Request - I ask that you please do us all a favor by making a contribution to the next issue of
CTCN. Don't worry about your submission not being interesting or useful to Members...rarely is that true.
Usually, most all contributions/submissions/articles are quite interesting and valuable to other traders, but
the author usually does not realize the actual value of his knowledge or experiences.

Issue 16.

Opinion of TBSP Right Time Program - George Moldenhauer

In response to the inquiry from Paul Diehl (June 1994 issue) concerning The Right Time Programs. I own
the Right Time Index Program for stock index options (OEX). My experience with the program, which I
have had for a couple of years, is less than favorable.

In fact, I have kept an accurate signal log for both the OEX and XAU signals and they are a far cry from
the track record that is frequently published in the many advertisements that indicate 10's of millions of
dollars in profits. In many cases the dates of their transactions were dramatically different than what my
records show.

When I called the company for technical support, I was told that my data must contain errors (which I
checked and that is not the case) and any further questions would go unanswered since I purchased the
software from a third party software vendor. Basically, in my opinion, the ads for this software are hype,
and somehow this organization seems to be immune from any disciplinary action that might stem from
false advertising.

Personally, I would not spend another dime on any product produced by this company. But I was able to
make some use of the program. I run the numbers each day for several indices and use the support and
resistance signals to switch mutual funds.

A word of caution! The program will change the support on resistance signals if the market does not
respond on the next trading day (i.e. if the software signals that support has been hit when you run the
numbers for the close of a particular day. The next day must generate a positive net change close in order
for that support signal to be valid. Otherwise the support signal could move from one day to the next which
accounts for the dramatic results that appear on your historical graph).

You can access the chart that shows support and resistance under the Review field and making the selection
Graph Cumulative Data. I don't know how it might work for the futures program. You might want to
experiment and do some extensive paper trading, before committing real hard earned dollars.

On another subject: I am interested in hearing from anyone with experience with the Futures Market
Analyzer program...especially the new version being offered on an annual fee basis. I own a previous
version, that in real time, contains some serious flaws that will dramatically impact the hypothetical track
record.

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 Why Was A System Not Mentioned in the S&C Magazine Readers
Choice Awards...An Observation, An Answer, and a follow-up Article
by Zoltan S. from Austria

I would like to know why the Swing Catcher Trading System is not advertised in S&C Magazine. Also, I
received the S&C Magazine Issue containing their Readers' Choice Awards, under the section titled
"Systems: Futures Trading," I see Swing Catcher was not mentioned. Why is that?

(Editor Note: In answer to the above, I faxed a reply to Zoltan similar to the Editor Comments articles
about S&C Magazine in this month's issue. The new article printed below was subsequently received from
Zoltan in response to that...opinions on this matter are invited from other members).

I would like to submit my unbiased and independent opinion to you regarding your comments about your
dealings with S&C. Technical Analysis of Stocks & Commodities is a well-known futures industry
magazine and I find that you acted on behalf of the prospective customers of the system when you
submitted your system to S&C for review.

S&C, as a third party, if it prepares a system evaluation, needless to say, it should be unbiased and
adequately informative. Errors found afterwards should immediately be corrected and published. Because
the opinion of a well-known third party publisher is highly appreciated, the errors without prompt
corrections can have serious consequences, first of all in futures trading.

You mentioned that S&C promised and failed to publish an in-depth review. In the first place, the
prospective customers of Swing Catcher have been negatively affected, for due to the lack of the review,
maybe they could not obtain another third party opinion of the system; or they were not even aware of the
system and may have bought another system that performs inferior to it.

It is evident that in order to prepare a sophisticated evaluation of a computerized mechanical trading

system, one should install all the program and see how it really works. Because, some systems don't work
in real-time trading.

Prior to real-time trading the system, the best way is to generate walk forward (out of sample) tests or to
paper trade the system for a short while, in order to obtain a simulated "real time" performance figure, with
no hindsight, based on a statistically significant number of trades. The system which they did not install,
even allows testing on portfolio level.

You mentioned that S&C prepared a Quick Scan review, containing errors and without installing the
software and without immediate error corrections, so I think it's OK that you canceled all ads.

I find it unfair that the ballots used for the S&C Readers' Choice Award, do not allow the readers to
discretionary vote for a certain system, but only for the systems that use display advertisements in S&C.
Right now, I have the 1994 S&C bonus issue in my hand. On page 69, the introduction to S&C Readers'
Choice Awards states that "this listing represents products and services that S&C subscribers are using
and/or find useful."

There is no indication that the listing is limited to the advertisers. In addition, foreign subscribers were
excluded from the voting, this is a pure discrimination, and reinforces the limited style of the S&C Readers'
Choice Award.

Therefore, the "novice" reader has the feeling that the systems not ranked in the S&C Readers' Choice
Award perform poorly compared to the listed ones and are not worth future investigation.

Why People Do Not Make Money Buying and Selling Commodities - W. D. Gann

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I have stated in my books many times the market does not beat you, it is your own human weakness that
causes you to defeat yourself. The average man or woman nearly always wants to buy low and sell high.
The farmer always wants to sell at high prices whatever he produces but he wants to buy what he needs at
low prices.

The laboring man wants high wages all the time but wants low prices for what he buys to eat and wear.
This is a violation of a fundamental economic law and it just will not work. To make a success in
speculation, you cannot expect to buy low and sell high. You will make money when you do exactly the
opposite of what the average man or woman wants to do or tries to do, and makes a failure and loses as a
result of what they are trying to do.

You will make profits when you learn to Buy High and Sell Low. You must learn to follow the trend of
prices and realize that they are Never Too High To Buy as Long as the Trend is Up and Never Too Low To
Sell as Long as the Trend is Down.

Why a Broker Can't Always Answer Phone

if Busy and Uses Alternative - Ira Epstein

In reviewing a letter from (CTCN Member) Wayne Roberts (in July issue), I saw that Mr. Roberts said he
"couldn't believe it" concerning the fact that at Ira Epstein & Company, what he got when he called was a
recorded message. This deserves a full answer.

At Ira Epstein & Co. we have sophisticated computerized telephone equipment that places customers into a
"Call Que" if all of our order clerks are busy. An example of this happened this morning, July 29, 1994,
when the GDP report came out, the markets went into fast conditions. The telephones at our company lit up
and virtually every single order clerk was on the phone taking orders from clients.

What happens to someone that calls in while our clerks are on the phone? At Ira Epstein, the caller is told
that all clerks are busy and that their calls will be answered in the order that they were received.

Our computers will then place calls, in the order that they came in, with the order desk. This prevents
favoritism and should prevent any client from thinking that he is not being handled in a prompt manner.
Additionally, in the few times that a client has to go into the "Call Que", he will hear live quotes on the
markets and will also hear what reports, if any, came out and reaction to it. I don't know of any other firm
that operates this efficiently.

After market hours we have voice mail on our trade desks so that our accounts are able to place orders. We
will take that order, via the clients instructions from our voice mail, and place it for them in the proper
market. Again, this is an extra service that is offered.

If any of your readers believe that they can deal with any brokerage firm that will be adequately staffed to
answer all phone calls from all accounts at one time, they are kidding themselves. The questions become
one of how to balance the resources of the firm while offering fair commissions, and a high level of
service. We have done this and done this efficiently for our cliental.

Rather than the old method of grabbing a phone and shouting into it "Hold On" and then finishing with the
original caller and having the clerk trying to remember who he just spoke with, we beat that chaos. This
benefits the clients, the clerks and offers a high level of efficiency.

As for the rest of Mr. Roberts questioning as to what your CTCN does, I will not answer that. He seems to
believe that CTCN is a "confidential, closed-circuit for members only."

I do not know if he is right or wrong on that. What I do know is, if somebody is going to publish a fact they
should research it and at the very least, hear the other person's point of view, so that the other members do
not get a jaded point of view from one sour apple that may not fully understand a procedure. I think that is

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what the benefit of CTCN is to its members and subscribers. Wrong information or only partial information
may not be what they are looking for.

Did John Hill (Futures Truth) Benefit From My "Stolen"

Key to Currencies System - Gerald Greenwald

John Hill says that initially, they "back-engineered" my system Key to Currencies Software. Then he
"received" an anonymous copy of my program logic from "someone" who had also back-engineered it!

My maximum drawdown trading the basket of the 4 currencies was about $11,000, over the 15 years of
testing.

He says "we have always told vendors to show us where we are wrong and we will immediately correct
them." I told him, he failed to correct!

He says, "if something is sold to the public, (he) believes Futures Truth has every right to publish results,
irrespective of how the methodology comes to us." From a "professional" like John Hill, I have never heard
nor would I expect to, such a totally unethical, immoral posture. In effect, he's admitting to having accepted
my stolen property (which is copyrighted) and to having resold it for his personal benefit.

Because of its enormous profitability and popularity, I took "Key to Currencies Software," priced at
$85,000, with liberal terms available, off the market on July 1. However, due to interest sparked by CTCN's
readership, I will answer inquires from CTCN people.

Don't worry, John, I'm enjoying my life, wife, kids, retirement, etc. too much to sue you right now.

Are Systems That Use Different Parameters or Only Trade A

Limited Number of Markets Curve-Fitted - Russell Sands

Although it is a definition of technical analysis, I do not agree with John Hill's suggestion that simply
taking past data and using it to forecast future results is a generic definition of curve fitting. In my mind,
curve fitting means either using different systems for different markets, or using different parameters of the
same system for different markets, and this is not valid technical analysis.

Historical testing via computer means inputting a set of numbers (high, low, closing prices), and receiving
back an output set of rules that hopefully will make money trading. The numbers themselves do not have
names, and the computer doesn't recognize the difference between 'Beans' or 'Bonds'. For a system to be
valid, it must work on all numbers tested, not just those with certain names and not others with different
names.

If a system works on Cattle, but not on Beans, this system is curve fitted over a specific set of data (Cattle)
and it loses all statistical validity. To believe it will work in the future as it has worked in the past is very
dangerous.

Also, different markets do not have different personalities. Again, they are reduced to just being a set of
numbers or a bunch of algorithms. If a channel breakout (or any other) method is successful, then the same
parameter must be used for all the markets, for the same reasons as above. You cannot use a 20-day
channel in Silver and a 40-day channel in Corn, this also falls under the crime of curve fitting.

I therefore take exception to any system, Futures Truth tested or otherwise, that either only trades one
specific market or group of markets, or trades different markets using parameters or rules of the same
system. All this proves is what has worked best in the past, and this will usually not continue to work in the
future, as there is no correlation under this scenario.

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This letter is not specifically written to condemn vendors, or Futures Truth itself. This is a clarification of
my definitions of 'optimizing' and 'curve fitting', and a warning as to what types of trading systems may be
valid and what to stay away from.

Let me close by emphasizing that these are not my own opinions, but were the opinions taught to me by my
two very famous 'market wizard' mentors, who based on their own long records of success, obviously know
what they are talking about.

Headlines Can Be Traded Profitably, With No Knowledge

of Past Prices - Edward Forys

Regarding the statement (made by John Hill of Futures Truth) "There is really no way to design a system
without a knowledge of past prices or past patterns", I would like to submit the following:

I used to trade newspaper headlines only. The way it worked was this: every day, I would check the
headlines in a major daily newspaper (LA Times). I would also check for major breaking stories. I would
look for unexpected events which would catch most traders (and people) by surprise. For example, the
Tylenol scare, Valdez oil spill, large plane crashes, invasion of Kuwait, etc.* The reason I did this, was that
in the past, I had observed that almost every time there would be an immediate reaction and it was
generally an over-reaction.

I would track the price forward from the time of the event and when I thought the time was appropriate (my
judgement call), I would fade the action (go long after bad news and a decline). Inevitably, the price would
return to its original price (or almost, sometimes higher) before the event and I would get out with a profit.
This worked great and I won almost every time (if price did not move at all after I got in, I would get out
with only a tiny loss). The biggest problem I had with this system was that it was very boring waiting for
the next news break. It was almost like what I heard a pilot say about flying an airplane, hours of boredom
occasionally interrupted by moments of terror.

Another problem was sometimes entering the market too soon, especially if it was a commodity (too much
leverage); then, I might have to endure a paper loss while waiting for price to recoup.

Now, assuming that this is indeed a system, my question is this: Is this a curve fitted system? When I
entered the market, I had little knowledge of past price history or fundamental knowledge of the company
or industry or commodity. I had to know the current price to figure out how many shares to buy. If it was a
commodity, I had to know what the margin requirement was to figure out how many contracts to buy.

Since I did not look at a chart, I had no idea of what patterns might be there. Was this system subjective or
objective or a blend? I did not use a computer or any fancy indicators, I just tried to use common sense and
the observation noted above.

The main reason this system worked, I figured, was that it was taking advantage of human nature to sell
(erroneously) on bad news. Others might say that it was the specialists (floor traders) controlling the market
by using the news to their advantage. (Is that why major news breaks are released to the floor before the
public?)

*Even the cold fusion announcement was no exception; after going straight up, palladium eventually
returned to its original price. I did not fade this particular move because with an engineering background, I
felt the risk was much too high. If cold fusion proved out to be true, (I didn't know enough physics to figure
out if it was true) the price of palladium would have gone through the roof, the whole world would have
been affected (dirt cheap energy) and I would have been stopped out with a loss.

The Trend is Your Friend & Standing Aside If System

Performance Declines - Steve Neslen

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Many thanks for your publication of CTCN, and your related products and services. You have proven
yourself to be someone of integrity.

I have been an active futures trader for the past two and a half years, and have been almost exclusively a
short-term position trader. Since following my system's recommendations almost exclusively since March
1994, I have been able to record a moderate success for the first extended period (four months ended June
1994).

As an observation, two factors stand out as contributory. Firstly, my system's utilization of profit targets,
and my discipline using them, (I have found MIT orders to be most effective, as many exchanges do not
accept OCOs). Secondly, I note the existence of several clearly trending markets (notably, crude oil, copper
and bean oil).

I am reminded of a cliche offered by one trading guru or another, "at some point one realizes that the trend
is your only friend." In view of the difficulties I encountered during the last two weeks of July 1994, and
the present lack of clearly trending markets, I must agree with this guru's sentiment. So, perhaps this is one
of those periods in which one is well-advised to sit on the sidelines and await further developments.

As I look back over the previous two years of learning experience, I note that had I known enough to 'sit
out' several very choppy periods, I would have fared much, much better. Perhaps the existence of only two
'highly ranked' markets recommended by my system could be thought of as an indicator that the
commodities markets generally are in one such choppy period. So, for the present I shall sit and wait.

Also, I have recently developed an interest in learning more about day trading currencies, particularly in
view of the difficulties presented by Globex and night trading. If anyone has information or advice
regarding any of the currency day trading systems currently on the market, I would appreciate hearing from
you through CTCN. Note: I am particularly impressed with claims made by Michael Gent for his
Recurrence III and IV systems, but have no information from independent sources.

Mid-Am based data can replace Globex Data - John Bowley

As many of you may be aware, Evening and Globex data are not used (or recommended) by various trading
systems. This (night) data is usually combined with day data by exchanges and reported. If your data
supplier does not supply day only data, it is suggested that Mid-Am mini-contract data be used, (as a
substitution for Globex/Night data) since they have no evening session.

For example, developers of ROCM and another Trading System I use both agree that it should be OK to
trade Bonds and Currencies with either regular or mini-contracts.

How To Control Broker Order Accuracy - Carl Iverson

Here is a simplified method I use to control broker order accuracy. Before I call my broker, I write the
following on an 8-1/2x11 sheet of margin ruled paper:

At the top center, I write my account number. In the body, I write the order information (buy or sell,
quantity, exchange, contract month, commodity and price or action). Some of this information, i.e.
exchange, isn't necessary in this case - but when it is, there is no question about which commodity I want.

Then I call my broker and give them my name and account number. I then wait until my broker responds.
That way I know that they are ready for the order. Next I read the order. This insures that I don't say buy
instead of sell or forget some important data. The sequence of this information (buy/sell, quantity,
exchange, etc.) is the sequence preferred by the brokers and thus further reduces the potential for error.

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When the broker repeats my order information, I don't have to think about what I've said. Instead I just
visually check their confirmation against what I have written. In the margin, to the left of the ruled line, I
place the type of order, date, time, broker's name and broker assigned ticket number.

If I was dealing with large lot sizes or if I was placing my first orders, I would also tape record my order
placement. As soon as I hang up the phone I would replay the conversation and check my broker's
confirmation against what I had written.

When some type of action has occurred to the order, I write this information to the right of the vertically
ruled line. If the order is filled, I note the price, date and broker. If it's an expired day order, I write expired.
If I cancel the order, I so note along with the date, time and broker.

The important point is that each order must at some point had action taken. This is especially true with
GTC or good until canceled orders, which if not canceled could cost you a lot of money.

This format enables you to quickly spot any incomplete order status. It also makes it easy to insure that sell
orders are covered by buys and that all quantities are accounted for.

I keep all open orders in a 3-ring binder. Once complete, they're removed and filed.

Also, I prefer not to chit chat with my broker when giving him orders. Distractions can lead to errors on
their part or mine. If you must shoot the breeze, wait until after you've received and checked your
confirmation.

Astrological Forecast Follow-Up Request - Steve Gibson

Looking back at the (astrologically based) forecast made by Carol Murphy in the May issue, I see that she
started out fairly well. Perhaps you could drop her a line and tell us something about how she made it? Who
knows? Maybe someone has an idea on how to improve it!

(Editors Note: I did, I sent a copy of this letter to Carol and asked her to expand upon it in next month's
CTCN).

P&L Report on Futures Truth's Universal System & Why Did Its
Performance Decline & A Simple System I Propose that May Not be
Doomed to Fail - Vern Nord

As I looked over the June/July issue of Futures Truth, I noticed they added Futures Truth Universal LT
while still keeping the old Universal System. The Universal LT System is long-term and does not trade as
often as the Universal System. The Universal LT System appears in both the Top 10 Since Release Date
and the Top 10 for the Past 12 months.

I want to stop here and say that my comments are not made to criticize Future Truth, John Hill or John
Fisher in any way. I merely want to point out general problems with all system testing.

In the December 92 issue of Technical Analysis of Stocks & Commodities, John Sweeney wrote a review
of the original Universal System, he said "Well, who would know better how to put together a system?
Futures Truth, headed by John Fisher, has seen the guts of many systems and monitored their performance
for more than half a decade."

I personally would agree with this statement and Futures Truth tested this system on 22 different
commodities over a 9-year period. John Sweeney said that results for all 17 commodities across all nine
years were uniformly in the black.

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Futures Truth optimized 5 parameters for each commodity to obtain these results, but they were unable to
find any set of parameters which were profitable on New York Futures Exchange contracts, cotton, gold,
cattle and lumber. If Futures Truth couldn't find a system that's profitable on every commodity, then maybe
system hacks like myself should stop looking for a system that does it all. About a year later, Futures Truth
showed a detailed report on Universal with the results on the best six commodities. The report showed a
total profit of over $520,000 for the six commodities over a 10-year period from 1-83 to 4-30-93.

If you were looking to buy a system that would make you $50,000 a year, so you could quit your job and
enjoy the good life, you would be disappointed.

For the last 12 months, this system has been loosing money overall. This is typical of all systems, and this
is why so few systems show up on both of Futures Truth lists. Very few of the Top 10 since release still
show up on the Top 10 for the last 12 months, and the reason is that commodity prices are non-stationary.
Any type of system is doomed to fail. The only question is, how soon will it fail.

It is like someone said recently, "It is the only game where they keep changing the rules and nobody tells
you." Now that I have said that, I would like to suggest an exception to the rule. The one possible exception
would be a simple system based on relative strength similarly to the one used by Timers Digest on the
DJIA and Fidelity Select Funds.

Take the concept of relative strength and rate all commodities compared to the CRB Index to come up with
a list from strongest to weakest. You could buy the 2 or 3 strongest commodities and sell the 2 or 3 weakest
ones. Add some money management rules and a trailing money management stop of $400 to $500 and you
are in business.

An Opinion Trend Index Products Should Not Be Covered

in CTCN & Other Improvements - George Bashar

I have been receiving CTCN since the early part of this year and have found several of the articles
interesting. However, I would like to make some suggestions to improve the newsletter. You should
include some guidelines in this issue as to what should be acceptable contributions and what should not.
Also, your position as editor should take into account some of these suggestions.

First of all, enough already about Hillary!! Anyone who has been trading commodity futures for at least a
month knows how Hillary made her killing, and knows that it was not due to her expertise with respect to
fundamentals or charting. She and slick Willie were given a gift by Tyson Foods camouflaged as trading
profits in return for favors when he became governor. Clear and simple. Why waste any more valuable
space on this matter?

Secondly, I feel that you should refuse all commentary on your Swing Catcher system in CTCN. You
should keep the promotion of Swing Catcher totally separate from the objective and impartial views in
CTCN. If anyone needs references before buying Swing Catcher, they should be provided separately, not as
part of CTCN. This policy would heighten the credibility of both Swing Catcher and CTCN.

Finally, since we are all traders, or presumably would not be interested in subscribing to CTCN, why not
aim to get more of a discussion of subscribers experiences with books, newsletters and most importantly,
systems that work or do not work. This would be the greatest service CTCN could provide to its subscribers
- keeping them from wasting their money on some of the worthless systems that are out there being hawked
as the latest Holy Grails.

I have enjoyed CTCN so far, up to a point. But, it has gotten somewhat repetitious lately. I know that you
put a small request at the end of each newsletter inviting contributions to the next newsletter. Perhaps if you
made the request more explicit and explained in more detail what types of submissions would be welcome,
we could all benefit more from future issues.

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 Suggestion CTCN Has Ongoing Trading Contest & Test Systems - Phil Baker

I would like you and your subscribers to talk about any filters they use in their trading that keeps them out
of a lot of whipsaw losses.

I would also like your subscribers to talk more about how they trade and about the different trading systems
they use and less about, I bought this system and it's no good or I bought this system and it's the greatest
system ever. Because everyone has a different opinion, so if anyone wants to talk about trading systems,
talk about how it signals trades and how you use it.

I have also read and heard about using Gann lines to forecast a change in trend when two Gann lines cross.
I would like to know if you know anything about this and if you do, which Gann lines should one use to
forecast intermediate change in trend? Because there are so many Gann lines, that if you used all lines
there would be Gann lines crossing at least once or twice per week.

I also have an idea that could possibly get more interest in your newsletter and get more subscribers
involved. I got the idea for a contest from articles I read in investing magazines and newspapers. So I think
you should have a contest where you publish a different commodity every one or two months and set a 2-4
year time period and let interested subscribers enter.

They would test any system or trading method they want to and enter it in the contest. They must show how
they got their signals and how the system works and also show profits-losses, and trades taken. You could
then show the top 5 or 10 systems in your newsletter and you or your subscribers could pick the winner.
The winner or winners could get a certificate suitable for framing or 6-month free subscription to CTCN. I
think it would really help a lot of traders, because they can see how others trade, I know it would really
help me.

How I Solved My Computer Fax/Modem Problems - Chris Ongley

Two years ago, I bought a new 386-33 computer with hard drive, for both DOS and Windows programs.
Six months later, I added a Fax/Modem Card. I started to receive a daily fax from my broker. Initially, no
problems, but as time went by, I started getting problems.

The computer would answer the phone to start the fax communication sequence. However, the sending
computer and my computer failed to communicate and would then timeout. By the end of 1993, my fax
success rate was down to 20% or less. This also included sending the board back to manufacturer and many
discussions with the fax/modem manufacturer and the phone company. At the same time, I had bought a
trading program which would not work on my machine.

After much discussion with the programmer, it came down to the bios in my mother board. My machine
came with MR BIOS. I then upgraded to a 486 mother board with AMI bios. This solved my software
problem and my fax/modem board has worked perfectly everyday now for 2-1/2 months.

If you are in the market for a new or used computer, I would recommend making sure the mother board has
the AMI Bios.

On a different subject: Has anybody had dealings with Jules Greenstein from California, who has been
promoting his trading system Prime/Line? Please let us know what your results and comments are.

Pocket Quote Pro Review - Don Good

I'm replying to Paul Diehl's request regarding Pocket Quote Pro. I have been using PQP for over a month. I
purchased it as it was, by far, the cheapest method of obtaining both real-time and delayed quotes.

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The "real-time" quotes rarely jive with the "real-time" quotes I receive by phone through 1st Americans
InfoLine. However, they are usually within 1-3 ticks of each other. PQP's keypad is electronic and I find it
harder to use than if it had buttons.

The biggest problem I've had with PQP is that it's not really portable. I got it as I often have to travel during
market hours and I wanted to keep tabs on the market. Even though I live in an urban area and PQP's FM
transmitter is near by, I find the PQP is rarely able to pickup the signal.

So for all practical purposes, it's worthless on the road or in various locations, other than my office. I was
able to get it to receive signals in one location by moving the antenna to various locations and finally
getting it to work in a convenient location on my desk. Therefore, PQP is still the cheapest way to obtain
quotes, just don't expect to travel with it.

Editor Comments

Several years ago Technical Analysis of Stocks & Commodities Magazine said they wanted to do a
detailed full review of Swing Catcher Trading System. It was to be for the benefit of both their readers and
prospective buyers of the software. It was sent to them via Federal Express, plus some updates, but the long
ago promised review never appeared.

After waiting patiently for almost a year, they were (politely) asked about the long delay. I ended up
speaking to three top officials there (Thom Hartle, John Sweeney, and Jack Hudson). Pointing out to them
the promised Full Product Review was for the benefit of their readers and also improves the quality and
value of their magazine, did not dissuade them from refusing to do the review. In fact, they would not even
give the reason they did not and would not do the promised Full Product Review.

How Can A Review Be Done Without Actually Running the Software?

They did in fact do an earlier so called "Quick Scan Review". However, is was far too short and poorly
detailed to be very helpful to their readers and it also contained some errors. It turned out the errors and
shortness of the review may have been attributable to them NOT actually installing the software on their
computer! Instead, they did the review based 100% on simply reading the trading system manual and the
accompanying advertising!

Even though they had the actual software disks, they chose not to install them because I was told it was
easier for them, compared to actually running the program.

Last Year's S&C Magazine Readers Choice Awards

Ended-Up Biased & Discriminatory

As to why certain products seemingly received no votes and therefore were not ranked in the S&C
Magazine Readers' Choice Awards.

A few months ago I called them about that and asked them why some well known and good products
apparently received zero votes. I also pointed out it seemed very strange Swing Catcher System received no
votes in view of the fact it received many votes and was rated as the number one system in a Futures
Magazine Readers Survey!

The answer they gave was very disappointing. I was told at that time they used ballots that only contained
the names of systems and trading products that were doing display advertising in their magazine. In other
words, a product may in fact be the most popular or "best" product but merely because they were not
advertising it in S&C Magazine, it was purposely not listed on the ballot and therefore received no votes!

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Their methodology was even more alarming in view of the fact most products do NOT in fact run display
ads in their magazine. That results in the large majority of products being in effect eliminated, in favor of
the small number of actual advertisers.

As a result of their voting method the S&C Magazine Readers' Choice Awards were unfair and misleading
to the trading public. However, I am sure they did NOT deliberately intend to mislead anyone as their
overall reputation is very good.

However, last year's Readers' Choice Awards survey results are suspect and of only limited value to their
readers and the trading public. It would be extremely difficult for a trading product/service to receive any
votes if it is not listed on the ballot! Is there any chance a politician could be elected if his name was not on
the actual ballots...of course not!

I have personally talked to a number of traders who told me they purchased certain trading products based
to a large degree (or even based 100%) on the fact that a certain product was ranked number one, or ranked
highly in the S&C Awards.

I have also talked to traders who decided against buying certain products because the product/system was
NOT listed in the Awards rankings, as a result of getting no votes in its category. (Note: see last paragraph
of article by Zoltan on page 2)

These traders were totally unaware that last year only display advertisers were on the ballot. There very
possibly could have been several other trading products (non-advertisers) that would have been much better
or more useful, etc., than the product they purchased.

Unfortunately, they did not know how severely limited the S&C Awards were and purchased under the
belief they were truly buying the number one or a highly rated product. Or alternatively, did not buy or
even consider another product or system because he was under the impression it was no good due to getting
no votes.

Today, I called S&C and was told they have changed their policy and now include non-display advertisers.
They have also greatly expanded the products listed. For example, the number of qualifying trading
systems has expanded to 25 this year on the ballot included in their August 1994 issue. I was also told those
results will be published in their December 1994 issue.

This subject demonstrates how awards and rankings of products and systems can not always be relied upon,
regardless of the credibility or reputation of the source. However, S&C Magazine is to be congratulated for
greatly improving their ballot and voting methodology, compared to the previous year. About John
Bowley's article on substituting Mid-Am Exchange data for Globex/Night data. That can be done.
However, it makes more sense to switch data vendors and go to a data vendor that does in fact supply day
session only data from the major exchange, not Mid-Am.

Reference the suggestion from George Bashar, that articles referring to Swing Catcher be prohibited. There
is really no conflict of interest. In fact, only 3% of past articles were about the system, and they were
written by Club Members, not the System Developer/Editor. However, I fully agree with George that it
would be best if that was done. Especially from a credibility standpoint.

Therefore, we will try hard not to publish articles from CTCN Members referring to it. Especially, if the
article is not relevant to non-owners of the program. Sometimes a Member may want to discuss important
money-management or methodology issues, and he may refer to the system in his article. If that's the case, I
will usually delete the system name from the article. In fact, I have done that (whenever possible) in this
issue and will do that even more starting with next month's issue.

About all the Hillary articles...George is right...enough is enough...no more about Hillary!

Thanks to all who made contributions to this issue of Commodity Traders Club News.

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Issue 17.

Stocks & Commodities Magazine - Z. S.

I would like to submit my unbiased and independent opinion to you regarding your comments about your
dealings with Technical Analysis of Stocks & Commodities Magazine in last months CTCN, August issue.

S&C is a well-known futures industry magazine and I find that you acted on behalf of the prospective
customers of the system when you submitted Swing Catcher to S&C.

S&C, as a third party, if it prepares a system evaluation, needless to say, it should be unbiased and adequate
informative. Errors found afterwards should immediately be corrected and published. Because the opinion
of a well-known third party publisher is highly appreciated, the errors without prompt corrections can have
serious consequences, first of all in futures trading.

You mentioned that S&C promised and failed to publish an in-depth review. In the first place, the
prospective customers of Swing Catcher have been negatively affected, for due to the lack of the review,
they may be could not obtain another third party opinion of the system or they were not even aware of the
system and they may have bought another system that performs inferior to it.

It is evident that in order to prepare a sophisticated evaluation of a computerized mechanical trading

system, one should install all the program and see how it really works. Because, some systems don't work
in real-time trading.

Prior to real-time trading the system, the best way is to generate walk forward (out of sample) tests or to
paper trade the system for a short while, in order to obtain a simulated "real time" performance figure, with
no Hindsight, based on a statistically significant number of trades. The system they did not install even
allows testing on portfolio level.

You mentioned that S&C prepared a Quick Scan review, containing errors and without installing the
software and without immediate error corrections, so I think it's OK that you canceled all ads.

I find it unfair that the ballots used for the S&C Readers' Choice Award, do not allow the readers to
discretionary vote for a certain system, but only for the systems display advertised in S&C.

Right now, I have the 1994 S&C bonus issue in my hand. On page 69, the introduction to S&C Readers'

Choice Awards states that "this listing represents products and services that S&C subscribers are using
and/or find useful."

There is no indicating that the listing is limited to the advertisers. In addition, foreign subscribers were
excluded from the voting, this is a pure discrimination, and reinforces the limited style of the S&C
Readers' Choice Award.

Therefore, the "novice" reader has the feeling that the systems not ranked in the S&C Readers' Choice
Award perform poorly compared to the listed ones) and are not worth future investigation.

CSI Data - Matthew Chiang

I switched to CSI data service a few months ago. Compared to my previous source (Genesis), CSI's data is
"very clean and reliable."

Turtle Strategy Seminar Attendees -

George Glendenning

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If you also attended one of the first four Turtle seminars in August/September 1992 and were given verbal
or written assurances by either Larry Williams or Russell Sands that the Turtle Strategy Seminar would
never again be offered to the public by Russell Sands, please contact George Glendenning at 702/435-7500
or FAX 702/458-1933.

Jim Burke

I have found that the best trading methods are the ones that are produced by yourself. Also, the best way of
testing your method is not by using system writer or other testing software, but by taking 30 charts with
your indicators and to see the profits your method produced one day at a time. This way you will gain
confidence in what you developed and you can tell how many bad trades in a row and how many good
traders in a row. It will take much longer to test, but you will also start seeing market action and chart
patterns.

I used PPS in 1992 with excellent results, enough to win a championship. In 1992, I used the manual and
was very cautious as the signals I used. In 1993, I changed to the software and experienced losses, many
losses. I no longer use PPS.

Now I use volatility of 1-day with a constant of 1=65 as my entry point. I use a filter of the opening price of
six days also. If the open is above my entry price, it is a good signal price for a buy, but if the open is
below, I will not take the signal. So, if volatility equals X and open from six days ago is Y, Y must be
greater than X for a buy and Y must be less than X for a sell. Depending on your risk aversion will dictate
of stop loss point. I never take a loss on close, I would rather try again tomorrow.

This method really is buying/selling on strength/weakness after a retracement/rally. If you apply this
method consistently or for that matter any trend following method, you have a better chance of producing
than inconsistently jumping around from system to system.

I believe all methods need some type of a filter, either moving averages, oscillators, envelopes, stochastics
or RSI. It will keep one from overtrading and making your broker happy.

I just read two outstanding books, "Trading for a Living" by Dr. Elder and "The Innergame of Trading" by
Koppel & Abell, wish both were written seven years ago.

Timer Digest - Vern Nord

In my last article, I mentioned the best method of trading mutual funds. Timer Digest is a newsletter
published every 3-weeks by Timer Digest Publishing, PO Box 1688, Greenwich, CT 06836-1688 - $224
annually.

In each issue they track the Fidelity Select Funds and rank them by relative strength as compared to the
S&P 500. They recommend splitting your investment money in thirds and buying equal dollar amounts of
the top 3 ranked funds.

If at any time after a 30-day holding period, one of the funds goes below its 21-day moving average, you
sell that fund and buy one of the current top 3 funds that you do not already own. There are a few other
qualifications and sometimes you will roll over into the Money Market Portfolio, but I won't give the whole
system away.

This simple method was the top timing system for last year, the last 3 years and the last 5 years. The yearly
results are as follows: 1989 - 35%, 1990 - 1%, 1991 - 55%, 1992 - 1%, 1993 - 52.9%

This track record looks like it has a two year cycle built-in. Maybe you should buy mutual funds in odd
number years, and money market funds in even numbered years, but I am getting away from the point.

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What if you ranked all commodities and stock indexes by relative strength as compared to the CRB Index.
You would end up with a list of 30 some commodities with the strongest trending commodities at the top
and the weakest commodities at the bottom. Then depending on the size of your account and how much
risk you can take, try the following: Long one contract of the strongest commodity vs short one contract of
the weakest commodity. There is an unlimited number of options available depending on your risk capital.

Examples: Long one each of the two strongest commodities vs short one each of the two weakest
commodities. Long one each of the three strongest commodities vs short one each of the 3 weakest
commodities. If you have a bullish or bearish bias you could alter the ration 3/2, 3/1, 2/3, 1/3 etc. Add an
initial stop of $400 to $500 on each position, plus a trailing stop on each position any you are in business.

I want to make one other point regarding commodities to trade. I assume that any system you trade is
basically a trend following system. If this is true you should forget about commodities that are poor
trenders. In the January 1992 issue of Technical Analysis of Stocks & Commodities, there was an article by
E. Michael Poulos entitled "Futures According to Trend Tendencies." Mr. Poulos developed The Random
Walk Index which ranked 28 commodities according to their inclination to trend. If you start with this list
and modify it by the profitable trading commodities in Futures Truth and by "Trendiness in the Futures
Markets, by Bruce Babcock or any track record you want to, you will find out that over half of all
commodities are poor trends and unsuitable for trend following methods. Throw out the stock indexes,
meats, metals, grains and most soft commodities. This doesn't help you diversify your portfolio since you
only have left the currencies, interest rates, and a few energy contracts to trade. But why waste your time
and money trying to trade commodities that don't trend. If you feel that you are missing the boat by not
trading everything, then devise a long term channel breakout system that will get you into a runaway
market that only happens once in a lifetime. Don't trade poorly trending commodities just because you are
afraid to missing a major move. This will only waste you trading capital through commissions and slippage
and you won't make a dime.

P.S. - I am not in any way connected with Timer Digest other than being one of their subscribers.

Why Optimize? To Learn - Kent Calhoun

Russell Sands has incorrect assumptions about the basic nature of technical analysis, including
optimization. I base this statement on statistical facts, not opinions. To optimize anything is to view it in the
best condition po*sible, and this is no crime. Optimization informs professional traders how their systems
perform before trading them, valuable information.

There is a correct method to optimize any system that is statistically valid, 30 occurrences with 95%
accuracy. My article will be published by Futures Magazine concerning optimization and its research value
by November.

The key to optimization is to select stable parameters with an equity shift less than the parameter shift after
equity spikes have been eliminated. This process creates stability for optimal parameters shifts within the
four technical m4rket phases. Parameter shift is always geometric, but equity shift decline relative to
unstable parameter selection is usually exponential.

The Value of the opening Price

Historical testing should include the open, omitted by Sands, since it offers an additional price reference
point for qualifying price action, another entry option, and a statistical price relationship as to where a
market will close that day. Most markets that open lower tend to close lower that day, and the lower a
market opens the more likely it is to close lower.

All systems are optimized to some degree. As soon as a trader chooses to enter a trade on the open opposed
to the close, he has made a decision as to how a system should be traded. Does he know the close entry is
better than the next opening for an entry? If not why not? A potential 28% difference in profitability exists
for channel system entries between opens and closes.

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The purpose of trading is to consistently make money. This is done by having the best information
available. If a trader does not know the best entry for his system, what is he trying to prove? That the
system isn't optimized? To lose money because a trader is ignorant of his systen's best parameters is
foolish.

Russell Sands Uses Optimization

Mr. Sands, I am told, is a likable and intelligent trader. I phoned Sands to discuss this letter. Sands id a
blackjack player. When I asked him if he always double his bet and split aces and eights, he responded yes.
I asked him why. He stated if I ran a few million blackjack hands through a computer, the strategy makes
money. Right again for Russell! The computer analyzes a conditional set of historical statistical data and
provides the best trading strategy; this is optimization.

Randall Brooks

As I told you?. last week, I got stopped out on the first trade in feeder cattle, but with the Swiss Franc trade
I was able to use my day trading knowledge of the currency markets to lock in a $850.00 profit going up
(courtesy of Swing Catcher), last week and a $975.00 profit going down, on Monday and Tuesday, in spite
of the long signal from Swing Catcher.

I am guilty of not following the target prices, but the currencies are in the process of making their annual
double top and the target prices were past the high the marketsmade back in July.

In any case it is fun and exciting being back in the futures markets once again. I really enjoy using Swing
Catcher.

Two questions: The monthly parameters testing: Should I do it this weekend 8/27-28 or the following
weekend 9/3-4?

Also, I had an outstanding credit with Omega Research from my day trading days (TradeStation) and they
are sending me SuperCharts. Will the CSI/Swing Catcher data work withSuperCharts?

I hope to bolster my trading account with additional funds in a few weeks so I can trade all of the f: signals
on a consistent basis.

A Trading Tutor - James R. Burke, Jr.

I took a one-on-one somirsar with John Brown at All Time Trading in May and learned what market action
is really about. John teaches market principles, price action and how to spot opportunities with $200 stops.
This is in the S&P! His trendline analysis is the best by far and he taught me how to use it. He doesn't
necessarily show you how to trade his "system', but how to devslop a trading plan for yourself, based o n
your personality. He does show you severe systems that work very well, one in Eurodollars that is
profitable and easy.

John's methods apply to thres-minute bars, hourly, daily or weekly and again with very small amounts of
risk and a high percerage of winning trades. I have entered a trade that started as a day-trade and progressed
into a long-term one, so his methods will work on longer-term trading.

Two days in Iowa for $1,000 was worth the trip. I have made five times that amount in two months since
our meeting. Also, if I have a question, I can call after market hours, 3-5 Central time, and John makes time
available. If you want to learn, give John, a call at 515-472-4606. My number is 915-821-7345, mornings
only (in Texas).

Re: Key to Currencies - Futures Truth

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We take strong exception to Gerald Greenwald implying that we are unethical and are in receipt of stolen
property. This is outright slander. In the first place you cannot copyright an idea. You can copyright a
manuscript. We have never received a copy of his manuscript or material except from him (a computer
disc) which had a limited life. We worked with him during this period but quit publishing the first time he
expressed dissatisfaction. Someone anonymously sent us the logic or ideas which we published the results
on. This is not stolen material. As far as we know, the person who sent it to us could have purchased the
system. It was back engineered by others to determine the logic. Again, you cannot copyright an idea. We
did not turn around and resell the idea which we could have legally done. We merely show the results of
other people's ideas. We fail to see how this is unethical or immoral or using stolen property. Our numbers
show nowhere near the numbers shown by Dr. Greenwald on drawdown. We believe our numbers are
correct , however there is no way of resolving this issue, unless he decides to cooperate. Most currency
systems have fallen on extremely rough times in the past few months. Could this be the reason Dr.
Greenwald has quit selling his system?

Futures Truth started as an idea to bring some truth in the system vending business. Apparently, the NFA
and the Federal Government are powerless to act as this interferes with freedom of speech. The article in
the last issue of CTCN regarding TBSP is a case in point. It may indeed be extremely profitable, however I
have never heard of anyone who has made any money with this program . They continue to point out the
enormous profit in their promotions. Frankly, Futures Truth is a thankless and profitless operation. We
have been threatened many times with lawsuits and have been sued once. (This suit so far has been
dismissed by the judge for lack of jurisdiction.) I guess we continue as we do get some satisfaction out of
dampening the style of the many fast buck operators in this business and also reporting on the systems that
do show positive results.

One should remember that the best numbers a system will show are right after it is released for sale. I have
never seem a system which consistently makes money. Many "good systems" will go for 6-12 months and
not make money. That does not necessarily mean the system is no good, but most traders will discard a
good system right at the turn around time. I have done this on many occasions. The real key is

money management and trading a number of dissimilar systems.

Re: Chris Ongley's request for information on JulesGreenstein's Prime/Line - Ed Forys

1. Call Bo Thunman and inquire about his experience with Prime/Line several years ago.
2. I bought the manual and went to an all day training session given by Jules and found that
Prineline was more suited for position trading than day trading (which I preferred) and so I did not go
much farther with it.
3. I also found that Primeline did require some skill in interpretation; sometimes, I had so many
lines to consider I could not confidently reach a decision as to where exactly the support (or resistance)
was. Further conversations with Jules did not help much, although I must admit that perhaps further
conversations might have resolved my problem as to how far back one had to carry the lines from. Also,
Jules has had ample time to work out the nitty-gritty details of his system and it might be OK now.
4. At the time I looked at Prime/Line (some time ago), Jules did not keep (to my knowledge) or publish a
track record; this might be disconcerting to some, especially if he is still in that mode of operation. And,
don't forget, Jules is a broker; how much of his income came directly from trading and how much came
from commissions was not public knowledge.

Re. Vern Nord's comment "Any type of system is doomed to fail';

1.If commodity prices are truly non-stationary, then why does someone like Gary Smith (among others)
consistently pull profits out of the S&P market over long periods of time? I think that when you really
examine your market data, you will find that sometimes, it is nonstationary random; but there are other
times when it is trending, other times when it is cyclical, other times when it is a trading market, and other
times when it is combinations of the above. The trick is to figure out what type of market it is (more on this
next time) and then act accordingly (fade a trading market, never a trending market).

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Day-Trading System - Simon Bonanno

I am a mutual fund timer who would like to attempt trading commodities on a "day-trade" basis.

What I am looking for in a "day-trading" system is the following:

1) Today's trade position is to be determined by some arithmetic calculation of yesterdays open, high, low
and close of price; 2) The selected trade position is to be entered before the market open and exited
automatically at the close of the trade day; 3) Use of computers or quotation systems is not to be utilized.

If you have heard of a day-trading system with the above parameters, would you please let me know thru
CTCN where I can obtain this information? As a fellow trader your assistance in this matter will be highly
appreciated.

Letter To Ira Epstein - Russell Sands

I have been trading and managing money for ten years. In that time, I have traded through literally a dozen
brokerage firms, both discount and full serivce, and anywhere in between.

I have I never, ever, called to place an order and gotten a recording machine--if I did I would go totally
ballistic. I've also never, ever, boon told to 'hold on' by either a (live) broker or a phone clerk and had to
hold for more than five seconds.

In a business where literally 'time is money', and every second can cost thousands of dollars, your attempts
at explanations' are a joke. There can never be any acceptable explanation for what happened to Mr.
Roberts in his letter.

Quite simply Mr. Epstein, if your firm is so popular that all your phones light up when the markets get
busy, the only solution is to hire additional staff.

Mike Daley

I've enjoyed reading "Commodity Traders Club News" and thought I would throw my two cents worth in.
First, I want to say thanks for all the help you've given me in getting going with Swing Catcher. As one of
the people who create and manually update their own files, I probably had a few more questions than the
average user. It's good to know that help is only a phone call away and the system vendor will be there
when you need him.

I haven't noticed much in the pages of CTCN about books your subscribers have found either useful or
useless, or somewhere in between. I had the minor misfortune to purchase a copy of "The Trading Systems
ToolKit", by Joe Krutsinger several weeks ago. I say misfortune because after reading a short distance into
the book, I realized there was little in it that would be useful. If anyone else is considering the purchase of
this book, they should be aware that all of the systems were designed on and coded for SystemWriter and
TradeStation. There is nothing necessarily wrong with that, by all accounts they are both fine products. But
if you don't happen to work with either of them, there may not be too much that you can get from this book
- at least not $55 worth in my opinion. In many places the text is choppy and disjointed, jumping from one
topic or example to another. As is often the case with books of this type, editing seems almost nonexistent.
Among the oddities I noticed was a reproduction of a screen image from TradeStation that was labeled as
live cattle 12/92 (page 44) and showed some price bars in the middle to upper ninety cent range. As far as I
know, live cattle have never traded at this price level. The next page (45) shows a chart with the same
labeling, live cattle 12/92, with some price bars below the 40 cent level! This may have something to do
with the continuous contracts and how they are labeled and displayed, but it still looks a bit strange.

As a stock trading system Krutsinger advises using Wells Wilder's Parabolic as opposed to a buy and hold
strategy. Buying 1000 shares of IBM on January 31, 1962 and holding them to March 19, 1993, he says,
would have resulted in a profit of $25,000+ (page 102). Whether TradeStation took into account dividend

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payouts and stock splits during those years isn't mentioned, but if it didn't I would wonder about the
accuracy of the profit number. On the other hand, Parabolic made $138,000+ during the same period (page
103). However, it needed 126 total trades to do this. Forgetting for a minute that the Parabolic System
wasn't even available until 1978, when you take into account the commissions generated by trading 1000
share blocks of stock (no discount brokers for much of the period), the dividends paid out while short, and
the taxes paid along the way, I'm quite sure that the system profits would have been a lot lower than those
stated. Considering all of the above, I doubt that the Parabolic was all that much better than buy and hold,
at least not to the degree suggested in the book. I don't mean to nitpick, but it's this kind of fast and loose
figuring that tends to make you question some of the other examples in the book.

Most of the other systems consist of moving average crossovers, channel breakouts and oscillators in
various combinations and time frames. Not a few require that you have access to intraday data for testing
purposes, which further reduces their usefulness. As expected, there are plenty of plugs for SystemWriter,
TradeStation and Robbins Trading Co., along with an offer by the author to do coding for you for $100 an
hour with, apparently, a four hour minimum.

On the other hand, Krutsinger does present an S&P 500 day trading method that is very innovative, simple
to trade and reasonably profitable. In five years trading (1/4/88 to 12/31/92) it generated $77,000+ after
commissions, averaging about $15,400 a year. Being somewhat skeptical, I checked the trades manually
using actual market data and actually did a bit better, netting almost $80,000 after commissions. Looking at
more recent system performance reveals that it broke even in 1993 and is up $11,000+ through July
31,1994. A minor problem with the system is that it requires the opening price. Now that the clack of
mental arthritics who run the Merc have seen fit to implement "stock around the clock", the opening price,
at least as published in the financial papers, has become somewhat meaningless. (Perhaps they'll finally rest
easy when we can all trade pork bellies at 3 o'clock in the morning, but I'm not holding my breath). In
addition to the above system, there are details of many others which could either be traded as is or modified
to conform to a person's own risk level. Indeed, the next to last chapter contains 16 trading systems that
Krutsinger suggests can be used as the basis for developing your own methods for trading the markets. Part
of his purpose here is to stimulate the reader's thinking on the subject.

Perhaps I've been too hard on the author. Krutsinger's forte is designing and testing trading systems, not
writing, and the fact that the book doesn't come across well speaks volumes about the lack of editorial help
he received from Probus Publishing. His candor is certainly refreshing. Toward the end of the book he
admits that when he started in the commodities markets he weighed 180 pounds and had a full head of hair.
Now, he says, he weighs well over 250 pounds, is almost bald, and has dark brown circles under his eyes.
He attributes his present condition to having watched every tick in the markets since 1976. As a result, he
explains, he now thinks up mechanical trading systems and has other people trade them for him. He also
confesses that what he has put into the book are his best "old" systems. The newer, presumably better
systems he keeps and trades for himself. Fair enough.

I wouldn't recommend this book for someone just starting out in the markets. A better idea would be to ante
up a few extra bucks and get a copy of "Technical Traders Guide to Computer Analysis of the Futures
Market' by Lucas and LeBeau. This book does a better job of explaining the elements of trading system
design. Apparently I'm not alone in this view because this particular book is cited by Krutsinger on the
acknowledgments page of his own book. For more experienced traders, "The Trading System ToolKit"
book may be worth a look, particularly if they are running SystemWriter or TradeStation. There are some
worthwhile ideas in this book, but you may have to dig a bit to find them.

A Strongly Dissenting Voice - Michel A. Gourbault

Re: George Bashar's opinion and apparently the Editor's decision - (August 1994 issue of CTCN) - that no
mention should be made of Swing Catcher or any other Trend Index product or service in subsequent issues
of CTCN. That the System Designer himself does not mention these products, it seems only natural
considering the stated purposes of this informal publication ... but it would be grossly unfair to purely and
simply prohibit any mention of the Trend Index products by name. First of all, because personally I would
want to share the results of my experiments using Swing Catcher in conjunction with Candlestick

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Forecaster - a very short term trading system which nobody, it seems, has ever mentioned specifically in
this Forum after I have tested both systems together over a period of at least one or two months.

The second reason why I feel it would be grossly unfair to all of us, readers and users of your software, is
that, as you said yourself issue after issue, Swing Catcher, because of its time consuming nature, is no
longer being tested and evaluated by Futures Truth (whatever one might think of the objectivity and
thoroughness or methodology of these people).

Third reason: maybe some of us have devised, or are testing, novel, unusual ways of making trading with
the help of this system even more effective. Isn't it something that the other users, and yourself surely,
Dave, would be interested in knowing about?

Really, Mr. Editor, I would ask you to reconsider your decision. It is only fair that your system and services
be evaluated and referred to, by "us", the very same way as any other system or product designed for
traders. That's my opinion, and I believe it is as good and valid as George Bashar's (no offense meant,
George). I do not find his reasons for an eventual ban convincing. Of course, Dave, as originator and editor
of this 'Traders Forum', it is your prerogative to set such rules as you see fit; however, as a new user of
Swing Catcher, I am more interested in making the most of this as-yet unfamiliar trading tool - with your
help and other users' - than in purchasing and trying the 'hoftest' system on the market.

Together, we represent a broad spectrum of experience (from the novice to the seasoned trader) and some
of us are less experienced with the use of continuous-contract-based systems than others. I am also very
interested in hearing from someone who may already have tried what I have in mind with Candlestick
Forecaster - like broker Gerd Gwiss (CTCN May 1993 Issue) of Vienna, Austria. (Are you still around,
Gerd?). Many of us, I am sure, are duplicating on their own research, or experiments, that have already
been done. Isn't what this publication is about not just expressing opinions, but sharing the results of
various experiments?

Futures Truth - Kent Calhoun

John Hill is a valuable asset to the futures industry. There are few things in life John and I disagree, but the
issue raised by Gerald Greenwald is one of them. Club 3000 has refused to publish my letters raising this
issue of professional ethics.

Fact: If a person buys a stolen TV at a garage sale and it is later discovered in the purchaser's home, the
purchaser is arrested and taken to jail despite producing a bill of purchase. This is called receipt of stolen
property, and is often a felony.

Most system purchasers must sign a non-disclosure document prohibiting them from selling, copying, and
transferring any of the system's information to others in any medium. This is a legal contract and also
protected by United States copyright infringement law. Those who violate this law may be sentenced to
five years imprisonment and a $250,000 fine per offense.

Fact: The US Justice Department successfully prosecuted Japanese computer manufacturers for stealing
IBM "trade secrets," and awarded IBM a substantial financial settlement. The US Justice Department ruled
the architecture of computer and computer component designs belonged to IBM, just like the lyrics and
music of a copyrighted song belongs to its author. Does the original design of a trading system belong
solely to the developer?

When Futures Truth receives an unsolicited trading system, like Greenwald's, should they be held
accountable for deriving income from the developer's violated non-disclosure agreements? Is this the same
as receipt of stolen property? FT knows most systems are copyright protected, and is more knowledgeable
of this fact than purchasers of stolen goods at a garage sale.

The person who sent the materials to Futures Truth is clearly in violation of copyright infringement, yet
benefits by receiving a Futures Truth trading report. Futures Truth benefits by learning how the -most

154
successful trading systems are designed and financially. Is a law broken? That is a legal question that could
have with a very expensive answer for FT.

Futures Truth derives money three ways from a developer's trading systems. They sell research reports of
the system's performance, track the system's performance monthly in their Futures Truth publication, and
discuss system structure in video tapes and at FT seminars. Developers receive no direct financial
compensation from Futures Truth, but successful systems benefit from FT ratings via increased sales. FT
ratings raise another problem.

A conflict of interest exists when FT rates their systems, and FT admitting this does not condone it. Should
FT stop publically rating their own systems, and rating vendors' systems without paying for them? These
practices detract from FT's credibility, invite costly litigation, and undermine Hill's noble effortsto bring
mandatory vendor accountability to our industry.

I lost Russell when I Could not convince him optimization is the same for commodities as blackjack. Mr.
Sands did not accept the fact market psychology is different for different markets. Anyone trading without
the best information available from optimization neglects the two most valuable trading tools available, the
personal computer and individual intelligence.

Nameless Numbers and Knowing Beans about Bonds

"Numbers themselves do not have names." Excuse me? What is this called 0. I call this 0 number "zero"
because that is its name! Send Russell $250 for his seminar instead of $2500 and he'll remember its name
real fast. You want to identify a 0, call it by its name or you get nothing, not zero. A number with a name
has a history, just like a person. Consider the zero.

The zero symbolizes life and its cyclical nature, and is the only perfect geometric shape. Arabs believed all
men equal in the eyes of God, and saw their lives as a point on the circle equidistant from God, located in
center. The circle's inner space, the nothingness of existence, was enclosed by a line that defined its
existence, like the body defines and encloses man's spirit. When Leonardo Fibonacci introduced the zero to
Europe, the Roman Numeral System became obsolete because it had no zero.

"Computers do not recognize the difference between "Beans" and "Bonds." My computer recognizes Beans
from Bonds due to the nature of how it tells me to successfully trade those markets.

My English System sold December T-Bonds last Friday at 103-16, today they traded below 100-00.
English is long Nov beans below 5.60, which closed today above 5.80. English system bought and sold
S&P's off the lowest and highest 5 minute intraday vertical bar every day this week. My computer knows.

How Prices Are Determined

Russell has misunderstood the basic nature of how markets trade from one price to another, by buying and
selling pressures! The physical nature of the commodity dictates its price volatility. Corn traders do not
expect S&P price volatility. Agricultural and livestock commodities respond to supply demand
fundamentals, which do not affect financial trading instruments. This partly explains why S&P's trade a
daily range often in excess of $2000, while corn seldom moves over $400 per day.

Each market has its own personality, which is the psychological composite of its traders. Market mass
psychology is based on individual belief systems about what price a market should be and this is different
for corn and S&P's. Traders' convictions are expressed by the dollars they willingly commit to the markets
and this determines price. Does a corn trader expect the same risk as an S&P trader? No. Markets are as
different as the individuals that trade them, how else could it be?

Judging a system invalid because the same parameters are not profitable for every market is ludicrous. It
doesn't make sense any more than stating all S&P traders must ware the same shoe size! The key to

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understanding the real names behind commodity prices is to recognize Joe Smith is buying x contracts and
Tom Jones is selling 2x contracts at specific prices, and this determines the closing price today.

If Russell sits down to play blackjack with $10,000 and is paid 2 times his same bet and is right 50% of the
time, there is a 0.08 probability he will still lose all his money. Optimization tells him what the expected
payoff should be and percent wins at the blackjack table and in commodity trading casino.

I may never make $400 million like Richard Dennis, but I try not to confuse wisdom and intelligence with
material gain. A brokerage president asked me, "if you are so smart how come you are not rich?" He had
been a losing trader before my systems made him over $240,000 and I was stunned by the question. "If you
are so rich, how come you are not smart," I responded.

While Mr. Sands was winning trophies larger than Jake Bernstein, I traded $105,000 into $3.62 million and
sent the clients' names, addresses and phones numbers to the CFTC on May 16, 1980. The date is the one
year anniversary of buying 60 gold contracts.

This fact doesn't qualify me to be a commodity trading expert, but after 31 years of investing, 27 years of
stock trading, 17 years of commodity trading, 16 years of intense research and spending over $300,000 on
system testing, I have learned optimization is the most valuable trading tool available. I deal in statistically
supported market facts, not opinions.

It is a little known fact that Richard Dennis sent out tests to Turtle applicants. I scored over 90% and
wanted to know and discuss the answers I missed, and why I wasn't selected. According to Dennis, he only
selected traders who scored 60% or less. I was told I knew "too much." Apparently in the process of
teaching Turtles, Dennis overlooked a few valuable lessons himself.

I do not question anyone's honesty, least of all the wellrespected Russell Sands, but I would like to know
the names of the Turtles who made $100 million last year. Dr. Edmunson, who is a client of mine, had six
figure accounts with four Turtles, and he publically announced at my seminar none of the four were
profitable last year. I would like to see a name list of Turtles, for comparison to my client's actual trading
accounts.

Optimization a crime? No. A crime is disseminating statistically unsupported market opinions as intelligent
trading knowledge to traders, who may not know the difference. Anyone can have an opinion. Few traders
possess statistically supported trading knowledge. The difference between the two is often the difference
between winning and losing, the optimization difference.

Here Is the international futures trading activity we discussed over the phone last weekend. These contracts
represent the most liquid overseas contracts. Volume figures are average daily '93 as reported by each
exchange. The "Start Date" is the first day of CSI data files and usually is close to the initial trading day of
the contract.

Exchanae Contract Volume Start Date CSI #

LIFFE 3 mo. Sterling 47,000 10/29/82 173

3 mo. EuroMark 85,000 4/20/89 182

3 mo. EumSwiss 7,000 2f7lgl 155

3 mo. EuroL!ra 8,000 5/12/92 179

FTSE 100 Index* 15,000 5/3/84 209

Long Gift 57,000 11/13/82 174

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German Govl Bond* 99,000 9/29188 181

Italian Govl Bond 38,000 9/19/91 284

DTB DAX Index* 16,000 1 1/23/90 131

Long Term Bund' 36,000 11/23/90 132

Medium Term Bund 20,000 10/4191 288

MATIF CAC-40 Index* 22,000 3/l/89 079

Long Term Notional Bond* 147,000 1/28/93 328

3 mo. PIBOR 47,000 3/l/89 078

TIFFE 3 ma. EuroYen 87,000 6/30/89 070

TSE 1 0 yr. Japanese Govl Bond 59,000 414190 158

OSE Nikkei Stock Index* 48,000 9/3/88 248

SFE 90 day Bank Bills 26,000 8/3/84 228

10 yr. T-Bonds* 19,000 1/11/65225

3 yr. T-Bonds 29,000 5119/88231

LME High Grade AJuminum 37,000 6111/87 092

HKFE Hang Seng Index* 14,000 12J31/86 119

*already included in Trendx International

In addition to adding the above contracts that are not alread-) included in the Trendx International data
files, I recommend removing the SFE All Ordinaries Index #230 and the LIFFE Japanese Bonds #180.
These contracts oniy average about 2,000 contracts daily. The new intemational portfolio would be
composed of a broad cross section of exchanges with 22 liquid futures contracts. I think that most traders
would prefer a database of continuous contracts and the ability to maintain the back adjusted continuous
format during rollovers just as you provide your regular Trendx customers.

Special Request

I ask that you please do us all a favor by making a contribution to the next issue of CTCN. Don't worry
about your submission not being interesting or useful to Members...rarely is that true. Usually, most all
contributions/submissions/articles are quite interesting and valuable to other traders, but the author usually
does not realize the actual value of his knowledge or experiences.

Futures Truth Reports

The Aug/Sept issue of Futures Truth's Master Performance Table is still available. Contact Commodity
Traders Club News so you can get it at the discounted price of only $25.00.

New systems that were covered are Jurrasic Trading's Raptor and Bear...two systems designed to trade the
S&P on a short term basis. Bear has not been tracked long enough to be ranked.

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 The Best Performing Systems

The Futures Truth Top 10 systems for past 12 months are: FutureSoft's Benchmark +162.2%, Future
Truth's Universal LT +81.8%, Joseph Stowell's ROCM +81.1%, Joseph Stowell's HAT +79.9%, Arnold's
Pattern Probability +69.0%, Welles Wilder's Volatility +52.0, Taurus' Grand Cayman +50.9, PWA Future's
DCSII +38.1%, Michael Miller's T-REX +34.6%, Vilar Kelly's Daycare +33.0%

The Futures Truth Top Ten systems since release date, based on ranking by annual combined percent
returns on required capital (3 X margin) are: Michael Miller's T-Rex +143.7%, FutureSoft's Benchmark
+125.6%, Joseph Stowell's HAT +101.4%, Futures Truth's Universal LT +81.8%, Arnold's Pattern
Probability +81.5%, Staman's Black or White +81.2%, Taurus' Grand Cayman System +81.0%, Joseph
Stowell's ROCM +78.0%, Dave Fox's Dollar Trader +77.8%, Hughes' S&P Pattern Daytrade +65.3%

Note: Trend Index Trading Co. Swing Catcher System was ranked for the period 1990 thru 1-94. It was in
fact ranked as the 5th best system since release date, with a 78% return, the last time it was rated by Futures
Truth.

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trade lasts several days to months. From 2/1/94-6/1/94, the profit trading only one contract for each signal
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The reproduction, copying or publication of any part of this work beyond that permitted by Section 107 or
108 of the United States Copyright Act, and also World-Wide International Treaty Provisions, is unlawful.
ALL RIGHTS RESERVED. Written permission from the Publisher/Editor is required for reproduction in
any form and may be withdrawn at any time.

Commodity Traders Club News (CTCN) is a 'Clearing House' or 'Information Exchange' for members. We
do not, and we have not, verified the accuracy of the mathematics or numbers published herein, or the
accuracy of the comments and remarks made by the authors. In the event the contributor does not include
article headlines and sub-headers they are subsequently written and added to the articles by the Editor,
using verbiage the Editor believes highlights important points the contributor is making.

Subscription to Commodity Traders Club News...'Your Guide To Profitable Trading and How To Save
Money Along The Way' is $80.00 for 1-year (12-issues)...includes FREE First Class Mail within USA &
Canada (add $17 Overseas Air Mail). Publisher: Trend Index Trading Co., 2809 E. Hamilton Ave. #117,
Eau Claire, WI. 54701 USA. Phone 715-8331515. FAX 715-8338040. Editor: Dave Green. (There's high
risk in futures trading)

Issue 18.

Larry Williams on Copyrights

Let me shed some light on the legalities of copyright problems. The following is what I learned because of
three trials where I sued people for knocking off my systems.

First, John Hill is only partially right that you cannot copyright an idea. Ask George Arndt, in my suit
against him that was his main argument. The judge said that if a copy "was substantially similar" it was the
same as a copy. He used an interesting analogy; Arndt had converted my copyrighted manual to computer
code that was 99% the same.

The judge said that to not allow me to be compensated would be the same as letting someone translate
Hemingway into French and then freely sell it as it would not be an exact copy of the English version.
Arndt's lawyer, a former copyright and patent office employee made a big deal about the

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" idea " argument but it got him nowhere, other than a $400,000 judgment against Arndt.

I am convinced that any unauthorized work that is substantially similar to a copyright protected piece will
net a judgment against the publisher/promoter of the copycat work. What's more I have, at various times,
sued not on copyright infringement but the legal theory of unjust enrichment. All suits were won or settled
in my favor.

This theory says that if I produce something and you make a similar version of it, it is not fair for you to
profit from my work. Therefore, you will have to turn over all your income, not profits, and are liable for
punitive damages as well. Note, this applies to works that have not been copyrighted as well, and includes
punitive awards!

I'm no lawyer, but I've hired enough of the loopholers to know above will hold up, it did for me, and may
give some security to people that do come up with new ideas and at the same time put the fear of large
judgments into the copycat cowboys out there who never had an original idea in their life. P.S. Dave, keep
up the excellent letter.

Update on Continued Pursuit of Advanced Trident Developments Along With Charles Lindsay & His
Whereabouts - Bill Kruse

You and I are familiar with the frustrations of others and lack of success in this pursuit. We sent

a detailed request (Priority Mail) for information to Charles Lindsay via Windsor Books.

Upon receipt of this material, we decided to pursue some adjacent inquiries because of the
uncomplimentary nature of many comments, both written and oral, that came up during our past pursuit of
Advanced Trident and Mr. Lindsay.

Having at last, an address for Mr. Lindsay, Mrs. Kruse contacted the Better Business Bureau in Santa
Barbara. The Better Business Bureau's rating of Tradebase Network is "Unsatisfactory for failure to
respond to consumer complaints," with 2 complaints referred to District Attorney within the last 3-years.

When she phoned the District Attorney's office, she was informed that they handled one complaint and
indicated that Mr. Lindsay had been "totally unresponsive." The D.A. turned it over to the federal
authorities for postal fraud. (Please let me say at this point that Mrs. Kruse's excellent telephone techniques
and determination are a large element in this project and in many others in the past.)

Study his materials as to content, and consider my comment on the quality and features: In his book, Mr.
Lindsay repeatedly stresses the need for accuracy in thought and action; however, Mr. Lindsay's
communications contain spelling and punctuation errors (with attention given to the idea we have no
knowledge of Mr. Lindsay's age or his physical or mental condition).

Note - We know of one trader who complained to Windsor Books he couldn't establish communications to
receive Tradebase signals. (We are offered three days of free signals. Wanted to correspond with you and
pool our thinking before proceeding.)

Note - Would you or CTCN Members by any chance have a friend or trader in the Thousand Oaks,
California, area? Just a thought should we want to eventually check out this address and see just what kind
of an establishment Tradebase Network is. Will stop at this point. We do not want to influence your
thinking before you have studied the materials, especially software descriptions!

We don't want to abandon this yet, but we want to be very careful how we proceed.

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Editors's Note: The latest address we have for Mr. Lindsay is: 560 N Moorpark Rd. #192, Thousand Oaks,
CA. 91360. Phone 805 379-4744. Our data base also has another trader with a different name at the same
address (a different apt #), who may be connected to him.

A Simple But Very Profitable Approach For Trading Commodity Futures -

David Stone

I have been using this methodology to trade the commodity markets successfully for some time now. The
method is really quite simple and easy, but surprisingly profitable.

It involves buying higher swing-lows and selling lower swing-highs. Also known as pivot-points.

A definition of these swing-highs and swing-lows is appropriate here: A swing-high is a high bar with
lower bars on both sides of it. A swing-low is a low bar with higher bars on both sides of it. The more
lower bars to the left of a swing-high the better. The more higher bars to the left of the swing-low the
better. That makes them more significant and presumably more powerful swing points. However, only one
bar on either side is acceptable (but two or more to the left are usually stronger signals).

My trading methodology requires two (or more) consecutive swings, with the second one being a higher
swing-low than the preceding one for a buy. Alternately, the second swing-high must be a lower swing-
high than the preceding one for a sell.

The actual long trade entry takes place on a buy-stop two ticks above the high price of the last bar (the bar
following the swing-low pivot bar), for a buy. The short trade takes place on a sell-stop at two-ticks under
the low price of the last bar (the bar following the swing-high pivot bar), for a sell.

Your stop-loss order is placed 6-ticks under the lowest price of the last swing-low bar on a long trade. The
short trade stop goes 6-ticks above the highest price of the last swing-high bar.

You can make some really outstanding money using this simple, but very effective trading methodology.

The signals look like this:

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 Ideas on Sharing Knowledge So We Can All Benefit - Ismail Valiallah

As a new member of CTCN and CTCN being relatively new, I could not help myself formulate a set of
guidelines that will be beneficial to all. I take it that our objective is to learn from one another, and also our
and other members' mistakes.

To gain the most out of CTCN, certain requirements have to be addressed.

1) Traders: some of us are novices, others experienced. If we work on the assumption that all of us are
novices/amateurs, everyone would benefit. Not only will the novices understand what is being discussed,
but the experienced may uncover details that they overlooked.

Articles must contain full disclosure. That is if you are going to write about a particular system or method,
don't assume that the readers are familiar with the system or method. It does not make sense to write about
a system/method, assess its results and not tell you what the system or method is. Please don't assume that
the readers are familiar with your systems/methods.

2) Programs/books/seminars: my guess is that all of us have one type of program or another. The same
applies to books. But as you well know, a lot of it is junk! Therefore, I submit: a) If you are in the market to
purchase a program or book lets help each other buy the good ones; b) A monthly review of specific
programs/books/seminars will go a long way to help each other.

The way to go about this is very simple. If you have filled out Dave's survey, we have a starting point. It
asks for what programs you own. A statistical analysis will decide which programs are owned by how
many. Dave then can request opinions for a particular program in the upcoming newsletter for review in the
following newsletter.

Your opinions should cover: 1. Name of program 2. Cost 3. Method it uses, i.e.: moving averages, Elliot
Wave, trend following, algorithms, day trading, swing, etc. 4. Markets tradable 5. Good in predicting or
signaling 6. Deficient in predicting or signaling 7. Ways to improve deficiencies

8. Overall performance and/or statistics if you have 9. Customer service 10. Can a fellow member discuss
the program with you?

Note: No program is perfect. But what one may lack another may make up for. Some of us may be using a
program incorrectly, therefore not getting the desired result. However, someone out there may maybe able
to help you. If you need help, place a request in the newsletter outlining your problem and what sort of help
you need. Let it be known that the help you receive should be free. The last thing we need is someone
trying to make a fast buck.

3) Advertising: Lets not do what other newsletters and magazines do. Often an author/manufacturer will
write one or more articles extolling the virtues of their methods and demonstrating their phenomenal profits
just to facilitate the sale of their products. I do realize their may be a conflict of interest with the editor,
therefore I propose that Swing Catcher may be discussed if it makes it more profitable, reduces the
drawdowns, or improves it in other ways. This I think is fair to all parties concerned. It should be treated as
any other product being reviewed or discussed.

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4) Trading method: we are all looking for trading methods. Methods for determining a trend. Methods for
determining when not to trade. Methods for determining entry points. Methods for determining exit points.
Methods for determining stop loss points. Which markets they're applicable in. What works best in each
market?

Each month we can cover a particular topic or a little article on each of these topics.

5) Brokers: How to choose a broker. Full service or discount. What services they offer? Bad experiences, if
any. This is not an effort to blacklist anyone, but to make you aware of what needs to be checked out and
whether they are capable with your trading style. Who offers least fees and is worth it.

6) Complaints/miscellaneous: Often there is a lesson to be learned from someone's bad experience, but lets
avoid the name calling.

7) Confidentiality: This information is for our members only. Many times we will discuss articles/products,
etc. that will offend authors/manufacturers. To keep from suffering any repercussions, I suggest you submit
your articles and ask Dave that you wish to remain anonymous.

8) Bonus: We may want to have best trade for the month. Strictly optional. This may give our readers the
confidence they need. Another way is to introduce members to other members in their own area. Someone
they can discuss trading with.

I would take it that most of the discussions are with either a software developer or broker. As you know,
they mean well, but more often than not, getting you to buy the software or making a trade is what counts.

Now on a more philosophical note: In all religions, be it Christianity, Islam, Judaism, etc., underlying
messages are "give and thou shall receive," "sharing is knowledge," "teach others so you may learn" and
"all things come from God," so lets make God proud of us. Amen!

If you wish to contact me, my name is Ismail Valiallah and my # can be obtained from the editor. I'm
assuming that you have a policy of not giving out member phone numbers. As a result, could you as a
favor, get in touch with Ashif Jumma (author of articles in the newsletter) and ask him to give me a call.
Much appreciated. Editor's Note: That's correct...members' phone numbers and addresses can't be given
out.

On Telerate/CompuTrac Conference and Blackjack - Russell Sands

The 16th Annual Telerate Technical Analysis Conference in Las Vegas last month was a great success. I
would like to thank Tim Slater for putting on a great conference, and for inviting me to be a guest speaker. I
would also like to thank all the people who came up to me during the weekend with kind comments about
my presentation. But Jamie, you didn't bring your backgammon set!

I also learned a lot by listening to all of the different speakers at the conference. While I still strongly
believe in my own trading methods, there is obviously more than one way to skin the market cat.

Finally, I found it a little amusing that for all the interest in trading and technical analysis, I think more
people actually asked me about Blackjack than about Turtle Trading. So let me tell you right here and now,
that Blackjack is the only casino game that can be beaten by the player in the long run!

I not only had a profitable result at the tables, but actually got the casino to pick up most of the tab for my
stay. I have just written a book on Blackjack, nothing really original, but nonetheless a comprehensive
treatise on why and how the game can be beaten. And believe me, winning at Blackjack is a lot easier than
trading futures. The book is about 100 pages, complete with tables, charts and everything else you need to

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know. Retail price is $59.95. CTCN members get a 15% discount. Call me if you're interested (800) 532-
1563.

More on Futures Truth & Key To Currencies System - Dr. Gerald Greenwald

In a grand display of utter confusion or obfuscation (or both), John Hill of Futures Truth has tried to hide
the facts, which are:

1. After I explained and gave him the correct procedure for using and reporting on "Key to Currencies
Software" he failed to do so. 2. He readily admits to using a system his people programmed, but failed to
use my program as directed. 3. When I notified him of his failure to please correct it, he ignored it. 4. He
admits to having received an anonymous copy of my system's logic! Give me a break. 5. He believes he can
ethically and properly use my material which he received anonymously or back-engineered with his
people's help. This is tantamount to my finding. The combination to a safe with $10 million in it, taking the
money and saying, "but I discovered or found or was given the combination, so it's all right." Well, John,
ask your local DA, if he/she agrees. 6. As for his accusing me of "Slander" Brilliant, John! There is no
slander (or libel, which at least would be the correct terminology); but if you think there is, so sue me. But
do so very thoughtfully and carefully.

7. You say that "the person who sent it to us could have purchased the system." That is a moronic
statement. Why would he anonymously give it to you? 8. I won't argue copyright law, because I don't know
much about it. But if there are any lawyers out there, I'd be interested in opinions. 9. I enclosed for Dave
Green's personal viewing, a printout of the system's output which was requested recently by a customer. It's
for only about 2+ months, but it shows $15,375 profit and 100% profitable trades (9 for 9). It's true that I
took my system off the market on 7-94, but felt obliged to start selling and leasing it again, because of
global requests.

Readers, please scrutinize my ad at the back of this issue. I invite your inquiries, etc.

And to John Hill, enjoy your apparent dotage. In this battle of wits, you are unarmed.

Editor's Note: I did receive four P&L Report printouts from Dr. Greenwald's computer showing the
performance he refers to above. However, there is no way to tell if they are real-time trades, hypothetical or
back-tested optimized trades.

The only way to correctly judge the trades would be to see actual brokerage statements showing all the
closed trades, or alternately receiving the signal reports prior to the opening and following each trade on a
daily basis.

Opinion on TBSP Advertising &

MetaStock 4.0 - Mike Daley

A thought and comment on recent issues of CTCN. First, kudos to George Moldenhauer for his appraisal of
TBSP Right-Time Programs. This is a good example of the kind of information that makes CTCN so
valuable to subscribers.

TBSP's track record looked pretty suspicious, especially the bet-the-ranch style of money management they
employed to show such huge profits. It's hard to imagine anyone actually trading this way - you'd likely be
broke or retired (probably the former) before you ever came close to the numbers they were showing in
their advertising. Even if the program worked, trying to trade 1,000+ lots at a time would be hellishly

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expensive in terms of commission and slippage for anyone but a floor trader. Enough. Thanks again,
George.

I don't know if other Metastock 4.0 users have noticed what I consider being a serious flaw in the system
testing portion of the program. The problem comes when you try to use stops as part of the testing
procedure. When I ran tests on my system, I was constantly showing losses greater than those I had
specified when I set up the test.

Upon closer examination, I realized that my stops where being activated on a close only basis, though I had
intended them to be triggered on an intraday basis. When I called Equis Intn'l about this, I was told that this
was the way the program was set up.

To my thinking, this makes the stop portion of the test program useless, or worse, because both gains and
losses may be overstated. When this happens, of course, all other numbers based on the amount of profit
and loss, such as the equity curve, etc., will all be incorrect?

If, as a part of my system, I bought T-Bonds at 99.00 and was using a 1/2 point (.500 or $500) stop, I would
expect to be taken out at 98.16 if the market traded there during the day. The program, however, uses only
the closing price to determine whether you will be stopped out. If Bonds closed at 98.00 you will show a
$1,000 loss instead of a $500 loss. On the other hand, say the market traded down to or below 98.16 but
then came back to close at 99.00.

Over the next several days, it rallies two points and you get out with a $2,000 gain. In reality, you would
have had a $500 loss due to your stop being hit, but instead there is a two-point gain, or $2,000 profit
shown for the trade. With this kind of situation, it's easy to see how the numbers can become completely
meaningless.

This is extremely frustrating because if you design a system that looks promising and want to test it with
different sized stops, you will lack the ability to do so. If you do, results you get will be very misleading.

This is not intended to dump on the MetaStock software or discourage anyone from buying it. The program
(with this small exception) is well thought out and support is always top notch. When I talked with the
company, I was told they're aware of it. I'm not sure what that was supposed to mean, but the windows
version is due out in the fourth quarter and hopefully this problem will be rectified.

Words About Optimization - Russell Sands

When Kent Calhoun called last month to 'educate' me about my misunderstandings regarding optimization
and other aspects of technical analysis, the first thing I told him was that I hope we didn't get into a public
pissing contest over this stuff. Then, I read not one, but two letters from him, attempting to correct my
'opinions' with his 'facts', while at same time blowing his own horn about his trading prowess.

I will not get into a debate over this issue. All I will say is that everyone is entitled to his/ her opinion with
respect to technical analysis, how and why the markets work, or anything else for that matter. In fact, if
everyone had the same viewpoint, we would not have a marketplace to trade at all, as there would be
nobody to take to the other side of my trades.

So Mr. Calhoun, I will stand by my own opinions, as you are welcome to stand by your statistical 'facts'.
And thank you for disagreeing with me and thus providing me with a continuous way in which to earn my
livelihood.

Don't We All Wish We Had This Much Tax Obligation - Edward Forys

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Mr. K.'s article 'Rags to Riches' in another newsletter (most subscribers will be familiar with the story) was
indeed interesting and uplifting, but his performance table left out some very critical details, like; 1.Who
paid the income tax on the profits he made in 1984, 1985, and 1986? 2. Where did the money come from to
pay those taxes? 3.There were several large additions to the account; what was the source of those funds? 4.
Why didn't he include in the table $30,000 he lost in prior years?

Taking his track record year by year, for 1984, his gross profit was $19,515. Withholding 30% (just to keep
it simple) for Uncle Sam results in a net profit of $13,660.50 for the year. He shows an account value of
$49,515; so he must have added $5,854.50 to the account to bring it up to that value. (In other words, he
paid the $5,854.50 tax out of his pocket. This will become more significant later.)

In 1985, several large additions (source undisclosed) were made to the account and his gross profit was
$203,459. At 30% withholding, Uncle Sam's share was $61,037.70; so the net profit was $142,421.30.
Since Mr. K shows an account value of $408,274 he must have added $61,037.70 to bring his account up to
that value. (He apparently paid Uncle Sam $61,037.70 out of his own pocket!)

In 1986, Mr. K's gross profit was $936,676. Uncle Sam's share was $281,002.80, leaving a net profit of
$655,673.20. Mr. K shows an account value of $1,298,467; so once again he added to the account to bring
it up to that value (to put it another way, that year, he paid a pretty hefty income tax of $281,002.80
(WOW!) out-of-pocket, so as not to disturb the funds in his trading account. Where did those funds come
from?)

In 1987, Mr. K's gross profit was $1,589,695. Uncle Sam's share was $476,968.50 (OUCH!), leaving a net
profit of $1,112,926.50 for 1987. Summing the net profits; ($30,000), $13,660.50, $142,421.30,
$655,673.20 , +$1,112,926.50 Total $1,894,681.50

I realize Mr. K's tax rate was probably not 30% and he didn't have to pay his income tax until April 15
(Aug 15 with extension) unless the account was in an IRA account, so my figures are only estimates. But,
without the IRA, someone had to pay income tax on the profits and the money had to come from
somewhere (the amounts are not insignificant).

To be realistic, Mr. K's track record needs to be adjusted to account for significant end-of-year (or quarterly
estimated) tax payments and large out-of-pocket additions. With 30% withholding, Mr. K's net profits,
while impressive, are substantially less than what he claims (he didn't mention IRA). I haven't even
included the $30,000 he lost prior to his opening this account. Using ratios, I think his total performance
record should look something like this (per NFA rules):

Beginning Ending

NAV Added Withdrawn P/L NAV Comment

1/80 0 5000 0 0 TBD

12/80 5000 0 0 (2000) "

1/81 3000 0 0 0

2/81 3000 10000 0 0

3/81 13000 0 0 0

11/81 13000 0 0 (10000)

12/81 3000 0 0 0

1/82 3000 15000 0 0

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11/83 18000 0 0 (18000)

12/83 0 0 0 0

1/84 0 30000 0 (119)

2/84 29881 0 0 1233

12/84 52291 0 5855 (2776) Paid tax from account

1/85 43661 0 0 8394 P=(43661/49515)x95l9

2/85 52055 20000 0 (5896) L=(52055/59034)x6686

etc.

Too Many Data File Formats & Their Semi-Compatibility - Michel A. Gourbault

As I said previously, there are far too many data file formats on the market. Each new trading program that
comes along seems to require a different building block (data file format), or a slightly modified version of
an existing format. I don't know about you, but I would like to understand where the semi-compatibility or
incompatibility problem originates. Could a little logic bring a little order to this question?

First, I will try to establish the links between all the parties involved. Who are those parties? 1) The North
American Commodity Exchanges; 2) the Data Vendors; 3) the software "trading systems" Designers; 4) the
Traders - i.e., you and me.

Group 1: The Commodity Exchanges. Group 2: The Data Vendors. The Exchanges sell the raw price data
to the Data Vendors, who then resell it to us, the traders. Group 3: The system designers. They design their
software programs around the raw data that the Exchanges sell to the Data Vendors, who resell it to us.
However, unlike the Group 1 and Group 2 people, these trading system designers also have to keep in mind
how the data that will be used with their systems will be collected or otherwise received.

So far, so good: nobody has a problem. But then, there is ... us...Group 4: the Traders. We will be using the
data and the trading systems. And we will expect the two to work together harmoniously. Trading is a
difficult enough business, we certainly do not need computer or software-related problems to complicate
our lives. And we will also expect these "systems" to be flexible enough to allow us to choose the must-
have data from any of the existing data vendors.

We all know from personal experience that everybody claims their "stuff" is copyrighted and that we, the
users, the traders, have to abide by their licensing agreements.

What are those licensing agreements saying? Usually and basically, that we may only use their data or
program for our own purposes and that we may not distribute them to a third party. However, here again,
who owns what?

It is my understanding that the raw data is owned (copyrighted) by the Exchanges (Group I above).
Therefore, logically, only the software program that manipulates (transmits and processes) that data can be
owned and copyrighted by the Data Vendors (Group 2). Finally, only the "software trading system" that
they designed can be copyrighted by the System Designers (Group 3).

And common sense tells me the more complex a program is, the greater the chances for incompatibility.
Yet, one thing is sure: all trading programs/systems need the same building block - the price data file.

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But here too, many choices are possible. In my previous article, I have mentioned several formats: ASCII
(apparently several varieties thereof), CSI, MetaStock (perhaps several varieties of these too). Technical
Tools, not to mention the broadcasting companies' formats: Signal, Bonneville, FutureLink, FutureSource,
etc.

From my personal experience, most programs attempt to support as many of these data file formats as
possible, but regularly, they omit one or two of even the so-called (depending on who you are listening to)
most popular formats. Which means that if you are a trader like me, who takes all "success rate" claims
with a grain of salt, you can easily run into this incompatibility problem when you want to combine several
trading programs to hopefully increase your chances of making money in this tricky business.

Since it is not my intent to promote or shoot down any particular trading program that I am using, I will
only identify these programs as Program X, Program Y, Program Z, Programs X and Z effectively support
at least one of the broadcasting companies' formats. Program X is apparently a fairly simple programming
job. Program Z, which is primarily geared to the Day Trader, is extremely sophisticated and must be
installed through Windows. Both are mouse-driven. Although neither of them requires the use of
continuous contracts, both can use this contract.

Finally, both can issue buy/sell signals. Considering its special concept, theoretically, Program Y can sort
out markets by trend and minimize losses and is flexible enough to maximize profit. My intent is to use
Programs X and Y to confirm each others signals, and to review the same markets in Program Z which has
the most sophisticated and flexible charting tools and overall plotting precision and capabilities.

The problem is the only common data file format between these three programs is MetaStock, and this
format is only compatible with Program Y.

So finally, here we are, at the threshold of a definition of compatibility and incompatibility.

Special Definitions: Trading Software Semi-compatibility - The condition resulting from a software
program or system running fully in one or more data file formats, but only partially in another format.
(Note: In my opinion, this category, this type of hybrid program, should not be allowed to exist.)

Trading Software Incompatibility - The condition resulting from a software program or system running
fully in only one or more data file formats, but not at all in the other existing formats.

Trading software compatibility is the ideal condition resulting from a software program or system running
fully in all existing data file formats regardless of their "variety." Of course, this ideal condition does not
exist at present time, and is likely never to occur if present proliferation of file formats and computer
languages is allowed to continue.

Personally, I see no major technical reason why full compatibility could not be achieved. As in politics, it
seems the only ingredient that is lacking, is the will to make it happen. As traders and users of these
various trading or charting programs, are we not also part of the problem? If more of us complained loudly
enough about the incompatibility/semi-compatibility issue, would we not force the Exchanges, the data
vendors and the system designers to get together and tackle this issue quickly, reasonably and effectively?

Another problem I see with data file formats like CSI and MetaStock is that they cannot be read as to their
content from a DOS subdirectory. Only the broadcasting companies' formats, and both ASCII and
Technical Tools are clear.

Finally, size of the data file format can also be a consideration when a trader follows up to 50 different
commodity markets. And it is worse when you trade in stocks, which are far more numerous. It may be
good for the computer hardware business, but it is definitely not good for us. Can you afford to constantly
upgrade both your hardware and software? I know I can't.

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To conclude - I hope this overview of the technical aspects of computer trading will prompt more of you to
complain to the "proper authorities" about this incompatibility/semi-compatibility problem and move them
to tackle this issue quickly and effectively. After all, WHO is the King? We Are, Aren't We?

Remember IBM and Apple? "David" moved "Goliath" to give up its monopolistic spirit and lose "his"
complacency - at the same time causing "him" to become more competitive. IBM and Apple computers are
now interfacing with each other. And the price of computers and computer supplies dropped sharply. Who
gained? Everybody, consumer most of all. How long did this process and this result take? How many
millions of dollars, how many millions of frustrations did it cost the theretofore captive consumers? Will
we wait as long for the data file incompatibility issue to be resolved to our complete satisfaction?

Darts Pick Winners 3 out of last 4 Contests,

Experts are 26 vs 25 Against DJIA - WSJ

It was a knockout. A team of four investment professionals finally beat the forces of chance in the Wall
Street Journals latest stock-picking contest chosen by throwing darts.

The victory was sorely needed by the pros, who lost in their three previous outings against the darts. A
recent Wall Street Journal contest resulted in a different team of investment professionals losing an average
of 10% while the darts gained 16.9% on average, was especially ego-bruising.

In a series of 51 overlapping six-month contests that began in 1990, the investment professionals have 26
wins versus 25 wins for the Dow Jones Industrial Average. Against the darts, the pros have done a little
better with a 29-21 lead.

Editor's Note: Isn't it amazing how these very highly paid and well-known investment professionals have
such a minor advantage over the Dow Average and someone who selects based on throwing a dart at the
Wall Street Journal price quotation page!

The pros mostly use fundamentals. The Wall Street Journal contests once again demonstrate the
questionable value of fundamental analysis and how difficult it is for an individual to predict the markets,
regardless of his stature or knowledge.

Too bad there is no Commodity Futures Contract on the Dow Jones Average itself. Some years ago one of
the Commodity Exchanges tried to start one but was sued by Dow Jones & Co and forced to cancel it.

SuperTraders Books - H. Lowell Huber

For those who purchased the 1994 Super Traders series of books from Market Movements, Inc. (Frank
Taucher) of Tulsa, OK, and are wondering what happened to the remaining two books (i.e. Book of Trend
Changes and Book of Spirals), I was told by an MMI rep that both are behind schedule.

The Book of Trend Changes that was to be delivered 7/1/94 is to be out approximately 10/26/94.

The Book of Spirals which was to ship 10/1/94 will also be delayed, but will not be as late as the Book of
Trend Changes.

On another subject: I have seen references in advertising brochures that certain traders won't "touch cattle
trading with a 10-foot pole." Having traded cattle contracts myself occasionally, I would appreciate it if
someone could tell me why.

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 Who Has Done Well? - Ashif Jumma

I would like information on Model Accounts/Actual Accounts that have done well trading Futures with
publicly available systems over a period of 2-3 years. That should be the acid test for any trading system.

Opinion & Trading Results on Bob Buran's Grand Combo System - Fred Montgomery

In 1992, I purchased Buran's Grand Combo Trading System. At that time the cost was $895 plus $240 extra
required for Lotus compatible software, which was required to run it. Plus, the cost of buying Lotus 1-2-3,
which was $99 for a so-called Competitive Upgrade. My total investment was $1,234.00. Unfortunately, it
was a complete waste of money (and time). My expenses were actually much more than $1,234 due to the
untold hours I spent learning how to use the system, running it, and back-testing it.

The system had several 'bugs'. Not the least of which was the fact the back-tested P&L Reports were not
accurate due to the software stating the stop-loss order was hit at the stop price, when in fact it may have
got hit earlier in the day at a worse price. More than occasionally that happened at a much worse price than
indicated by its back-testing. I saw many examples of that occurring, resulting in the losses sometimes
being significantly larger than indicated by the software's closed trade P&L Report.

There were a couple of other problems with the design of the software. However, most importantly, the
system's overall performance was just plain poor, or at times mediocre at best. When Bob was called about
these problems or the system's poor performance, he was for the most part somewhat blasé about these
matters. He was also impatient and had an abrupt manner about him.

However, all those flaws and bugs could have been minimized if the system actually performed as good as
it's heavily publicized and highly hyped track record indicated it did.

Unfortunately, Grand Combo's performance, both real-time and back-tested was far from good.

Bob's extensive promotional activities (mostly appearing over a long time period in a competing letter,
similar to CTCN), claimed he made over one-half million trading it. However, when I ran the system over
my own CSI data base the results were far inferior.

I tested the identical commodities over the same number of years of data (10 markets), Bob Buran used to
make his alleged half-million dollars.

My back-tested results revealed an average profit per trade of only $26 with zero allowance for slippage
and commission. When I tested the 35-commodities that comprise my large data base, the performance was
slightly better, averaging $51 average profit per trade. However, once again that was with no allowance at
all for slippage and commission. Note: One reason for the somewhat improved P&L over 35- markets (vs.
10) is that the system did comparatively well in a few markets not traded by Buran at that time, including
Lumber, Orange Juice and Japanese Yen.

In some markets, such as Coffee and Cotton (and some others, when they are volatile), a typical slippage
and commission figure is likely to be as high as $200 or more. Even when not volatile, the average slippage
and commission that most trading systems employ is typically between $50 and $100.

You can see how this system would have actually lost tons of money if a realistic slippage and commission
was factored into his P&L Reports. In fact, the losses would have been extremely high if multiplied by the
many hundreds of trades Bob seems to have made during his track record time period.

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When Bob was confronted with these facts about poor performance, he did not deny my evidence, and gave
some very unsatisfactory and puzzling responses. For example, he said he somehow managed "to
consistently beat the system" by getting positive rather than negative slippage and commission, a feat no
one else seems to be able to do. He also said he was successful in bypassing certain losing trade signals his
system generated (occasionally due to a gut feeling!).

These things Buran somehow managed to do can't be done successfully by others, and in fact they should
not be done with a mechanical system. I will likely do a follow-up article about this in a future edition.

???? Trading System & Market Timing Group - George Moldenhauer

I just received an advertisement for a trading system. I would like to know if any members have had any
experience with the system. The system is not disclosed by name in the flyer...it is only referred to as The
???????? Trading System. It is being sold by Peter W. Aan in Arlington, Texas. I would appreciate
members' input. They can contact me direct at (801) 647-9478 during market hours and/or respond to
CTCN for publication. (I would prefer the personal contact to help speed up response time.)

I am looking for members that have direct experience with Market Timing Group and the trading system
developed by Steve Kelson. His claims are almost unbelievable. I would appreciate a candid review of it by
anyone having firsthand experience, including, but not limited to profits (or losses) drawdowns, avg
performance on a per trade basis, etc.

TX Products - Prime/Line - John Maglovsky

I received my September CTCN and couldn't put it down until I read it completely. The information was
very useful and helpful. I would like to support the idea that you continue to give information about your
software trading system. Many of us became members of CTCN because of your trading system.

I have a comment about Prime/Line. Prime/Line is not a computer generated program giving buy and sell
signals. It is for me, a time-consuming program assist. Prime/Line provides many of the same tools found
in SuperCharts. Prime/Line is not for someone like myself, with a very limited time schedule. Thanks
Dave, for your support, assistance and editing CTCN.

New International Portfolio - Recommended Based on Volume & Liquidity -

David Lancaster

Below are the international futures trading activity. These contracts represent the most liquid overseas
contracts. Volume figures are average daily '93 as reported by each exchange. The "Start Date" is the first
day of CSI data files and usually is close to the initial trading day of the contract.

Exchange Contract Volume Start Date & CSI #

LIFFE 3 mo Sterling 47,000 10/29/82 173

3 mo EuroMark 85,000 4/20/89 182

3 mo EuroSwiss 7,000 2/07/91 185

3 mo EuroLira 8,000 5/12/92 179

FTSE 100 Index* 15,000 5/03/84 209

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Long Gilt 57,000 11/18/82 174

German Gov't Bond* 99,000 9/29/88 181

Italian Gov't Bond 38,000 9/19/91 284

DTB DAX Index* 16,000 11/23/90 131

Long Term Bund* 36,000 11/23/90 132

Medium Term Bund 20,000 10/04/91 288

MATIF CAC-40 Index* 22,000 3/01/89 079

Long-Term Nat Bond* 147,000 1/28/93 328

3 mo PIBOR 47,000 3/0l/89 078

TIFFE 3 mo EuroYen 87,000 6/30/89 070

TSE 10yr Jap Govt Bond 59,000 4/04/90 158

OSE Nikkei Stock Index* 48,000 9/03/88 248

SFE 90 day Bank Bills 26,000 8/03/84 228

10 yr T-Bonds* 19,000 1/11/85 225

3 yr T-Bonds 29,000 5/19/88 231

LME High Grade Aluminum 37,000 6/11/87 092

HKFE Hang Seng Index* 14,000 12/31/86 119

*already included in existing International Portfolio

In addition to adding the above contracts that are not already included in your present CSI International
Data Portfolio, I recommend removing the SFE All Ordinaries Index #230 and the LIFFE Japanese Bonds
#180. These contracts only average about 2,000 contracts daily. This new international portfolio would be
composed of a broad cross section of exchanges with 22 liquid futures contracts. I think that most traders
would prefer a database of continuous contracts and the ability to maintain the back adjusted continuous
format during rollovers.

Editor's Note: I have asked CSI to setup this new International 22-market Portfolio for downloading and
will let you know when it's available.

Editor Comments

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Reference Larry Williams' article. John Hill said in last month's CTCN "you cannot copyright an idea."
That may be correct but at the same token I agree with Larry that if a copy is "substantially similar" you
likely will lose a copyright infringement lawsuit.

In reference to Mr. Huber's article...it's true, historical testing of Cattle reveals that market usually does
worse than other markets.

There's an excellent and highly recommended book by Bruce Babcock titled "The Dow Jones-Irwin Guide
To Futures Trading."

In the book Bruce tests a wide variety of well-known trading approaches and systems in 10 diverse markets
covering a 5-year time-period in the mid-1980's. For some odd reason Live Cattle ranks at or near the
bottom in most of the runs. In fact, Live Cattle was profitable in just 11 of the tests and lost money in 58
tests.

There is no clear explanation about why that market is so poor compared to others. Bruce Babcock also
says in his book that he's never been able to understand the reason why the meats are so difficult to trade.
Perhaps some CTCN members know the reason for LC's poor historical trading record. Perhaps someone
could ask Hillary Clinton the real secret to trading Live Cattle, as it seems like no one else can trade it so
successfully!

If you study the Futures Truth rankings in this issue, you will see that suddenly several systems have much
improved performance and rank at the top or high on the top-ten list. Unfortunately, a lot of that is mostly
attributable to the fact that just by luck they happen to trade for the most part (or exclusively) specific
markets that are trending well (i.e. Currencies). Because a number of individual markets have been steadily
moving for some time now, many of the Futures Truth Top-10 ranked systems have made lots of money as
a result of simply following good trends. In fact, almost any system, such as a simple moving average
likely would have made substantial profits of late in certain markets. The true test of these top-performing
systems will be how they do once the markets stop trending, get choppy, or reverse direction.

Then it's very likely these top performing systems will either start losing lots of money and (or) have large
drawdowns. In all likelihood their performance will decline significantly. Perhaps enough to knock them
out of the top-ten list.

Most traders do not realize just how important the specific market is to their trading success. In fact, it is
my contention the performance of the specific market itself is just as important, perhaps even more
important, than the trading system being used! That may be difficult for most traders to believe, but I am
certain this statement is correct. Does anyone agree or disagree with me? Please write with your feedback.

A poor trading system can perform well thanks to an excellent trending market. The opposite is also true, in
that a well-designed 'good' system will likely lose money if trading a market having poor trending
characteristics, including choppiness, or too much or too little volatility. Few traders realize this.

Special Request

I ask that you please do me and other members a favor by making a contribution to the next issue of CTCN.
Don't worry about your submission not being interesting or useful to Members...rarely is that true. Usually,
most all contributions/ submissions/articles are quite interesting and valuable to other traders, but the author
usually does not realize the actual value of his knowledge or experiences. Submissions can be any length,
long or short; typed, handwritten or submitted on a disk. Formal or informal. Please participate by sharing
your information and knowledge with other traders. Please make a contribution about your experiences,
both good & bad with systems, services, advisors, data vendors, and other trading related product. P.S. -
Remember, as a special reward for making just one contribution/submission per year, you'll receive an
automatic 50% price reduction on your subscription renewal.

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Thanks to all who made contributions to this edition of Commodity Traders Club News.

Futures Truth Reports

The October/November issue of Futures Truth's Master Performance Table is now available. Contact
Commodity Traders Club News so you can get it at the discounted price of only $25.00. Detailed Report
this issue-Joseph Stowell's ROCM, Hat & NCR. Detailed reports on individual systems are also available
thru CTCN.

The Best Performing Systems

The Futures Truth Top 10 Systems For Past 12-months are: R&W Tech. Serv. Currency Master +116.6%,
Lee Gettess' BondPat +113.6%, Joseph Stowell's NCR +104.5%, PWA Futures' DCSII +89.0%, Joseph
Stowell's ROCM +55.4%, Jurassic Trading's Bear +43.6%, Jurassic Trading's Raptor +43.3%, FutureSoft's
Benchmark +43.2%, Chuck Hughe's Destiny +41.6%, Future Truth's Universal LT +28.4%. Futures Truth
Top Ten Systems Since Release Date, based on ranking by annual combined percent returns on required
capital (3 X margin) are: Dave Fox's Dollar Trader +89.4%, Staman's Black or White +85.3%, Jurassic
Trading's T-Rex +72.8%, Hughes' S&P Pattern Daytrade +69.6%, Taurus' Grand Cayman System +66.6%,
Joseph Stowell's ROCM +56.9%, Joseph Stowell's HAT +56.2%, Dr. Jenkins System +46.2%, Futures
Truth's Universal LT +43.7%, R.C. Allen's Miracle Trading Mthd. +42.6%

Note: Trend Index Trading Co. Swing Catcher System was ranked from 1990 to 1994. It is no longer
tracked by Futures Truth. That's because they only have sufficient staff and resources to track a fixed (non-
changeable) market portfolio. Using its built-in Trend Ranking Module (which selects and ranks the best
markets to trade each week from a 35-market portfolio) would result in Futures Truth tracking a variable
(changeable weekly) portfolio. It was ranked as the 5th best system since release date, covering a four year
period, with a 78% annual return, the last time it was rated, using a fixed market portfolio.

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Seasonal Spreads Newsletter - Bob McGovern's "Commodity Futures Spreads" a dynamic bi-weekly
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The reproduction, copying or publication of any part of this work beyond that permitted by Section 107 or
108 of the United States Copyright Act, and also World-Wide International Treaty Provisions, is unlawful.
ALL RIGHTS RESERVED. Written permission from the Publisher/Editor is required for reproduction in

173
any form and may be withdrawn at any time. Commodity Traders Club News (CTCN) is a 'Clearing House'
or 'Information Exchange' for members. We do not, and we have not, verified the accuracy of the
mathematics or numbers published herein, or accuracy of comments and remarks made by the authors. You
also should be aware that advertisements are frequently based on hypothetical (not real-time/actual) trades.

In the event a contributor does not include article headlines they may be subsequently written by the Editor,
using verbiage the Editor believes highlights important points being made. Subscription to Commodity
Traders Club News...'Your Guide To Profitable Trading and How To Save Money Along The Way' is
$80.00 for 1-year (12-issues)...includes FREE First Class Mail within USA & Canada (add $17 Overseas
Air Mail). Publisher: Trend Index Trading Co., 2809 E. Hamilton #117, Eau Claire, Wi. USA 54701.
Phone 1-715-833-1515. FAX 1-715-833-8040. Editor: Dave Green. (There's high risk of loss in futures
trading)

Issue 19.

Step-By-Step Advise on How to Correctly Select a Broker

Simon Campbell

Choosing the right broker is a critical aspect of trading. While it is easy to obtain recommendations for a
broker, the actual selection process itself is often overlooked. What is a great broker to someone else, might
not be a great broker for you. For this very reason, I have avoided giving out my own broker
recommendation (plus, I don't want to detract from the selection procedure itself).

The following is a checklist of the process that I go through when looking for a new broker (any additions
are welcome!). Many of these steps will be universally applicable, others will relate only to my personal
needs. So, pick and choose the ones that apply to your situations

1. First and foremost, clearly define what your needs are. Are you a novice or experienced trader? Are you
a day trader or position trader? Do you trade in both Chicago and New York? The answers to these
questions will determine the 'category' of firms you will want to look at.

2. Based upon your needs, obtain a list of 4-6 different brokerage firms. You can get such a list from
recommendations or advertisements (or even by glossing through Futures Magazine annual 'SourceBook
'for firms that may be suitable).

For the purposes of illustration, as a day trader (only) in the Chicago markets who is interested only in fast
execution and fill quality, my initial needs are: Broker must be located in Chicago. That's where the
business is, so that's where I want my firm; firm is a clearing member itself on both the CBOT and CME. I
prefer not to have to go through a 'middleman' Introducing Broker (IB) and pay a middleman's
commissions. However, not many clearing firms deal directly with smaller individual retail accounts, so
you have to do your homework to find the ones that do; I prefer NOT to use one of the large well-
known/heavily advertised discount firms (personal bias/opinion - based on prior experience).

Once you've got your list of 4-6 possibilities together, call the NFA at 1-800-621-3570. Ask them to mail
you a written copy of all disciplinary actions taken against a firm (do this for all 4-6 firms). If your
considering an IB then be sure to obtain the disciplinary information for both the IB and the clearing firm
that it uses.

Note - Some firms with a poor disciplinary history may have changed their name and registered with the
NFA under a new name to try to 'hide' their history. So ask the NFA how long each firm has been
registered under their name. If not long, then ask the firm for their previous name, and get the NFA to
check under that name!

Going a step further - you could even ask the potential brokerage firm for the name of the floor broker/s
that it uses in the pit/s that you trade, and have the NFA check up on them too!

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4. Once you get your NFA reports, you may choose to automatically rule out a few firms with poor
disciplinary records. There are two things that I look for in these reports. Firstly, any major 'problem' like a
huge fine/fraud/big lawsuit etc. Secondly, I look for an excessive number of reparation complaints against
that firm, relative to other firms. I'm not overly concerned about occasional minor rule infringement.

5. With your surviving 'possibilities' - contact them! Be sure to let them know that you are speaking to a
few different firms, and that you won't be making a decision until after you have spoken to everyone. Not
only is this a good idea, it's also a useful negotiating tactic. Make the firms compete for your business!

6. Ask each one, any probing questions that you can think of e.g.:

If dealing with an individual person (e.g. full-service broker), how experienced is he/she? Will he/she help
you with order placement if you need help etc? If dealing with a discount order desk, where is it located?
(preferably on the exchange floor) How many phone calls before your order reaches the pit? How fast is
their turnaround time in the markets you trade? (especially important in New York markets).

You don't want a broker that is slow to report your fills. Does the clearing firm use salaried pit brokers, or
independent pit brokers (in the markets you trade)? Preferably you want independent pit brokers, because
they will likely have a greater vested interest in giving out good fills, as opposed to a salaried employee,
who is merely doing a 'job'.

It is also easier for a firm to switch from one independent pit broker to another, than to get rid of a salaried
employee. Is the clearing firm financially sound? Is it a member of all the exchanges that you trade on? (If
not, find out the other clearing firms, and check their disciplinary records).

7. Negotiate the best commission rate you can, based on your account size/trading activity and experience.
Make sure that you negotiate all fees (except the $0.16 NFA fee) into the commission rate that is quoted to
you, otherwise they'll show up as 'extras' on your statements! Tell them about a better competitive offer (if
you have one)! Don't commit to anyone until you've sized up all the offers.

8. Then, based on all criteria (not just commission rate) pick a firm that you feel will best suit your needs
and personality. Don't necessarily go with the lowest commission rate. Go with the best 'all-round' offer. If
commission rate is in the middle of all your offers (and other intangibles look to be the best) then you've
probably made a good choice. You don't want to be penny-wise and pound foolish!

Finally, my personal belief (contrary to the opinions of some), is that even if you are a novice you are better
off going with a quality discount firm (as opposed to full-service) in order to reduce your trading overhead.

If a (full-service) broker's 'advice' was so wonderful then he wouldn't be a broker, he'd be a trader. If you
are a novice who needs help in learning how to place orders, and wants a thorough understanding of the
order process itself, then order Joe Ross' course "How to Place Trading Orders." You'll likely learn more
about order placement from this course than you will from your full-service broker, and save yourself lots
of money in the process.

Does Futures Truth Use of Systems Result in Copyright

Violations & Should They Get Income From Them? - Kent Calhoun

John Hill is a valuable asset to the futures industry, and my respect for him has matured over 15 years. Our
friendship is greater than my viewpoints of this issue. Others have refused to address this complex legal
issue.

I am not a lawyer, but have studied law. When I was informed last year of the suit against Futures Truth
(FT), I told John Fisher the case would be dismissed due to a lack of jurisdiction. It was dismissed on that
basis. Now let's examine the Hill-Greenwald controversy, etc.

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The US Justice Department successfully prosecuted Japanese computer manufacturers for stealing IBM
"trade secrets," and IBM was awarded a substantial financial settlement. The Justice Department stated to
effect "architecture of computer software and computer hardware component designs belong to IBM," just
as lyrics and music of a copyrighted song belongs to its author.

Feist Publications, Inc. v. Rural Telephone Service Company, Inc., 1991, reaffirmed the original
constitutional historic interpretation of copyright law which "copyright rewards originality, not effort."
Feist had a telephone directory that overlapped Rural Telephone's directory listings, which the court ruled
could not be covered by copyright law. This ruling reinforced Harper & Row v. Nation Enterprises (1985)
that no one can claim authorship in facts or other non-original material.

"Originality," is the operant word concerning copyrights. The second legal aspect to consider is that rights
are legally recognized negotiable entities and may be legally viewed the same as personal property. Any
attorneys out there please respond.

If a person buys a stolen TV at a garage sale and it is later discovered in the purchaser's home, the
purchaser is arrested and taken to jail despite producing a bill of purchase. This is criminal law applied to
receipt of stolen property, and is often a felony if the object's value was over $50.

FT knows most system purchasers must sign a nondisclosure document prohibiting purchasers from selling,
copying, and transferring any of the system's information to others in any medium. "Original design," is
protected by United States federal copyright infringement law. Violators may be sentenced to five years
imprisonment and a $250,000 fine per offense.

When Futures Truth receives an unsolicited trading system, does copyright infringement take place when
FT reviews the trading system? Is FT in receipt of stolen property, since property and copyrights may be
legally treated the same?

Should FT be held financially accountable for deriving income from the developer's system, when they do
not have the developer's permission to review the system or have paid the developer for his system? These
are legitimate legal questions that could have expensive answers. Why expose FT to these potential
lawsuits?

Does Futures Truth Benefit from Others & Have A

Conflict of Interest - Kent Calhoun

Does the original design of a trading system belong to the developer? I believe it should. At what point is
the new system design original? I do not know. Many systems use my 1981 opening breakout system for
their entry. This system places buy and sell stops equidistant from a price reference point, like an open or
close. Are these developers in violation of my original copy-righted material. I do not think so, but legally
they could be.

A system purchaser, who sends system materials to Futures Truth (FT), is guilty of violating a non-
disclosure document, a civil matter, and copyright Infringement, a criminal matter. FT would be required in
deposition or court to reveal person's name who sent then the system. FT benefits by learning how the most
successful trading systems are designed, access to trade good systems, and financially profits from the
system's design without paying vendors. Is a law broken?

Again, the Justice Department has already stated the "original design'' of software, computer chips, and
hardware is protected by existing copyright law. FT knows systems of "original design" are copyright
protected, and is more knowledgeable than purchasers of stolen goods at a garage sale.

Futures Truth sells research reports of a system's performance, sells FT's newsletters tracking the system's
performance, FT discusses the system's design in video tapes, and presents system design information at
their seminars. All these things financially benefit FT and help sell their products.

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FT was started to drive one well-known system marketer out of business. The vendor allegedly sold trading
systems belonging to a system creator's widow, who received no compensation from the vendor of others'
systems. FT now uses vendor's systems to produce their income without purchasing them or compensating
the vendor. FT does not sell the system's rules, that's the only vendor's difference between them and the
well-known system marketer.

A conflict of interest exists when FT rates their systems, and FT admitting this fact does not condone it.
Independent testing reported in another newsletter last year showed FT's Universal 44% less profitable than
reported by FT. The error was ascribed to bad data used to produce results; FT was not responsible for their
misrepresentation of their system's results.

Without FT, where is an honest vendor to turn to have his system results verified? I have spent over
$13,500 to this end with FT, because I want to produce the best trading materials available. FT's testing has
helped me improve the trading results of my systems, and this helped increase their sales.

Should FT stop publicly rating their own systems, and using vendors' systems without paying for them?
Absolutely! Both practices detract from FT's credibility and reputation for honesty, invite further costly
litigation, and undermine FT's efforts to being needed vendor accountability to our industry.

Info on TBSP/Pocket Quote Pro/PrimeLine/ Reply to Russell Sands & An Opinion Curve-Fitting is
Desirable! - Paul E. Diehl

I appreciate the answer to my question on TBSP Right Time Stock Program (RTSP) from George
Moldenhauer. His experience is the same as mine. I had a broker from Chicago contact me to tell me that
he can trade the OEX successfully with the RTIP program, but he had to invent his own rules of entry and
exit. I didn't open an account. Why buy an expensive automatic computer trading program if you have to
make up your own rules?

I also appreciate the response from Don Good on the Pocket Quote Pro. I will stay with my Quotrek which
gets good reception over a 50-mile radius from the St. Louis Arch. It is expensive, but when one S&P 500
tick is worth $25.00, it's worth having that accuracy. Quotrek also separates the Globex range from today's
trading numbers which solves the problems mentioned by John Bowley.

I have purchased the Prime/Line System mentioned by Chris Ongley, but have not as yet figured out how to
use it. I have been a trader for over ten years, so I am not a novice but this book seems to leave some
information gaps. I haven't called Mr Greenstein for support, but will report on my results in a later CTCN
after I give it a fair trial.

To Mr. Sands: I mostly trade S&P 500 futures and options with some OEX and stock options. I have
learned a number of golden principles for trading that works in all markets, but I find that specifics vary
from market to market almost as though each market has its own personality.

Some markets are as giddy as a school girl. Others are stoic. Some plod along like an old man while others
run sprints. Some are swingers while others are slow and steady. It therefore seems to me that you must
"curve fit" your systems to match the personality of the market that you want to trade. I have a hard time
believing that one system works in every market without modification for that market.

I would be very happy to get one really good system to day trade the S&P and forget all the rest. There is
more than enough action in that market to keep me busy.

Bob Buran's Grand Combo System Only Makes Money If

You Are Paying $2 Commission! - Mervin Pearson

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I recently became a subscriber to CTCN; October 1994 was my first issue. I did however get all the back-
issues and have enjoyed reading the articles. The editor has requested more input about Bob Buran. Here is
my experience.

I purchased the video and system from Bob when it first came out. I usually don't buy systems because I
have never found one that fits my trading style. The reason I bought Bob Buran's system was the way he
touted that he was all for helping the little guy. Also the reason he sold so many was because he included
monthly and yearly statements. The statements to say the least were deceptive.

The profit he actually did make; but not by following the Grand Combo System to the letter. A lot of the
profits came from fills other than from the system. In other words, he used judgement in entries and exits.
Also, in reviewing the statements, a lot of the profits came from crude oil and heating oil, leading up to the
Gulf War or during the war. There were some months that if he didn't have the oil complex he would have
lost money.

I traded the system for about two months. The markets I used were Mid-Am T-Bonds, Silver, Soybeans,
Live Cattle, Crude Oil, Cocoa and Sugar. I called this my lucky seven portfolio.

I followed the signals to the letter. The system actually made money! (not much per trade) but it lost
because of poor fills on stops.

Every entry order is in a stop. If the trade gets stopped out, than you have a chance for 2 bad fills. I was
paying $25 in commissions and in two months I lost about $2,000. The system would work if you were a
local only paying $2.00 per round turn.

Editor's Note: I spoke with Fred Montgomery who wrote about Buran last month. He says even paying $2
commission would still result in large losses due to slippage being a major negative factor.

A HARD LOOK AT DAY TRADING - Reprinted with permission of Technical Traders Bulletin -
Part One

We receive more requests for articles and advice on day trading than on any other topic. Beginning traders
are especially interested, particularly those that have been attracted by the glamour and intensity of the pit
traders who seem to be constantly jumping in and out of the markets and reaping enormous profits.

It seems like almost all traders have tried day trading at one time or another. After all, it is very tempting to
try and slug it out with the pit traders. Every tick is exciting. Every rumor or news item that affects the
market either creates euphoria or is another nail in the coffin. When you have a position on, you can't stand
the pressure, but if you're not in the market you tear your hair out every time prices act the way you
predicted. Your heart pumps fast, your adrenaline surges, and you feel like you've finally arrived in the
wild and woolly world of fast-paced futures trading.

All of this sounds like fun, but as you might imagine, there are many, many pitfalls along the way. We've
come to realize, after talking to numerous traders who have attempted or are about to begin day trading,
that most traders who start are not fully aware of the scope of the problems they face. To some readers the
following discussion may be redundant, but we suspect that many of our subscribers may be embarking on
a venture with only a limited grasp of the basics.

Cost of Doing Business is High

The day trader enters and exits trades during the same market session, normally a period of only four to six
hours from opening to close. The very short term nature of day trading presents both advantages and
disadvantages. The major advantages are the lower margin requirements and the absence of overnight risk.
The disadvantages are the bad odds, time and effort required, the limited profit potential, and the
burdensome costs of frequent transactions.

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The transaction costs consist of both commissions and slippage. The commissions are a large and obvious
cost of doing business. However the slippage is much more difficult to quantify. The trader might have a
mental image of trading at the prices shown on a computer screen, but in reality he must continuously buy
at the offered price and sell at the bid price. The spread between the bid and offer becomes a very
substantial but hidden cost of doing business. In addition, as most of us have learned many times over, it is
unrealistic to expect stop orders to be filled at our stop prices.

In the meantime, to offset these unavoidable costs, the day trader is limited to very small profits when he is
correct in his analysis and completes a winning trade. Under even the most optimistic scenario, the day
trader's potential profits are limited to a portion of the price range that is likely to occur within a few hours
of trading.

Let us assume that our day trader has negotiated a discounted rate on his day trades and is paying twenty
dollars per trade. Next let's be optimistic and assume that the spread between the bid and offer amounts to
ten dollars buying and ten dollars selling. In order for the trader to complete a trade that nets $100 he must
be smart enough to identify a move of $140 according to the prices on the screen he watches.

On the other hand, when his timing is wrong by only $140 he is going to lose $180. It doesn't take a Ph.D.
in mathematics or an M.B.A. from Harvard to figure out that this is far from an ideal business environment.
In fact, even the professionals on the floors of the exchanges must be intelligent, highly disciplined traders
just to survive.

The public doesn't realize how many of these professionals fail in spite of the advantage of being on the
floor and paying only minimal costs per trade. Imagine how small the odds for success must be for an off-
the-floor trader faced with the costs we have described.

To have any hope of success, the day trader must strive to maximize the profits on the winning trades so
that he can overcome the tremendous disadvantage of both the obvious and the hidden transaction costs.
Unfortunately, the day trader has very little control of the potential profit to be obtained because the extent
of the price range during the day absolutely limits the maximum profit that can be realized.

No trader can reasonably expect to buy at exact bottoms or sell at exact tops. A very good trader might
hope to be able to capture the middle third of an infra-day price swing. That means that to make $180, the
total price swing must be three times this amount or $540. How many futures markets have a daily price
range of $540 or more? Very few. How many futures markets can produce a $180 net loss? Almost any of
them.

Don't forget, the trader that is smart enough to find markets with $540 price swings and then smart enough
to trade them correctly so that he nets $180 is only going to break even unless he has more winners than
losers. To make money in the long run, the day trader must have a percentage of winning trades that is far
better than 50% or he must somehow figure out how to make more than $180 on a $540 price swing (or
best of all, do both). This also assumes that the trader is smart and disciplined enough to harness his
instincts and emotions and carefully limit the size of the losses.

Beating Tough Odds

As you can see, the day trader is faced with an almost impossible task. We would venture a very educated
guess that less than one out of a thousand day traders make money over any sustained period of time. Our
best advice is to not even attempt it unless you are one of the many traders who is actually trading for the
recreation and mental stimulation rather than the money.

If you are serious about making money, your time and energy will be much better spent perfecting your
longer term trading skills. Even if you should succeed at day trading, it is difficult to reinvest the profits
and continue to compound them. Day traders can only operate efficiently in very small size so don't expect
to make your fortune at it, it's only a very enjoyable but hard earned living at best.

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In spite of our sincere warning, we know many of our readers will attempt to beat the odds and become
day traders for a while. Fortunately the lessons learned while day trading can be applied to more serious
and productive trading later on. In the meantime, we will do our best to explain as much as we can about
day trading and hopefully make the learning process less costly.

Obviously, we don't have all the answers ourselves or we wouldn't have such a negative outlook on the
probability of success. We certainly have learned a great deal about this subject over many years of trading
and the fact that we have elected to no longer play this game simply demonstrates our personal preferences
in the allocation of our productive time. We hope whatever hard-earned information we can pass along
proves helpful.

Selecting Best Markets For Day Trading

As we pointed out earlier, there are very few markets that have wide enough infra-day price swings to make
them suitable candidates for day trading. Because they must monitor the prices so closely, day traders
generally prefer to concentrate their efforts on only one or two markets. In addition to the fact that the
prices must be watched continuously, there are very few markets that are suitable even if we had the
capacity to follow more of them. Presently, day traders seem to have given up on pork bellies and tend to
favor the stock indexes, bonds, currencies, and energy markets. From time to time other markets may
become candidates for day trading because of temporary periods of high volatility.

We ran a test (several years ago) to see what percentage of the time various markets had a total daily range
of $500 or more between the high of the day and the low. There were only five markets that had a $500
range at least two days a week or 40% of the time.

In addition to looking for a wide daily range, liquidity and the size of the minimum spread should also be
factors to consider when selecting suitable markets for day trading. Our previous example of costs included
paying a spread of only $10 on each side of a trade.

In the S&P market a minimum spread would be $25 each side while in the bond market a 1/32 spread is
$31.25. If you are day trading bonds with $20 commissions, you must overcome total costs of $82.50 added
to losses and subtracted from gains. Your average winning trade must run $165 farther than your average
loss just to break even. This assumes a one tick spread which is the best case possible.

The element of liquidity comes in to play in determining the number of ticks in the spread between bid and
offer. A one tick spread is the best you can hope for and most markets have a wider spread than that.

You can usually assume that the higher the average daily volume, the tighter the spread. For that reason,
you will want to concentrate your day trading in only those markets with very high volume. Otherwise, you
can be making good timing decisions and still be assured of losing money.

Too Many Data Formats - Michael Gourbault from Canada - Part II

Which brings us back (by a giant step forward for Mankind) to "Alan's" current troubles. Now, after
connecting with his data vendor via modem, then converting the data to the MetaStock format, Alan
decided to try his new MetaStock continuous contracts In all three programs.

Three programs, three perspectives. In they go in Program #1. Oh, how lovely, and educational! Everything
works fine. Now, Program # 2 . . . , Bravo. (Ah, yes, perhaps we should tell you that Alan - well, Michel, if
you must know - was also a professional French translator. Not an American, of course, but European
French - this as a way of "explaining" his peculiar Ideas.) Where were we? Yes, Program #3. Nothing
doing: the program rejects the appetizer being handed to it. Michel insists... even stooping as low as trying
to coax the beast. No way, Amigo! His hot Latin temperament now fully aroused, Michel sees red, gets hot
under the collar, loses his temper... Well, you get the picture.

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Soon, the battle between the Beauty and the Beast was in full swing. (Don't get me wrong: a Beauty he is
not - that's just a figure of speech.) Michel gets all of his wits and debugging tools and knowledge together
and fires them one by one at the insolent target who acts like the stupid donkey that "it" is. For days on end
he successively and systematically uses the following reasoning and investigative techniques:

1. He tries three continuous contracts (PL, SF and PB) in CSI format that came with his program which was
in CSI format from the CSI company. The program works fine in every respect.

2. He tries the same three contracts from CSI-converted data from his own choice of vendors.

3. Now he uses the MetaStock format. A message appears that speaks of zeros in the data or insufficient
amount of data. It quickly blocks any further processing.

4. He fires a barrage of faxes to the program designer to inform him of the problem and of the different
things he is doing to try to make it work. The designer, at first, does not believe there is really a problem;
even gets a little fired up when he thinks Michel expects his program to be compatible with every other
trading program on the market.

He also takes exception to the comments made by his client regarding the "illogical" use of three different
date formats, YYMMDD, MMDDYY, and DDMMYY, in the English-speaking countries. Calls it a 'trivial
issue," not worth discussing. Michel, of course, was relating this to the possible file data incompatibility
problem, if one vendor used one date format and another a different format; but failed to explain his
thought clearly enough.

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

But I will add this, as the morale of this story:

Once upon a future time, a group of data vendors and software program designers will finally come to their
senses and do like the Europeans and the Japanese have done at least for decades past: they will get
together and, if only for their own sake in this Darwinian world of dog-eat-dog and survival of the fittest
that they have helped create by their apathy or indifference, will try to stop the confusing proliferation of
compatible, semi-compatible and incompatible data file formats, and agree at last on just two formats: one
for all the modem oriented services, and the other for the FM/cable/satellite data vendors.

And finally the consumer or end user will live in a sane world. But this, alas, will be the world of the
seventh generation to come.

How Welles Wilder's ADX Indicator Can Improve Other

Trading Systems - Giampaolo Bulleri from Italy

I write this article to share with CTCN's readers some experiences about the use of ADX indicator coupled
with a typical trend following trading system (in this case Swing Catcher, but I want to speak in general
and I want to know if these considerations can be applied to all trend-follower trading methods).

In the graphic below, I have represented a "stylized" ADX just to be clear in the exposition: Chart in Print
Copy

We can divide this graphic in 5 zones (A1,A2,B1,B2,C):

Zone A1: ADX flat or descending with readings greater than 45, overbought territory, trend is over.

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Zone A2: ADX flat or ascending with readings greater than 45, overbought territory, high probabilities of
end of the old trend; Zone C: ADX readings less then 25, oversold territory, high probabilities of born of a
new trend; Zone B1 : ADX is descending: no trend; Zone B2: ADX is ascending: trend.

These are in my opinion the general rules to follow if you trade with a trend-follower method:

Zone A2 and C: trade with a conservative approach (low risk)

Zone A1, B1: do not trade this contract

Zone B2: trade with an aggressive approach (high risk)

Well, the discussion is open!

Why Cattle Trading Is Difficult - Andy Dmori

Following is a response to H. Lowell Huber's wondering why certain traders do not trade cattle (CTCN
October 1994). Curtis Arnold, developer of PPS, opined in PPS News, Issue 1, Fall 1992: "The meat
markets, despite occasional sharp trends, are not considered to be good 'technical' markets.

They tend to chop around a lot and are replete with false breakouts and inconsistent price action. Being
largely domestic markets, they have often been rumored to be manipulated or controlled by insiders. With
the exception of a very few fundamentally-based professionals who specialize in these markets, the
majority of the professional trading community shun them for the reasons cited."

What Exactly is A Swing-Low? - Rointan F. Bunshah

I am responding to David Stone's contribution on page 2 of CTCN's October '94 issue. It is a very simple
system that is discussed. Unfortunately, a very important definition has been left out, i.e., what is the
Swing-Low Pivot Bar? Is it the swing low for the second swing whose low is higher that the previous
swing low? Perhaps a better set of diagrams would clarify the issue. They could have a horizontal line on
the price bar to indicate the bar and price of entry.

If you can send me David Stone's address or FAX, I will be happy to write to him directly and he can then
send in the clarification for the next issue. If you know the answer, please send it to me by letter or FAX.
Thank you and keep the good work. I enjoy CTCN.

Here is my chart, it is correct? Chart in Print Copy

Editors Note: I have also printed a chart below Rointan's chart showing Swing-Lows & Swing-Highs.

The Facts about Futures Truth - John Hill

For the record, the facts are as follows:

1. Futures Truth(FT) will continue to publish the performance figures on publicly offered systems as long
as a reasonable number of people want this type of publication.

2. We will stop publication when interest ceases. We do not depend on this publication for a living.

3. Profits after a reasonable amount of working capital, will continue to be donated to a homeless children's
school. I personally have never taken a salary from this operation. We let one key computer employee go
for lack of funds to pay salary.

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4. We do not now, nor have we ever traded one single idea from all the systems we have seen without
written permission from the owner. A pool we organized quit trading publicly offered systems about 3
years ago. Today, we only trade our own ideas and none of them include ideas that are not our own.

5. We do not intend to respond to the Futures Truth "Bashing." Life is simply to short. We ask our clients to
consider the source.

6. In our judgement, we have done nothing wrong either legally or morally. We are the only persons we
have to satisfy on this point unless someone would like to go to court. If our clients feel that we are wrong
they will simply stop supporting this effort and we will quit. It's that simple.

7. We will continue to offer a few of our own systems for sale, as this small amount of income is needed to
support the computer effort. This is a conflict of interest but it will continue.

8. We have never revealed anyone's system at the few seminars we give.

9. We also give Futures Truth "Bashers" one more source of complaint. As of 10/3/94, Futures Truth
became a member of NFA and we are now a CTA.

Definition of A Swing-Low - David Stone

A Swing-Low is a low day surrounded by higher lows on each side. The more higher-lows on each side the
better or more powerful the Swing-Low is. However, just one higher low on each side is sufficient to
qualify it as a Swing-Low.

A "higher Swing-Low" is a secondary consecutive Swing-Low who's low is HIGHER than the preceding
Swing-Low. After it occurs, entry on the long side is on the next days open, or on the close of the day after
the low day, if you can identify it and get in before the close.

The reverse is applicable for Swing-Highs and subsequent short side trades.

The Specific Markets Performance Are Indeed Very

Important - John Bowley

This is in response to the editor's comments in the October issue. The specific markets used by any trading
system are indeed very important. Many use only S&P, Bonds or currencies because these have the most
liquidity. Each market may be trending or not at any point in time and is easily seen by drawing trendlines
on price charts.

For example, I conclude that the Futures Truth Universal and Swing Catcher trend following systems make
most of their profits when any market is trending up or down. Wilder's ADX, VHF and Bollinger's BWI all
can help avoid trendless markets where the worst drawdowns occur. It is suggested that each market's
equity run be optimized in this way before combining several markets in a portfolio if desired.

The Mother of All Systems - By Robert Alberto

(submitted by Alfred Wong)

This stock trading system needs two sources of info and has four trading rules. You need Investor's
Business Daily and Standard & Poor's Stock Guide. Although the newspaper prints daily, looking at it
weekly is fine. Standard & Poor's has yearly books. You need to took at a monthly guide. Investor's
Business Daily is at most libraries. Standard & Poor's Stock Guide is not. But you can get a trial
subscription.

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Rules one, two, and four involve looking at Investor's Business Daily. Buy stocks that pass rules one, two
and three. Sell stocks that pass rule four.

Trading Rule #1 - Buy stocks that have doubled their 52-week low. Scan the paper for "N H." This means
new 52-week high. Then compare the close to the high.

Trading Rule #2 - Buy stocks that have an earnings per share (EPS) and a relative strength (RS) of 80 or
better. Investor's Business Daily alone prints relative EPS.

Trading Rule #3 - Buy stocks that are making all-time highs. This means for the life of the stock. If
Standard & Poor's does not cover the stock you'll have to call the company or a knowledgeable broker.

Trading Rule #4 - Sell stocks immediately whose relative strengths (RS) drop below 75. Of course you can
sell earlier if you have a good profit.

Some Fine Points - Don't buy stocks that have risen more than 10% past where they've doubled. Only buy
stocks selling for $2 dollars or more. Use a discount broker.

I haven't been able to test this system. Clearly it is a relative strength momentum system. It definitely
selects few stocks now. A quick glance didn't reveal any recent buys. Maybe there are plenty at market
bottoms.

I wonder about past stock price history. Do the two sources adjust for stock splits? I seem to recall some
inconsistencies between the closing price and past price ranges. Trading rules one and three depend on
accurate prices.

A Solution to the Problem of Graphics Output to A Laser Printer

Dennis Kubeldis

I received and installed a trading system upgrade recently, and was pleased overall. However, a little
disappointed not to find graphics support for my HP LaserJet Printer. I considered trying to find hardware
adapters mentioned in the system's "readme" file, but decided to check with friends that have been into the
computer scene for many years.

Well, as it turns out, between their suggestions, something I was told a while back, and some
experimentation on my own, I now have no problem printing my trading system's graphics to my LaserJet
IIP Plus. It turns out to be rather easy, and my suspicion is that this method will almost certainly work on a
variety of other printers.

I thought I'd share my findings with you, and any others who have an interest via the "Club News."

When I first asked if I could use my LaserJet, I was told that I might try replacing the "GRAPHICS.EXE"
file in the system directory with DOS's "GR.APHICS.COM." This didn't work. A friend told me about a
DOS command that would load a small memory resident program which would then be used on all "Print
Screen" commands. The command is graphics. It needs to know the printer type, and the drive and path
where DOS files "Graphics.Com, and Graphics.Pro" are stored. Several switches are also available for use
with this command. These files are in my DOS directory, and since DOS is included in the path statement
within my Autoexec.bat, I was told that all I needed to do was add a line to the Autoexec (after the path
statement), as follows: graphics space laserjetii.

(Laserjetii is one of 16 parameters or printer types available with graphics command)...this didn't work
either. However, after a fair amount of trial and error combinations, I found that loading the graphics
program at boot-up (through the autoexec), and deleting "Graphics.Exe" from the system directory,
(actually, I just moved it to a temporary directory), allowed all graphics to be automatically printed during

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my system's auto run, or printed with Print Screen command when doing a manual run. The only
abnormality appears to a message reported on the screen by DOS when loading it as follows: Unable to
reload with profile supplied.

It now appears that the initial suggestion didn't work because there was no way to specify laserjetii from
within the system directory. It would need to be called from the system's code. When the graphics
command was executed by the program, it had no parameter for type, and I believe defaulted to
"hpdefault," (the first type parameter listed in Graphics.Pro). Also, loading the correct profile for my printer
at boot-up was basically changed back when it was loaded, as long as Graphics.Exe existed in the system
directory. Editors Note: The solution is to write a new boot-up batch file that includes the correct graphics
driver and switches.

Member Requests

Kenneth Phillips is interested in recommendations, opinions, comments or evaluations on Jeff Rickerson's,

The Advanced Market Optimizer II, for sale again at $3,000, not sold since October 1990.

Ken Periso wants to know how to create continuous contracts and where to get software; how to collect
cash prices to figure basis?

Karl-Hans Mohr wants to be in contact with other German members of CTCN. They can call me in
Germany at 011-49-6221831301, or write c/o CTCN.

Steven Burningham wants info on Futures Pro.

Member George Moldenhauer is looking for members that have experience, real-time with the Recurrence
IV Swiss Franc System.

Editor Comments

Per my request CSI has setup a new International 22-market Portfolio for downloading. They also have
given a super low price of only $19 per month, via long distance access, to download the above portfolio.
In fact, if you agree to prepay for one-year ($228) they will even waive the regular $59 cost of account
initiation and their QuickTrieve Software. Domestic users may prepay $288 if toll-free access is desired.

Note: You do NOT have to be one of our software clients to download the new portfolio. To sign-up for it
simply call CSI at 1-800-274-4727 or

(1-407-392-8663 for foreign callers) and request the new Trendx/Dave Green/CSI 22-market International
Portfolio. Be sure to mention that you are a Commodity Traders Club News Member. This portfolio is
available for immediate downloading.

Thank you to David Lancaster for doing lots of research on this optimum portfolio based on volume, etc.,
as referred to in last month's CTCN.

Reference the Futures Truth discussions and issues. I know John Hill and George Pruitt. Both John and
George are extremely honest and have great integrity. I am also convinced they are unbiased and try to do
an honest and accurate job. Their work reporting on the many trading systems available to the public is
difficult, complex and at times a thankless job.

There are a number of legal and ethical questions involving Futures Truth's operations that have been raised
by certain parties in this issue and others.

CTCN Members are invited to give their opinions on these complex issues involving Futures Truth.

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Issue 20.

Walk Forward Tested System Is Better than the Best

Optimized One - Larry Williams

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

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

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

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

How I Consistently Make Money Day Trading...a Very

Positive & Contrary Response to Last Month's Negative Article
about Day Trading - Anonymous Trader

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Don't Judge Trading Info By Its Size But By Its

Content & Value - Bill Adams

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Here are my three latest insights about the VHF:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Members Have Knowledge - Mike Coleman

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

More on SuperTraders Books - H. Lowell Huber

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

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

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

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

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

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

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

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

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

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

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

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

Hard Facts on Day Trading - TTB - Part 2

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

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

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

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

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

Tidbits on Financial Astrology - Carol Murphy

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

Too Many Data Formats & Problems Michel Gourbault

from Canada - Part 3

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

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

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

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

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

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

Member Requests

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

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

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

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

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

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

Editor Comments

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Issue 21.

Comparing Commodity Trading to Casino Gambling - How To Obtain The 'House Advantage' -
Dave Reiter

I'm a 29-year old part-time commodity trader. When I'm not trading commodities, I'm helping my father on
the family dairy-farm (located in Gainesville, TX - 60 miles north of Dallas). The purpose of this letter is to
share my thoughts and experiences as it relates to trading. However, I first would like to provide you with
some background information.

I took my first real-time trade on January 2, 1992. During the past 3-years, I have made a grand total of
$145,357.93 ($37,135.10 in 1992; $43,745.35 in 1993; and $64,477.48 in 1994). These results do not
include interest earned on U.S. Government Securities. Including earned interest, my net profit for the past
3-years is $155,533.96 (account statements are available).

In my opinion, if I can make this kind of money trading commodities, anyone can. The key to being
successful is to maintain "consistency." My trading methodologies have provided me with fairly consistent
profits during the past 36-months. Don't get me wrong; I do have my share of losing months. But I always
seem to "bounce back."

My trading approach is very conservative. I only trade one contract per signal and I never pyramid my
trading positions. Also, I have a tremendous amount of respect for the markets. As you know, commodity
markets can be extremely volatile at times. Therefore, I have developed a healthy "fear" of the markets. If
you want to be a successful trader, you must be conservative and cautious.

Since I did not begin real-time trading until 1992, I did a tremendous amount of paper trading and research
from 1987 to 1991. During this time period, I watched a few of my friends do some real-time trading. Not
one of them managed to show a profit during a single 12-month period. Occasionally, they would "catch" a
couple of big moves, but they always gave it back over time.

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The one "common thread" that my friends possessed, was the fact they never developed any type of trading
plan or method. Their trading was very erratic and lacked any type of systematic approach. They would all
rush out to purchase the "hottest" new system on the market. After trying it for a few weeks (or months),
they came to the conclusion that it wasn't as good as the vendor had advertised (sound familiar?).
Therefore, they quickly moved on to something else. This "cycle" continued until they all became
frustrated or lost interest.

In the meantime, I observed their trading patterns and tried to learn from their mistakes. I also continued to
do a tremendous amount of research and "test" various trading methods and ideas. I spent a great deal of
time reading books about the laws of probability and "gaming theories." One of my favorite books dealt
with the subject of casino gambling. The author book explained how the casinos were making billions of
dollars each year, while only having a 2% to 5% advantage over the players. I was absolutely amazed by
this fact. After reading the book several times, I came to the realization that this was the best way to make
money in the commodity markets on a consistent basis. All I had to do was get the "odds" in my favor by
just a small amount. After that, the rest would be easy!

My goal was to locate various trading patterns that were fairly predictable over a long period of time. To
my surprise, this task wasn't as difficult as I thought it was going to be. Using my historical database, I
made two very important discoveries:

1) During various times of the year, certain commodities will move in a very predictable pattern. Some
people will classify this phenomenon as "seasonal tendencies" while others will say that it's based upon
"natural cycles." Frankly, I don't care what you call it. All I know is that some (not all) commodities exhibit
very predictable price movements throughout certain times of the year.

2) If a commodity closes higher for the day, there is a greater chance that it will go up the next trading day
(versus going down). Vice versa; if a commodity closes lower for the day, there is a greater chance that the
commodity will go down the next trading day (versus going up).

The next logical step was to develop a systematic approach to "exploit" these predictable trading patterns. I
knew that the "odds" would be on my side for each trade that I took. To use casino terminology, I had the
"house advantage."

During the last 6-months of 1991, I developed a system which would generate about 8 to 10 trades per
month. The trades were fairly long-term (3 to 12 weeks) and the stop-loss levels were reasonable ($1,000 to
$3,000).

During the past 36-months, the system has produced fairly consistent results. Don't get me wrong; I do
experience some "painful" drawdowns from time to time. But the system always seems to "bounce back"
very quickly.

In 1993, I began searching for a method which would allow me to capture short-term (1 to 2 days) price
swings in the various markets. Based on my past research, I knew that if the market closed higher (or
lower) for the day, then the "odds" were greater than 50% that the market would go up (or down) the next
day. My goal was to develop a trading plan which would allow me to "exploit" this phenomenon.

My first idea was very simple. I decided to "buy the market long" if it closed higher than the previous
trading day. For example, if the market closed higher on Wednesday, I would simply buy one contract on
Thursday's opening and sell on Thursday's close. On down days, I would do the exact opposite.

Based on my historical testing, this idea did not work very well. Why? Because the markets have a
tendency to "gap open" in the direction of the previous day's closing trend. For instance, let's assume that
the Coffee market has closed at 173.50 on Thursday (up 230 points from Wednesday's close). According to
my rules, I will buy one contract on Friday's opening.

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The Coffee market does indeed "gap open" on Friday morning. It opens at 176.50 (up 300 points from
Thursday's close). Therefore, my order is filled at 176.50. The market closes at 174.00 and I liquidate my
position on the close.

What's the outcome? I actually lost money on the trade ($937.50) even though the market "obeyed the
rules" and closed higher for the day. However (as is usually the case), the Coffee market "gaped open" in
the same direction of the previous day's closing trend (which was up). My "system" lost money because I
did not profit from the "gap opening." I was buying after the "gap opening." By that time, most of the "easy
money" had already been made. I had to find a way to position myself in the market before the "gap
openings" took place.

The logical solution would be to enter the market on the close instead of waiting to enter on the following
day's opening. That idea seemed to work fairly well. It did make money. However, I found a better
solution.

During my research, I discovered that very often the markets would close at (or very near) their extreme
highs or lows for the day. For example, if the Cotton market was having an "up" day (i.e. higher prices), it
would (more often than not) close near its high of the day. Therefore, I wanted to find a way which would
allow me to "get on board" somewhere in the middle of the move. I determined that I could generate greater
profits if I entered the market during the middle of the move, instead of waiting until the close of trading.

I tested a couple of parameters in order to find the best place to enter and exit the market. After a few
weeks of testing, I settled on one parameter which seemed to work quite well on all of the commodities I
tested.

On March 17, I began trading the system on a real-time basis. My intentions were to trade it for a few
months on a "trial basis." My "experiment" lasted from March 17 through July 1. My real-time results
confirmed the results that I had achieved from my historical testing. The system worked great!

During 15 weeks of real-time trading (3/17 - 7/1), the system generated a net profit of $19,673.73. I traded
8 commodities (1 contract per signal). Of the 8 commodities, 6 were profitable. The drawdowns were
negligible.

During the remainder of Summer and throughout Fall, I was very busy helping my father on the dairy-farm.
Therefore, I simply did not have time to trade the system on a real-time basis.

However, I did follow the system on "paper" to the best of my ability. It continued to generate substantial
profits, especially during the months of October and November, 1994. This type of system works, because
it "exploits" the short-term price swings that occur in the various markets on a regular basis. It doesn't
capture the entire move. Instead, it simply takes a "chunk" out of the middle and gets out with a nice profit.

All markets have a tendency to move in the same direction for a day or two before reversing course. This
system simply gets in during the middle of the move, and usually takes profits the following morning when
the market gaps open in the direction of the previous day's closing trend. The "secret" to this system is
being on the right side of the "gap opening." That's where the money is.

I'm thoroughly convinced that the best way to make money in the commodity markets on a consistent basis,
is to use a system that will "tilt the odds" in your favor on a daily basis. It doesn't take much of an
advantage to "beat the markets" on a regular basis. Remember the casinos; they enjoy an advantage of only
2% to 5% over the players and they're making billions of dollars on an annual basis. In my opinion, it
works the same way in the commodity markets. I have my account statements to prove it!

I'm always searching for new trading patterns that will give me an advantage over the markets. There are
many profitable patterns that do exist. For instance, I discovered a pattern last year that worked perfectly on
every trade I took in 1994. In other words, every trade made money (based on real-time trading). I tested

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the "system" back to 1992. During the past 3-years it has lost money on only 3 trades. The worst drawdown
was $292.

The trading methodologies used are not perfect. I "suffer" through drawdowns just like everyone else.
However, my "systems" have made money over the long-term. Hopefully, that will continue.

My systems are not for everyone. I tried to start a daily fax service in 1994. However, it didn't work
because my systems went through a drawdown during the first 2-months of 1994. Consequently, all of my
subscribers quit using the fax service during the drawdown. For the remainder of the year, I made a great
deal of money. Unfortunately, I was the only one who participated in the profits.

In my opinion, most traders (including myself) simply do not have the discipline to follow another trader's
system for any length of time; especially if the system is in the middle of a "painful" drawdown. That's why
it is vitally important to find a system that you're comfortable with.

I would like to publish real-time results in CTCN on a monthly basis, to prove to traders it's possible to
make money in the commodity markets on a consistent basis using simple trading techniques.

Editor's Note: I have contacted Dave Reiter and asked if he would like me to test his systems and
methodology on behalf of all my members. If he is willing to do that, I will report to all members on his
systems. Presuming they do in fact perform well, I am sure many members would then want to learn how
they could actually trade his systems or perhaps form some type of "joint partnership" with Mr. Reiter.

How I Successfully Day Trade the S&P500 - Anonymous Trader

In trading, I would recommend trading with the trend. I know it sounds cliché, but I have found it is the
most rewarding (I found this out - like everything else - the hard way).

Selling tops and buying bottoms is like being a salmon. You are always swimming upstream against the
trend. You may get a good trade now and then, but a market will wear you out in the process. I have always
found these trades looked great going back on a chart. In trading real-time from the hard right side of the
chart without the benefit of hindsight make these trades difficult to not only see, but see through to the
profitable end.

So trade the trend. Enter on pullbacks, use reversal bars that make pivot lows/highs and close back in the
direction of trend. Move stops quickly. Take reasonable profits from the markets trading that day. If market
is slow and in a trading range mode, go for less. How do you know what to go for? Your experience will
tell you. There are no hard and fast rules, sometimes I get out way too soon. Sometimes I stay in too long,
but in general I do OK and get my share.

I hate to say it, but good trading is not 100% mechanical. I wish sometimes it was, but that's what your
there for. I find that good trading will be 80% mechanical or/so and 20% will give you the flexibility. To
use your experience and feel for the market to enhance your method and make it comfortable. I'm not
saying you can't be 100%mechanical. I believe your most profitable trading will be a system that allows
you some input on entries and exits.

I use a 3 and 5-minute chart, side by side and take the first signal. I get in the direction I want to trade.
Sometimes a 3 will get me in and a 5 won't give me the reversal bar, and vice versa. This way I don't have
many moves pass me by. One of these usually will get me in.

I have been told that many people have called Dave Green wanting to share my system. So I will, but I told
Dave it's ridiculous. I know these people are thinking, If I can find out what and how this guy is trading, I'll
use it and I will start making money. I'll be rich. All I need is a good system. It sounds like this guy has
something really hot! If he will just divulge it.

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Well, if you really look at what I'm doing, it's waiting for a trend to begin and getting in on pullbacks that
usually come into a 38 - 50 - 62% retracement of the last swing and reverse out of there back in the
direction of the trend. Very simple. This was probably being done before 1900 - you can do this. So why
are most people losing money daily - read on. (By the way, this simple method is the best way I've ever
seen to trade. I just put my own little wrinkle in it with common sense money-management). I'm not doing
anything new or secret.

My method is very simple and easy to trade. I hope this gives readers some ideas. However, I want to make
some caveats and warnings for all the wanna-be-traders who want to trade for a living and/or think they
can. I'm no market wizard. I still trade mostly one and two lots and I don't live in a $500,000 home or drive
a rolls royce. My trading has become very consistent and profitable and continues to get a little better every
month. My method is my tool. It's an excellent tool and works extremely well when I use it the way it
should be.

If more money is lost than normal, if stupid or random trades are taken, it's not my system or method that
has failed, it's me, myself, and I. (Yes I take stupid trades now and then) I'm human. I just try to keep them
at a minimum and allow for them. My first 8-years of trading results would probably make you throw-up.
Lord knows my wife did!

The point I'm trying to make is that learning how to trade profitably is very difficult. Once learned, it
becomes simple and fun, like I mentioned in the 12/94 CTCN article.

I feel sorry for the people who write to these newsletters or forums. Most of you are missing the boat (just
like I did my first 8-years). I see you squabbling over data vendors, system vendors, methods, hotlines, new
and old systems. People who made false statements about their product.

You are too concerned with continuous data or the other kind of data (I forgot what it's called).
Optimization, back-testing, % wins, max drawdowns, broker problems, new software programs, books,
articles, seminars. (Oh, I just remembered the other data is called perpetual, I think) etc., etc.

All this is crap. It will not make you money and is a complete waste of time. Believe me, I know. This stuff
is all secondary in nature to success. People need to work on what's inside them. Your psychological
makeup, how you interact with the market and how you deal with fear, greed, anxiety, etc.

It's you against you everyday. Not you against the market. Not you against another trader.

The market is going to do what it's going to do everyday. Whether your in or not. The only thing that
determines if you make money or not, is how you react to market action. Only you can give yourself money
or lose money trading. Not the market, not the system, not the data, not the software package you use, not
the hotline, book or seminar you purchased. Just you!

Do you would-be or aspiring traders finally get it! Most of you are looking in all the wrong places as the
song goes. A perfect example, is in last month's CTCN article, page 2 by Robert Edwards. He wants to
improve his trading and I'm sure he is trying very hard. But as I read his article, Robert has missed the boat
and will never truly succeed until he works on his psychological flaws. For example, he continues to let
fear and greed ruin his trading. He's afraid to let a profit run, for fear of giving back a small profit (greed).

These are serious problems and deep rotted in his psyche. However, he's not seriously dealing with it. How
do I know? Robert made the statement "I may lose next year. If I do, it must be, it will be, because a better
team beat me. It will not be because I beat myself." Now Robert, what kind of stupid statement is that.
Editor's Note: Anonymous Trader's methodology is depicted on the chart below: Chart in Print Copy

It shows you take no responsibility for your losing, some other team or guys beat you! Robert, if you lose
next year, it will be because you traded poorly. You didn't react well to market action. Nobody or no
market is out to get you. They don't even know or care that you exist.

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Your assumptions are not quite right on what it will take to turn your trading around. You say you must
change your patterns - get some guts - you believe as you stated "If you trade you will error" and "Trading
is like throwing a knife in the air and catching it in one's hand and getting bloodied pretty good." That's a
real positive view of trading, isn't it! It is no wonder your having trouble. You truly view trading as a very
negative thing. You really do! You must work on changing your views into a positive attitude. Can you be
honest to yourself to do it? You must, if you are to succeed.

I trade 2-5 times a day. If I felt as you do, I'd probably blow my brains out in a week. I look forward to each
new trade. I can't wait for the next signal. I'm confident enough to know I'll make money 6 to 7 out of 10
times. That's the attitude to have - positive with confidence.

I don't mean to pick on you, but your case is typical (I was there once). I hope you will take this in a
constructive way. It will change you. It will take sometime, but you can do it. I'm writing this letter for
therapy to keep my concept in the front of my mind, as well as helping others. I speak from real feelings
and experience.

I started writing a short letter, which has turned into a lengthy dissertation. I hope I have awaken some of
you. It makes me sick to look back at my horrendous years. I went to all the seminars, bought systems,
books, tapes, software. None of them made me money, because I had some real psychological issues to
resolve that only manifested themselves in trading. If you have any personality flaws, trading will bring
them out.

Do you really want to trade for a living and enjoy the kind of lifestyle it affords? One of freedom and
money. Then you better be prepared to deal with your dark side and confront your psychological
weaknesses and be honest with yourself (painfully so) be willing to change. It is not easy - but can be done.
I have come far enough to turn my trading around - but I work on it everyday.

Do you have problems with placing stops and taking a loss? Do you get mad at the broker or the market
when you lose. The market doesn't do what you thought it would do. Do you get mad at that stupid system
you bought? The system went into its largest drawdown the day you started trading it.

The list of questions goes on and on and yes I've done all this and more.

Resolve to turn your quest for trading excellence and profits inward - yourself. Learn to expose all your
weaknesses and then work on them. Be very honest with yourself and humble. Get rid of your ego. You
want to be right on a trade attitude. Risk 2% or less of your equity on any one trade.

Do this and you'll make money with any system. You will be in control, not the markets or the Holy Grail
Gizmo's associated with it. I wish everyone the best and hope you don't have to go through what I did to
succeed. Cheer up, because it can be done and it's worth the price when you have success.

P.S. - I've said my piece - got it off my back and hopefully helped some. I'm not one for much interaction
and have made myself somewhat of a hermit with trading (It helps to not talk with traders) to be successful.
Too much B.S. gets in the way. So I will leave you all to ponder my thoughts. I don't care if people don't
believe I'm right, because I know I am. I speak with experience, conviction and compassion for those on
this journey. I will not be writing again and will now disappear into trading obscurity to enjoy trading for a
living!

Opinion on Anonymous Trader, DayTrading, Commodex & Others - George Bashar

After bouncing around last month's issue (12/94), I would like to submit the following observations:

First, three cheers for Anonymous Trader. It is about time a successful day trader countered the critics of
day trading. As he points out, it's absurd to criticize day trading simply because one has to pay a
commission every day. If one holds a trade for two weeks, pays the commission and exits with a profit, is

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he better off than a day trader who does ten trades in the same two-week period, pays ten commissions and
has a higher net profit? This would seem to be analogous to saying he would rather make $100,000 per year
instead of $200,000, because he would have to pay more taxes on $200,000.

No matter how intensively you analyze it, the bottom line is net profit. Granted, it may be more difficult for
a neophyte trader to make a profit day trading. A neophyte trader may switch to day trading for all the
wrong reasons. He's correct when he says it is just as easy, if not easier to make a profit day trading,
provided you know what you are doing.

There are many successful day traders who just go about their business making money year after year by
day trading, and not trying to sell systems or run seminars. I would imagine that successful traders like
Kent Calhoun and Larry Williams could make a good living by day trading, rather than medium and long-
term position trading as they do now. A trade is a trade, a good trader is a good trader!

I do have a slight disagreement with Anonymous Trader about what markets can be successfully day
traded. While he may have a system that works well with the S&P 500, TBonds and the currency markets
can also be profitably day traded. One simply has to have a good system or be comfortable reading the
daily pulse of each market to be successful.

Anonymous Trader seems to make a good living day trading the S&P 500. If one compares the range of the
S&P to the margin requirement, both are much larger than the range and margin requirements of TBonds or
currencies. Simply put, if a trader can successfully trade both the S&P and TBond markets, he would be
better off with the TBond market, unless he could make five times more net profit on the S&P, based on the
respective margin requirements.

I 'm not criticizing Anonymous Trader, but simply trying to make members realize that they can profitably
day trade the TBond and currency markets provided they have a sound system. But, I do highly commend
Anonymous Trader for his insightful submission, and hope, as Dave stated, that he would share his secrets
with CTCN members, if feasible.

With respect to Lee Taylor's comments on Commodex, I fully agree with him. About 2-years ago, I took
out a short trial subscription to Commodex's advisory and hotline. Phil Gotthelf and his father have been in
business for a long time and seem very knowledgeable about trading commodities. The problem I had with
their performance figures was their hotline would put out a buy or sell signal after the markets closed on
Thursdays, I believe.

To follow their recommendations, a subscriber would have to buy or sell on the next day's open, which
would not necessarily be the same fill as the Commodex fill the previous day. I felt that this was somewhat
misleading, and could greatly influence and change the performance results that Commodex advertised.
Besides this problem, I felt they provided some very good market forecasts.

To Max Robinson, how good to hear someone else admit that he is constantly looking for the Holy Grail.
This would seem to be the problem for most of us. If we are consistently making $100,000 per year trading
commodities, we will be tempted by the system seller who claims that he can make $101,000 per year.
Kudos for your honesty, Max

To Kent Calhoun, about your disagreement with John Hill, none of us can be certain of what the facts are;
only you and John Hill know. But I would commend you for taking the high road and not taking the
opportunity to attack John. Hopefully your letter last month can put the matter to rest.

Always Use Stops - Brian Long

When I share my trading experiences and knowledge, not only do I feel good about helping others, but (and
very selfishly) trade better, because it causes me to practice what I preach. So lets get to it. For those of you
who have trouble taking a loss, let me give you something to think about.

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I have traded professionally (stocks & commodities) for over 10-years. I have seen many good traders blow
their financial brains out, because once they refused to take a loss. They would say they couldn't believe
how unlucky they were, which was true on that individual trade. What they failed to realize was, even
though there was a small chance of this occurring on that trade, by trading long enough this small chance
becomes a certainty.

So how do we protect ourselves. I use the analogy of Russian Roulette as this tends to have more of a
lasting impact. Picture yourself holding a Magnum 45 with one bullet in the chamber pointed directly at
your head. Now start pulling the trigger (trading). Eventually, if you play long enough with no protection,
your going to blow your financial brains out. Were you unlucky? Yes, on that one pull of the trigger (trade)
you were, but statistically because you have played so long this was to be expected.

So, how do we avoid blowing our financial brains out? USE STOPS. Next time you trade without a stop
loss in the market, picture yourself pulling that trigger with the gun at your head. Remember, you and you
alone are responsible for controlling your losses. Do it and you have a chance for success. Don't do it
and....well they're happy to pick up some of your financial brains.

Major Problems With Tick Data Co & Glad I Am Now With CSI - Randy Stuckey

There seems to be a proliferation of new price data vendors the last few years. How good are the various
sources? Here's one person's experience.

I originally subscribed to Genesis end-of-day price service. They seemed OK with a couple of odd
exceptions. Several times they just stopped sending several commodities in my nightly download. A phone
call always got the commodities re-instituted to my portfolio. Irritating, but not catastrophic.

Then came disaster. I concluded I needed tick- by-tick data. Well Tick Data Inc was having this super,
colossal, astounding sale of tick data. I took the bait. The next year was a myriad of phone calls and letters.
The data sent was so defective, their own software refused to correctly process the data. 41 phone calls,
several letters and the threat of a horse's head on their bed failed miserably. They make Scrooge look like a
rank amateur. These guys were tough-not a penny would they refund.

The good news is they did send "corrected" data. The bad news unfortunately, it too was defective.

The following is really hard to believe, but it did happen on one of my phone calls complaining about the
"corrected" data being defective. A Tickdata employee explained that I was being unfair--"There were just
too many errors in the data for us to fix all of them."

Well they won the battle--hopefully they'll lose the war or change for the better. To help the rest of you,
they sent me defective data on Euro $, Coffee, Gold, Soybeans, T Notes, T Bonds and Silver. The only
good to come from this experience, was when I regained a lot of hard drive space, as I erased the Tickdata
directories and files. I currently download end-of-day data from CSI. No problems. How refreshing.

Fibonacci/Gann/Numerology Value? - A Past(a) Life Experience - Randy Stuckey

During the last two years, I've been conducting research into many of the common technical analysis
methodologies as part of a larger system development project. One part of technical analysis that often
comes up, is the use of "astounding" numbers and number series. My internal "Radar" turns on every time I
hear clichés like "amazing", "astounding", "uncanny" "greatest discovery ever made" and so on.

My numerology study first looked into the construction of Gann Lines, but soon gave up. "They're
everywhere! " Is there anything that isn't a Gann Line? But Fibonacci. Now there's a real number series.

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The sound just rolls off of your tongue. As you know, this number series is formed by summing the last 2
numbers in the series to get the next number in the sequence, numbers like 1, 2, 3, 5, 8, 13, 21, etc.

As these numbers increase in size an "amazing" thing happens. The ratio obtained by dividing a preceding
number by a succeeding number in the sequence approaches .618 (it's actually .618034 but who's counting).
More importantly, there are "astounding" examples of this .618 ratio in nature-and many would say in also
predicting stock and commodity prices. The magical ratio even has its own name, "the Golden Mean."
Further more, the .618 "Golden Mean" is peculiar ONLY to this specific time series. WOW!

Much to my dismay, when I tried numerous objective tests of this magical number series and its "Golden
Mean," it just wouldn't do any meaningful projecting. Why was it being so stubborn? Was it me? What if it
didn't like me?

There was only one way out, I had to try. Maybe I could develop my own astounding number series-one
that would behave like good little number series should. My computer whizzed. I sweated and toiled. My
teeth gnashed, and finally -Eureka! I invented the amazing Spaghetti number series. This is similar to the
Fibonacci series but "astoundingly" takes it to the next natural level. The Spaghetti series is formed by
summing the last 3 numbers together. Well no wonder Fibonacci didn't work. He wasn't using the
"uncanny" powers of the number 3. This gives a number series 1, 2, 3, 6, 11, 20, 37, 68, 125, 230, 423 and
so on.

Naturally(?), I immediately tested it on my December Coffee contract data. Clearly Coffee was muddling
along in the 80's until 4/26 ("amazingly" close to 423-a Spaghetti number). Then it started to take off.
Exactly 20 days later, it formed a clear cut price peak around 125. Whoa! 20 is a Spaghetti number. Whoa!
So is 125!. I don't think I can take any more, but get ready to be further "amazed." 37 (Oh dear, yet another
Spaghetti Number) days later it hits its all-time peak at -you guessed it, around 230 (I just don't believe it,
another Spaghetti number!).

But wait a minute. Let's not forget the Fibonacci Golden Mean ratio. I wonder? The Spaghetti series also
has a magical ratio. As the numbers become larger, just like the Golden Mean, dividing a preceding number
by a succeeding number -amazingly always gives you the same ratio-.544 (actually .543689 but who's
counting). In the future, this astounding ratio will come to be known as the Primavera ratio. This, of course,
gives us Spaghetti Primavera. And it is unique. No other number series in the universe gives you Spaghetti
Primavera.

Seriously, I have yet to see any objective evidence of a special number or number series with predictive
powers. On the other hand, it is easy to subjectively make a case for almost anything, as I just intentionally
did in a silly way with the above nonsense. I don't mean to offend the Gann and Fibonacci followers, but
we should all seek a different perspective from time to time. Just remember that one can always find tons of
co-incidental relationships for any number. Not amazing, uncanny, or astounding, just coincidental.

Lessons Learned in 10-Yrs of Trading - Bjorn Rump from Switzerland

I received my first CTCN, and as you encourage contributions, here is mine.

With the availability of small computers, I started to realize a dormant project to systematically analyze
markets. Fortunately in 1985, I didn't realize how long it would take to do something productive.

With an APPLE II, I naively bought the Kroll-Wilder System and CompuTrac and thought to become rich
fast. After some serious paper trading, two friends and I opened an account at Cargill and started trading
rigorously with all the discipline possible with the Kroll-Wilder System. They publicity advertised a
maximum drawdown of 5%. Well after some 32% drawdown, we stopped trading it. The commission at
that time was $74.

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Easy, do-it-yourself, I thought and started to optimize systems with CompuTrac. After a while, I found
highly profitable formulas, but at the same time the "curve fitting syndrome" started to haunt me. Why? I
was able to duplicate one of the formulas given at a CompuTrac seminar, and found that what was
profitable in the past was not so in the future.

As the PARAGON system allowed to test it without being in the market, our group bought it and tested it,
luckily on paper. It was another sobering experience. The best of it was the HP-41CV calculator which
served me for many years to come to convert price quotations. In addition, I realized the value of computer
simulation.

Back to CompuTrac. Studies (self-written strategies) were the next fad. The limited memory of the APPLE
36 Kbytes did not allow fancy exercises and Basic Code was hard to edit and debug and had to be
interpreted. To find out more on the reliability of trading models, I let the existing "optimized" models run
to do some paper trading, a tedious and slow way of "forward-testing".

Few people living in America realize the comfort of the European 6-hour time shift. At 8 am, you can
download the data, CSI Perpetuals in my case, let your routine run (45 min) while you eat breakfast to have
the trading instructions printed out well before the market opens at 2 pm local time. Well that means, when
you got your data and when your system is all right.

I didn't know much about risk or money management. I traded, but not good nor bad, it was not yet right.
The PC changed several things: CompuTrac completely changed format, and the trading and charting
software available at that time did not allow me to do what I intended. At the same time, I came across
George Appel's MACD system. I modified it so that it produced fabulous results on simulation. I traded it
and made about 100% profit annually during two consecutive years, just to give back the profits the
following 2-years. It was sobering. I had learned to program a quite complex trading and accounting
system, including graphics in Power Basic, but the nagging feeling that I was chasing the rainbow did not
disappear.

In 1992, I attended a seminar in New Orleans on psychology, discipline and risk management that
answered many of my questions. I included rigorous risk management according to the formula of Tom
Basso in my program. Still haunted by the "optimizing syndrome", I made a quantum leap. I programmed
the system so that it would self optimize, and then trade forward according to the latest parameters. The
method could be called "forward testing" as the simulation tells you how well the system performs in the
"future."

The result was a revelation, an answer to my optimization worries: The worries were completely justified
for the strategy I used, optimization was worthless! The old system was thrown out, but not without regrets.
Based on that long experience, I found a strategy that does well. I can not yet quantify it, but it stands up in
actual trading.

Well where do I stand now? I know that trading systems are doomed to fail as soon as they are published,
even in very large markets there are enough piranha around to sink it. Examples, the Kroll-Wilder,
PARAGON, Great Combo, and the PPS. Publishing or selling a good system is like telling people how to
make gold, either it doesn't work, or if it works, gold soon looses its value. This may explain that a
publication like Stocks and Commodities Magazine almost never gives real-time results of the methods
presented in its articles.

However, I learned that meaningful (that is statistically relevant) "forward-testing" by simulation is able to
evaluate the merit of a trading strategy. Perhaps the most important lesson is to realize, that if countless
claims the industry advertises would be true, we would all make mountains of money.

For me a publication like CTCN is of great interest, as it warns of piranhas, teaches testing and outlines
principles. However, I would be extremely suspicious of any system explained specifically in detail; after
too many traders know how to make gold, gold looses its value.

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On another subject, referring to Fred Montgomery's remarks, CTCN Oct 94, p.7. Testing the Great Combo
with perpetual CSI data yields consistently less profit then using actual data.

Questions for Anonymous Trader - Don McCullough

Got to thinking about questions I'd like to ask the Anonymous Trader, (successful S&P day trader). Here's
the list, and wonder if it's possible to get answers to these questions?

1. Did you have help from a pro?

2. Did you trade with daily bar charts at first?

3. Do you use Signal Data for your day trading?

4. How long did it take you to find out how to trade?

5. What were your biggest mistakes before becoming successful?

6. Do you enter your position a little at a time or all at once?

7. Why do you think you succeed when most people don't?

8. Do you use breakouts, or dips and bulges to enter, or both?

9. Do you trade the near, second or third contract of a particular market?

10. What got you interested in the futures markets?

11. Do you know of day traders who are better than you, and if so, have you figured out why?

12. Do you move your stop loss up quickly after taking a position?

13. Wouldn't you agree that being able to consistently act on your market knowledge is even more
important than the knowledge itself? Is this the last hurdle to market success?

This guy (and I'm sure most other members would agree) is the most interesting of all. How can you take
advantage of that and yet not take advantage of him? Larry Williams has tremendous knowledge of the
markets and has made millions. But, he has lost millions too. Anonymous Trader appears to be much more,
if not totally, consistent with his winnings. As you know, that is the goal!

Re: Max Robinson's 12/94 Article & My 30+ yrs Trading Experience & Trouble With IRS - Eugene
Sherman

The letter from Max Robinson in the 12/94 issue could have been written by me. I've also been trading for
30+years and agree with virtually everything he said. In the 60's and 70's, I was a pretty steady loser.
Having a good income, I chalked it up to recreational expenses and apprenticeship experience.

By the mid-70's, I was convinced that precious metals were going to explode in price and was a buyer of
futures and options for years, all of which expired worthless. By the time gold exploded in 80-81, I was
tapped out and missed it completely. Since then, I have traded in a more subdued mode, making a few
thousand some years and losing a few thousands other years.

In 1985, I had an exceptionally good year, clearing well over $50,000. I showed it on my tax return, but
offset it by a $100,000 loss carryover from my early follies. The IRS called for an audit. I only had tax

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records and brokerage statements going back to 1978. It was my misconception that tax records needed to
be kept for 5-years. I was told that capital gains/losses had to be kept forever.

For 6-months, I was in close personal contact with my own special agent. In many interviews, I was grilled
about secret overseas bank accounts, hidden assets, etc. There was a steady stream of correspondence, as
they demanded more and more information and documentation. I could only explain why I was unable to
supply most of it in my replies. I had used the same broker in all those early years. I was told that if he
could be produced to corroborate my claims, it would be most helpful. I spent over a month tracking him
down and finally found a telephone listing in Greenwich, CT, only to be told by his widow he had died the
previous year.

Ultimately, the IRS allowed the deduction and I owed them nothing. I knew they were investigating me
thoroughly all that times. I now save all my records, no matter how many boxes fill up the attic.

I also have a 20-year collection of trading systems. There must be 60 or 70 of them. Some of them have
merit. If I had the patience and perseverance to stick with them a while, some could have proved quite
profitable. I still get a rush of adrenalin when I pull out an old system that I had forgotten and reexamine it.
I must explore the legality of lending or renting my collection to computer buffs for optimization.

I surrendered to computer trading about 2-years ago. I bought TradeStation and a bunch of software, but
like Mr. Robinson have found Swing Highs-Swing Lows to be the most profitable. I have a very simply
swing system that averages over $1,000 a day in my back-testing of the S&P500. I would like to refine it to
reduce the slippage more before I trade it.

I would welcome any comments on my rambling and can be reached evenings at 1-518-674-5491.

They Can Do The Talk, But They Sure Can't Do The Walk - Gary Smith

Nearly every trader that I've spoken to over the years has expressed a burning desire lo quit their day job
and become a full-time S&P day trader. They have been spurred on by a greedy and manipulative
vendoring establishment, whereby means of hindsight and retrospection, successful day trading is presented
as being an easily attainablegoal. Several prominent vendors offer mega priced seminars, one-on-one
trading tutorials, or software systems and trading manuals to aid a naive public in their quest for financial
independence as S&P day traders. Yet, other than one CME floor trader turned vendor, absolutely none of
these dream merchants has ever been able to back-up their outrageous hypothetical rhetoric by providing
multi-year real money brokerage statements.

Instead, what you will get are 1001 lame excuses on why they are unable to produce real money, real-time
documentation. What you will receive are numerous glowing endorsements from satisfied purchasers of the
vendor's products.

These testimonials usually are totally bogus. They are either close personal friends of the promoter, or
former customers who have been offered discounts on future offerings. Again, as with the vendor himself,
these references will talk a good talk, but furnish nothing as verification to support their babble. (Editor's
Note: That is Gary's opinion. Over the past several years, I have personally spoken to a large number of
testimonial authors...and never spoke to anyone who I thought had been bribed, offered discounts, or
personal friends, etc). The only way to eliminate the crooks, con-men, and charlatans that infest this
business is by demanding that they either put up or shut-up.

I fully anticipate that some of the targets of my wrath will appeal in future issues of CTCN with very
persuasive arguments on why they won't show their statements. I've heard their whining and complaining
many times before. Comments like their attorney advises against it, or that real-time statements can either
be altered or may not reflect other active trading accounts at the same firm. What these vendors really are
doing is camouflaging the fact that they either don't trade or can't trade.

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Don't misunderstand my point here. I am only suggesting that real-time statements should be presented to
ascertain the credentials of the vendor. It's foolish for anyone to believe that they will be able to emulate the
results of another winning trader. Successful trading involves much more than blindly following a system
or methodology of someone else. Instead, it consists of independently developing your own disciplined
trading approach by means of integrating your knowledge of various trading techniques into your years of
real-time trading experiences.

In other words, learn what works for you and how you are comfortable trading. Unfortunately, the average
trader seems unwilling to devote the time and effort necessary to become successful. For this reason, they
fall prey to the seduction of some fraudulent vendors promising success on a disk.

Trend Intensity Indicators - Adam White

I agree with Giampaolo Bulleri's summary of how to interpret ADX. (CTCN November 1994.) I would like
to contribute a few of my own thoughts on the general topic of trend intensity indicators.

First, I like to think of trend intensity indicators not as measuring trends but as measuring trading ranges.
The reason is since all indicators lag, by the time the indicator starts to rise the trend is well on its

way. On the diagram below, section AB of price is both the end of the trading range and the start of the
trend AC. But we don't know that until B extends towards C. Note that ADX will not rise until B, even
though an ideal "crystal ball" ADX would start to rise back at A. So from the standpoint of nomenclature, I
think it's more accurate to say that the upturn in ADX shows the end of the trading range rather than the
start of the trend. Chart in Print Copy

Secondly, it is somewhat difficult to objectively define a "climbing ADX" (or for that matter falling or flat
ADX). Our eyeballs can do it easily enough, but how do we define it logically? Is a climbing ADX when
the last reading is greater than the previous reading, or greater than the reading X bars ago? I have run tests
that suggest comparing the latest ADX reading to the reading four bars ago is better than comparing it to
the previous reading. Or, might an ADX breakout be the proper definition of a climbing ADX? Clearly, if
the present reading is the highest reading of the last N bars, ADX can be considered climbing. Again, tests
can be run to suggest situations where this interpretation is either better or worse than other interpretations.

Another observation follows from the fact that DX is essentially an unsmoothed ADX. This can be
important because ADX represents quite a lag from price action itself. Using the quicker DX might
eliminate some lag, but at the price of greater volatility and the uncertainty that it brings. This second chart
illustrates the natural "jaggedness" of a raw DX.

Here is one way that I've used DX that tries to address the difficulty of defining its direction of movement.
The last chart shows an oscillator that represents the difference between a 16-bar DX and its value 8 bars
ago. (I favor basing the "look-back" on half the DX's period. A 20-bar DX would use a 10-bar look-back,
and so on.) This calculation generates an indicator that oscillates between extreme levels and above and
below a zero line. I have set the extreme levels on this chart to plus and minus 20.

Two ways to read this trendiness oscillator. When it is above zero, we can assume the market is generally
trending, and when it is below zero we can assume the market is generally in a trading range or congestion.
And because the reading is relative to zero, some jaggedness and volatility become irrelevant. Secondly,
extreme high readings often correlate to the termination points of strong trends, and extreme low readings
sometimes pinpoint areas where trends begin.

Tidbits on Financial Astrology -Carol Murphy

On 2-20-95, we have an important signature (Saturn 45° to Uranus). This same signature occurred on 5-16
and 9-23-94. Check your daily charts for the past dates and let's see if the same cycle repeats.

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For the past 6-years, I have ordered Ray Merrimau's Forecasts for the Year. He covers cycles and
signatures related to the economy, interest rates, the Dow, silver, gold, grains and weather. Cost is about
$22...well worth it. Seek It Public'n (Forecast 1995), PO Box 250012, West Bloomfield, MI 48325. 810-
6263034, fax 810-6265674.

CSI Data Rollovers to Keep Continuous How to Keep Both Historical & 18-mo CSI Data Files
Current - Tom Dyste

Using Quicktrieve Manager's data file copy command, I can copy new contract months that start on CSI
rollover days into both short-term and my long-term historical data directories. I do this first, then use my
new trading system's rollover process on files in each directory. Now, my long-term history includes
current market action at all times. As a SuperCharts user it is good to have continuous historical data right
up to the current day.

Though I consider the close-open rollover method inferior to close-close adjustment, this ease of keeping
continuous historical data completely up-to-date is a boon. Perhaps others would like to do the same thing.
Since this is not directly related to your system and could be of use to others, pass this idea along. If anyone
has tips on doing similar things using the Quicktrieve 4.06 rollover tools, or even successful experience
using QT to do rollovers, I'd like to hear.

Recommended Reading, New High-Tech Product, & Delta Neutral

Trading - Tom Boyett

In my ongoing search for trading knowledge, I have read two books that I would highly recommend. Their
relevance to any trader is without dispute. Jack D. Schwager's Market Wizards and The New Market
Wizards (published in 1989 and 1992, respectively) touch upon a variety of trading subjects in his
conversations with some of the best traders of our time.

Futures, currencies, stocks, floor traders, trading psychology, program trading, neuron-linguistic
Programming, the Turtles, fund managers, fundamentalists, quants - it's all there and much more. Most
significant to me have been the consistent tenants of what makes a successful trader as seen by those who
have been the most successful of all in the endeavor of trading. I have a new appreciation for the role that a
trader's psyche plays in his overall success to trading the markets.

The books are available in soft cover. I think the books are highly entertaining and extremely educational
for the average retail trader (and probably most professionals too).

I have also come across an interesting new product from USEMCO Technologies, the Mobile Trader. It is
basically a computer hardware/software solution. Mobile Trader's software utilizes a wireless modem with
your personal computer to get real-time quotes, execute and confirm orders, receive market commentaries,
and send faxes and E-mail. The system links the PC to a mobile wireless communications network with
over 7,500 locations covered in the US. Pricing for limited, but real-time quotes starts at $295 per month.
For additional information, call USEMCO at (212) 432-7000.

Finally, I would like to solicit feedback from those of you who have experience trading delta neutral - the
combination of futures and options to form a risk neutral position. I can be reached at (713) 496-9400
during the business day or (713) 395-4408 after that.

Opinion on John Jeffries Precision Day Trading Method - Harold Fowler

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My compliments on an excellent forum for the honest exchange of ideas and information. Keep up the
good work! This letter is in response to your subscribers who desired feedback on the Precision Day
Trading Method.

I purchased the Precision Day Trading Method in 6/93. Prior to the purchase of the system, I discussed my
personal needs at length, regarding a day trading system with the designer, John Jeffries. The most stringent
requirement being due to my inability to follow the market all day due to my job. I was assured that only
two to three phone calls per day to my broker would typically be required. Right from the outset of trading,
the system failed to make money. It was also apparent, that in some cases, as many as eight phone calls
were necessary in a day to move up (or down) a trailing stop.

After three months of using the system and losses well in excess of the cost of the program, I returned it to
Mr. Jeffries for a refund. I also included my brokerage statements and a trade-by-trade listing of all my
closed out trades. He never bothered to open my package, but instead had his programmer send me an
official track record based on exchange tick data. Close examination of the official trade-by-trade listing
was a real shocker! No deductions were made for slippage/commission. I couldn't believe my eyes!
Notwithstanding this oversight, several signals I received (all losses) were not shown on the official track
record.

Mr. Jeffries returned the program to me and called to discuss the problem. In an attempt to reconcile the
disparity in trading signals, he indicated that I should try loading both combined-session (Gloebex + Day
Session) and Day-Session only data and trade only signals germane to both data sets (give me a break!)

I paper traded the system for another nine months and the losses continued to mount. In the 7/94 issue of
CTCN, a subscriber, M. Kuhn, indicated that he had difficulty receiving a refund from Mr. Jeffries. In the
end, however, he relented and refunded the money. You can well imagine my anger. I immediately called
Mr. Jeffries and you guessed it, he had his programmer send me another official track record covering the
entire period that I had owned the program. Adding my own deductions for slippage/commission, the
markets that proved profitable were the S&P 500 and the NYFE. The profits in these two markets were less
than half of the amount indicated by the official track record.

On a subsequent phone call, Mr. Jeffries informed me that I was the only purchaser of the system that was
dissatisfied with its performance. However, he refused to divulge the names of any of the satisfied
customers nor was he receptive to testing of the system by an independent party (Futures Truth, CTCR,
etc.).

Since his omission of slippage/commission costs in the sales brochure is clearly deceptive advertising, I am
contemplating a lawsuit for mail-fraud to recoup my purchase price. I'm quite sure even the CFTC required
disclaimer would not protect against such a misrepresentation. I feel strongly that fellow subscribers would
be well advised to avoid purchase of this system. If anyone would like to contact me for a copy of the
official track record or to discuss the system, you can write to me c/o CTCN.

W.D. Gann - A Great Trader?- Don McCullough

In the book, "Trading For A Living" Dr. Alexander Elder states that he interviewed Gann's son and found
out the following about this one-time super market guru.

Gann's son told Elder his father could not make a living for the family from his trading and supported them
mainly with money derived from his books and selling instructional courses. When his father died in the
50's, his estate was worth about $100,000. Not a small sum, particularly in those days, but hardly what one
would expect of a man reputed to be one of the greatest commodity traders of all time. So who's your
guru(s)? Do you really know that they really, really know what they're talking about?

Dr. Elder's book, "Trading For A Living" is one of the best. Out of the 120 or so market books I have, this
book ranks in the top 6 and maybe at the top!

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 Accurate Data A Must - Don McCullough

Have you checked your data against other data sources for accuracy? I have, and found some differences.
Not a lot, but some.

Data accuracy has to be one of the major concerns of the serious trader. There is no way to get accurate
tests from inaccurate data! When you find differences, how do you know which data is correct? At this
time, I don't have a good answer to that question.

Thus far, I checked my Dial Data, data against a couple of the popular paper chart vendors. Happily, I can
say there were few differences. However, those few differences do make me wonder how accurate nearly
everyone's data is. To put it in a more vivid way, are we looking at the "same" charts the top market pros
are looking at? It's a sure bet that if the difference is substantial, our bank accounts will never equal theirs.

A Simple Way To Predict Market Turning Points (and impress your friends) - Bob Pelletier
(President of CSI)

This brief report is designed to advise those who may have an interest in systems, methods, or services
which predict market turning points far into the future. If you have been solicited by any firm that does this,
you may gain some important insight into this area by reading on. Whether you plan to purchase such a
service, system or secret is your personal choice. CSI has no preference for one commercially available
procedure over another. We simply wish to point out facts that may be helpful.

If I were to tell you to "Pick any date in the future, for any commodity, and I will show you the next turning
point that will occur relative to that date." You might think I'm crazy, or strongly doubt my claim. The truth
is, that anyone can do this within an accuracy of, say, three days about 70% of the time, or within four days
80 to 90 per cent of the time.

The secret depends upon how one defines "turning points". Suppose we define intermediate market swings
or turning points to occur about 25 times per year, or twice per month. Since there are about 250 trading
days per year, this allows for one turning point per 10 days. With a dart and a calendar into the future, the
dart will hit some seven day time interval (the day hit plus or minus three days) each time it is thrown. If
turning points occur, on the average, once every 10 days, then there is a 70% chance my dart will include a
turning point within three days.

Additionally, if I knew that last week there was a definite low, my next turning point will be a peak. I'm not
interested in 1997; I may not live that long. I can only make money if I can bet on the next immediate
turning point for various cycle lengths.

There is not enough room in this Newsletter to show how market turning points can be predicted with more
reliability, but it is possible to provide an unbiased estimate of the next peak and the next trough for each
given predominate cycle period. Using a method which treats peaks independent of troughs can produce a
non-regular period between peaks and troughs (a more realistic behavior) for future market cycles.

Before spending your hard-earned funds on any system, be careful to discover what you can do under
purely chance conditions without it.

Reply to Wade Geary - J. R. Stevenson

When you retire, your risk adversely goes way up as you must protect your retirement funds - unless you
are a very strong disciplined person, I doubt that you can make a needed supplemental income on a $25,000
account.

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 A good day trading system for S&P or Bonds might take some of the over-night risk out of your mind, but I
assure you, your approach will be different when you retire. I have been retired several years (I'm 72) still
trade, but I don't have to! It makes a difference. If you wish to talk, call me at 901-751-0605.

Member Requests

George Bashar, 1-407-624-5057 seeks information on Bruce Gould's Money Machine, Mike Chalek's
Squeeze and Steve Cox's Natural Order. Also, Jim Muhlstein wants info on Money Machine.

Russ Norwood would like to speak with anyone who has had experience with the "Vibra System" Trading
Program from Burnett Nordine at B & B Educators in Early, IA. You can call evenings collect at 314-436-
2187.

Editor Comments

As you may recall, if you have been a CTCN Member for a while, our number of pages has been growing
considerably. We printed 8-pages from 1983 thru May 1994. We then expanded to 10-pages and last
month's CTCN was 12-pages. This month it's a full 14-pages, to make room for all the educational articles I
want you to read.

Our printing, postage and miscellaneous costs have increased rapidly due to the larger editions. In fact, the
cost of a 14-page issue is almost 100% greater than our earlier size, without even counting the recent
postal increase. In addition, Commodity Traders Club average revenue per new member has decreased over
the same time span, due to our reduced cost special offers. However, I do not mind the increased expenses,
as you getting this money-making and money-saving unique information is far more important than
CTCN's expenses.

The articles from Anonymous Trader and Dave Reiter are excellent and of great benefit to Members and
should be read carefully. However, though extremely valuable, some of you may be somewhat
disappointed by Anonymous Trader's latest contribution. That's because I have received calls and mail from
a number of members who had hoped Anonymous Trader would reveal a money-making 100% mechanical
approach. Unfortunately, Anonymous Trader could not do that, as his approach is NOT 100% mechanical.
In other words, there seems to be some 'art to the science', and other important factors involved in his
success. Thanks to everyone who shared their knowledge by contributing to this issue. All members are
urged to make contributions to our next issue. That way we can all benefit.

Issue 22.

Anonymous Trader Makes Lots of Money Trading & Why Others Don't or Can't Do It

This is in response to the letters written concerning requests for personal instruction and education on day-
trading. I'm sorry to say I cannot fulfill these requests. I am very busy trading during the day and cannot be
interrupted while trading and spending time with my family in the evening. Plus I do not have the
temperament to be an educator. I'm also not a system vendor, guru or newsletter writer.

If it makes anyone feel better, I have tried to teach two good friends to do exactly what I do and they have
learned well. They can recognize all my trades every day. However, they still lose money. Why? They don't
take the signals. They watch 5 or 6 winners in a row go by, then take a loser and quit again; or they get in a
winner and as soon as they see a little profit, they get out; or sometimes will not use a stop and a small loss
turns out to be a big loss. Yet they have the same information available as I do. Why can I make $1,200
today and my friends lose $350 trading the same methodology? It's in their psychological makeup. They
need to work on it. They will eventually pick it up, if they stay with it long enough. I cannot get inside their
heads and that is frustrating for a teacher. You have to learn this by constant experience.

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I can tell you what I did that helped me psychologically. I recommend buying the following books: Mark
Douglas - Disciplined Trader - especially chapters 15 & 16. I read this once a month; Joe Ross - Trading Is
A Business - excellent and thought provoking - questions everyone must answer before trading.

Small "House Advantage" Is Preferred over Wild Claims Werner from Germany

I want to congratulate CTCN newsletter. It is really a great product and thinks every trader, no matter how
experienced, can benefit from it.

There are several reasons for writing this letter. I have been trading Futures since 1983. I started with an
account of about $10,000 and haven't added any fresh money. After some great profits in the late 80's, there
came some great losses. So, I realized the most important purpose is to achieve constant results. I
developed mechanical systems for my own use. I trade strictly with a confidence that arises from trade-to-
trade. Never in this time, have I acted against my plan. So what I want to say is, the only way to achieve
constant results is a mechanical system with some restrictions. You must develop a system of your own.

Referring to the contribution of Bjorn Rump from Switzerland in the 12/94 issue, it is absolutely true, that
gold becomes worthless if everybody can make real gold. If you develop your own system, you know the
weak points. If you have done a serious job, you can rely on it and know in which cases it is absolutely
vital to pay great attention.

According to Dr. Mandelbrot (I hope you know his work) and other "Random Walkers." I think we are
acting in 'efficient-markets', better I should say in nearly efficient markets. That means, as traders, it is our
only chance to find out the few times when the market is not quite efficient.

In other words, there cannot be a great percentage of inefficiency, otherwise the market will quit to exist.
(See Bjorn Rump). If everybody takes the same highway to get to certain destinations, this highway will be
blocked and nobody will get there. I don't know whether you have a similar proverb in America, but in
Germany we say, if you want to get to Rome, there are many ways to do this.

I absolutely agree with Dave Reiter (CTCN 12/94 issue), to get the 'house-advantage'. This advantage is
somewhat from 2 to 5%. In my opinion, if you get a trading system brochure with figures like 82% winners
and say $10,000 in the test period, there is something wrong with this system.

Either it isn't a serious work from the statistical point of view (for instance: sample size), or the system is
optimized, I should say over-optimized. My experience in testing systems, are the fewer filters you choose
and the closer you get to the 50% level (presupposition >50%), the better your chance this system will work
in the future.

Next I have some questions: Inspired by the article of Anonymous Trader (12/94 issue). I was caused to
reflect on my opinion referring to day-trading, because I was a position-trader always.

I took my system to a friend, who has S&P Tick-Data to test the system intraday. The results of testing
nearly four years intraday was astonishing. They were quite similar to my results referring to position-
trading over the last 12-years (historical and real-time trading).

I read the 1-95 issue and got a hit reading the article by Randy Stuckey (Major Problems with Tick-Data)
because the vital point in any testing is how reliable the data is. How has Randy discovered that the data is
defective, because by my information, Tick-Data has no bad name.

My question to you Dave, or Randy: Are there other services that provide tick-data, say 5-minute data of
S&P? If anyone can help me, write in.

Second question: I am interested in the following books, mentioned in several CTCN issues:

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Dr. Elder - Trading for a Living; Jack D. Schwager - Market Wizards and New Market Wizards (soft cover
issues). I am interested in the book Dave Reiter mentioned in his article (12/94 issue) about casino
gambling. Perhaps you can get the title and author and tell me where can I order these books?

Editor's Note: See Pg.13 Editor Reviews for book sources.

Don't Let CTCN Degrade with Negativism & Constant Vendor Bashing & Arguing Like A Similar
Competing Newsletter - Joe Ross

I admire what you are doing in CTCN. You must be very careful not to allow it to become like a very
similar competing newsletter. It is one of the most disgusting rags I have ever had the misfortune to read.
Their membership has a lot of pitiful saps hungry to learn from the phony wolves who write from time to
time. Mostly, these phonies tear each other apart, call each other names, and never allow the readers to
know anything of value. It has become a piece for the benefit of a few "famous" (or should I say
"infamous") names to promote themselves and the crapola they are pushing.

When I first read that similar competing newsletter, I wrote a few articles for the benefit of the members.
My articles were positive and upbeat. I called no one names, insulted no one, and tried to present useful and
helpful essays. I soon realized that I was a voice crying out in the wilderness. Rather than expose myself to
possible attacks from some of the "big" names who write there, I quietly quit reading and writing anything
for it.

When I received CTCN, I was appalled to see some of the same fakes and phonies writing here. Have any
of these guys ever really traded? Have any of them anything of value to teach? Are any of them even
willing to show others how to trade, or are they just there for the sake of publicity'?

Dave, I am very particular about the company I keep. I will not get involved in writing for a publication
where the contributors argue, insult, or carp at each other.

A good example of what you should allow is the article in Vol -2-12, by Anonymous Trader If I'm not
missing my guess, that article was written by (name withheld by Editor due to Anonymous Trader's
request), a longtime student of mine. He went through a living hell to learn how to day-trade. He almost
lost his wife and kids over it. He lost a lot of money on the way to becoming a successful daytrader. His
article is genuine and well stated.

If it's (name withheld) who wrote, you ought to get him to write about the rough road he traveled on his
way to success. Such an article would be tremendously encouraging and useful to your readers.

Editor's Note: I'm working on that. I have recently talked to and written him trying to get him to go into
more detail on his trading methods. I also just tried to call him again, but he was on a long vacation so I
couldn't reach him. When you are such a successful trader, you can afford to take long vacations. Also, as
he pointed out earlier, it's good to occasionally get away from the markets.

Dave, if you are going to continue to allow articles like a certain negative article in Vol. 2 No. 12, then
please cancel my subscription and send me a refund. This article, in which this vendor does his usual
howling, bitching and moaning, is precisely why the similar competing newsletter I mentioned before has
never grown. I don't want to read about anyone's personal arguments with someone else. If I want this kind
of sensationalism and garbage, I can pickup "Star" at the checkout counter of the supermarket.

On the other hand, please continue to feature articles by the people most of us have never head of. They are
genuine and heartfelt and a real joy to read. One person trying to help another - great! Commodity Traders
Club News should be strictly for the little guy. That's its appeal. You should exclude anyone who has
something to sell. Therefore, I have to exclude myself from writing any articles and signing them with my
own name. If I do write, I will send it under an assumed name. You will never know from whence it came,

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or that it was from me. That way, I will not be promoting myself or anything I sell. It will simply be one
trader talking to other traders via CTCN. I tried that with the competing newsletter, but the Editor will not
publish anything written by a nonmember. This, much to the deprivation of his membership.

Dave, I have been an active trader for 38 years. I've seen it all. There is nothing left for me to learn, but I'm
learning always. Please do not allow commercialism to get into your publication. If the big names want to
write for it, make them do so under an alias. Frankly, you don't need the big names - including me. There
were some wonderful articles by "nobodies." I read the whole notebook (back issues). Those nobodies are
the real somebodies of trading. Without them, we would all be a lot worse off.

I'm not trying to dictate your editorial policy, but you have a chance to break new ground with your
publication. It has the potential of being a great benefit to those who read it, and can be a refreshing relief
from the kind of garbage usually made available to traders.

Opinion on the Kent Calhoun/Futures Truth Controversy - Al Dougherty

As a new subscriber, I was struck by the vitriolic nature of the Kent Calhoun letter about John Hill and
Futures Truth (12-94 CTCN issue).

I've used Futures Truth on occasion for detailed examination of systems that I might buy and have always
found their materials to be very helpful. Vendor materials are always full of hype. Unless you have the
means to do detailed, trade-by-trade testing, you'll never know whether you can withstand the inevitable
drawdowns of any mechanical system without help from an outfit like Futures Truth.

Based on my own experience, I'd never take the word of the vendor, or even the word of his references, his
happy customers to whom he refers you, about the numbers concerning a system. If they'll give a full
refund after you've traded a system for a period, whether profitable or not, that's another thing. Most won't.
Guess why!

So, back to Futures Truth. It's my impression that it's being systematically undermined. Maybe it will be
destroyed as a useful service, by vendor attacks on its methods or publication of the results of the
performance of the systems it tests. You can well understand vendor discomfort, if you've ever bought and
traded most of the heavily hyped systems out there. God forbid, that we'd have an independent Consumers
Report for commodity trading systems!

I'd like to know more about the flap between Mr. Calhoun and Mr. Hill. I propose that both sides release all
of their correspondence with each other for publication by both CTCN and Club 3000. With a release from
legal liability for such publication or disclosure from each party. If this is not satisfactory, I call on Mr.
Calhoun to publish all of his correspondence with Mr. Hill in CTCN.

I'd also like to know if either side has threatened legal action, especially Mr. Calhoun. I suspect the threat
of legal action and the attendant costs of lawyers, discovery, etc., is what's really behind the demise of
Futures Truth. We need more, and hopefully more complete information on this dispute.

Editor's Note: I do not believe Futures Truth has in fact demised, as mentioned by Al in his interesting
article. However, they have announced to no longer sell their own Universal and S&P Daytrade systems
due to a possible conflict of interest situation. Futures Truth is to be commended for their action in deciding
to no longer sell their own systems, even though it means a loss of revenue. I also spoke to John Hill who
said "we do not plan to quit." John also prefers not to air this dispute by releasing correspondence for
publication.

Build a Fortune by Using Volume, Open Interest, Commitment of Traders Data & Probabilities -
Michel Arimoto, CTA

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I would like to see all members of CTCN make money. How can we do it?

Unless you are a God, you may find that the market is not always predictable. To make money, you must
try to keep the odds in your favor. To begin with, make sure that you program or remember the seasonal
moves as an overall direction. You should always go with the direction of seasonal moves after carefully
combining data from at least, two seasonal chart service companies.

‚ Program the Open Interest daily. The Open Interest will peak right at price top or price bottom.

ƒ Watch the large speculators' moves in the Commitment of Traders Report. This is inside information, and
make sure that you note the direction of the money: is it going South or North?

„ Watch the Volumes. The volume will tell everything. If the price is up, but the volume is down, watch out
for the reaction. If you watch only the numbers, or believe in the day-trading systems, you could be getting
killed many times. Unless you know for sure that you are trying to find out "peoples' reaction to news" or
"mass psychology" through the volumes, make sure you know that there are equal number of buyers and
sellers. It is up to you to find out which side is the right group.

More on this subject, please read my book which is advertised in this issue.

… The entry point can be chosen using any software, as long as the condition in items 1 through 5 are met.
But, use a bar chart which is at least one hour long or more, and go with the direction of the weekly chart.
Never forget the Gunning the Stops Trick ( explained in detail in Appendix of my book).

Editor's Note: In case you're wondering what "Gunning For Stops" means, there was a detailed article in
the first issue of CTCN, Vol. 1, No. 1, titled "Gunning Plays Can Claim Victims in the Futures Pits." Note:
If you do not have all our knowledge packed back-issues, you can get all 21 back-issues at the special low
price of $77.00, plus $3 Shpg within USA/Canada, overseas add $15 for Shpg.

Basically, the trick is to buy below the Support and sell short above the Resistance (Just Do It) because
"they" always come after the stops to generate commissions.

This is a "probability game" and make sure that you know it. The probability of the price to be lower during
the harvest time is much higher as the demand for copper for housing is higher in March year after year
(construction picks up after winter).

However, if the price advance from 1,2,3,4,5,6, up to 7, the probability of going up to 8 or coming down to
6 is 50/50, unless you pay very close attention to the Items 1 through 5, and try to keep the odds in your
favor!

As stated in my book, the trader should not forget the importance of the Last Trading Day, the First Notice
Day, important Government Report days, etc., because on these days or the next day, the price tops or
bottoms, or moves in one direction all day long, etc.

Make sure that you know that a PC is a dumb animal (it cannot think), and only you can think or judge and
you must combine Items I through 5 to make money. To encourage members, I have enclosed my latest
monthly statement from the brokerage which showed over 400% return. Editor's Note: Dec 94 Broker
Statement was enclosed.

Traits of a Winning Trader - Gary Smith

I hope the readers of this forum can read between the lines and grasp what Anonymous Trader is trying to
say in his excellent article in the 12/94 issue of CTCN. In the first place, he tells us that he buys strength
and sells weakness.

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The select few winning traders that I've encountered the past 29-years all shared this trading characteristic.
Sadly though, the public has been manipulated into erroneously believing that tops and bottoms can
somehow be miraculously picked. Gann, Elliott Wave, Astrology, cycles, choose your poison. Everyday
your mailbox is inundated with outrageous hypothetical claims from vendors on how to pick tops and
bottoms with pinpoint accuracy.

Anonymous Trader goes on to say that "good trading is not 100% mechanical." AMEN! Most traders spend
a lifetime seeking a totally mechanical system, so they won't have to think. If not using their brains in
trading is their goal, then they would probably be better off working as extras in some of those Night of the
Living Dead zombie movies. In a July 1990 article in Futures Magazine, Jack Schwager said that of the 17
traders profiled in his book, Market Wizards, only two were system-based. I note that both of those 100%
mechanical wizards have had some disastrous trading years since being profiled. You should be aware of
estimates that 80% of the commodity fund advisors are 100% mechanical in their trading. Over the past 10-
years, the commodity funds managed by these advisors have averaged a paltry return between 6% and 7%
per annum. Much of that return however wasn't from trading profits, but from interest income from T-bills.
This historic under performance by the funds is in itself an indictment against using a totally 100%
mechanical approach.

Anonymous Trader tells us that he struggled for 8-years before becoming successful. How many beginning
traders would be willing to pay such a tuition? Most newcomers are completely oblivious to the fact that
successful trading requires a skill and talent just like any other profession. Years of schooling and on-the-
job training are required.

What really permeates throughout Anonymous Trader's letter however, is just how worthless all the
seminars, systems, newsletters and hotlines are. To paraphrase Anonymous Trader, "all this is crap." The
public just doesn't get it. Whether they succeed or not has virtually nothing to do with their methodology,
but with whom they are. If you forced him or any other winning trader to totally abandon his methodology,
within months they could develop another trading style that they would succeed with.

Kudos also to Dave Reiter on his insightful comments in the last issue of CTCN. This fellow has my
utmost respect, since he is willing to backup his talk with his trading statements for the past three years.
Dave was right on in taking to task those who rush out to purchase the hottest new systems and trading
products. As Dave relates, these types always will be disappointed in finding the vendor's claims aren't as
advertised, and then off they go in search of the next promised Holy Grail.

Before concluding, let me address Harold Fowler's article regarding the Precision Day Trading Method.
Harold wrote an exemplary letter and should be complimented. The purpose of CTCN is well served when
members such as Mr. Fowler come forward with their experiences. Harold is probably kicking himself
though for being blinded by greed. He could have saved himself a lot of grief by demanding that either the
vendor prove his rhetoric by means of real-time trading statements, or by allowing Futures Truth to
independently test his creation.

Excerpt from Perry Kaufman's book "The New Commodity Trading Systems and Methods" &
Keltner Channel Definition - submitted by Philip Toh

The 10-Day Moving Average Rule - The most basic application of a moving-average system was proposed
by Keltner in his 1960 publication, How to Make Money in Commodities (The Keltner Statistical Service).
Of three mechanical systems presented by Keltner, his choice of a moving average was based on
performance and experience.

The system itself is quite simple: a 10-day moving average based on the average of the daily high, low and
closing prices, with a band on each side formed from the 10-day moving average of the high-low range. A
buy signal occurs on penetration of the upper band and a sell signal when the lower band is broken:
positions are always reversed.

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The 10-day moving-average rule is basic, but it does account for the fundamental volatility principle and
serves as an example of the actual use of moving averages. Keltner expresses his preference for this
particular technique because of its identification of minor rather than medium or long-term trends, and
there are some performance figures that substantiate his conclusion.

As an experienced trader, he prefers the speed of the 10-day moving average, which follows the market
prices with more reasonable risk than slower methods. A side benefit to the selection is that the usual
division required by a moving-average calculation can be substituted by a simple shift of the decimal place;
who knows how much impact that convenience had on Keltner's choice?

Keltner's Minor-Trend Rule - One of the classic trading systems is the Minor-Trend Rule published by
Keltner in his book How to Make Money in Commodities (The Keltner Statistical Service). It is still
followed closely by a great part of the agricultural community and should be understood for its potential
impact on markets.

Keltner defines an upward trend by the failure to make new lows (comparing today's low with the prior
day) and a downtrend by the absence of new highs. This notion is consistent with chart interpretation of
trendlines by measuring upward moves along the bottom and downward moves along the tops.

The Minor-Trend Rule is a plan for using the daily trend as a trading guide. The rule states that the minor
trend turns up when the daily trend sells above its most recent high; the minor trend stays up until the daily
trend sells below its most recent low, when it is considered to have turned down. In order to trade using the
Minor-Trend Rule, buy when the minor trend turns up and sell when the minor trend turns down; always
reverse the position.

The Minor-Trend Rule is a simple short-term trading tool, buying on new highs and selling on new lows. It
is a breakout method in the style of "swing" trading and can be used as a "leading indicator" of the major
trend.

It requires frequent trading in most markets, with risk varying according to the volatility of the commodity,
Keltner's Minor-Trend Rule is the basis for a number of current technical systems that vary the time period
over which prior highs and lows are established and consequently increase the interval between trades and
the risk of each trade. An advantage of the Keltner approach is that it imposes no arbitrary restrictions on
the analysis of prices (e.g., breakouts of 100 points).

Editor's Note: Mr. Toh made this contribution as a result of Anonymous Trader use of the Keltner channel
method, as referred to on Anonymous Trader's chart on page 2 of last month's CTCN. Philip hopes this will
assist the many members (himself included) who are greatly interested in the methodology used by him to
trade so successfully.

All Trading Products Should Qualify For Inclusion in CTCN - Ron Gruen

This may be a minority view, but I think your newsletter is doing a disservice by not publishing articles
concerning experiences Swing Catcher owners have. I don't see this issue as a conflict of interest (nor does
Bruce Babcock, publisher of CTCR & sells trading systems). When I receive his newsletter, it's
accompanied by literature concerning his systems for sale.

Articles (about your own products) published in moderation and without censoring the content because of
bias of the editor, may serve a need by current owners of the system for a useful interchange of ideas,
comments, problems and solutions.

There is no significant conflict of interest when a newsletter is permitted to carry articles, good, bad or
indifferent about products, including the publisher's own system. Through the exchange of ideas in an open
forum, they may be of benefit to a portion of members. I hope you give your policy some serious thought. I
for one, believe it is misconceived.

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Editor's Note: I have received a number of letters and phone calls about this issue. Almost all the feedback
was in favor of Ron's viewpoint on this matter. In fact, much of the feedback echoed what Ron Gruen had
to say almost exactly! Especially about SC being referred to by its users only (never the developer),and
covered moderately (both positive and possibly negative viewpoints), and in proportion to other
miscellaneous trading systems and products that are mentioned in CTCN.

Starting with this issue (for example, see Harriet Hodges' article ) you may occasionally (but not often) see
articles referring to Swing Catcher. Normally, as part of an article on a more general subject, so non-
owners of the software will also find the articles informative or interesting. In addition, you should know
that the vast majority of CTCN Members are not SC owners. In fact, only about 15% are owners (which is
a comparatively small percentage).

A 20-Minute Time Period Price Difference Resulted in My

Losing $2,300 - Bob Meaders

We all know that brokers confirm a fill by phone followed by a printed confirmation in two or three days,
depending on postal service. Please note the following experience: I sold T-Bonds. The fill was confirmed
close to the real-time quotation by phone. 14 days later, I received confirmation at a price sufficiently
below the original confirmation to equal $2,300 loss. Unfortunately, I had no reason to carefully check the
phone fill price, but I believe it was 20 to 25 minutes after the phone fill, before the price hit that contained
in the printed confirmation.

I wrote the CEO of Alaron (broker was Alaron) about this matter. He did not acknowledge my letter. I'm
not suggesting that one should trade or not trade with Alaron. I'm simply giving my experience.

Trading Insight - Harriet Hodges

I've settled down into a fairly comfortable routine with the Swing Catcher System. I made $2,300 last
week, and I'm reading a good book on stops (J. R. Maxwell, Commodity Futures Trading with Stops)
which may help me keep a bit of that.

Its been exciting learning this stuff. I came out even for the months of active trading I did in 1994, which I
think was pretty good for a beginner. The mistakes I made were relatively minor, thanks to good advice
from you and books. Now I'm looking forward to some long-term profits from my carefully worked out
six-year plan. This plan calls for doubling, after taxes, my $15,000 stake by the end of the year. That's an
average monthly profit of $1,765. Knowing it's much harder to make money with a small start than a large.

I 'm resolved to be cautious and patient until that $30,000 mark. That is, one contract at a time, negative
correlations in the markets chosen, a limit of 4-markets at a time, all signals taken (if possible).

My Trend Index program works well. It has small peculiarities that I wish a programmer could iron out. I'd
wish for a flexible "Report" capacity, but the quality of the information seems excellent. I'd love to see a
good editor (and indexer) clean up copy, organize and present the manual better. I won't say too much
about that because I should offer to do it ( an ex-editor and indexer), I don't have time. All in all, I think I
am very lucky indeed to have stumbled on you and Trend Index. I have avoided the horrible experiences
others write about. My computer system (a bottom-of-the line 386 with a math co-processor, black-and
white monitor, cheap modem) with Commodity Systems, Inc., data works well. My brokerage firm, Jack
White, is excellent--although extremely expensive. Trend Index delivers about the mix of wins and losses it
promises.

A beginner should start with a reliable system. It should be understandable by an average intelligence
without great pain. A mechanical system, I think is an absolute must. Do exactly what it says (harder than

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you'd think, given the tendency of the mind to second-guess) until you've traded enough to know where you
may begin to veer off. Do your homework.

Know at all times what each trade stands to lose and what the exact level of your account is. Pick markets
of average volatility, good volume, average or modest margin requirements. (Forget for the moment the
S&P 500, orange juice & lumber).

Start with a brokerage firm that gives no advice, but answers calls within 10 seconds night and day, is
scrupulous in calling back with fills, gives good fills. (Don't be unreasonable here) After you read them
your order, it should be their standard policy to repeat it in brokerese. They should make certain whether
you intend a day order or an open, good-till-cancelled one.

They should know and tell you what markets accept a one-cancels-the-other pairing of stop and limit
orders. They should question you if you've done something silly, such as placing a sell stop on a short
position or a limit order to sell that's below where the market is at the moment. Then plunge right in,
reminding yourself that you have to log four losses for that first win. That's the rule.

A question: Why is Robert F. Wiest's - You Can't Lose Trading Commodities and scale trading never
mentioned by subscribers? It would seem that a systematic buying at preset levels as the price of, say,
cotton drops, and a systematic selling when a contract's price rises 10 points would (as Wiest claims) over
the months and years give back a steady 20-40 per cent profit.

Is there some fatal flaw here? Or is it just that none of us want to settle for steady 20-40% profits? If
someone handed you $100,000 and you knew you only needed $35-40,000 a year to live on (we're farmers;
that's a lot to me), would scale trading indeed be a safe place to put that money? (I'm assuming the usual
daily attention any commodity account requires).

Opinion on Scale Trader Book (You Can't Lose Trading Commodities) - David Stone

In my opinion, the Scale Trader method involves incredible risk and very deep pockets. If I remember
correctly, it involved only buying long (never selling short) a commodity when you perceived it to be at
historical low levels. You would then hold it forever (if necessary) until it went up in price.

In other words, say you bought long (an old trade of some years ago) Sugar at say 6 cents because you
thought it couldn't go much lower. Little did you realize at the time that it was going to drop below 3 cents.
Subsequently, Scale Trading said you had to hold it regardless of how low it went or how long it took, until
you had profits.

As a result, you may have held that Sugar trade perhaps several years, until it finally reversed and you had
profits. In the meantime, you suffered a huge paper loss or drawdown per contract for that entire period.
Sitting thru such a large drawdown for such a long time requires nerves of steel and tremendous discipline,
not to mention deep pockets!

I can show you even more extreme examples where the drawdown was even more (i.e., over $30,000 per
contract), and it required staying with the trade for very long time periods before it was profitable. At the
same time, you had a large debit balance the entire time (perhaps months or years)!

As you can see, Robert Wiest's Scale Trading technique requires nerves of steel and patience of a Saint and
very deep pockets. However, it's probably true that (as the book name states) You Can't Lose Trading
Commodities. However, using the Scale Trader method to win (eventually) is certainly a hard and difficult
road to say the least.

Editor's Note: Perhaps this contribution answers Harriet Hodges' question as to why she doesn't read much
about the successful use of the method outlined in the heavily advertised book by Robert Wiest. It seems to
me that very few traders would (or could) successfully use this methodology.

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 Spreading Basics - The Mechanics of Profitable Spread Trading - Bob McGovern

The concept of commodity futures spread trading appears simple. The trader enters a long position on one
side of the spread, while simultaneously entering a short position on the other side or "leg" of the spread.
The long and short sides can be in the same commodity, or they can be in two or occasionally three
different commodities.

If the spread consists of commodity futures contracts of different months in the same commodity, it is
called an intracommodity spread. An example would be Long December Wheat vs. Short July Wheat. If the
long and short legs of a spread are in different commodity futures contracts, the spread is an
intercommodity spread. Example: Long March Soybeans vs. Short March Wheat.

Everyone does fine up to this point. It is only when the words, "bull spread, bear spread, inter-crop, crush,
reverse crush, carrying charge spreads and crack spread" are mentioned, when some confusion arises.
Understanding these terms, besides the unique verbal protocol required to place spread orders, has kept
many confident open position traders away from spreading.

Comprehending the activity on the floor once the spread order is entered is a definite requirement for the
trader; for what he might consider a "bad fill " may in reality, have been a very good execution.

Consider a Long July Corn/Short July Wheat spread, entered "at the Market." The trader's screen may show
a difference of $1.04 per bushel between the two commodities, and he may expect that difference to be his
spread differential. However, the trader must understand that the trade has to be executed in two different
trading pits, so the physical aspects of the trade execution must be realized.

It is possible that the actual spread trade could be made at $1.04, or even greater, but the trader can't assume
that. The logistics of the trade are much simpler on intracommodity spreads, as they are made in the same
pit.

The mechanics of the spread itself should be studied. To establish order in spreading, the "buy" or long
position is always mentioned first, then the "sell" or short side of the spread is mentioned last. This protocol
should be used when placing orders. Then, if the spread order is a limit order, the trader states the premium
on the "buy" or "sell" side. An example: "I wish to place a spread order as follows, buy 3 April Live Hogs
and Sell 3 October Live Hogs, plus 300 points (or $3.00) to the sell side." (What I am saying is that I want
this spread, but October must be sold at least 300 points over the April, which I am buying).

So, let's assume this spread has filled, with the October Live Hogs sold at $42.60 per hundred, and the April
Live Hogs bought at $39.60 per hundred. I didn't care what the individual prices were; October could have
been sold at $90.00 per hundred, just as long as the differential between that contract and the April contract
was $3. If the October were at 90, then the April would have been at 87.

Now, what next? My reasoning for making the trade was that I felt the difference between the two contracts
was too great, and a seasonal tendency to narrow existed. Therefore, I want to see that difference narrow. I
don't have to figure how much my short October is making or losing, or calculate how much the long April
contract is making or losing. All I have to check is the difference in price between the two contracts. If it's
less than 300 points, I have a profit; if it's more than 300 points, I'm losing.

Let's assume the spread has narrowed to 200 points, October over April. I decide to take the profit, which is
100 points ($400) per spread, before commissions. I don't want to enter a market order, so I place the
following: "On a spread, Buy 3 October Live Hogs (I am covering my short) and Sell 3 April Live Hogs (I
am closing out my long); plus 200 to the Buy side." Say I "luck out" and get a better fill. Would it be a
differential less than 200 points, or more?

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The Long April /Short October Live Hog spread happened to be a "bull spread," which meant that the
nearby month was expected to be the stronger price performer than the October. The spread was also an
intracommodity spread; both sides of the spread were Live Hogs. The spread was also a "seasonal" spread.
I'll cover more on Seasonals, carrying charge spreads, crush spreads, etc., at a later date.

Spreads normally have less margin requirements than open positions, and in the Live Hog spread above,
current initial margin requirement is $164 per spread. The initial margin requirement for an open position
either long or short is presently $540.

Another point to consider in spreading, besides lower margin, is the multiplicity of ways a profit can be
made in a spread, as opposed to an open position trade. Here are some factors to consider:

There is only one way to profit on an open long position; it must go up in price. There is only one way to
profit from an open short position; it must go down.

‚ To profit on a spread position, the long side can go up, while the short side stays the same; the short side
can go down while the long side stays the same; the long side can go up and the short side can go down
(most ideal); the long side can go up more than the short side is going up; the short side can go down more
than the long side is going down.

Let me reiterate again; I don't care where the individual prices are, I only care about the relationship
between the two.

Here's another spread situation with a different twist: Buy July Coffee and Sell March Coffee, plus 200
points to the Buy side. Say the order fills with the July Coffee bought at $1.7000 per pound and the March
Coffee sold at $1.6800 per pound. Is this a bull spread or a bear spread? Do we want the spread to narrow
or widen to make a profit? How would we word an order to close this spread out?

Any other reasons for entering spreads? Well, for the most part, there are certain seasonal factors which
ultimately have influence over commodities. Most spreads are based on these age-old seasonal influences.
Examples include harvest pressure in June-July on Wheat; in Oct-Nov on Soybeans; and Corn harvests in
early fall. All these influences set up new-crop/old-crop spread situations; intercommodity spreads such as
Wheat/Corn, etc.

I'll cover more aspects of spreading in a future letter (no pun intended). To me, they have been a fascinating
avenue for trading?

(Bob McGovern is the author of "Commodities Futures Spreads" a biweekly newsletter. He is also CEO of
R. B. McGovern & Associates, Member NA, NASD, MSRB, SIPC, and is a Registered NA Introducing
Broker, CPO, and CTA).

Editors Note: I have dealt with Bob and he is extremely knowledgeable, experienced and helpful.

Exit Strategy - A Possible Improvement to Welles Wilder's Parabolic Stop - Adam White

I have an idea for an exit strategy. At this point, it is only an idea because I cannot test it on the software I
presently have. The exit is a variation on Wilder's parabolic exit.

The traditional parabolic exit initiates a stop X percent of price away from the market upon the entry. Then
each price bar the stop takes an N percent step towards price. Eventually the stop and price hit, triggering
the exit. The thinking is twofold: Trends that are moving in the desired direction are allowed to run, and the
longer a trend endures the more sensitive the exit becomes, thereby allowing less equity to be surrendered
at the position's end.

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The variation I have in mind is to make 'N', the step, a function of price volatility. In fast-moving markets
the parabolic would move quickly towards price, in slow-moving markets it would progress slowly. In this
way, fast-moving moves against a position will trigger exits sooner than they would when N is a constant.
Additionally, since slow-moving markets imply less risk, allowing a trend a greater opportunity to develop
when the market is slow does less relative damage to the risk/reward outlook.

The necessary calculation for the variable 'N' could be quite simple. As usual, start the variable parabolic X
percent away from price at the entry (X itself could also be a function of volatility, but that's another story).
Then, move the stop towards price an amount equal to the absolute value of the last close to close price
move. In fast markets, the absolute value of the last close to close change will generally be great, and in
slow markets it will be less. As before, the stop does not make net progress towards price when the market
moves in the desired direction. However, since all trends do carry adverse movement, the stop and price
will eventually meet.

Another interesting upshot of this strategy is that X, the original distance between the stop and the market,
is the amount of risk the position can absorb during its duration. Thus, the amount of adverse movement the
position represents is always known; what is unknown is the amount of time it will take for the adverse
movement to accumulate.

Those interested in this line of thinking and possessing the necessary software is encouraged to do some
research and share their results with fellow CTCN readers.

Why I Like Lind-Waldock - J.S.M.

I am writing to express my approval and appreciation of Lind-Waldock & Co., the Chicago-based discount
futures broker. I have traded commodities for 40 years. In the first 30 years, I dealt through various major
brokerage firms, all of which handled both stocks and commodities. About 10 years ago, I opened an
account with Lind-Waldock. I now do all my futures trading through them. Here are some reasons I like
them:

They specialize in futures, and thus can do a better job, than a full-service firm that tries to do
"everything." Quotes are available around the clock.

‚Orders can be placed 24-hours a day. I like to do my analysis in the evening, usually finishing by
midnight. I can then call on their toll-free line and place orders for the next day. This way I don't have to
get up super-early (west coast time, you know) and place orders for the opening or whatever.

ƒ They are very accurate in carrying out all of their functions. Not only are the fills good, but all of their
paperwork is of high quality. In the past 10-years, only a couple of procedural mistakes have occurred
(wrong commissions applied to day trades, for example), and these were corrected by them even before I
could complain.

„ I like dealing with people I don't know. This avoids the emotion, which comes from dealing with a broker
you know, who therefore feels (as most of them seem to) that he must comment on everything you do -
agreeing or disagreeing with your intended position, praising or sympathizing with the outcome, and just
generally laying on the TLC. I don't need or want any of that. I try my best to keep emotion out of my
trading, and sometimes succeed.

… I like trading with a firm that is financially solid. I could get lower commissions elsewhere, but dealing
with a well-managed and efficient organization is worth the difference to me. Also, I don't trade a lot. The
difference in commission rates would probably mean more to someone who trades frequently.

These are good reasons for me. What do you think? I have no connection with Lind-Waldock other than as
a customer. My thanks to all Club News contributors. After 40 years of trading, I still have lots to learn.

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 The Adviser's Dilemma - Traders Want Easy Answers - John Piper from England

I have very much enjoyed the last few issues of CTCN. I thought it might interest your readers if I set out a
dilemma I face in my business always.

First let me say who I am. I write and publish the leading technical newsletter in the UK "The Technical
Trader" but my main endeavor is as a trader. Last year I made 18.75% on my account, which is acceptable
in that I aim to make a consistent return of 20% pa. However, as I'm only trading around BP20,000, it's
easy to see that most of my income comes from my newsletter business.

It is one of my dilemmas that I realize to reach my full potential as a trader, I will need to distance myself
from the newsletter business. However, this is not the dilemma about which I write. This dilemma is far
more intractable. The problem is that novice traders do not really know what they want. I use the word
novice, but this can be applied for some years into a trader's life.

There have been many articles in CTCN agreeing that the key to success lies within ourselves, but the
novice often does not want to know this. What he/she wants is an easy answer (don't we all - but as we
progress we realize that - it doesn't exist outside of ourselves). When someone appears to offer such an
answer, they will jump at it. If instead, I try and did some marketing setting out the true picture, do you
think I would get much response? Probably not, especially not in competition with some US marketing I
have seen.

But the novice really needs help. I set up my service to provide that help. I consider it very important to
reach these people, not only for the benefit of my business. I am not a marketing man. I do run a one-man
business, so I have to deal with this aspect also. I'm forced to offer something which the novice thinks he
wants, whereas he actually needs something different. I then try and give him what he needs in the service I
provide. Only my readers can judge whether I succeed. The response I get suggests I do meet with some
success.

This dilemma then continues when I offer other services, be they seminars, systems, hotlines, etc. My
criteria are very simple. I will only offer something to my clients if I find it useful in the first place. I
cannot do much more than that. I have no way of knowing the stage of development of all my clients. I
cannot judge how useful such things will be to them. They may buy it for all the wrong reasons, even if I
warn them against doing so (which I try to do) and then possibly blame me if it doesn't do what they want -
i.e., make it easy.

I suppose ultimately, I see myself as a guide along the way. If I can provide a few signposts and help
traders get over some problems they encounter, then I have succeeded. The traders I don't help, I can do
little about, but at least I try. The point I am trying to make, is that when an adviser wants to do his best for
clients, it's sometimes difficult to do this in practice because few traders actually know what they need.
They may think they do, but because of the true skills required, they are often mistaken.

As an illustration, I recently designed a trading system which works well on the UK FTSE Futures. I didn't
want to sell the system to a large number of traders and decided to release it to just six individuals. The
reason for this is that the future development of the system would benefit from having more minds than just
mine working on it.

I did this openly advising them of the full facts. I now believe that one or two of these traders bought the
system thinking it was the Holy Grail (which, of course, it's not) and that they are unlikely to actually make
it work for them. This is unfortunate, because I sold this on the basis that I would share their future trading
success (although there was a down payment also). The system also works well on the S&P Futures and I
am now pondering how I should achieve my aims in the US. Any ideas?

Tidbits on Financial Astrology -Carol Murphy

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For Gann Lovers - Many years ago, I took a course on technical analysis. One afternoon after the course,
we started chatting with the instructor about Gann. He was so intrigued with Gann that he hired someone to
do an out-of-body experience, so he could meet Gann. He then told me he met Gann and he answered all
his questions. In Jan. 1987, I saw a chart of his projection for the Dow for 1987 - guess what - there was a
big drop in October. Now you all know how to find the answers.

Duplicate Charts - Don McCullough

At times I get an awful lot of confusing trendlines on my charts. I can delete them, or even some of them,
but often refuse to do so for fear I might forget to include some important ones when I redraw them.

I do at times delete all of them or some of them, but have discovered another alternative. I make a new
directory in my MetaStock program and call it Dupe. Then I copy this chart to this Dupe directory without
any trendlines, moving averages or indicators of any kind. This allows me to retain the original, and
sometimes very important trendlines, etc. and yet be able to see the duplicated chart from a fresh viewpoint.
You'd be surprised how helpful this can be at times.

The importance of each of the trendlines changes over time and this helps one to concentrate on the newer,
often more important trendlines. A word of caution. Sometimes the old trendlines can be very important.
What trendline to keep and what one to delete will be determined by the quantity and quality of your
market experience.

Here's a "saying" I have on the wall by my computer and think you might enjoy:

Persistence - Calvin Coolidge - said "Press on. Nothing in the world can take the place of persistence.
Talent will not: nothing is more common than unrewarded talent. Education alone will not: The world is
full of educated failures. Persistence alone is omnipotent."

Editor's Note: By coincidence, I have a plaque with this 'saying' hanging on my office wall.

Trading Book Recommendations - Robert Miner

I'm a recent subscriber and have recently reviewed all the back-issues. Your service is a welcome addition
to the reference material available.

As all traders are aware, there seems to be an overwhelming number of books released each year for traders
and investors. Unfortunately, the quality of the material presented seems to deteriorate each year. Most
financial publishers must have cut back on their staff. I find that almost all trading and investing books are
desperately in need of an editor and proofreader. I read fewer trading books each year, as I find most have
not been worth the time.

However, in the past year, I was fortunate to read two books which I consider outstanding and required
reading for every trader. A Short History of Financial Euphoria by John Kenneth Galbraith (Whittle Books,
1990). This is a small, inexpensive paperback that is an excellent discourse on crowd behavior in financial
markets. It should be available or easy to order from your local bookstore. What I Learned Losing a Million
Dollars by Jim Paul (1994, Infrared Press). This book is an easy and entertaining read, yet cuts to the very
heart of the primary reasons why traders and investors are usually unsuccessful and includes practical
solutions to overcome the most common problems. I would put this book far above any other book on the
"psychology" of trading. It should be a best seller, but probably won't be because of the title.

Optimizable Parameters Should Be As Few As Possible - Ashif Jumma

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Optimization of a trading system is a logic which generates a lot of controversy. Some traders go crazy
over optimizing. Some do not want to go anywhere they hear it. A lot of vendors love it, because it can
generate eye popping hypothetical profits which has no connection to real-time trading.

I prefer a system to work without optimization. But if I have to do it, I would make sure that the
optimization is robust in the following manner:

Make sure the sample size of data is large enough to represent real-time market conditions - bull, bear
and sideways markets.

‚ The look-back period should be as large as possible for the same reasons.

ƒ The testing of optimizable parameters should be on out of sample data using walk-forward analysis or
another method.

„ The Central Limit Theorem says that for a sample to assume the characteristics of the population, the size
of sample should be large. The minimum sample size should be around 30. But since an uptrend or
downtrend can last for say 50 periods, I would have a minimum sample size of 100 periods making sure
that the full market cycle is there (uptrend, downtrend and congestion).

… The optimizable parameters should be as few as possible and tested in a wide variety of markets.

Curve-fitting is like rolling a fair dice with 1/6 probability of getting any number from 1 to 6, rolling it 5
times, getting #6, 4 out of 5 times (80%) of time.

A lot of traders fall in the trap of curve-fitting without being aware of it. So when designing a system, it is
important to keep your guard up as far as curve-fitting is concerned.

1995 Trading Contest: Robert Miner

Each year, Robbins Trading Company sponsors a year long trading contest for futures traders. This is a real
money contest, not one of the silly hypothetical contests that are unrelated to real trading. Anyone can
enter. The contest lasts for the calendar year. A minimum account size of $10,000 is required, plus a $1,000
entry fee. All of the entry fees are divided between the top three winners in each division. Last year the
three divisions were professional, non-professional and system trading. I believe they are going to have a
day-trading division this year. Why am I giving the Robbins trading contest a plug? They haven't requested
it. I have no connections to them, other than as a customer. I'm going to enter the contest again this year
and would like to see lots of contestants. The more entries, the more prize money in the pot to win. I intend
to win again.

It's a mystery to me why all of the self proclaimed trading geniuses, who are so prolific with their advice in
various trading publications, newsletters and advisory services don't enter the contest. Since this is the only
real money, year long trading contest available, you would think it would be easy money for these folks. I
entered the contest in 1993 and won first place with a 118% return on account. The prize money was a
substantial bonus, as the first place winner receives half of all entry fees in each division, the balance
divided 30%/20% to the second and third place.

In my opinion, Robbins provides a great service by sponsoring this contest each year. This contest provides
a completely unbiased, level playing field for traders who want public recognition of their trading skills or
anyone who wants to take a shot at the prize money.

Why aren't the names of the top three winners of the Robbins contest each year the same names we see so
often in trading publications, as system developers, newsletter advisors, etc. who keep telling us how smart
they are? Am I the only one whose business is trading education and advisory, who actually trades?

230
Come on guys and gals. Put up or shut up. Don't tell us how much you know, show us. For those who are
interested in the 1995 Robbins Trading Company World Cup Championship of Futures Trading, contact
Rita Karpel, 1-800-453-4444. As I mentioned above, I have no business or financial relationship or interest
with Robbins Trading Company. There is a risk of loss in futures trading.

Psychology Is More Important Than Mechanics/Technicals - Daniel North

I believe these ideas could possibly help traders in their pursuit of more focused and hopefully more
successful trading or speculating.

The points are in outline form, and they address a very important issue I encounter when I trade, having a
good start. I believe the psychological portion of trading is more important than the mechanical or technical
side of trading. If you examine your mental and psychological state first, you should find solutions to your
trading problems. Following points are for Making the Perfect Start:

Know exactly what you want ‚ Enjoy the project/journey ƒ Be confident in your inner forces „
Concentrate on one area at a time … Collect all available information † Dismiss wasteful and negative
attitudes ‡ Cease pointless actions ˆ Score a series of small successes/victories ‰Make the most of every
opportunity Š Harmonize with the natural laws of success

Opinion on Dial Data & Fact CSI Is Price Competitive & Opinion on Mendelsohn's Neural Net
Software - Al Dougherty

I use Dial Data for end-of-day data for about two years. I'm satisfied with the quality of the data; it has
improved since the purchase of Warner. My only complaint is that S&P futures are based on Globex, so
often gaps that exist in day only trading get closed. I've asked them to offer day only service as an
alternative and they seem receptive. Note Dial Data used to be the least expensive vendor, now others (CSI
seems to be very price competitive as long as you can avoid long distance charges).

I purchased Mendelsohn's T-Bond system about two years ago and used it for about 4 to 5 months. I spoke
with other users, a few pleased and several who felt ripped off. The hype and sales pressure is intense.
Once you're on their list, they try to sell you the moon, cheese and all. I could never see the advantage of
the neural net over what I got through conventional analysis, even though I believe John Murphy's
intermarket analysis is very sound.

Since it's a black box, you can't tinker with it. Since I used it, they have come out with an upgrade, I suspect
"reoptimized" version. If the system was disclosed, I might be willing to give it a chance. Also, I'd like to
see a real track record, with brokerage receipts, from someone who has successfully traded it. Based on my
experience, I'm suspicious of the Mendelsohn systems and could not recommend them to anyone.

I'd be interested in hearing from anyone using Vilar Kelly's Daycare system, Chuck Hughes' Deliverance or
Gary Smith's system for day-trading the S&P futures. Lets also hear from anyone who has updated the
testing on Hughes' system or has modified Smith's system successfully.

Editor's Note: We have an excellent and very detailed Special Report available to CTCN Members written
by member B. Radke on Neural Nets.

Opinion on Recurrence System - G.M. Sun

If Members of CTCN need further information about Recurrence IV Trading System, please call me at 1-
516-484-9405. I am very glad to answer your questions about this "Wipe-You-Out-System." I just want to
alert the public about this so-called "make you a ton of money" system.

231
 Why Was Hillary Allowed to Trade Like That? - H. L. Huber

I would like to call attention to an article that appeared in the 2-20-95 issue of National Review, p.23. This
article is the most detailed, about the inconsistencies in Hillary's cattle trades. The article elaborates on a
10-part checklist used as a guideline to determine the legitimacy of a series of futures trades. Needless to
say, the Hillary/REFCO combined didn't measure up to well.

Two things really bother me after having read this article. Why was her account allowed to operate to the
extent it did, while so far below margin requirements? If she was able to do this, are there others, and is this
common practice. Doesn't a policy of this nature give an unfair advantage to these people over the rest of
us, who must meet margin requirements?

The second thing concerns statements by Kroll and others about small retail trading clients of organizations
that they had worked for, never, without fail, being successful. If this is true, then most of us are wasting a
lot of time and money.

Member Requests

Al Resnick is evaluating various automated systems. Does anyone have working experience and comments
on Bond-Pat by Lee Gettess and Platform Software from Omega Research?

New Cherry Picker, S&P daytrading system by David Wright: Who has tried this system in real-time or
knows of someone who has? Please write c/o CTCN.

Daniel wants to buy a used FNN Signal receiver. Call him at 713-466-6090.

Dr. Claus Hallmann of Germany is interested in recommendations, comments or evaluations on Ed

Kasanjian's Nature's PulseSystem. Also, several requests for info on Bruce Gould's Money Machine &
Omega SuperCharts.

Editor's Note: We have an excellent and highly detailed Special Report on SuperCharts written by
member Tom Dyste. Contact CTCN to get it.

Editor Comments

It is very unfortunate Anonymous Trader does not want to disclose his identity or submit additional articles.
However, I will again try calling/writing him in an attempt to get him to change his mind.

Many of you were very interested in last month's excellent contribution by Dave Reiter. Dave sent his
many account statements to me for review. Unfortunately, they are of little value (to me) because none of
his trades show, and other pertinent and important information has been obscured or blocked-off. In fact
the statements are almost entirely blank except for the net profit for the month, which appears on each
statement.

Most all information that normally is part of a broker's monthly statement has been deleted from the
photocopies. In Dave's cover letter, he said he did that because he thinks someone could figure out his
trading method by studying the trades, etc. I do not feel Dave's concern is in fact much of a possibility, but
Dave feels otherwise about that. Perhaps Dave will reconsider this matter.

Issue 23.

How I Have Made Money Trading Commodities - J. B.

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Thanks to the excellent articles in CTCN over the past several months by traders like The Anonymous
Trader and Dave Reiter. I have been inspired to also write about my trading success.

It's true, trading success is more related to the trader's physiological makeup, a trading plan and the
discipline to follow it religiously, and money-management techniques. The trader's methodology, in my
opinion is not as important as these three listed attributes.

When I first started trading commodities, I lost plenty of money, like most new traders do. However, I
didn't realize it at the time, but it was like college tuition for me. The $40,000 I lost, was in fact the
approximate cost of a four-year college degree. The great knowledge gained during those early losing years
was well worth the "tuition cost."

My trading and bottom line has now greatly improved, thanks mostly to my better psychological makeup,
discipline following my plan, and good strict money-management.

Once again, I started out a loser (big loser). As mentioned by Anonymous Trader, for years I was far too
concerned with data services, type of data (perpetual vs continuous vs regular data), quote machines,
charting services, advisory services, standard technical analysis methods, etc.

After years of fairly consistent losing, I realized that its all garbage and trash and will not make you any
money. Discipline, a well defined but simple trading plan based on sound trading principles, good money-
management methods, and the psychology of trading will make you plenty of money.

That's only providing you can shed all the heavy baggage of the believed to be valuable trading tools and
concentrate on these aspects of trading. This will really make you lots of money. You too can do it.

More Information on How to Obtain the "House Advantage" - Dave Reiter

During the past six weeks, I have received phone calls from several CTCN members who were interested in
receiving additional information on my various trading methods and techniques. Therefore, I will try to
expand on my previous article (1/95 issue).

As I mentioned in my previous article, most of my trading is based on repetitive price patterns. My goal is
to locate trades which will offer me a slight advantage over the markets. In other words, I want to "tilt the
odds" in my favor on each trade that I initiate.

During the past four years, I have developed two trading methods based on the principle of repetitive price
patterns. One method is based on long-term price patterns and the other method is based on short-term
price patterns. Please allow me to briefly explain each method.

I've been trading my long-term method every day since 1992. As you know, from reading my previous
article, this method generates about 8 -10 trades per month. On average, each trade is held 4 to 5 weeks.

The reason this method has produced consistent profits for the past 36-mos is because it's extremely
diversified. It trades many markets (currencies, energy, financial, grains, meats, metals and softs).
Whenever I'm losing money in one sector, there usually is another sector that will "pick up the slack."
About two months out of each year, all of the sectors are making money at the same time. Obviously, that's
when I accumulate most of my yearly profits. Unfortunately, I'll also experience a 2-mo period when each
sector is losing money simultaneously.

It's no "big secret, that a large number of commodities will move in a very predictable pattern during
certain times of the year. However, I'm convinced that most traders are not completely aware of these
trading patterns. For instance, most traders (particularly novice traders) probably think that grain prices rise
during the summer (June thru August). However, this is simply not the case most of the time.

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If you go back over the past 15 years and examine the price patterns for Corn (for instance), you will find
that corn prices will have a definite bias to the downside over 70% of the time throughout the summer
months. Therefore, l always look to short the Grains from June thru August because the "odds" are on my
side. This is the underlying basis of my entire trading method.

This is just one example. I have dozens of other trading patterns that I use each year throughout all of the
commodity complexes. The "secret" to success of this trading method is the fact that all of my trades have a
greater than 50% chance of making money. Once again, the "odds" are on my side.

My short-term trading method is based on the belief that most markets will "gap open" in the direction of
the previous day's closing trend. To profit from the gap opening, I must find a simple way to determine the
market's current trend and establish a position before the market closes. My goal is to liquidate the trade
during the next day's opening range; hopefully with a good profit.

Of the two trading methods, I like the short-term method better because the equity curve is much smoother
than the long-term method. However, the long-term method has a greater profit potential and is much less
time-consuming to trade.

In February, I sent Mr. Green a copy of my account statements and 1099 forms to verity that I have made
over $150,000 during the past-36 months as a result of using these trading methods. However, I did (as Mr.
Green stated in the 2/95 issue) "cover up" the individual trades from my account statements.

Editor's Note: I have found out that some members were somewhat suspicious or doubted the profit claims
because the specific trades were blocked-off. The fact Mr. Reiter chose to block-off or cover-up the details
of his trades on his brokerage statements does not necessarily detract or cast suspicion on his profit claims.

I did that because my trading methods (as you know) are based on repetitive price patterns. Therefore,
many of the trades that I took in 1994, I will also take in 1995. In order to "protect" my trading method, I
"deleted" all trades from my account statements and simply showed the net profit/loss for each month. I am
in the process of writing a trading manual, which will explain all of my various trading methods and
techniques. When the manual is completed, I intend to send a copy to Mr. Green for his review.

I'm always looking for new trading ideas and methods. As you know, the markets are constantly changing
and we need to keep up with those changes. Good luck with your trading.

It is Important to Investigate the Tax Side of your Investing. - Ted Tesser, C.P.A.

Investing May Be Hazardous To Your Wealth! by Ted Teaser, C.P.A. In my last article called "Secrets To
Success," I mentioned the advantages a Trader has over an Investor for tax purposes. Basically, a Trader is
considered, by the IRS, to be running a business, and is given many of the tax advantages afforded such
businesses. An Investor, on the other hand, is considered to be passively "investing" his money, instead of
actively "trading" it. Therefore, he is subject to many limitations which affect his taxable bottom line. Some
major differences are as follow:

Investment Versus Trading Expenses: An Investor must subtract 2% of his adjusted gross income from
his investment expenses before he can deduct them. This includes computer expense (both hardware and
software), data expense, advisory and hotline fees, etc. In addition, if the investor makes over $105,000, he
is subject to an additional 3% exclusion from these deductions. A Trader, on the other hand, gets to write-
off his trading expenses dollar for dollar before paying any tax on his income.

‚ Itemized Versus Standard Deductions: An Investor must itemize his deductions (rather than take a
standard deduction) to deduct any amount of investment expense. If he has no other itemized deductions,
he may not even have enough expenses to take advantage of this, and may in fact, not be able to deduct any
investment expenses at all. A Trader, on the other hand, may deduct his Trading expenses even if they are

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the only deductions he has. He is entitled to take a full standard deduction, which for married joint filers
was $6,000 in 1992, and still deduct his trading expenses besides this.

ƒ Traders Get To Deduct Expenses "Above The Line": An investor must calculate adjusted gross income
(AGI) before he deducts even the limited amount of investment expenses to which he is entitled. This is a
disadvantage because the larger the AGI the more limited are his other deductions (such as medical and
casualty loss). The Trader, however, gets to deduct his trading expenses from income before calculating
AGI.

„ Investment Interest Expense Limitation: The Investor is subject to another limitation on the investment
interest deduction. He may only deduct investment interest (margin interest) to the extent of his investment
income (interest + dividends + capital gains). If an investor has a bad year, and nets a loss, he will deduct
no investment interest at all. A Trader, on the other hand, gets to deduct his margin interest dollar for dollar
as "business interest" on Schedule C.

… Deductibility of Investment Seminars: One of the more obscure aspects of the Tax Reform Act of 1986
was the elimination of the deductibility of investment seminars, plus related expenses. Prior to this Act, an
investor was able to deduct, as an investment expense, the tuition, travel, hotel, meals, and miscellaneous
expenses for attending such investment seminars as the "Annual Traders World Conference". This has now
been taken away from the investor, and currently, no deduction is allowed for such seminars. Traders,
however, can take all such expenses if they are related to trading.

† Section 179 Depreciation: Another significant provision of the 1986 Tax Act was the decrease in
depreciation expense allowed for assets such as computers, faxes, photocopiers, etc. Let's say you bought a
computer for $4,000. If the depreciable life was set at 5-years by the IRS, you could only take 1/5 of the
cost (or $800) as an expense in any one year. Traders, and other businesses, however, were given the option
(called Section 179), of writing the whole item off in the year of purchase (up to $10,000 of write offs, with
certain other limitations). This meant, that if you were a Trader, you wouldn't be limited to the $800, but
rather could deduct the entire $4,000 in the year of purchase. This will become even more important as the
proposed tax changes in Congress raise this amount from $10,000 to $20,000 this year.

‡Home Office Expenses: Although the IRS has cracked down on its indiscriminate use by taxpayers, they
have not forbidden the home office. They have clarified the conditions under which the deduction may be
taken. In order to deduct a home office, you must meet three conditions: it is your only place of business,
‚ the designated area is used exclusively for business, and ƒ you must have a profit in the business you
conduct.

You must also now file a separate form to take this expense, Form 8826. But, and get this, you must have a
business which again means Trader not Investor. In fact, the existence of an office from which to Trade,
even a home office, is one of the requirements for being deemed a Trader by the IRS (we will look at some
of the other requirements in a future article).

In conclusion, filing your tax return as a Trader gives you many significant advantages over being
classified as an investor. Trading is a tough field, and it is vital to use every possible advantage to get
ahead. Claiming "Trader Status," is surely one of the most important strategies for turning in a profitable
bottom line on an annual basis.

Don't Let Deception Become Your Reality - Bob Pelletier - President of CSI

Deceptive marketing techniques for trading systems are not necessarily illegal ploys. An advertisement
may report facts honestly, but take advantage of the trader's desire to accept an inference of profitability.
Over the years many trading methods have surfaced that have made great advertising copy, but could
represent likely deceptions. I recall a system of several years ago which predicted the date of an
intermediate market turning point within two trading days. The promoter alleged he could do this several
years in advance 51% of the time.

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This may appear to be an incredible feat until you realize that "intermediate turning points" as the promoter
defined them, occur at a frequency of 25 times per year. This is an average of once every 10 trading days.
When you factor in the generous "within two days" liberty, you can see that one would expect to be
accurate 50% of the time on a chance basis.

The promoter did nothing illegal in his prediction promise. He was telling the truth in his claim, even
though he may have had a different analysis for coming up with the same result. The effective deception, if
any, was in inferring that such a method can turn consistent profits after commission and slippage. Only the
long-term track record of such an approach would tell the true story about the turning point system's merit.

One last detail of this system that deserves mention: A turning point occurs when the market changes
direction from up to down or from down to up, but you are not told which to expect. A deception? Of
course!

Examining a more recent technologically sophisticated market tool, I do not believe that neural networks
are trading deceptions when applied properly. But I have read articles in popular futures industry
magazines and other publications which prove that some technicians and writers have taken liberties that
create deceptions from them. Labeling a product a "neural network" is not the same as producing a
profitable system.

Neural networks have been used successfully to solve some very complex engineering problems. However,
the developer who uses the term loosely may have easily ignored one or more basic neural network
principals in bringing his approach to the public. Demand explicit, real records before you buy. Make sure
the system you purchase has been proven to produce profits in the markets. The profit-and loss record will
help prove substance over deception.

DECEPTIONS THROUGH HINDSIGHT ANALYSIS

With the many tool-kit programs available to traders today, the unfortunate tendency of self-deception
through curve fitting has been raised beyond acceptable levels. A market trading simulator that takes into
account the aggregate of buy and sell prices for simulated trades is likely to project profits that greatly
exaggerate the system's real-life capabilities. Why? Because the more control parameters used in creating a
trading system, the less likely it is to repeat the simulated past. Failure to consider the high cost of
commissions and slippage, particularly on a short-term trading system, can also grossly inflate simulated
profits. The trader who ignores these truths is clouding his reality and threatening his bank account.

Deciding what method will bear the test of time and produce consistently profitable results is the necessary
step every successful trader must take. A major factor in the success of any trader is how well one
differentiates between a real profit-producing idea and one that deceives us into thinking it will be
profitable.

Comments on Feb 95 Issue - Don McCullough

Your February 1995 issue was a dandy. I must say that if CTCN continues with high caliber articles like in
the past three issues, the competition is going to have a tough time. I'd like to comment on various
statements made in February's issue.

What can we say about Anonymous Trader? A giant THANK YOU for starters for all three of his inspiring
articles. A. T., I'd be just like you and would want to maintain my privacy. I don't like "speaking for others"
and don't really think I have a right to do so, but as for me, you certainly get my sincere thanks.

I recently got hooked-up to real-time data. I'm licking my chops as I watch the S&P make its 1000 to
2500.00 daily moves. I won't start trading with these intraday-day charts until I get a little more data to
work with. I really believe I have valid or good bet signals, but what concerns me most is will I be able to

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consistently trade my signals? I knew about this very fundamental and serious psychological problem long
before A. T. mentioned it in his last article. However, it's always good to have a successful trader agree
with you. I rank this reinforcement of valid truths about the market as badly needed psychological help for
the up-and-coming trader.

Another valid truth mentioned by Anonymous Trader is, "You learn trading by trading." Real trading in
real markets with real money. I couldn't agree more, and yet I'm sure lots can be learned through thousands
of hours of studying historical charts. I realize, especially psychologically, there's a hell of a difference and
yet I know for sure that a very good type of mental reinforcement (again) comes into play here. With
historical charts, you not only have recent markets to test your signals with, but also all kinds of markets be
they trending, whipsawing or whatever.

In short, I believe psychological reinforcement of valid truths about markets to be absolutely essential in
establishing the certainty one must have to trade his signals in a totally consistent manner. Thousands of
hours effort, even many years may be needed to achieve the needed level of certainty. I expect this is why
most people--including Anonymous Trader's friends--cannot successfully trade even the very best of
systems. You may rightly say, "they haven't paid the price!"

Gary Smith always writes interesting and informed article. I must disagree with both him and Anonymous
Trader about the validity of picking tops and bottoms. Bear in mind, I'm not a successful trader. However, I
have lost very little money in the markets. I attribute this to refusing to act (much) until I'm sure I know
rather than merely think I know how to go about it. I have been more of a student than a trader over an 8-9
year period. However, that in no way means that what I have to say is therefore automatically false.

I am always trying to pick minor and major tops and bottoms. There are certain kinds of breakouts I will
trade, but my main concern is markets' turning points. Before you decide I'm either stupid or naive or both,
consider that the famous trader Paul Tudor Jones, is also a top and bottom picker. He discusses this in the
first Market Wizard book by Jack Schwager.

Rather than tell you my reasons for trading the markets this way, I'd prefer you read Jones's reasons in this
book. We may or may not use the same signals, but I certainly agree with his reasoning. I think top and
bottom picking is, at this point in time and in the minds of most traders, where day trading was a few years
ago. That is, most people at this time strongly believe that you can't successfully trade the markets over the
long run by picking tops and bottoms. I strongly suspect after reading Jones's interview you'll have a
healthier respect for top and bottom picking.

Regarding J.S.M.'s article about Lind-Waldock. This is also my brokerage firm and I wholeheartedly agree
with everything J.S.M. had to say. They are courteous, competent and commissions are reasonable. What
more do you need? I might add that they do offer additional commission discounts if you trade often
enough. You'll have to contact them for full details, but they do state on their "commission card" that they
go as low as $12 per round turn.

The above reminds me that I ought to mention a few other vendors I have a great deal of respect for. One is
Equis Intl. who makes MetaStock end-of-day and real-time investment software. They are tops in my book
in all respects. Their customer support has no equal.

(Let me inject here the fact you can be too cost conscious about the investment software you buy. Hey,
you've got to live with it for many (hopefully) years! Get one of the better programs.) Dial Data has
supplied me with good end-of-day data for several years and at a very reasonable price. Data Broadcasting
Corp., better known as Signal is now supplying me with real-time data and they have been very helpful
with their technical support. My main point is: What would we do without these people? A very big thanks
to all of them.

O. C. R., Sr. Market Analyst - CBOT

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First, let me state how pleased I am with my subscription to CTCN. I look forward to and learn from every
issue. Now for my contribution:

Michel Arimoto commented in the 2/95 issue that every trader should not forget the importance of the last
trading day, first notice day and Government reports. While these statistics are no doubt important,
sometimes obtaining them is easier said than done.

At the Chicago Board of Trade, we have information about the previously mentioned subjects which are
available free of charge to both our members and the public.

To obtain CBOT Market Information Financial & Agricultural Calendars, call at 312-435-3634. These
calendars highlight important economic releases for entire month and are mailed out monthly.

To obtain last trading days, first notice days, etc., please call the Floor Operations Department at 312-341-
3244 and ask for a Monthly Expiration Calendar.

One more piece of information which I feel may help market participants is the CBOT Professionals
Packet. The Packet contains additional information about CBOT products and services. If you wish to
receive a Packet, please call CBOT Literature Services at 312-435-3558 and ask for the Professionals
Packet.

Thanks for offering such a fine publication.

Market Symmetry - Joe Dinelli

Since no one has sent me a copy of the "Holy Grail," I will pass a small technique that may show that tools
are somewhat helpful in deciding the intent of the market.

The power of the number of "24" and its multiples are very helpful in spotting support, resistance and the
termination of trend. Since what interests me the most in reading these articles are the discussions geared
to actual technical trading. I will try to share some basics from the past.

Cycles with the combination of the number of 24 along with basic divergence can help one's timing
whether to enter a trade or exit. The example I am using is the current April Live Cattle contract. From the
low of 67.28 on 10-11-94 and I add 240 which gives the following numbers of 69.68, 72.08 and 74.48. The
top of this move was 74.90 on 012095.

My cycle work was showing a top coming between 02-21-95 and 02-27-95. As the top was developing, we
can see the basic RSI divergence in place at the 01-29-95 time level. Lower tops followed until the final
sell-off was in progress.

The price level could not hold above 74.47. I might add that the corner on the square of nine was 75.70,
with the high being 75.25. It could not move above that corner. As we can see, the cash market could not
close above 73.10 before it also collapsed with failing stochastic.

The cycle work has to be constantly monitored to produce the acceptable end result and adjusted for the
cash market to the futures. But once it is in phase, one can see the accuracy as this was produced three
months ago.

For the stock trader, the same symmetry is in the stock market, such as IBM stock. For the traders looking
for a black box, thinking that all of the thought and judgement process can be eliminated, good luck as I'm
sure it is beyond reach. Our understanding and gained knowledge is all that will survive.

Book Sources - David J. Slavik

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I'm a recent subscriber and want you to know how much I enjoy your publication. In February's issue, Joe
Ross' contribution was right on line, when he said "don't let CTCN degrade with negativism." The type of
articles Anonymous Trader and Dave Reiter have submitted are just great.

My primary reason for writing is in response to Robert Miner's trading book recommendations. I tried to
purchase the two books he recommended at local bookstores in the Dallas vicinity, but there was no listing
for them. I also looked in the 1994 Catalog (most recent edition) from Traders' Library and they also did
not list them.

I found a good source for these two books. They are both in the 1995 catalog "Books of Wall Street" from
Fraser Publishing Company, P.O. Box 494, Burlington, VT 05402. For those members that would like to
find them locally, I am listing the ISBN number for each book: A Short History of Financial Euphoria by
John Kenneth Galbraith (Whittle Books, 1990) ISBN: 0-670-85028-4 $16.00 - Fraser Publishing; What I
Learned Losing a Million Dollars, by Jim Paul & Brendan Moynihan, ISBN: 0-9635794-9-5 $28.95 -
Fraser Publishing

Keep up the good work and my best to you in your further success in publishing CTCN.

Reduce Your Risk Exposure, Increase Your Profit Potential, Trade like the Pros Writing Futures
Options Calls & Puts - Jeffrey Notaro

Selling options can be a dicey game. Know your exposure beforehand; trade with strict money-
management and what is considered by most to be a game for the pros, can be a consistent winner for
practically any trader. Past performance is not necessarily indicative of future results. The risk of
substantial loss exists in futures trading.

The two most common views on the subject of writing premiums are very narrow and extreme. The first is
held by the "kamikaze trader." He is willing to risk it all, and then some, to score it big. He likes to sell
options close-to-the money and close to their expiration. Compounding the problem, traditional span
margining allows for an explosive amount of exposure, with the minimum of cash to back it up. Worst of
all, he very possibly could win a few, thus creating a false sense of confidence that will inevitably explode
into red ink.

At the other extreme, there is his alter-ego; he is a risk-averse, safety-first investor. To him, options are to
be bought only; it is simplistic and maximum loss is quantified. What happens all too often is that the
anticipated market move develops slower than expected. A long enough time has gone by to sap all the
leverage out of the option. Compounding the problem is the choice of a strike price that is too far out-of-the
money. He is left with a position withering at a distant strike price with only days left to go. The
disappointing conclusion is that he predicts the market almost perfectly, but his long option barely
responds. Now everyone does not fall into these two categories exactly; but somewhere in the middle of
these two extremes we find the viewpoint held by the majority of traders when it comes to options.

I will present five basic rules that will shake you free from the pack. I will not go into complex strategies or
theoretical breakdowns of option value; that would require the space of a mid-size novel. But if the
following set of simple concepts are understood, practically any trader who decides to dabble in short
options will be more successful.

1. DO NOT SELL INTO LOW VOLATILITY

To be successful, one has to grasp some concept of volatility. Option values are dramatically influenced by
changing levels of volatility. If volatility is low to begin with and the market begins to awaken from a
slumber, you will see a small movement in the futures compounded into a disproportionately large move in
the options. To get a perspective, historical volatility charts are a good place to start; but keep in mind,
much like Seasonals, nothing has to happen exactly the same as it did in the past.

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Most trading software programs will calculate implied volatility; tracking this over time is probably the
most effective way to know if you are selling hefty premiums or selling yourself too short. No matter how
you follow volatility, you will eventually get a natural feel for what levels are opportune to sell, and what
levels are best left to be bought.

2. DO NOT SELL WITH LESS THAN FOUR WEEKS TILL EXPIRATION

Time decay is your friend. As a grantor of option rights you want to collect your fees as quickly as
possible. Do not fall into the trap of thinking that the shorter you have to hold the position, the less risk you
have. Once an option gets about four weeks till expiration, time decay begins to accelerate faster and faster.
The key is to be already safely positioned before this point occurs.

During its last weeks, an option will fluctuate very sharply in value with a small movement in the future.
You need to have an established position, with a cushion of profit or a tolerance for some wide degree of
fluctuations before this time period begins. To get an idea of the rate of change possible for options close to
expiration, look down a list of those that are going off-the-board soon and see how much they change in
value, by percentage, from strike to strike. The key is to look in that window 30 to 90 days before
expiration for the most time effective points of entry.

3. ONLY SELL NAKED WITH THE TREND

Simple naked options can be the most effective way of taking money out of a long-term trending market. If
done incorrectly, it also can be a quick way to lose many times more than you had hoped to earn on the
trade. Whenever you can comfortably identify a solidly trending market, look to write on corrections and
dips. But wait for the trend to establish itself. By not trying to pick the top or the bottom, your odds of
success increase dramatically. If you are unsure of the market's direction, employ basic trend following
techniques such as a moving average and stochastic. These types of analysis are reasonably trustworthy
when applied to the long-term. Once you really identify a trend, there will be plenty of time to make
money; the key is to be patient.

4. HEDGE WHENEVER POSSIBLE

Short options can be explosive. Hedging a trade with a future or a long option that is close-to-the money
will greatly lower the risk level of the entire position. If you are especially afraid of the market surging too
quickly toward your strike prices, or would just like to capitalize on that move more aggressively, match
each set of shorts with a modest hedge. Care must be taken though to avoid exposing yourself to potential
losses on the hedge portion of the position that cannot be covered by the profits on the other side. If the
whole combination is done properly, it can be one of the most effective short option techniques.

5. ALWAYS SELL THE FARTHEST FEASIBLE STRIKE PRICES

All traders know that it is very difficult to predict any market move with precision. Even if you have a hot
streak, it invariably will be followed by a cooling off period. One of the most enticing features of writing
premiums, is their tendency to become less and less affected by small market changes, as time goes by and
as they end up farther out-of-the money. By moving out to the farthest strike price feasible, your ability to
stay in a trade during adverse conditions is greatly enhanced. If down the road in a trades life-span, the
market suddenly begins moving closer to your strike than expected, that extra cushion of being a little
farther out could make all the difference between a winner and being stopped-out.

In conclusion, no matter what style of trading you do, the basics have to exist: You must judge the market
with a reasonable degree of accuracy and you must use strict money-management and stops. The use of
stop-loss orders does not guarantee that your loss will be limited to the intended amount. The point at
which to throw in the towel with short options is even more crucial, due to their tendency to increase in
value exponentially as the market nears the strike price. If you are patient and conservative, writing calls
and puts can be a lucrative and rewarding way to tackle the futures markets.

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Special Note: Over the years, as Senior Money Manager and Director of Vision's New York Trading Desk,
Mr. Notaro has been in the unique position to observe literally thousands of traders trade the futures
markets. By observing those that have lost and made money, Mr. Notaro has developed his own common
sense approach to options and futures trading. Mr. Notaro can be reached at Vision LP, 90 West Street,
Suite 21115, New York, NY 10006, 800-892-9606.

Book Review by Axel Brandt from Germany on Trading 0ptions and Futures by Joe Ross

Some time ago, Joe Ross published his fifth book with the unusual name of Trading Optures and Futions
which made me curious right from the start being a futures and options trader myself.

His work is 517 pages strong and deals with the interaction of using pattern, price action and technical
analysis on the one hand and various techniques that can be employed accordingly by playing both futures
and options complementing each other. One of his guidelines here is the statistical fact that 80-90% of all
option contracts will eventually expire worthless. Thus, he's constantly at good risk-reward ratios trades to
put the odds even more in his favor. In this context, Joe says that the odds are strictly against you when
buying options, since the investor has to be correct of price and of the time when the direction will change.

The eighth of 30 chapters the book is made of, deals with the importance of historical and implied volatility
and how they are related. This is really a useful and smart part of the book - like all his previous books,
reflecting that the author is a seasoned practitioner with tons of experience in daily trading.

However, at times Ross gets carried away with an idea sometimes ending in confusing conclusions and
repetitions that certainly don't clarify the good point he's aiming at.

Within the book, Ross goes through all familiar options strategies such as ratio (back) spreads, strangles,
straddles and vertical spreads by illustrating them on an actual chart pattern with reasonable position and
money-management techniques. Furthermore, he never misses describing his follow-up thought once the
trade has been put on. This is definitely one of the strengths of this book, over other literature available in
the markets.

On the other hand, the follow-up action may result in rolling up the short options position with a bigger
number of out-of-the-money options. Here we reach the limit for the average size account, because of the
commissions and possibly higher margin requirement to carry over a longer period of time. Thus, this
cannot be considered a choice for the novice trader involved in futures and options. They should start with
Natenberg's or McMillan's book first.

Reduction of Risk & Using Small Stops - Jim Burke

I've been trading futures for 8-years, some fantastic and others truly forgettable. Only in the last 6-months
have I been able to "put it together" by using precise trading rules. A checklist for entry and exit.

I also reduced my risk on daytrades of S&P from 3 to 8 tics. When I make precise entries, 3 tics is more
than enough to risk. For currencies I use 8 to 10 tics and T-Bonds 13 tics. Some methods I rely on
2,3,5,8,15 and 30-minute bars for S&P, Yen 1-minute bars, 3-minute on Swiss Franc and daily for all short-
term trades on 30 markets.

Even on my long-term trades, I have reduced risk by more than half and very quick to place break-even
trades. I have found that a break-even trade is as good as a profitable trade. Also, if a method requires you
to take a profit at a certain price, place an "OCO" one cancels the other (two orders, either both buys or
both sells).

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So many traders do not have a trading plan with defined rules for entry, trailing stop, profit objectives and
protective stops. If you don't know which ingredients to use, one cannot bake a cake. I believe if one spends
more time on cutting risk and less time on making high profits, the profits will come.

Minimum Required Capital - Wayne Griffith

A significant reason for failure in futures trading and other business ventures is undercapitalization. Futures
Truth calculates hypothetical net gain (loss) based on three times exchange margin. This is currently
$33,750 (3*$11,250) for an S&P 500 contract, and certainly does not encourage the novice trader to jump
in undercapitalized. However, an experienced trader wanting to know the absolute minimum capital
(ignoring any minimum account size requirements) required to trade a system during the last 12-months
would calculate minimum required capital as the sum of maximum exchange margin during last 12-months
plus maximum drawdown during last 12-months.

I did this calculation for my S&P 'Hourly' Overnight system for 1994. Using the Futures Truth $2,200 12-
month maximum drawdown, I calculated $13,450 as required minimum capital. Using the Futures Truth
$17,600 12-month hypothetical net gain, the 12-month percent gain was 131%. (Futures Truth reported
52%, and ranked the system accordingly, using $33,750 minimum capital.) Things look very different
using this less conservative approach to calculating minimum required capital. Remember that you should
have reserve capital to withstand a possibly larger drawdown in the future. Specifically, heed the wise
advice I heard from John Hill at a Futures Truth seminar ("Your largest drawdown is always in front of
you"), or you risk failure due to undercapitalization.

Simplicity Is Best - Bill Wermine

I primarily trade currencies and live cattle. I use two simple methods for trading. It took more than 10 years
to boil my trading down to simplicity and finally profitability. I tried Gann, Elliot Wave, complex technical
systems, chaos, volatility breakouts, optimizations, other people's systems, etc. Not to say that these
systems are unworkable - just didn't work for me. My conclusion is that you have to find your own way and
simplicity is best. Concentrate on the pure beauty of price, the immediate market action and try to
internalize trading wisdom from master traders. For example, Jesse Livermore said you should wait for
extreme price movement and then place your trade risking a small amount. I have made this wisdom part of
my gut and trading plan and I wait for these opportunities.

I will describe my methods of trading live cattle and currency. If readers have any suggestions or
comments, I would welcome them. I do not trade in isolation and contrary to many others' methodology, I
believe two heads are always better than one.

Fundamentals work well with live cattle when combined with Seasonals and a technical entry system. I
watch the trend of cattle weights, box and load movements and carcass price equivalents. These
fundamentals measure supply and demand. My technical entry system is very simple. I go long as the
oversold RSI begins to tic up and short as it tics down from overbought. I use a 10-bar RSI. I never short in
the winter or go long in the summer. My entry is at the extreme and I risk no more than $1.00. If it fails, I
wait some more. That's it. It is a slow but steady moneymaker.

With currencies, I'm about a 75% technical trader but use reaction to news as my fundamental filter. Over
the years, I have found that what works with currencies are always changing. Sometimes you need to focus
on bonds, then gold, then the S&P, now Mexico, European markets, Japan and always the Federal Reserve.

I keep a little book with columns listing the fundamentals and what the crowd is focusing on. I note crowd
reaction to the news. Along side of that, I record net changes in prices of bonds, all the currencies, CRB
index and the S&P. I will not enter unless all indicators point in one direction. If they are all dollar bull, I
will short the weakest currency at a time the momentum is really pushing hard. I place my stop over a
swing high and will quickly move my stop to break even on the next swing.

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I have found that the greatest risk of a position is when you first put it on. I have learned from Joe Ross,
that the important thing is to reduce risk as soon as possible and try to put your positions on at the time of
least risk. This method works for me, as it meets both of these criteria.

I would recommend anything written by Richard D. Wyckoff. He earned a fortune by trading the market
based on its own action. Fraser Publishing, Box 494, Burlington VT 05402 has a few copies of Magazine of
Wall St., published by Wyckoff in the 1920's. Mr. Wyckoff always gave trading hints in each issue. Ask for
Eric Hanson, as he is the man in charge of the Wyckoff magazines. They also sell Rollo Tape and some of
Wyckoff's stock market books.

Omega TradeStation 3.5 - Good Product but Poor Support - Matthew Chiang

I purchased TradeStation 3.5 off-line in January. I opted for the 9-month installment plan. Omega's sales
team is pushy and typically phone-order style and tried to sell other options (video tapes) over the phone.
Finally, I asked the salesman to fax the sales confirmation (total monthly charge and any other hidden costs
of ownership, such as maintenance fees). He never did, despite my repeated requests. I hope I won't get
surprise bills later.

They shipped version 3.0 in two days and promised to upgrade to 3.5 later. According to their ad, Easy
Language is easy. But I found their manual oversimplified and few examples were given. Omega offers a
video tape on using Easy Language for $195.

I called their technical support line on how to program a few patterns. I called at different times and days,
but so far have failed to get through the busy tone! There were a few times I was on hold, but after waiting
over 5-minutes I hung up (no toll free #). I then faxed my questions, but no response. I faxed and called the
salesman and asked for the upgrade. He promised to take care of my requests. I received the 3.5a upgrade,
but still no fax reply on the few commands. The 3.5a upgrade is so buggy that three times out of five, I got
a system error.

The help feature is not yet implemented, so I refer to the manual. The 3.5 Easy Language manual has been
expanded, but still inadequate in examples. There are no examples on identifying chart patterns.

I again called the salesman, he quickly routed me to customer service. The lady charged me $35 for
sending the 3.5c upgrade, even though I complained about the buggy program. Now one week has passed
and I still haven't received the upgrade, perhaps 3.5c is still buggy and they wouldn't ship yet. This time I
didn't call, I 'd rather wait for a bug-free version.

Since early January, I have tried no less than 15 times calling Technical Support (try it yourself: 305-xxx-
xxxx). Editor's Note: I took the liberty of deleting Omega's tech support number given by Matthew, as we
don't want their phone line to be tied up even worse with test calls, perhaps even from non-clients. I could
hardly go beyond the busy tone. The best I could get is music while holding and the salesman considers his
job done. I did not order the video tape. I'm not sure if doing so would allow me to do away with their
technical support.

I was disappointed that Omega Research offers customers such lousy service. They should answer faxes, if
not calls. Their salesman should be more responsive beyond closing sales. They should put more examples
in their manuals, instead of asking customers to buy more products to learn how to use the product! Their
BBS has relatively few examples, and most are indicators, not systems. So not much can be learned from
system writing.

Meanwhile, I am using TradeStation 3.0 (it expires in 2-weeks), and always second guessing how to
properly write my systems. If your'e a TradeStation user and could share your knowledge, please call me
(located in Canada) 1-604-540-2568 evenings or fax 1-604-540-2529 and I will call you back.

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 Trading Educators Ltd.
Freeport, G.B., Bahamas - Joe Ross

In my last letter I promised that if I ever wrote an article I would not use my name. However, I really don't
have time to write articles for both CTCN and for my own newsletter. I am currently buried with work. So
with great apologies to you and your readers. I am sending this excerpt from the most recent issue of my
regular newsletter, Traders Notebook. It is so recent, that I finished it only this morning. My own
subscribers will not receive this information until May of this year. Perhaps that will make amends for my
being fickle and not keeping my word.

Please include the above paragraph with the article, because I do apologize for my actions. I could not
resist sending you this article because I'm a man on a mission. I want to help educate as many people as I
possibly can while I'm still able to do so. I plan on retiring one of these days and feel a sense of urgency to
teach people the truth about markets and trading.

My health has been questionable lately. I ask your readers who believe in prayer to pray for healing for me.
Editor's Note: The seriousness of Joe's health problem is worse than he indicates, so please remember Joe
Ross in your prayers.

FIRST NOTICE DAY

There was a time during my trading career when I took potshots at trading around First Notice Day (FND).
"Around" FND refers to three days in particular. In some markets they are, two days before FND, one day
before FND and FND itself. In other markets such as the currencies, the action I will describe takes place
the day before FND, FND, or the day after FND.

Throughout this issue, unless otherwise noted, when I refer to FND, it is inclusive of the two days prior to
FND to one day after FND. Generally, a lot of action takes place around FND. Why? Because that is when
most traders roll their futures positions to the next month. In fact, unless you are a hedger, a registered large
trader, or expect to take delivery, some brokers will not allow you to hold a futures position much beyond
FND. They get panicky if you do, and will usually call you and insist that you get out. I have had brokers
who allowed me to trade well past FND, when I got special permission from them.

As a rule, you need to be out of the market by FND. For those of you who are brave and would like to learn
how to scalp around FND, I will include some illustrations of what to do.

You might be tempted to think that a market will go down around FND because everyone is dumping their
position in order to move into the next month. However, this is not true because for every long, there is a
short. For every position liquidated by selling, there must be a buyer. The people buying are those who
were previously short. They must buy back their shorts in order to rollover. Those selling, are liquidating
their longs.

I have heard it said that over a span of many markets and over a statistically valid period of time, inside
bars comprise about 10% of the market. The price bars involved with FND's seem to involve many of these
inside bars. When they are not represented by inside bars, FND's often show up as underside bars. This
pattern can be upset by virtue of some economic news or change in the fundamentals. But the rule is that
FND bars tend to be small. There is plenty of buying and selling, but the intraday range is not great as
traders exit their positions.

The rub comes when you try to trade off the intraday high or low made by the actual FND bar. The trade
has to be made the following day. Many brokers won't let you initiate an entry trade after actual FND. For
markets whose rollover is greater than one month, look for this to happen on FND for those months having
the greatest Open Interest.

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Gold offers a good example of this concept. February Gold would have an FND in January. The February
contract is a major Gold contract with lots of Open Interest. March Gold is very thinly traded and you
would not look at the end of February for a Gold FND and expect much to happen.

Even August and October Gold may be unproductive, because after the June Gold goes off the boards,
December Gold may contain the most Open Interest.

Charts in Print Copy

Now let's view the charts above. In these charts I have shown only the bars in and around FND so that you
get a better view. I randomly picked these views.

You may be thinking to yourself, "Why can't I simply do this every day, why wait for FND?" The answer is
you can do this every trading day. In Trading the Minute, I wrote that the breakout of yesterday's high or
low was an entry signal. The difference here is that on the days immediately preceding FND, there is apt to
be better fills because there is more volume. Because of the increased volume, you can even do this trade in
thin markets provided you do it prior to FND. A thin market will generally become even thinner after FND,
and therefore unsafe for this trade. Chart in Print Copy

Once all but those who have a need to be in the market are gone, i.e., after FND, even the most liquid
markets can become quite thin. It's the thinness, the liquidity that makes post FND markets so dangerous.

Two days before actual FND, you begin to watch the market for a smaller than usual bar or an inside bar.
The trick is totally in the entry and it is how I used to scalp from the daily chart before there was such a
thing as daytrading.

If the open of the day after the small bar is a gap outside the range of the small bar, then you trade as
follows:

Gap up, sell one tick below the high of the small bar day. Unless a trade is taken, this signal stays in effect
to include the entire day of the day after the actual FND.

Gap down, buy one tick above the low of the small bar day. Unless a trade is taken, this signal stays in
effect to include the entire day of the day after the actual FND.

‚ If the open of the day after the small bar is within the range of the small bar day, buy 10 points prior to a
breakout of the small bar day high, or sell 10 points prior to breakout of the small bar day low.

ƒ If the open of the day after the small bar is within the range of the small bar day, and the open is less than
10 points away from the small bar day high or low, wait until prices trade further away from that high or
low and then enter when they come within 10 points prior to a breakout.

If FND comes and there has been no inside bar or no small bar, then trade the bar after the FND according
to 1-3 above.

If you or your broker don't like the idea of entering a trade because of the liquidity following FND, then be
aware that many signals come on one day prior to FND. These signals can be freely taken as the market
will be comparatively liquid due to the need to rollover.

The FND trade is a scalp trade. This means you are in for only a day or two. Do not under any
circumstances view this as a long-term trade unless you find yourself in a really good situation and are
willing to roll into the next month.

One management method for the trade could be in accordance with this view: If you are trading a three lot,
liquidate one or two contracts when you have sufficient points that a single contract will cover the costs of
all three contracts. If you liquidate two contracts, you will have covered costs and bagged a small profit

245
equal to twice your costs. Then, bring the remaining contract(s) to break-even. Once the market moves your
way, trail a 50% stop, and as soon as possible switch to the use of natural support or resistance to protect
profits. Another management method is a fixed objective for all three contracts.

I used a continuous Crude Oil chart for this illustration for two reasons: 1. I normally switch to the month
with the most Open Interest prior to FND, so only my continuous charts contain FND. 2. The Crude Oil
rollover is every month, so I was able to show you more instances of the FND phenomenon.

Another reason this trade is different from what I wrote in Trading by the Minute, is the procedure for
taking it. We are looking to sell one tick below the high, and buy one tick above the low. This trading
action is different from getting long just ahead of a breakout of the high or short at a breakout of the low.

If you want to try this technique as a scalp trade off the daily bar chart, then be sure to choose liquid
markets. The objective of the trade is to get you involved in coordination with the appropriate momentum,
i.e., on the correct side of the price action. As previously mentioned, before there was such a thing as
daytrading, I used to scalp the market from the daily chart using this method.

Until, and unless I'm in a winning position, I don't consider staying in the trade overnight. If I do stay
overnight, I will hedge my position by spreading off against a back month or a similar contract at another
exchange. The hedge locks in whatever profits I have earned and gives me overnight to assess the situation
and decide upon any further action for following day. It's always pleasant to sleep on a locked in profit.
Example: I would hedge by selling two half-size Md-Am Swiss Franc contracts for every CME full size
contract that I was long. I would do this if I were in a winning position and long Swiss Francs near the end
of the day. The following day or later, I would drop one or the other sides of the hedge depending upon a
strong directional signal about whether the market was moving up or down. I also might drop both sides,
thereby taking my locked in profit and look elsewhere for a better opportunity.

System Writing in Supercharts - Shawn Halfpenny

I'm a new subscriber, so I thought I'd jump in and contribute my two-cents worth.

I use Omega SuperCharts and find it excellent in most respects (for the price, you can't beat it). The big
drawback is its so-called "Easy Language" in which you program your own systems. It is really very
limited in what you can program and certainly troublesome in expressing what one would think is the most
basic of system ideas. However, l have discovered a few tricks to get around some of these limitations (as
many of you already are aware of - but I'll explain them anyway).

Take the following example of a simple system (it's just some nonsense I made up as an example, don't try
to trade it).

(1) if 0=0 THEN

BEGIN
VALUE1=(H[0]+ L[0] + C[0]) / 3;
VALUE2=(2 * VALUE1) - H[0];
VALUE3=(2 * VALUE1) - L[0];
IF OPEN OF NEXT BAR >=VALUE3 THEN VALUE4=4
ELSE IF OPEN OF NEXT BAR >=VALUE1 THEN VALUE4=3
ELSE IF OPEN OF NEXT BAR >=VALUE2 THEN VALUE4=2
ELSE VALUE4=1;
IF VALUE4=4 OR VALUE4=3 THEN
BEGIN
(2) BUY NEXT BAR AT MARKET;
END;
IF VALUE4=2 OR VALUE4=1 THEN
BEGIN

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(3) SELL NEXT BAR AT MARKET;
END;
(4) END;
(5) IF 0=99 then (this "then" is outside the white window)
Buy not used
Buy next bar on close
(6) Buy next bar at market
blab blab blab...
blab blab blab...

My frustrations led to experimentation and I discovered that you can "fool" the system editor by doing the
following ...

Start by putting an obviously true statement right off the bat. Use the 'if' that is already present at the
upper left of that little White window, and type in "0=0 then begin" (zero equals zero). Now you're off and
running. You can program in almost anything (that is a legal Easy Language statement, that is) now without
the usual structural restrictions.

‚ That's right, you can even explicitly type in the buy/sell orders. This will give even more flexibility in
your system-writing.

ƒ I found you can mix in a buy order with a sell order and it'll work. It doesn't matter if you're in the "Long
Entry" section or the"Short Entry" section.

„ Put an "end"; here to close out the starting "if" statement.

… Another trick to fool the system editor. Put this obviously false statement here and the five Buy order
options at the bottom will never get activated (which is what you want since your entire system - buys and
sells included - will be within the programming window).

† You still have to put a tick in one of the Buy order selections or your system won't compile right.

So there you go friends, a little trickery, which I hope will help some of you.

On a completely different note, a few questions for Anonymous Trader regarding his interesting Day
Trading methods on the S & P. How do you calculate a Keltner Channel and what do the parameters
(close,9,2) mean? Is it like Bollinger Bands? (Philip Toh's article in last month's issue just left me
scratching my head, sorry Philip). ‚ What do you mean by 2 pivots back, do you mean 2 bars? ƒ Is your
system as effective in other markets, namely T-Bonds and the currencies? „ Do you have a strict definition
of a reversal bar?

Also to make a few member requests, does anybody have NAVA Patterns? How do you like it? What about
the books "Daytrading with Short-term Price Patterns" by Toby Crabel, "Opening Price Statistical Data on
the Futures Markets," by R. Earl Hadady, and "Short-term Futures Trading" by Jake Bernstein. Are any of
these books good or not? Also, just received in the mail today literature from George Lane (stochastic guy)
promoting his seminars in Day-Trading. Promises big bucks. What's up with that?

Oh, most importantly, does anybody know of a good reliable method to predict if tomorrow will be an up
day or a down day or whether tomorrow's high or low will occur first, please call me. Together, with this
knowledge and the research I've done, we can put together a terrific daytrading system.

Joe Ross and Expert Educator - Wayne Roberts

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When Joe Ross speaks, I listen. He wrote four books and I have them all. The printed word seems passé.
Everybody wants to impress me with their audio videos or software. I wish Joe would make frequent
contributions using his real name and not a nom de plume.

Seasonal Trade - J.S. from California

There is a strong seasonal tendency for T-Bonds to decline for about one week starting on April 15. This
has occurred in about 16 of the last 17 years. Will this decline repeat again this year? I don't know, but I'll
be looking for sell signals around April 14.

Tidbits on Financial Astrology - Carol Murphy

Exact quote from the book forecasting prices.

The conjunction of Mars and Uranus is very significant. It produces unexpectedly galloping changes in
prices of all commodities, including Bullion within a very short duration. If the fall in prices last 10 to 12
days, rest assured that the reaction toward higher levels will be sudden and rapid. Therefore, you should
exercise great judgement in cashing your profit. This conjunction makes sensible operators millionaires
within 2-weeks. 1/29/92, 1/13/94, 1/7/96

Member Requests

Bill Beattie wants recommendations, comments, reviews on Dollar Trader, ADM and Market Profile.

John Jenkins would like to know if anyone has experience or knowledge about any of Bruce Babcock's
systems.

Resource Guide & Editor Reviews

I have been getting Bruce Babcock's Commodity Traders Consumer Report bi-monthly publication(CTCR)
for some time now and find it an excellent value. Not only does Bruce do well-done and straight-forward
reviews of various trading products, but he also keeps track of the performance of a number of well-known
commodity hotline services. Personally, I have enjoyed Bruce's detailed interviews of many highly
regarded and knowledgeable trading experts as the "best" part of CTCR.

For example, the last two issues featured insightful and highly educational question and answer session
interviews with Jake Bernstein, who is easily one of the most knowledgeable and highly regarded trading
experts. Also included was an excellent article on managing risk which featured interviews with well
known traders: Walter Bressert, Steve Briese, Phyliss Kahn, Michael Chishom, Jack Schwager and others.
Bruce also did a detailed review on John Ehlers and his Mesa program. Bruce can be reached at CTCR,
1731 Howe Ave., Ste 149, Sacramento, CA 95825. Phone 1-916-677-7562. Look into this.

I recently had the fortune of viewing Kent Calhoun's well-done and informative video titled "The Five
Most Instructive Lessons of Commodity Trading." It covers several aspects of commodity trading,
including Kent's well-known Vertical Bar methodology. In my opinion it is easily worth its cost. Kent can
be reached at 1-210-238-3084.

Robert Miner is the author of "Dynamic Trader Analysis Report," the monthly publication of Dynamic
Traders Group, 6336 N Oracle Ste 326, Tucson, AZ 85704. Phone 1-602-7973668. Some members may
recognize Dynamic Trader's former name which was Gann Elliott Educators. Robert does an extremely
thorough job of detailed market analysis. His March issue analyzed S&P, Bonds,Gold,DMark & Beans.
Plus, an excellent 56-page special report on the Grain Markets for 1995. Check it out.

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 There has been good interest lately on options trading. There doesn't seem to be many good sources of
information on trading options on futures. However, I have found one titled "Opportunities In Options" by
David Caplan, PO Box 2126, Malibu, CA 90265. Phone 1-310-456-9699. David covers eight market
groups and gives specific advise, including calls and puts, spreads, ratio spreads. He also recommends
which specific strike price to use, and over/under valued options, and trend analysis. Investigate this one.

Issue 24.

More on How to be a Successful Trader Anonymous Trader by S.A.T.

As mentioned in my last letter, I would not be writing any more (never say never I guess). Dave asked me
to contribute again, since he has gotten many requests concerning my trading, methods used and
observations, and how I could be reached.

First off, let me begin by letting readers know, especially those who have written me via CTCN, I cannot
respond to individuals personally as I am too busy either trading or spending time with my family. I just
don't have the time or energy to deal with people after trading every day. When the day's done, I walk away
from the monitor and relax with my family.

If I did respond, I would have to charge $3,000 to $5,000, and I would feel guilty. I have lots of losses from
previous learning, educational and getting your guts kicked in years to make up. You see, I was just like
everyone else, until the last couple of years. The only difference, I was able to find a simple methodology
and the key to make it work - inner psychological control of my dysfunctional behavior. (Read Mark
Douglas' book, I mentioned specific chapters in my last article - very important).

I feel that after all I've written that many people missed the boat about what I was trying to say. Dave Green
tells me many CTCN readers wish to know how I trade, where to enter, exit, place stops, how to know
whether to go long or short, etc.

As I mentioned before, I have shown two friends how I trade. They know it so well, that they call me up
and tell me what they thought I did for the day and they're just about right. However, one cannot pull the
trigger and he loses on the one or two trades he takes every week. I trade 3-6 times/day. The other friend is
an older man who makes great money when he trades, but hates the fast pace and sitting at the monitor all
day, so he doesn't trade much. He is fairly well off and doesn't need the money.

My point is, it's not the method, it's how you handle your emotions when trading. Knowing yourself and
your likes, dislikes, strengths and weaknesses will help you develop a way of trading you'll enjoy. Trust,
execute flawlessly as possible and then enable you to pay yourself as much money as you're able to handle
in the market, and this in time will grow also.

Again, my method is very structured and mechanical. It is not 100% mechanical. Sometimes I pass up
trades because my experience and gut feelings about the markets' behavior makes me cautious. Sometimes
I'll wait 5 or 10 minutes before acting on a signal. Sometimes I enter immediately without hesitation.
Sometimes I get out before my method tells me to. Sometimes I bring my stop to break-even quicker than I
normally do.

The point is, every day is different. Even though I basically trade exactly the same way each day, the
manner in which I execute the trades is a function of my experience, confidence and psychological training.
This is the art of trading, and makes the difference between losing and winning.

Neither I nor anyone can teach this. This is acquired by oneself through experience, practice, pain,
suffering and heartache. We learn the most from our failures, this is so true. This is why I will not work
with anyone, because I can't teach this. This is my problem with so many educators. Trading looks easy on
back charts.

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I will try to give some tidbits of advice on where to start looking or what I feel is the best and most simple
way of trading. I have included charts at the end of this article.

One thing I use on occasion throughout the trading week is the Ross Hook (if unfamiliar, buy the book).
The Vanilla Hook is all you need. Trade in strong trends in the beginning of moves or breakouts, risk little,
take medium size profits. You can make a living just doing this. See 5-minute chart of examples of a hook.

Also I use pullbacks of between 35-62% retracements in a trend swing that gives a reversal bar back in the
direction of a trend and that makes a pivot (low, high). I use this the most and it works great. However, it is
the art of trading that will make all this very profitable when you master yourself and reading market
behavior.

Personally, I would take one market and master it. Don't trade 20 markets like a banana-head. I like the
S&P500 and I take a couple trades a week in the Swiss Franc. All on 5-minute charts (same method, same
everything).

My average trade lasts 30-60 minutes, sometimes more, sometimes less. I take my profits quickly and try
not to get married to trades. Learn to be imperfect at times and plan for this. This might make some of you
feel better. I usually never risk more than $300 on an S&P trade. Well I did two (not one) really stupid
trades last week. My ego got involved and I knew or thought I was right on a couple of trades. The first
one, I sat thru a $750 drawdown to make $300 which sounds great, but it set me up on the next trade.

Chart in Print Copy

I did the same thing and lost $1,500 in 30-minutes on the S&P. I reversed my position and started going
with the trend. Put my stops back in and ended up making $1,100 for the day. Had I not made these
mistakes, I would have made $3,000 plus for the day. On a 1-lot (that's what I trade mostly) I'm fixing to
increase to 2-3 lots shortly. So you see, I still make mistakes and continue learning each day.

I've included charts (see pg 2) to show examples and give ideas to develop your own methods and
personalize them. Sorry - there's no canned 100% system that will make you a great trader! The Keltner
Channel is something I use as a visual aid in market direction and strength. I don't know much about it. It
helps me visually, so I use it. A friend told me about it. I looked at it and liked it. Enclosed is my
TradeStation formula. You can figure it out, if you wish. Again it's a tool, not a Holy Grail.

I personally recommend only intraday trading. I hate trading daily charts and overnight trades. Benefits of
intraday trading are as follows:

More profit - especially if you trade size

‚ Less risk
ƒ More control with money-management
„ No overnight exposure - you sleep at night and weekends. Remember coffee, lumber, cotton, and
currencies, lately. How would you like to wake up with these against you or locked limit for 2-5 days in a
row against you? One bad one like this can ruin 6-12 months of hard work. No Thank You! I don't care
what anyone says, it's not for me.
… Quick reinforcement - you get a winner or two in the morning and you feel great. You don't have to wait
3 to 7 days to book a profit - just 1/2 to 1 hour.
† If you lose, you can make it up within a few hours and you are back in the black quicker, making you feel
good.

I know some people will write and dispute this, and that's OK. It's my opinion formed after doing all the
other stuff from experience. Dailys didn't work for me. Too slow, too boring, too much exposure and too
many markets to keep an eye on.

Again, trade with trend, enter on retracements, use small stops and take profits as best as you can. Better off
taking a profit too quick than staying in a trade too long. You'll learn the right feel for this as real-time (not

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paper) trading experience grows. You will only begin to learn about trading and yourself with real-time,
real (actual) trades. You must trade to learn. Set aside some money you expect to lose as tuition. You'll
probably graduate with honors and do it quicker. Don't get hung-up on paper trading.

I hope this information helps. I wish I could do more. Unfortunately, this is a journey we all have to make
alone. For those who succeed, the rewards are truly satisfying.

P.S. I enter two ticks above or below the signal bar. Risk $200-300 maximum in S&P 500. Swiss Franc
(currencies) 7-10 tics maximum risk. These are only guidelines, you must adapt for yourself.

On Keltner Channels - The stronger the angle or slope, the stronger the trend. In a trend, I like for prices to
retrace back around the mid-Keltner before I look to enter - on a signal back in the direction of the trend.
However, in really strong steeply trending markets, I will not wait for price to hit mid-Keltner Channel,
because it will never get there. You'll see this thru experience.

Software and Data Preference Polls: Not Gauge of Quality - Bob Pelletier of CSI

It's that time of year again. Stocks & Commodities Magazine ran its annual "Reader's Choice" contest and
the winners are trumpeting their accolades all over the investment rags. This brings up the annual
controversy over user preference and just what "Reader's Choice Winner" really means.

For those of you who don't read S&C, let me explain the competition. The subscribers of S&C were sent
ballots listing advertisers and potential advertisers of the magazine. They were asked to select their one
choice in a number of categories.

Let me be clear on this: They did not compare the competing products or services as good, bad, worst, etc. .
. . Nor were they asked to rate individual aspects of the contestants, such as quality, service, etc. The
winner in each category was, quite simply, the one with the most votes.

The fact is, the so-called "Reader's Choice Award" in each category of software or data has absolutely
nothing to do with the quality and performance of the product. Most readers may have known of only one
product in each category. Regardless of the superiority of the other products about which nothing was
known, the product familiar to the reader got the vote.

While this type of balloting shows the product most frequently used by S&C readers, it does not say on
what basis (or under whose influence) the choice was made. None of us can know the private list of
candidates each reader was familiar with when casting a vote. In this flawed study, a non-vote due to
unfamiliarity with a product carried the same weight as a non-vote due to a bad experience.

The editors at S&C are the first to point out that quality has no bearing on the outcome, but this message is
lost in the media circus created by the winners. MetaStock used their win to promote their software when
compared to a competitor. Likewise, another winner showed their multiple awards in a recent magazine
promotion.

Using S&C's "Reader's Choice Award" as evidence of progress in one's own accomplishments brings to
mind George Santayama's quote, "Those who speak most of progress measure it by quantity and not by
quality." There are more product longevity and satisfaction in quality than any other attribute of
performance. Unfortunately, S&C left quality out of their questionnaire.

It is interesting to note how very laudable the study seems to the winners and how very biased it appears to
the dozen or more losers in each category. As a "Finalist" in the data service category, we find ourselves in
the crowd shouting "foul." When CSI lost out to competing data services, we felt compelled to advise S&C
of the flaws in their study. Neither of the two letters we submitted to the editor, making several valid claims
of bias, were accepted for printing.

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 Day Trading Insight - George Moldenhauer

It seems like there has been an incredible interest in day trading in recent issues. Frankly, I fail to see the
attraction. As a full-time trader/advisor, I realize that day trading is time consuming and mentally taxing. I
must think that for most of you, you have better things to do with your day.

I run into people that are constantly in awe of the fact that I'm living the life they dream about... as an off
floor trader. I work out of my home and make a comfortable living. But that doesn't mean that it is easy.
People think that trading stock index and bond futures is easy and it "beats working." If you want to be
good at what you do, it takes a lot of hard work. I get out of bed before my neighbors do. I start my day
before they have their first cup of coffee and often I'm working when they get home from work.

But dedicated individuals can make a living trading. And it doesn't necessarily take big money to be
successful. In fact, as an experiment, I have (since the first of the year) been trading a very small account.
In this account, I have been trading T-Bonds and TNotes and more recently Stock Index Futures. Most of
the trades in this account have been day-trades (some have been held in the night session and only recently
have I held Eurodollar positions overnight). I have done this to prove a point... that an average person of
ordinary means can make it trading futures. In fact, I seem to remember reading that Richard Dennis was
down to less than $1,000 before he turned the corner.

While I am only 3-months into my little project, I have yet to have a losing month. I'm constantly pulling
profits out of the account and the account is profitable. The approach is simple. Each night after the close of
Bonds and NYSE, I make a few simple calculations that will give me a directional reading for the next day.
These calculations are simple to do and can be done by hand or on an inexpensive hand-held calculator.
From that point, I have a good idea about how the markets will close for the next session. With that
information, I know my trading approach for the next session.

The system works with notes, bonds and stock index futures. The best part about this approach is that you
can have a trading plan for tomorrow, today . . . before you hear the news (or as I like to call it noise) from
the markets overseas. With this information in-hand, I know exactly how I am going to approach the
markets tomorrow. With my game plan in-hand, I can approach the market with a great deal of confidence .
. . an important element to your successful trading.

I have seen several contributions recently from members that talk about their success. There is one common
element that they talk about... discipline. My experience is that discipline comes from confidence. If you're
confident, you have a winning approach, then it's easy to be disciplined. But if you don't have a winning
approach, all the discipline in the world still won't make you any money, period. It's easy to have discipline
when you know that the probability of a positive outcome is on your side.

Michael Jordan doesn't hit all of his shots. If he were on my team, and we were down by a point with only
seconds on the clock, I would have the discipline to get him the ball . . . wouldn't you? Trading success is
like that. Know the odds, trade the odds and over time you will make money.

Not Seeing the Forest for the Trees? - David Hutton from Australia

It's interesting as traders that we find ourselves on all mailing lists. We receive promises of riches beyond
our wildest dreams that are just around the corner, if we are just prepared to shell out another $199 for the .
. . "Greatest Discovery this Century!"

Don't get me wrong, I am the first to admit there are some good ideas out there, and you probably do to. I
have a library of trading books, and some trading systems. After all, who was it that said, purchasing
someone else's brain was the cheapest investment.

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But by far, the most valuable knowledge that is available to you as a trader is what you learn about yourself
over many years of trading. To be successful, these questions need to be answered:

Are you a subjective or an objective (system based trader), or do you fall somewhere in between (if you
are very careful?)

‚ What time frame are you comfortable trading? It's no good buying or designing a trading methodology
that takes trades for periods of two weeks to a month, if you are worried about your profits every day. It's
no use saying you are going to day- trade, if sitting in front of a screen all day is going to give you a
nervous breakdown.

ƒ How do you handle drawdown? What are you doing looking at systems where profits are large, but there
are drawdowns of $15-$20,000 in any annual period? If you can't handle drawdowns of this magnitude (and
there's nothing wrong with that) then don't go with these methodologies.

„ Simplicity - If a methodology is not easily understood and clearly written, you're in trouble. Remember
the average human can only take in a maximum of seven pieces of information at any one time. So if your
screen is showing two time frame bar charts, two moving averages on each, channels, and a couple of
indicators thrown in for good measure... and you are trying to trade, then you are kidding yourself. Your
brain has told you to take a hike and just won't make any decisions, how could it?

A good test to see if a system is suited to your personality/psychology, is if you have the discipline to stick
with it. Even if you've spent months designing what you think is the perfect system, you find yourself
looking for excuses not to take trades or picking holes in it, chances are that besides other problems you
may have, one of the major ones is the methodology not being suited to you. Take another look, and be on
the lookout for this behavior.

If you are purchasing systems, make sure it has the ability to backtest and walk forward the methodology to
become comfortable with the results. You want to make these systems your own. You need to know what
the drawdown patterns are. What the percentage of profitable trades are. How it performs in good and bad
periods and how long it stays in trades.

Why on earth would anyone buy a black box on a promise? At the first sign of trouble, you will stop using
the system because there's nothing to enable you to have confidence in its ongoing performance.

Many thanks to Dave Green for an excellent publication. It's great to have such a wide forum for views,
ideas and inspiration available to traders. One common theme that I have noticed from the articles being
written. I wonder if you have to? Those traders that are doing well have a relatively simple and clear
explanation for their trading methodology, while others that seem to be struggling are lacking a clear
direction and methodology.

From my own experience, I believe that while many traders would like to trade off the screen with some
subjectivity, most need strict rules to trade by. This would include in its crudest form, a trade sheet which
provides for ticking boxes when trade criteria are met (as some of mine are), with order levels and stops to
be placed, to computer generated orders printed out by programs such as SystemWriter (also as some of
mine are). My methodologies tend to be relatively short-term (1-3 days), typically have extremely low
drawdowns by most system standards, and have a relatively high percentage of profitable trades. Longer
term trades stem from short-term low risk entries, and would typically run for 3 to 10 days. Hopefully this
has been of some assistance to those of you still struggling to find your trading identity.

How I Make Money by Using Scale Trading Techniques - S. F. From Europe

The reason for my writing is that I have become a convert to the idea of Scale Trading. Therefore I write in
defense of Robert Wiest and his system, which was slated by one of your (somewhat ill-advised)
readers/contributors.

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I presume Robert Wiest is not a reader of your letter. Editor's Note: He is not a CTCN Member. However,
I will send him a copy of this article and perhaps he will join. If he is, tell him he can write his own
defense. I feel obliged to write something about his system, if only to put the record straight, and perhaps
help one or two of your readers who can use these methods.

To state the system "only goes long when the price is perceived to be at historically low levels, and then
holds it forever until profitable" is a gross over-simplification, since a decision to start a scale also takes
into account much fundamental information.

In the example given in the Feb. issue of CTCN, where sugar fell from 6¢ to 3¢. I presume this move was
in line with the fundamentals: I.e., there was gross oversupply. Scale trading would not have been started in
this case. If the price of a physical commodity (scale traders are advised not to trade currencies or stock
index futures) is near its historic lows and the fundamentals of supply and demand are quite bullish.

I can assure you and your readers that this form of trading is very low-risk. The law of supply and demand
has governed prices for centuries, and will continue to do so as long as humans wish to trade and interact
with one another.

Your previous contributor gave sugar as an example, and added that more extreme examples were
available. I guess there are, but it is not likely he will be able to find anything anywhere near a $30,000
drawdown in a physical commodity from a point where it was ever suitable for scaling.

All trading has some risks. If it didn't, everyone would do it. Scale trading seeks to reduce risk. I agree
wholeheartedly with Robert Wiest in his assertion that scale trading offers fair profit potential for low risk.
Nobody is going to make 100% per year by these methods, and I presume that this is what stops most
people trying it. I can also vouch for Mr. Wiest's assertion that one also needs much discipline, and above
all, patience to trade this way.

A lot of patience, but anyone who sticks rigidly to the scale trading system will, in my view, never fail (or
at least very rarely fail) to return a small percentage profit each year. Based on my historical testing, 20-
40% seems a very reasonable average estimate.

Sure, you'll have drawdowns and paper losses. I have had them, and I have them now. They're part of the
system. But overall, I'm profitable, and I sleep at night. If you started your system correctly, the drawdowns
will never break you. The losses really will turn to profits later, and not usually years later.

Take corn as a present example. I'm not a farmer, so have no idea what it really costs to produce a bushel of
corn. However, as I understand it, and this is also probably over-simplification, the U.S. Government has to
step in to help farmers if the price drops below $1.94 F.O.B. the farm. I therefore presume that this is
somewhere near their cost, assuming a good harvest with good weather throughout the season. Now, the
low of the last ten years is about $1.45, although it has only been below $2.00 after four successive huge
crops. Therefore, given the current stock levels, 1995 corn at anywhere below $2.50 looks very attractive
to me for scaling.

If you read Robert Wiest's book, you'll see that scales can always be tailored to your own account size and
profit goals. I scaled corn late last year and cashed a profit of $200 (less commission) every time the price
moved up 4¢, safe in the knowledge that I wouldn't be in trouble until the price dropped to $1.50. At that
point, I would have owned about 15 contracts. Sure, the price might have continued to fall from $1,50,
which would have been very serious for me, although not catastrophic. But how likely do you think that is?
If the price of corn is 30-40 cents below their cost of production, how much corn will farmers plant next
year? Not a lot.

I would probably have been rolling a lot of contracts over from this year's to next year's crop, but
eventually I would have made my $170 on each contract, plus $170 on each oscillation of 4¢ taken on the
way back up. Of course, compared to $1,200 a day, $170 every now and then is not much. But they add up,

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especially when there are not large minus figures appearing on the statement from time to time as well. And
I trade other things too, which also give the odd few hundred dollars from time to time, also without large
minus sums.

At the moment, I am scaling soybean meal, soybeans, oats, and heating oil, whilst carefully watching corn
and wheat. There are also opportunities in the meat markets. If the July soymeal price drops to 140.00, I
shall have to stop accumulating contracts, but I feel that this is highly unlikely. If it drops to 120.00, I'll
have given your subscribers a good laugh, but I'll still be in the game. My scale will not be closed until the
price hits 185.00. Every time the price moves up $4.00, I make $400 less my commissions. So far, I've
cashed several profits, and I only started this scale in December. My oats scales have given me profits, as
have soybeans. So far, only heating oil has given me any serious problems, but I shall not be in trouble
unless the price drops to 36.00. I'll be out at 51.50. Which heating oil price do you think is the most likely
in the next few months? People might well-read this in twelve months' time when the price is at 20.00, and
think "I wonder what became of him?", but I doubt it. And meantime, every time the price moves up a bit, I
bring in a few more dollars to cushion the blow of any disaster looming down the road.

I have no doubt that you have several readers like this Anonymous Trader character. He is clearly a smart
chap, and I offer him my congratulations. Good luck to him. We all know that 90% of traders lose over
time. I have no reason to suspect that this percentage is different amongst your readers.

So for every Anonymous Trader, there are presumably nine losers. (If you survey your readers, they will
probably deny this fact, but I think I'm right. Also, I think I'm right in saying that about 90% of people also
consider themselves better than average drivers. As this is statistically impossible, I always prefer to rely on
statistics coming from information given by bodies like the trading exchanges rather than from privately
conducted surveys).

I suspect most of these nine losers-to-be will never try scale trading, because they would much rather be
like Anonymous Trader (making his $1,200 per day) than me making 20-40% per year. Most people would,
myself included. I've already realized this is an unlikely goal for me, as I lack either the ability or the
perseverance (or both) of Anonymous Trader. I shall stick to my own methods. Regrettably, nine out of ten
losers will also find out that they lack something, but presumably via the hard way.Incidentally, if he can't
teach friends to do it, what makes you or your readers think he can teach them? Finally, as mentioned
earlier, all trading has risks. Any one position trading index futures, bonds or currencies are always
vulnerable to gap openings, and it might only need one to wipe them out entirely. Did you know that on
Black Monday people got margin calls to produce $200,000 cash, per S&P contract, in one hour? Did you
know the bid/offer spread at times that day was up to 100 points (not ticks)? I wasn't there, but have read
both statistics in two places. Now to me, that is high risk! Just one day in my lifetime would have wiped out
any trader who happened to have gone home long that weekend.

Am I taking risks with my scales? Sure. But what risks? If corn really goes 20% below cost, to say $1.50.
How many readers seriously think it will drop much further? I think it is wholly inconceivable it could drop
much further. Currencies can trend one way, more or less indefinitely, in a straight line if they like, but
crops can't. Eventually farmers will stop planting, and unless demand simultaneously disappears (which has
never happened yet), the price can only then go one way: back up, and probably up with a bang.

Dave, you are clearly a nice bloke. I wish you would read Robert Wiest's book before commenting further
on the pros and/or cons of scale trading. If you have already read it, then I'll accept that your opinion about
few traders being able or willing to use this methodology with success may be correct: hopefully I'm one of
the few. Furthermore, since I dislike being made to look silly, I hope I remain one of the profitable few for
the indefinite future.

I certainly have a confidence trading now, which I never had previously. You will not like what he has to
say about trend following systems. I don't agree with a lot of what he says about chart-reading. I feel it's
hard to argue with a law as powerful as supply and demand, and if nothing else, you might enjoy the book
just for giving you a different perspective.

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I'm sorry I've waffled so much. Scale trading gives me lots of free time to write page after page! (I've
cashed four winners this week, but did go three weeks in January without making one trade). Thanks again
for your work.

Shopping for Real-Time Data - Michael Maldonado

I've also taken up day-trading the S&P 500 recently. I'm sure most of the CTCN readers realize that the
S&P 500 is one of the most liquid and very popular contracts to trade. Considering the daily volume
involved and the ease in which real-time data can be obtained, it's no surprise that there are thousands of
others trading in this manner.

I'd like to share my recent experience on the purchase of real-time data. My choice was easy to make. I
hope to save other CTCN members some of the research time and headaches involved.

After receiving information from all available vendors; only two companies were really cost effective for
small traders working through home computers. I came to the conclusion that Signal and BMI were the
only realistic choices available. Both companies are very similar with the features they provide; but use
very different sales techniques.

Upon comparison, I found BMI to be a better value than Signal for your dollar. BMI is a much smaller
company, and is better suited for the commodity trader. A satellite dish is the recommended receiver of the
data stream. BMI shipped a satellite dish via UPS directly to my front door. There was no charge for the
dish, and I also received an installation video and all tools needed for assembly.

Both companies have start-up fees, but BMI offered to supply my second month of data at no charge,
which more than covered those fees. They also will supply all commodities in a 20-minute delayed format
at no extra charge. Most S&P traders need to view the S&P 500 contract tick by tick, but are still interested
in what the other markets are doing. The ability to view the other markets at no extra charge is a definite
plus! They also have one of the least expensive real-time charting programs on the market. They offer a
service that fills in any gaps you may have in your five minute charts automatically every evening. Signal
offers none of these features.

The most unbelievable aspect of my purchase was the attitude of the sales people involved. BMI's sale
representative was anxious to do business with me. He filled my every request. He used a "no pressure"
sales technique, negotiated on their monthly fees, and was a pleasure to deal with.

On the other hand; Signal's representative was the opposite. His attitude was that he believed Signal was
the only vendor in town! He continually reminded me that his "sale price" was about to expire. The only
way he would negotiate their fees is if I faxed him a copy of BMI's best offer, or if I paid for a year's worth
of data in advance. Of course, I informed him that I would take my business elsewhere.

I'm sure not all of Signal's representatives conduct business in this manner. Otherwise, they wouldn't be the
largest vendor in the industry. In the five months that I've been subscribing to BMI's service, I've had no
problems with data reception even though we've had an incredible winter this year in California! I'm also
using TradeStation to handle my charting needs. I'm very impressed with both products and recommend
them to CTCN members.

The representative that I dealt with at BMI was Adam Lawlor at 800-255-7374 ext 4421.

"The Making of a Trader"©-Installment #1

Dyslexia - Blessing or Curse - Joe Ross

I guess I'll have to bow to popular opinion and write some articles for you under my own name. I want you
to know that I caught a little hell from readers of my own teaching letter who resented the fact that I

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published that last article on "First Notice Day" before they had a chance to read it. They said if I'm going
to do things like that, they would drop their subscriptions to Traders Notebook and just read what I have to
say in CTCN. So I guess I'll have to write things here that I don't write there. If you and your readers don't
mind, I'd like to do something in CTCN that I've never had time to do elsewhere. Here's the background for
my request:

Thanks to the prayers of family, friends, my students around the world, and those readers of CTCN who
also helped. I lived to celebrate my 60th birthday on April 7. The malignancy is gone and I'm on the road
to a full recovery.

In June of this year, I will have been involved with the markets for 38 years. Thirty-five of them as an
active trader and seven years as an author, teacher, tutor, seminar giver and educator. Dave, I'm still
learning. Believe me when I say I learn more from my students than you could ever imagine. I've learned a
great many lessons in this life and it amazes me that I was able to trade profitably for so many years and
not blowout somewhere along the way.

Here's my request: With your permission and the permission of your readers, I'd like to tell about those
years with particular emphasis on the lessons learned along the way. I cannot promise to include something
in every issue, but I will do my best to make the articles instructive. Also consider that this material is
copyrighted and much (if not all of it) will appear in a book called "The Making of a Trader"©. If it's okay
with you, what follows is the first installment. The final book version will contain a great deal more.

You may wonder what it's like to go through life with a severe case of Dyslexia. My earliest encounters
with this physical challenge began at school. In those days the term Dyslexia probably hadn't been invented
yet. My teachers thought I had an attitude problem. They told my mother I was smart enough to do the
work, but I was lazy and careless.

The problem was particularly strong with regard to numbers. Because I sporadically reverse them. I could
not and still cannot add a column of numbers. Even a calculator does not help, because I reverse some of
the numbers as I enter them. In my books, I'm forced to have numerous people edit everything numerical.
On the Series-3 Exam, I failed every single problem that involved calculation or numbers. I am unable to
pass that test. In Trading Optures and Futions, without exception, every calculation was in error and had to
be rewritten. At least I'm consistent. When I write, the problem is controllable. Most of my life, I have been
able to read only 25 words a minute. However, after taking a speed reading course, I am now able to
"dyslex" at the phenomenal rate of 100 words a minute. I've learned to overcome adversity.

Editor's Note: The remainder of Installment One, which deals with Joe's childhood and younger days,
along with Joe's other contributions will be printed either in our next issues, or as a Special Report,
depending on member feedback.

Misc. Thoughts of a Long Time Experienced Trader - Max Robinson

Keep up the good work! The Phasor System cost $3,000 and gave (the editor of a competing newsletter) the
incentive to start his newsletter. It was published by Art B. Turman, J. Gresham Northcott and Lyn McIver.
The copyright is 1981.

Personal computers were brand new then. At that time, most everyone in futures trading business just knew
that computers would solve their problems.

I agree with people who write that we should keep our articles positive and full of helpful information. If
you have a problem with a system, state the problem and move on. Criticizing people seldom helps anyone.

I haven't checked this idea with a computer, but it looks good. The open is important. After the opening in
soybeans, watch for 2 to 4¢ move away from the opening, which seems to stop and reverse. Place an order

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to enter 2¢ on the opposite side of the open, from where the market had been trading earlier in the day. This
seems to work better if the market is making a new high or low over yesterday's range.

In order for a market to continue to go up, it should be trading near its high when the clock is on the hour.
The trend may be signaled by a Friday close that closes over the 13 previous closes.

A weak Friday close that closes below the weekly midpoint is something to watch! A Friday close that
closes over last week's high is a possible signal of an uptrend. Friday's low closes are usually bought on
Monday. Friday's high closes are usually sold on Monday. Monday's high or low will usually be near either
the high or low for the week.

Markets go up by opening lower. Markets go down by opening higher. Sometimes you need a mechanical
method to trade by, because you can't win by wishing/thinking what the market will probably do.

The best reason I have ever read on why you should be sure to put your stop in, was Brian Long's article
about playing Russian Roulette (1/95 CTCN ). If you don't like stops - buy options.

Should They Be Able to Chew Our Food and Swallow It for Us? - Joe Dinelli

I have read a couple of articles about "GET" by Tom Joseph and "Market Optimizer" by Jeff Rickerson.
My observations are as follows:

I'm amazed that anyone could have any major negative comments on either one of these programs as far as
context in helping trading decisions.

"Get" is probably one of the best thought out pieces of trading software written for the trading marketplace
by far, unless someone is trying to compare it to a "black box" pipe dream. It is a piece of software in its
purest form, not a trading machine. Its intent is to help one make intelligent decisions on trading, not
eliminate our ability and absolute need to think, learn and make trading decisions.

Tom Joseph in my opinion is one of the most honest and knowledgeable people in the software business
today and his software package shows this. The backup is tremendous and the tools are outstanding. I own
this software and use it regularly to judge positions in the marketplace.

On the other hand "Market Optimizer" by Jeff Rickerson is by no means a slick piece of software, but the
information it gives is invaluable. Over and over I have seen highs and lows of a marketland within a tic of
the projections. The yearly, monthly and weekly projections are invaluable to a trader, and on its own can
stand as a trading system let alone combining it with other tools. I agree that the programming could have
been much better. Once again, the information is too valuable to criticize.

As far as the comment I had read concerning Mr. Rickerson's ability to trade, I find this ridiculous. I am not
privy to his track record and frankly it's none of my business. Being a trader and having a good idea for
trading the markets are two very different animals. As far as I know, he's not selling his track record, but
rather a very accurate trading tool. I find it amazing that when a good trading package is present, so much
negative and totally wrong information can be presented about it. Again, it shows that the majority wants
easy answers to personal development.

It is great to have accurate information concerning trading programs. This information will save us a great
deal of money, but to lump all programs as useless is damaging. If we want to air our "program frustration"
we can stick to such programs in the "junk class" such as Bob Buran's.

I have included two charts (Charts in Print Copy) to show the correlation of these two systems as "Get"
called for a market turn on Nov. 7, 1994 with a major divergence present with the oscillator and CCI
studies. "GET" showed a 5th wave present at the exact monthly low from "Market Optimizer" and as they
say, the rest is history.

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I will make one last comment on a newsletter and trading course by Robert Miner. I feel this is truly a great
value and a very good educational newsletter. Is it easy? No. Is he always correct? No. Is he the greatest
trader? I don't really care! But is his material well organized, fairly priced, informative, educational and
honest? Yes. Is it for everyone? No. Mr. Miner has developed a trading technique that he tries to teach
through his newsletter, while calling trading signals. This is a very good piece of work. However, it will not
in any way take the place of our own trading technique development. No one can totally copy someone
else's sweat and tears, and I believe that is exactly what 99% want. This newsletter is for the serious trader
only. Good trading, as it's the ultimate road to our understanding of our inner being.

Hooking up to Real-Time - Don McCullough

Well Dave, have you given any more consideration to the validity of picking tops and bottoms? By the way
(I have not made a special search) Linda Bradford Raschke, who's in the 2nd Market Wizards book, is also
a top and bottom picker. (Page 309 last paragraph) Expect this approach may be more common than most
traders realize.

Dave, I like the fact that you don't do much editing of subscribers' submissions. I think you're right to give
the writer "free reign" and thus let the personality of the writer come through 100%. Communicating
important ideas is the goal, and grammatical mistakes are the concern of rather impotent school teachers.

Also I'm sure if you edited too much, you'd alienate some writers and therefore lessen subscriber input.
Quite often those who have the most to contribute are also a rather individualistic, do it my way type.
Independent thinkers probably make up a high percentage of the successful traders group. They want things
done their way.

Following trials and tribulations were experienced while getting connected to Signal's real-time data. It
wasn't fun, but I view it as one of the many small prices you must pay in order to make it in the markets.

Problems, problems. What do I want to subscribe to Signal's real, real-time data or their delayed data?
What method of data transmission do I want? What markets do I want to follow? Do I have to make a serial
port available in order to connect the receiver to my computer? Will activation of the screen saver program
screw up the incoming data? And so on......

The first thing I had to do was free up a serial port for the receiver. I had my mouse connected to the serial
port and had to buy a buss mouse and install its card. Then I had to install and configure the mouse
software. Same "mouse" each time and I love it. It is the Kensington trackball.

Next, I connected the receiver to the serial port and then installed the Signal software. Then my major
problem started. At first all seemed O.K. Then it got to where, when starting the signal program, the
receiver couldn't find the serial port (i.e., comport). Well, I fiddled at various times with the serial port
settings and the autoexec.bat. files, etc.

This problem continued for about five-days and many phone calls to the Signal support people. Finally,
they decided it was a TSR memory problem but we couldn't find the solution. (Signal support is good. They
really work with you.) Since my Afterdark screen saver is a TSR program, I called MetaStock support and
their head of support said I had to deactivate the screen saver program. Otherwise, it would conflict with
the incoming real-time data. For this reason, along with my knowing it might be causing my memory
problem, I deleted the screen saver completed from my hard disk. By the way, the MetaStock support guy
said a screen saver really doesn't help save the newer screens anyway. Do any of you readers know
differently? Please respond if so, because I have an expensive Nanao 17" monitor and want to protect it as
much as possible.

The aforementioned problem continued for about five days and finally a Signal support person sent me a
replacement receiver. It arrived the very next day after our phone conversation. That solved this major

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problem. The Signal people said receiver replacement was seldom necessary with their customers. I chose
to go with their cable type of receiver and thus have the data transmitted through my cable TV outlet.

Next, I enabled and configured the real-time portion of my MetaStock charting program. No major problem
here, but I did have to make several phone calls before I got everything as I wanted it with the MetaStock
program. This has been a very dependable and satisfactory program. It remains so in real-time. Their
support is tops.

Editor's Note: Next month we will print Part 2 of Don's article dealing with the data feed, etc.

You May Pay Lower Taxes as an Investor Rather Than A Trader - Glenn Skirvin

In the March 1994 issue of CTCN, Ted Tesser talks about how to qualify for Trader status (versus Investor
status) for tax purposes. He outlined some major advantages of the Trader status under current tax law. This
is great information and I'm sure there are many traders who can take advantage of it and lower their tax
bills. However, there is one major disadvantage to the Trader status that should be mentioned. For many of
us up and coming traders, it will lead us to want to retain an Investor status. I am speaking, of course, of the
dreaded self-employment tax that is reported on Schedule SE of Form 1040. Very often this tax will more
than offset any benefits that can be derived from filing under Trader Status.

Let me illustrate this with an example. Suppose that Bill Trader is married with no children and files a joint
return with his wife Susie. Bill is a fairly successful trader. He's still building his trading capital to the level
where he can become an independent, full-time trader, must continue to work his unexciting day job. Bill
and his wife's combined salaries are $40,000 per year and they earn $1,000 annually from money market
interest income. They own a home, so they can deduct mortgage interest expense of $8,000. In addition,
they have $4,000 of deductible taxes which they can also report as itemized deductions on Schedule A of
their Form 1040.

Now let's talk about Bill's trading results. Last year in the futures markets, Bill achieved profits on trades
(net of commissions and exchange fees) of $25,000. Not too bad considering that most other futures traders
came out on the losing end. But Bill also had to incur some direct expenses to achieve those profits. Things
like purchasing historical and current price data, subscriptions to newsletters and publications, depreciation
on his computer and related equipment. Plus the regrettable purchase of an expensive trading system that
turned out to be less effective than the methodology he had innovated and tested himself. This added up to
$5,000 for the tax year. His "true" trading profit for the year was $20,000.

The following table compares Bill and Susie's tax liability under both Trader and Investor status. Notice the
major impact of self-employment tax. Table in Print Copy

The tax savings from filing as an Investor rather than a trader is $2,056, or 26.4%. Please keep in mind,
however, which the illustration above ignores factors such as a home office deductions and deductions for
investment seminars which Ted has rightly pointed out can confer a significant benefit on the Trader. When
someone claims Trader status, I believe his chances for an IRS audit also increases. He must therefore, be
fully prepared to defend his Trader status with the appropriate written documentation. It is important that
the benefits to be derived justify this additional audit exposure.

I believe there's a threshold a trader crosses in terms of trading income and expenses where it becomes
advantageous to claim Trader status rather than Investor status. For many of us small traders who haven't
yet hit the big time, the wisest course of action may be to retain the status of Investor.

Response to Requests for Info about Babcock's Systems - George Moldenhauer

In the mid 80's, I ran a futures and options brokerage firm that specialized in trading systems for clients.
During that time, my firm spent a great deal of money on commercially available systems. We did purchase

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three systems released by Bruce Babcock. As a result, I have first hand experience with the Slinky system,
Advanced Slinky system and the Almost Trade of the Month system.

I can't tell you how they are working now. We stopped following these systems years ago .... after losing
what I would consider large amounts of money both in real-time trading and paper trading. I did have one
member of my organization that spent a great deal of time researching systems. As a firm, we worked hard
on reviewing systems for any merit. There were times that we could take an idea or portion of a system and
apply it to the market successfully. Our experience at the time, was that the Slinky and Advanced Slinky
systems could be traded profitably ... if you would simply fade the system. By fading, I mean buy when a
sell signal was generated and sell when a buy signal was generated.

If I may offer a bit of advice from someone who has seen just about every system...proceed with caution.
There is an old saying in the business; Any system can make money ... if you sell enough copies. While
there are some good systems out there, and some reputable promoters, many of these operators are less than
reputable. I am not implying that Bruce Babcock falls into this category ... it is a general statement that I
am making.

You have taken an important first stop by asking for the input of your peers and this publication is a great
tool for all of us to share our experiences. Let's all take advantage of this opportunity.

If readers have experiences with trading systems, either good or bad, how about sharing?

My Experiences With Various Hotlines & Advisories - Rich Kuyper

I've enjoyed CTCN and offer the following thoughts in the 'for-what-it's worth' category:

1994 was my first year trading futures (I have switched mutual funds for a couple of years) and hotlines
were one way I spent my "tuition" money.

At various times over the past year, I subscribed to services by Ken Roberts, Larry Williams, Jake
Bernstein, Nick Van Nice (of Commodity Trend Service), and Colin Alexander (Wellspring Hotline). I also
tried several free trials, including a hotline by Tom Bierovic and a daily fax by Linda Bradford Raschke.
Here are some of my impressions, keep in mind these are only one person's opinions. Hotline formats and
performances can change over time.

First, it's important to know what you want from a hotline (or any other service). That is, do you want to be
educated, so you can eventually do your own thinking and trading? If so, then a hotline that primarily gives
"black box signals" with little or no explanation of why you should buy here and place your stop there is
not for you. On the other hand, if all you want are "expert" signals without having to understand "why"
(and you intend to take every signal, i.e., follow the system), then a black box hotline may be what you're
after.

Most of the above named vendors offer a free trial or a money-back guarantee. My advice is: to clarify
your right to a refund if you are not satisfied after a trial period; ‚ to record and study (but not make) the
trades during the trial period and ƒ then ask yourself if your criteria (from paragraph above) are being met.

Although I learned something from all the hotlines mentioned, I learned more from some than others. I'm
still listening to Nick Van Nice and Colin Alexander.

Nick's company, Commodity Trend Service, puts out a weekly chartbook and Nick guides you through a
trade or a lesson each night using the chartbook. I actually quit taking the chartbook when I began
subscribing to end-of-day quotes for my PC, but I still subscribe to the hotline. It's very educational and
"interactive." Furthermore, among hotlines I've tried, it's an 800 number--once you subscribe, the call is
free! (If your hotline is not an 800 number, add $240 or so per year to the subscription cost--figuring a buck
a night for twenty trading days a month).

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Colin Alexander wrote a book (Capturing Full Trend Profits in the Commodity Futures Markets) which I
found very useful. You will get more out of his hotline if you have read his book--the trades tend to follow
the material in the book, very educational.

I have no connection, other than as a subscriber, to anyone named above. I also have nothing in particular
against those mentioned, but not discussed--for one reason or another, I just moved on.

One final note on something I've found very helpful and enjoyable. I have a phone taping device and I
record the hotlines every night. On Saturday morning, I sit down in front of my PC, click up the appropriate
charts and replay the week's trading advice, stopping the tape at my leisure to study this or that concept, and
to compare my logic, the guru's logic and the outcome, so far, of the advice given. I've learned a lot this
way. Hey, maybe I'll start a hotline. For now, I enjoy exchanging useful information and I can be reached at
phone or Fax 303-449-1074.

Fine-Tune Future Trades by Reviewing Past Wins & Stops - Jim Burke

What I notice most of articles or from conversations with other traders, is they're more concerned with
where to get in, how much money does it make and drawdown. Also, when they go back to study their
trades, they only mention their losing trades. If I follow my written set of rules, I understand my losses, but
I spend three times as much time analyzing profitable trades. I want to fine tune future trades by reviewing
what went right on the winning trades.

What do I look for on these trades? I look to see how many tics were against me on the past 100 winning
trades before they were profitable. Did I follow my written rules? Do I need to revamp my rules to reduce
my protective stops and always trying to reduce my risk? I want to have my stop within one tic of being
stopped out. One can enter the market with volatility stops, but that doesn't mean you need to exit with
them, same goes with pivot points, retracements, channel bands, apex of triangles or darts.

I seldom risk more than $275 unless I'm trading coffee or cotton where it's just a little more. The trade is
going to go my way or I want out quick and this isn't my intraday trading, it is my long-term trading! I put
in my orders in the morning and check my answering machine at night. Trade only trendable markets,
Eurodollar, bean oil, copper, cotton, hogs and Canadian $ to maintain low risk trading.

Trade every trade as if your life depended on it. If you want action go to Vegas. If you are on a hot streak
of winning trades, reduce the number of contracts you are trading. Don't increase it, because when you do
have a loss it will be when you are trading the highest number of contracts and possibly lose more than
before your streak started. Don't take any trade, discover first in your testing if the risk is worth the reward
of the trade.

From $200 to $1,500,00 Due to Leverage - Insider's Profit Matrix - Wayne Roberts

I nominate Frank Richards "The Insider's Profit Matrix," (Coldwell Publishing, 12400 Ventura Blvd,
Studio City, LA 91604) for the Trader's Hall of Fame Library. If you are the kind of person who collects
books on trading, you'll want this one. If you're not the kind, forget it. This little book is basically about
trading commodity options, but the terms "Beta" and "Time Value" never make an appearance. No
computer is needed and monitoring a quote machine during trading hours is not necessary.

Over a five-month stretch in 1979, Silver went from $10 to $40, an increase of $30. Mr. Richards shows
how a total investment of $200 could have been turned into $1,500,000 by the time prices reached $17 or a
price gain of $7, if you know how to do this. If you are a master of parlay, I guess you don't need the book.

This book contains the most awesome display of leverage, also called compounding, parlaying or
pyramiding I have ever seen. Not to say that this trade was actually taken, but it could have been.

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In three trades, he went from a total out-of-pocket investment of $200 to a gross return of $1,500,000. Each
of the three silver trades made a gain in price of $1.00, which equates to $5,000. In other words, if you had
been long one contract silver on all three of these trades, you would have made $15,000.

Comments by C.J. Casebeer

Chester Keltner's Minor Trend system has been a good one for years. Good for Philip Toh! How do we buy
Michel Arimoto's book?

Editor's Comment: Many other members have also asked about Arimoto's $39 Book. It's the Clermont Ad
in Feb. issue (last ad on Pg-14).

ADX Experience - John Bowley

Thanks to Adam White and Giampaolo Bulleri for their ADX thoughts, which agree with my experience.
The alternative VHF is more sensitive like DX. Either can be smoothed with a moving average of less than
the 14 used by Welles Wilder for ADX. They can then be used to show the beginning of a trend when ADX
is less than 20. I still like ADX to stay with a trend until ADX starts down, especially from above 40.

Member Requests

George Moldenhauer would like input from members that have firsthand experience with the Prime/Line
system marketed by Jules Greenstein out of Marina del Rey, CA.

Phil Baker likes reading about how others trade and how to make a trading system and use it, etc. He would
also like to read about how "if possible" to forecast future turning points. He would also like information on
Investment Research Co., Richard Tolkeim and his Pork Belly Trading system and about Bradley F. Cowan
and his books.

Jim Cook of England wants to know the address of Keltner Statistical Service so he can purchase the book,
How to Make Money in Commodities by Keltner. Also, what software has the KeltnerBands in it?

Resource Guide & Editor Reviews

There was no room for editor reviews in this issue because of all our great articles. However, next month
we are planning reviews of Dave Reiter's Trading Manual, The Foundation for the Study of Cycles
Software Program, and other products.

A number of members were unable to reach Ted Tesser at the number published in March CTCN. I spoke
to Ted and he said members could call him at 1-212-883-1004. Ted also said he is available for hire as a tax
CPA to members anywhere in the nation.

Editor Comments

Here's the Keltner Channel computer code, as requested by many members. It was submitted by
Anonymous Trader and it is believed to be in the Public Domain:

INPUTS : PRICE (CLOSE) ,

LENGTH (9) ,
CONST (2) ;

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 VARS : CENTER (0) ,
UPPER (0) ,
LOWER (0) ,
AVERANGE (0) ;
CENTER=(CENTER * (LENGTH - 1) + PRICE) / LENGTH;
AVERANGE=( AVERANGE * (LENGTH - 1 ) + HIGH-LOW) / LENGTH;
UPPER=CENTER + AVERANGE * CONST;
LOWER=CENTER - AVERANGE * CONST;
IF CURRENTBAR > 25 THEN BEGIN
PLOT 1 ( UPPER, "TOP" ) ;
PLOT 2 ( CENTER, "CENTER");
PLOT3 ( LOWER, "BOTTOM" );
END;

Some additional comments relating to Bob Pelletier's fine article on Pg-3: Others, including your Editor,
have also talked about how unfair and of little real value the S&C Magazine Reader's Choice Awards are.
This is particularly true as a result of all the media hype and heavy advertising the "winners" do as a result
of their high ranking.

These "awards" are little more than an indication of the highest sales volume products (and also not by
coincidence, the heaviest advertised products). Many excellent products (perhaps superior products) who
do not advertise (or advertise lightly) in S&C Magazine end up with few (if any) votes.

It's very unfortunate many traders buy products, services and systems based to a large degree (or even
100%) on a high third party ranking, without realizing the truth about the ranking process. This is also true
involving other concerns, such as the Futures Truth rankings, but for different reasons. An article in an
upcoming future issue by a knowledgeable CTCN Member will discuss this subject in detail, with emphasis
on the Futures Truth rankings. For more information on the S&C Awards, please refer to the Aug 1994
CTCN Pg-1 and Pg-8-9.

An Editor question for S.F. from Europe on Scale Trading, Pg-5: How does one define "historic low levels"
and evaluate "bullish fundamentals?" Fortunately, S.F. has agreed to answer these important questions in
next month's issue. Also, about the two friends Anonymous Trader has referred to who do not make the
money he makes, don't be discouraged! Perhaps the two friends referred to in S.F.'s article on Pg-6 are
lacking discipline, patience or other attributes. Of course, many CTCN Members do not have those
negatives, so they're more likely to be successful.

I don't know much about tax laws, but no doubt Glenn Skirvin's interesting article on Pg-10 raises some
complex tax issues. However, you should know I have received letters and phone calls from CTCN
Members who reported they saved considerable money thanks to Ted Tesser's article in the March issue.
One trader in particular said he saved $3,000 by showing the article to his accountant as his 1995 income
tax return was being prepared.

About George Moldenhauer's comments on Pg-11, Bruce Babcock is one of the most knowledgeable
experts in the commodity business. He contributes a lot to the business. He has authored one of the finest
books ever written on commodities titled The Dow-Jones Irwin Guide to Trading Systems. In addition,
most of the systems he sells are priced low and many buyers find them beneficial by virtue of getting ideas
from them, even if they prove to be unprofitable or not suitable for their trading.

Issue 25.

More Details on How I Successfully Daytrade the S&P 500 - S.A.T. The Anonymous Trader

I understand many traders continue to have questions on my "methodology" of trading. One big question
that keeps coming up is why can't your trading be 100% mechanical? I have already answered this question

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in April's issue, but I'll try to expand a bit more in this issue. (Order the April issue from Commodity
Traders Club News, if you don't already have it)...(also see Gary Smith's article in 2/95 CTCN).

Trading is not a science, it's a discipline. Just like any discipline, i.e., (martial arts, sports, art) there is a
certain amount of basic fundamental or mechanical expertise that needs to be achieved. However, to be
successful or above the masses, there has to be more than just basics. A person needs to become totally
committed to being the best. One must be automatic in action. One must develop a so-called sixth sense or
intuitiveness (I call it lots of experience) for their discipline.

Take a sport like basketball. Most guys can dribble, pass and shoot basketballs. So why aren't they all pros.
Why aren't all pros like Michael Jordan? It is the application and the experience of dealing with the basics
that sets one apart from the crowd.

If you want to be a trader, that's exactly what you'll have to do, is work hard to be good. Being a trader
requires your responsibility for your results.

People who want a 100% mechanical system, really want an excuse to shift the responsibility for winning
or losing to their system. If it was that easy, everyone would have a 100% mechanical system and be sitting
on the beach retired.

The fact is, you get paid for your expertise as a trader. The better a trader you are, the more money you
make. All successful traders use their experience and feel for market action - even if they are mostly
mechanical. My entry is mechanical, my stop is mechanical and my stop movement is mechanical.

What is not totally mechanical are my exits. I leave some degree of experience to do this. Trade selection is
up to me. For example, I might have a buy signal, but the way the market is acting, I might not take it. If it
doesn't feel right or look just right - sometimes I miss a good trade.

I don't take every trade that comes down the pike. If I do decide to take it, I'm mechanical about entering,
placing stops, moving stops and exiting to a degree (this is not 100% mechanical). The market is not
mechanical - 100%. However, it is fairly predictable 60-80% of the time. This is what you as a trader gets
paid for. How well you can predict, anticipate and recognize market moves with a methodology that puts
the risk reward odds on your side. Only experience can improve this, and no mechanical system can sense
these things. That's why!

Also, some readers asked what a pivot is (how I define it). A pivot is a bar that has one bar on each side,
lower or higher than the middle bar - very simple. Chart in Print Copy

CTCN readers have asked about my commissions. As I've stated before, I pay $20 per round-turn, all fees
included. I use Refco as my clearing firm and I do not have direct floor access. I use a trading desk and
they give me my fills while I hold most times. It is not necessary to have direct floor access. I understand
some say, it is impossible to trade without direct floor access. I say it is a hindrance.

The guys at my trade desk know me and how I trade. They watch out for me and handle any problems and
even correct me sometimes when I say the wrong thing. Like buy instead of sell. It happens sometimes
when your thinking quick. The guys on the floor are very rough and intimidating sometimes, so my trade
desk shields me from that.

Readers are asking questions about bar spacing, colors of charts, Keltner formulas, floor brokers, data
feeds, etc. Don't waste so much time fretting over these things? This stuff is all a bunch of secondary crap.
It won't make you any money. People need to concentrate on learning a methodology. Practice and gain
experience, then work on executing properly. These things are important.

The Inner Dimension of Trading - John Brown

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Certainly, much has been written about the mind being the key to success in trading futures markets.
However, I find it remarkable that so little has been presented in terms of specific techniques traders can
utilize to improve clarity of mind, focus, discipline, confidence, positivity and optimism, energy levels, etc.
These are the qualities necessary to actualize the full potential of our trading abilities. Probably most would
agree that the degree to which these qualities are developed will have a major impact on the trader's
performance in the markets.

As a day trader, I feel that the need for optimum mental and physical skills is greatly accentuated. The
intraday venue demands faster reaction time, sharper acuity of the decision making process, precise
execution of trading rules in a narrow window of opportunity. The ability to quickly recover from a loss,
take the next signal, pull the trigger, take all signals, deal with rapid fluctuations in the markets and equity,
maintain the discipline to exit a losing trade without hesitation, never "freeze up," etc.

In working with traders during my trading seminars over the years, I have found that it is almost a universal
experience that we all have to deal with these same issues. It does not appear there is any easy way out --
the skills don't come just by recognizing the need for having the skills. I believe it is necessary to work on
the skills of personal development directly as opposed to merely focusing on developing trading strategies.

It would be useful for CTCN readers who have developed the internal skills for successful trading to share
their knowledge and experience, as to the techniques they have employed to refine the real tools behind the
trading process, the mind body integration of the trader.

I have practiced Transcendental Meditation for the past twenty years. This is a very simple mental
technique practiced twice daily for twenty minutes. During the practice, the mind settles down to a state of
great clarity and alertness, while the body gains a very deep level of rest. Following the practice, the mind
is more clear, with the body full of energy and less restricted by stress. I feel this is the ideal state of mind
and body from which one would want to enter into the markets.

Personally, I cannot imagine exposing myself to some of the crazy things that can happen intraday in the
S&P, Bonds and Swiss Franc, without this preparation. I would highly recommend the practice to anyone
looking for an edge over the vast majority of traders who respond in the typical panicky, stressful manner --
which some feel is actually the main driving force behind the chaotic nature of market movements.

I have also participated in the martial arts of Kung Fu and Tai Chi for the past 25 years. I find them very
useful for developing the discipline, persistence, positive energy and resilience which are so valuable for
the daytrading environment. The "warrior spirit," the unshakable resolve to stick with your system or
trading plan, can make all the difference in the world when volatility picks up intraday.

Of course, there is a whole area of influence from what we take into the mind and body which might
drastically affect trading performance as well. It is recognized that the negative effects of drugs, alcohol,
wrong foods and environmental pollution, all severely impair our mental and physical capacity to deal with
stress and function effectively. Someone who really wants to go all the way with their trading, should
probably consider diet, exercise, routine, etc.

Perhaps the environmental influence is one of the least obvious and least recognized areas which we can
enhance for better trading performance. Most daytraders and many short-term or position traders spend
much time in front of computers. There has been an abundance of evidence on the negative effects of
electromagnetic radiation from computers, monitors, backup power supplies, fax machines, etc . All these
electronic devices usually surround active traders. Have you ever noticed how sometimes you feel dull and
drowsy, or hyped up, impatient or irritable, terribly bored and depressed with a stiff neck and creaky joints,
headache and eye strain, or any other emotional or physical states which come up after some time sitting in
front of the screen? I've noticed a variety of these traits myself and among many traders, who might attrib
"bad moods" or negative attitudes to some recent trading losses. It might be worthwhile to consider the
alternatives that these negative inner experiences may be a significant factor contributing to the losing
trades.

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Recently, I learned of a couple of products which are reputed to alter the field effect of electromagnetic
radiation coming from computers and electronic devices, to create a more "coherent" energy field. I had
setup a new much more powerful computer with a much bigger screen, feeling "wiped out" and "zapped"
by all this hardware. I read about some convincing scientific research on these devices done by the
American Institute of Aeronautics and Astronautics Research, the Moscow Brain Research Institute, and
other research centers.

I learned that the offices of the International Monetary Fund had the devices installed in all of their
computers and reported positive effects from their employees. The devices are quite simple to install -- a
floppy disk installed on the hard drive and a power strip in which to plug in electronic components. I began
using the "Quantum Byte" two weeks ago and have been quite happy with the results. My computer screen
no longer crackles with static electricity when touched. I no longer feel the draining, agitating and irritating
effects from my new electronic monster. The company that developed these devices operates in my
hometown. I asked about the possibility of getting a discount for quantity, as this might be of interest to
many traders.

Methods I Use to Help Me Become a Successful Trader - John Moore

After trading futures for nearly 20 years, it seems to me a discretionary trader that has years of experience
trading and that can control his/her emotions can do far better trading than any mechanical system.
Granted, very few people have the experience, focus and emotional control to watch a number of markets
every day, identify trading opportunities and act without emotion.

Some things that helped me move toward becoming a successful discretionary trader are: concentrating on
no more than 4 or 5 markets; looking at monthly, weekly and daily charts each week while being aware of
the developing fundamentals and psychology in the markets I'm following.

I write down what price levels and time period I feel offer a trading opportunity and review these each
night. This helps with the problem of failing to put on trades due to fear, not paying attention, etc. It helps
to keep an open mind and not waste time trying to predict exactly where and how far a market will move.
Focus on possible opportunities and keeping losing trades small. Try to take money out of the market
constantly. Don't try to make a killing on one move.

Focus on opportunities and when you sense a trend, go with it. Trade to win, don't be a perfectionist. Try to
stay somewhat detached from a trade after you put it on. This helps keep emotions in check.

All discretionary traders are unique and must spend the time and effort necessary to develop their unique
trading style to make consistent profits.

CTCN has many interesting articles by fellow traders. I find it full of positive and useful information.

More on Scale Trading - You Can't Lose Trading Commodities - SF from Europe

I feel more like a professional book-reviewer now than a trader/investor. The idea of my earlier letter was
to simply defend Robert Wiest's book titled "You Can't Lose Trading Commodities". If book is used
correctly, the method is far from high-risk, and to suggest that you as editor of CTCN should read the book
before commenting upon it's contents.

I forgot to mention that the system can be used to play the short side, but it does then become very high
risk. Robert Wiest strongly advises you don't try it, I agree. While there are levels below which many
commodities cannot realistically go (i.e., their cost), they can go up for years if demand continues to exceed
supply, and would exhaust the equity of any trader. Soybeans at $5 would be very attractive to scale from
the long side, because they simply can't drop very far. If anyone wants to be hyperconservative and

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construct a 100% risk-free scale, the price can't drop more than $5, can it? Set your scale for this if it makes
you feel better. Most of your account equity will sit in T-bills forever, but you'll never go broke.

On the other hand, beans at $10 might look attractive from the short side, but why can't they go to $20?
They could go to $40. At this moment, copper looks vaguely attractive for scaling from the short side (it's
historically high, all the bad production and high consumption news seems to be in the price, and it has
bounced off its record high levels many times lately), but this would be extremely dangerous. If anyone
wants to bet it won't go to 160, or even 180, he's a brave man. It probably won't, but it might. It could go
higher still. Scaling from the short side is possible, but suicidal in my view.

There have been some very valid points raised. Clearly, many people trying this method run into trouble, or
by now word would have got around that this was idiot-proof, and everyone would be doing it. It's not
foolproof. Will not generate huge profits, and is often boring! Though it works, it can be very frustrating. I
suspect that most of the people who fail, do so because they run out of patience. It is easily possible to
spend a month with open positions in five commodities, all of which show paper losses, without opening or
closing one trade, it does lack action. If you just want action, Las Vegas is much cheaper for the average
trader than the futures markets.

If one succumbs to the temptation to play in too many markets at once, the margin calls will start coming
one day, and the unfortunate trader will have to liquidate all (or most) of his positions, probably in each
case near to the bottom(s). Incidentally, I do find it hard to resist overtrading the system occasionally, and
now try instead to get my "action" by betting just a few dollars a week on soccer. By the way, is gambling
still illegal in some states in the USA?

Regarding working out whether something is cheap by historical standards, this is quite simple. The
fundamentals are much harder to follow. The easiest solution I have come across to the first problem is in
the book. (Sorry if I'm starting to sound like an advert. I stand to gain or lose nothing if you or ten thousand
other people do or don't buy this book). Robert Wiest takes the high and low of the last ten years (or so),
splits it into thirds, and only commences scales within the bottom third.

This is highly over-simplified, but readers get the idea. If you want to know all the details, you know where
to look. Getting hold of, and more importantly interpreting, fundamental information, is much harder. I do
most of my trading through a discount broker in the U.S.A. (blatantly ignoring Robert Wiest's advice). I put
enough business through a full service brokerage in London to get the regular reports, numbers, storage
details and so on. This info can help me decide the likely future direction of something based on supply and
demand fundamentals.

I try hard to do this interpretation myself, for two reasons. Both important. First, if you listen to the advice
of someone and just blindly take it. You not only learn no lessons if it goes wrong (you don't even learn
anything if it goes right), but you are subjected to any bias in his opinion. For instance, if an analyst is very
long crude oil, he will likely scrutinize a report for any piece of bullish information, while finding reasons
to exclude, override or flatly deny anything bearish. Secondly, if you learn to do something like this
method, you will have a skill that will make you money in the future, regardless of whether your latest guru
dies, gets locked up, or simply starts misreading everything. Such ability, to me, is just priceless.

So, working out whether something is historically cheap is quite easy. The rest isn't so simple. I can't give
you a mechanical way to do this analysis. I don't even know if there is one. Although far from elementary,
fundamentals on crops are not so difficult to fathom out as currencies, since sentiment will override
everything in these worldwide financial markets (didn't everyone say the yen was fundamentally
overvalued at 97/98? I wonder what they thought when it hit 88 this week). For crops, you look at the
current carry-over levels, estimates for the next crop, probable export and/or import levels, and so on. Don't
rely on the weather in Iowa in June. That's guesswork, but of course you must remember it's a crucial
factor. If stocks are enormous, the price will probably stay down whatever happens to the weather this year.
There might be no rain, there might be three feet. If stocks are low and planting levels are low, the price
will probably go up enough for a scale trader, even if the weather's perfect. If it isn't perfect, the price will
soar up. On the other hand, if stocks are high, the next year's crop estimate is high and the price is at the top

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of its bottom third, go and find something else, because the likely direction is down, unless the weather is
awful.

Unfortunately, it's not usually quite this simple. Again, if it were, everyone would do it. Read the book,
you'll see that you don't need the price to go up a mile and stay up. You just need it to hop out of its bottom
third for a brief period (probably a few minutes will suffice), and you're out of your scales, with profits, and
can look for something else to buy (maybe the same thing, if the price drops back again).

For people who are willing to simply take the advice of Robert Wiest, he publishes a newsletter every
couple of weeks or so which might help. I get this newsletter (along with many others) to help broaden my
information base (and I like reading newsletters). I do not take any of his recommendations as gospel. I like
to form my own opinions, and create my own scales. At the end of the day, the only person I trust is me. I
don't trust some chap on the other side of the world to whom I have never spoken, despite how nice a man
he seems to be (from the tone of the letters), and regardless of how grateful I am to him for writing his
book.

Incidentally, his newsletter includes a guarantee account, which as I understand it promises a return of
25%. At some point in any one year period, or you get your money back. I don't follow this account, so I
don't know how he's doing. I think I read somewhere, presumably in his letter or book, which he's always
offered this guarantee, and has had to make refunds only once in many years of publication. I know he was
hurt last year by some bad information on live hog slaughters, and has been forced to stack up umpteen
contracts with big paper losses, but he seems to cash in plenty of winners elsewhere.

We all know that the price of hogs will go up again eventually, don't we? Even if it perhaps drops a bit first,
it will go up soon. No farmer in his right mind is currently increasing the number of pigs he has, while the
low price of pork and bacon is presumably starting to move the consumption figures higher. Furthermore, I
bet he's cashed several oscillation profits on the recent price moves up.

I have stated before, my reasons for wanting to trade off my own bat and can repeat them here. I know
Robert Wiest is much older than I am (he was flying in the war), and I intend to scale trade long after he
stops writing his newsletter.

I can recommend that anyone with patience, read this book. I think it will provide entertaining reading.
Even if they later reject the ideas as too cumbersome, boring, frustrating or whatever. I doubt if
Anonymous Trader will be terribly impressed by it, nor should he be. But I think many people would
benefit from it, and I heartily recommend it. If they want to subscribe to his newsletter, that's up to them.
I'm afraid I forget how much it costs, but it wasn't a huge sum. It will probably help beginners, and
certainly helped me to get started. I also maintain that the goal for most people should be to trade profitably
and independently. I'll never attain the dizzy heights of $1,200 per day, but as a trader, I am a one in ten!

For the Most Part Vendor Prices are Fair & An Incredible Bargain! - Bob Aughey

There's always lots of discussion on the subject of vendor prices, particularly trading system software.
While it's certainly true there's some overpriced garbage out there, I think for the most part, pricing is fair
and often an incredible bargain.

I have heard the argument that most trading system software programs are less complex to develop and
program than the average word processing program, so therefore, it should cost the same or less. I think
that there is an important difference, not the least of which is that software designed by large corporations
for mass distribution is just that, mass distributed. Volume sales will always allow for smaller gross profit
per unit. What I feel is the more important issue to support higher prices for trading software is the
disclosing of valuable secrets... trade secrets.

Why people sell their secrets is another subject for discussion, but personally, I think that plain old pride of
authorship is the main reason. But back to the subject here. An incredible amount of work goes into

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creating a quality system that can be marketed to the trading public. That is the trading public, not the
general public. After hundreds or even thousands of hours of development and testing, is it realistic to think
that someone should be able to buy the product for next to nothing?

Trading system vendors sell their products to a very tiny slice of the software end-user pie. You have to
wonder why anyone would devote so much time, money and expertise to market a product to such a small
audience. We are fortunate that some do.

The next time you power up your PC and call up your favorite trading system, analysis or toolbox program,
and at the end of the session you are armed with trading signals in which you have confidence and that
have resulted in making you money in the toughest financial arena in the world, take a moment to reflect
on the fact that system vendors have to make a living, just like traders and everybody else.

Lastly, when you consider the purchase of any software product, do us all a favor: Do your homework! Ask
the tough questions. When you are satisfied, pay the money. You will remember the quality of the product
and the support long after you have forgotten the price. Remember that knowledgeable consumers are
always the best defense against Holy Grail merchants. They also make the best customers.

Editor's Note: After hearing about Bob's article (which appeared in another publication), I contacted him
about it. I found what he had to say very valuable and true...and something rarely publicly stated before.
Bob authorized running it in CTCN.

Opinion on Vision Ltd Broker - David Sligar

I'm writing to convey my appreciation to the staff on my Vision trade desk. I've been an active customer for
several months, and have been very happy with their handling of my account as well as with their courtesy
and pleasantness.

I'm a relatively new trader. I have a separate career in another profession as well. At times, either because
of my inexperience or my level of distraction, I have placed orders awkwardly or mistakenly. For example,
I have given incorrect order prices. The trade desk people have always stopped such orders, waiting for
clarification, saving me large amounts of money in the process. In those instances, they have gone beyond
the call of duty, and I appreciate it. Thanks to all of them.

Opinion on Prime/Line - Mireille Staub

Editor's Note: This is in response to George Moldenhaur's request in April's issue for information on Jules
Greenstein's Prime/Line System.

I purchased the Prime/Line system from Jules Greenstein. I learned it and used it for a while. It does offer
an interesting approach to Fibonacci levels, definitely has something to it. I am not using it at the moment
for various reasons. The two main reasons are: (1) it's DOS based and reads only ASCII files; (2) I use
other things, including my own, that fits my trading style better.

Therefore, I am willing to lend the whole thing to George, so that he can make a firsthand opinion. The
software has a restrictive license and a lock. I would need to get authorization to assign the license (I know
how to work the lock) if George is interested. Let me know, and where to send it.

Review of Nature’s Pulse, Part 2 - Glenn Skirvin

Editor's Note: Glen's complete review was too long to place in this issue. Therefore, we have published
Part 2 as this is the part most members would find of greater value. His complete review (along with some

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other info on Prime/Line) has been made into a Special Report, which is now available to all members upon
request.

In Part 1 of this article, I discussed the features and capabilities of Nature's Pulse (NP), the methodology
employed, the program documentation and the technical support that is available from Kasanjian Research.
In this second part I will first offer a few critical comments about the features and capabilities of NP. Then
I will discuss my experience with the program in actual trading situations and will delve into the question
of whether it can really call market turning points with enough consistency to make it a reliable trading
tool.

3. Suggested Improvements to the Program

First, while I feel that NP is an excellent tool for discovering and documenting cyclical relationships in
markets, I also believe the program could use a few enhancements that would make it even more useful to
traders. The program currently does not allow a user to save accordions that are set up for a particular
market. Even if you save key dates in a date file, you can only access them for studies, not for use with
accordions. I have ended up saving my dates in an Excel spreadsheet so that I can go back and re-create my
accordion displays when I need to. How much more convenient it would be if the accordions themselves
could be saved by NP and then recalled when needed by the user.

The program would be more useful to traders if it included some screen drawing capabilities. By this I
mean the ability to draw trendlines, vertical lines, horizontal lines for support and resistance, and text on
the chart, to name a few. A further recommended enhancement would be the inclusion of some technical
indicators that could be calculated and displayed on the chart, particularly the kind that Messrs. Kasanjian
and Kwong use themselves to make trading decisions at energy points.

If both of the above enhancements were implemented, the user could almost "do it all" within the NP
program instead of having to switch to another technical analysis program to do part of the work. The
ability to write notes on a chart would alone be a great feature addition to the program as far as I am
concerned. Hopefully many of these suggestions will be implemented in the upcoming Windows version of
Nature's Pulse.

4. Practical Application to Trading Situations

Now let’s talk about the practical use of the program in trading. Please keep in mind that what I am about
to say here reflects only my own experience with NP. I will be the first to admit that I am a novice user of
the program and have a long ways to go before I will be anything close to an expert. Others who are more
capable and experienced traders than I may be able to share a completely different perspective of NP. First
of all, let me say that anyone who expects NP to magically pop out accurate change-in-trend dates for a
particular market is in for a rude awakening. This program is a tool that takes time and practice to master.

When I was still deciding whether or not to purchase the program, I asked Ed Kasanjian what percentage of
NP forecasts turn out to be accurate. The response I got was 65%-70%. Ed’s definition of an accurate
forecast is a date that falls within one day of an actual energy point. I don’t dispute Ed’s accuracy
percentage, especially given the fact that he has a pretty good track record with forecasts in the Pulse Rate
newsletter, but I am reminded of CSI President Bob Pelletier’s statement (Jan 95 issue of CTCN) that,
depending on how one defines "turning points," anyone can predict the next turning point for a market
within three days about 70% of the time just based on pure chance. Ed’s success criterion is much tighter
than this, though (within one day instead of three). Moreover, he has successfully called some major trend
changes for certain markets in a manner that appears to exceed what could be expected through pure
chance.

In my experience with NP, I have encountered several difficulties in applying it to chosen markets. These
revolve around the fact that the choice of pivot points and multiplier or static cycle files for a particular data
series can be quite subjective. You'll find through exploration and experimentation that numerous cyclical
relationships exist in any given market, and these can be combined in a multitude of ways to yield a variety

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of "answers" about when the next "energy point" (EP) should be expected. I’ve also noticed that NP cycle
projections don’t always form nice neat little clusters to indicate certain dates as the "obvious" choices for a
trend change.

For example, when I did my personal analysis of the S&P 500 using about 12-yrs worth of weekly and
daily data, the results I came up with produced future EP dates that were different from those published by
Kasanjian and Kwong in Pulse Rate. Based on their experience and expertise with this methodology, I
tended to defer to their analysis rather than my own although I felt that the pivot points and multiplier files
I utilized were no less intelligently selected than theirs. This phenomenon has created somewhat of a
confidence crisis for me when using Nature's Pulse. How do I know when I’ve done the analysis properly
and come up with the "right answer?"

The thought has occurred to me that maybe I am having difficulty because I am focusing purely on the time
element in the markets rather than combining time and price the way Robert Miner and others do. NP gives
you the ability to analyze price separately from time, but they cannot be combined per se. I also understand
that Mr. Miner has developed his own program, Dynamic Trader, that enables a trader to analyze markets
in a manner similar to the way NP does. I don’t know much about this program but perhaps another club
member or Mr. Miner himself would want to comment about it.

In conclusion, Nature's Pulse is a well-designed, well-supported and easy-to-use program that will
definitely facilitate ones understanding of the various cycles at work in a given market. There are many
satisfied users of NP that can testify of its contribution to their trading profitability. As for me, I still have
more practicing and experimentation to do with the program before I will feel confident enough to base
real-time trading decisions on its prognostications.

Response for Info about Bruce Gould's "Money Machine" System - Stephen Sayre

It's my understanding that several readers have requested information on the "Money Machine." After
purchasing Bruce Gould's "Money Machine," I have found that it has lived up to its expectations, having
more than paid for itself in net profits. It is a simple, but effective system.

This is not a method conducive to daytrading, but rather for the patient position trader, as it takes a certain
amount of time to setup.

Dr. Gould responded quickly and completely by fax or letter to any questions that arose when trading.
However, I did find it awkward not to be able to speak with him by telephone, since no number was ever
proffered before or after purchase. Many traders may be reluctant to buy a system without speaking with
the vendor. I purchased based on the strength of his writings and reputation. I highly recommend any of the
books written by Bruce Gould. They all contain great nuggets of insight and information regarding the
markets from his many years of involvement.

CSI is an Excellent Data Service, but they to have some problems - Terry Davis

It is interesting to read Bob Pelletier's comments bemoaning the fact that contests are not fair. Grow up -
life isn't fair. You are selling a good product at a fair(?) price. I have dealt with CSI in the past and have
found their data service to be excellent. However, if I had to check a box for customer service or help they
give over the phone it would look like this: ¨Rude ¨ Ruder ¨ Don't call us, we'll call you. For billing
problems it would be: ¨ I'll get back to you soon! ¨ You didn't talk to me two weeks ago ¨ Why are you
complaining that we double charged your credit card, again.

CSI is a good and reliable company, but like so many others who are industry leaders, they have internal
problems just like the rest of us.

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 President of CSI Responds - Bob Pelletier

Thank you for giving me the opportunity to respond to Terry Davis' letter at the time it is printed. I
appreciate Mr. Davis' kind words about the quality and reliability of our service and I wish him luck with
whatever data service he is now using. I think we agree that the public forum is no place to air private
gripes and billing disputes. I have urged you to print his letter, because it touches a chord that is important
to me and to many of your readers.

Mr. Davis' letter strikes at a very vulnerable part of our organization. Our customer service and billing
staffs are required to field hundreds of call per day; ranging the gamut from cheerful orders to aggravated
tirades. My mail often includes darts and laurels for both departments, sometimes with dissenting views on
the same staff member. Despite some evidence to the contrary, the CSI customer service and billing staffs
strive to resolve every problem and satisfy every caller. As Mr. Davis' letter so poignantly reveals, they do
not always succeed.

When I read Mr. Davis' unhappy letter, our service manager called him to see what we could do to help and
to apologize. I will not offer a list of boxes to check describing his response, but I now find it easier to
understand how, on a personal level, our staff may have been less than eager to help. Nevertheless, I will
not tolerate rudeness nor impatience from our staff. I often take complaint calls myself in helping to solve
problems and disputes. I am sorry I did not have the opportunity to speak with Mr. Davis personally about
his problems.

Some troubles mentioned were caused by the recent strong demand for our services. Because our prices are
among the lowest in the industry and our data products rank among the best, we have more than doubled
our customer base in only the last three months. The explosive demand has temporarily overtaxed our
customer service resources. We have since increased our staff to better accommodate our growing customer
base.

We have also made some staffing changes in customer service and bookkeeping, which we hope will result
in greater communications and better relations with all our customers. Unlike our competition, we offer
two-shift customer service with Saturday help. We will continue to add additional assistance in these areas
as necessary to keep up with demand.

It is our goal to keep our fees low so that data users will come to us for good reliable service. Hopefully, as
the public becomes more aware, the natural tendency will be to come to CSI for a superior product, a fair
price and ever-improving service.

Thank you again for the opportunity to answer Mr. Davis' concerns and thanks to him for bringing these
past problems to light. We consider it a challenge to prove you wrong! If any CTCN readers would like to
receive a free subscription to the CSI Technical Journal, please call our Marketing Department at 1-800-
274-4727 or 1-407-392-8663. I guarantee they will be treated courteously and with great respect.

Don McCullough on Real-time Data-Part 2

At the start, I subscribed to Signal's delayed data and futures markets only. This cost me $60 a month and
the Chicago markets arrived on my screen about 10-minutes delayed and the New York markets about 40-
minutes delayed. Now that's delayed!

A few days ago, I changed to bonafied real-time and only the two Chicago futures exchanges. This is much
more expensive than delayed time and now I pay $355 a month plus $31 a month for my cable TV service.
I got the cable TV hookup mainly for the markets and receiver to connect to. That's a total of $386 per
month for my real-time data. This means I'm serious about the markets or I sure as hell better be!

That delayed data was a real pain. I was constantly having to guess what the bond market was doing 10-
min ahead of what I was seeing on my screen. I had a little help from Signal's free Dow Jones Industrial

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data that was real-time. When the DJI looked like it was strong and going to get stronger, I would
sometimes buy. I also would call my broker's quote service for the latest price before making a trade. The
New York markets being 40-minutes ahead of what I was looking at on my screen were totally out of the
question!

I'll start trading seriously using real-time charts in a few weeks. I have to get more money to my broker, so
I can afford one or two S&P contracts. It's a struggle finding out what markets you want to trade. To me,
the S&P charts the best and offers the most potential, so my choice is easy. I have spent years going over
charts of all the major markets as far back as the 60's, so my selection of the S&P market is for good
reasons. By the way, and I won't tell you why, I think the best chartists are in the S&P market.

I nearly forgot to include an important problem I had. I don't think it's very serious now, but when it
occurred, I was not happy. Seems about once or twice a year the cable TV companies do what they call a
"cable sweep." That is, they check out the reception in various portions of their total area. One morning
about 5:45 a.m., my MetaStock program told me my reception was poor. I immediately turned on my TV
and had no reception on any channel. I then called the cable company and was told there was a "sweep"
going on in my area. I lost about 14-minutes of bond market data because of that sweep.

There have been a couple of other 1-minute or so lapses in reception and some rather lengthy ones during
non-market hours. I don't think this is reason for anyone to not use the cable TV hookup. I would prefer
satellite reception and may eventually change over to it. Even then the Signal people tell me in cloudy,
snowy and rainy areas satellite reception can fail at times. Here in California, I expect satellite would be the
most dependable.

Editor's Note: Data stream interruptions are a major problem with real-time tick data. It seems to occur
from time-to-time with all services, cable, FM, or satellite. The data flow interruption results in data gaps,
which then negatively effects technical analysis, such as cycles, trend-lines, etc.

Hope this article will be of some help to you soon to be real-time enthusiasts. If I'm in error about anything,
let me know. It'll be my gain.

I'm trying to find a book either titled or about Drummond Geometry. I read about it in one of my better
market books and think it may be helpful with the markets. Can subscribers help me locate it?

Opinion on Richard Tokheim's Pork Belly Trading System - Stephen Sayre

Rich Tokheim has a nice, effective system geared to the short side of the pork belly market. If you're a
belly trader, this may be one you will want to add to your arsenal . . . not conducive to daytrading.

Rich will take time to visit with you on the phone and explain his philosophy. Since he offers an array of
trading systems, you may want to give him a call at 1-402-572-0377.

My Observations & Views - C.J. Casebeer

I would like to make some observations on the April 95 issue, which was a good one.

Thank Anonymous Trader for giving methods of daytrading. This is the way to make money for those who
don't mind sitting in front of a screen 6-hours a day. I have never tried it, nor think I want to be tied down
and under that kind of pressure daily.

I wonder if George Moldenhauer would give us his "few simple calculations that will give a directional
reading for the next day." He is right on about having a winning approach along with discipline.

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Dave Hutton of Australia sure gave good info on our minds handling no more than seven pieces of info at
one time. Mine is much less! He certainly keeps his trades short - 1 to 3 days and 3 to 10 days.

His question of $15-20,000 drawdowns, no matter how large the profits, is exactly what Robert Wiest (You
Can't Lose Trading Commodities book) and his adherents such as SF of Europe want to have us do.
Personally, that's not the way to trade.

As for SF of Europe, he states Wiest rules "of waiting for historic low levels" which in itself makes action
very limited. He implies a lot of activity such as bean meal, beans, oats, heating oil, corn, wheat, etc. But
how many of those have made anywhere near historic lows? So he is not using Wiest's basic rule.

He is trying to pick bottoms and doing it in reverse of the sensible way - going long on the breakout or
waiting for a Bruce Gould 1-2-3 bottom pattern. Why even subject yourself to disastrous drawdowns.
These kind of trades must have an unlimited margin account, as do the fundamentalists to stay alive in this
game.

Max Robinson has good tips. As for stops, I prefer mental ones. I won't setup as clay pigeons for the pit
gunners. Options are another ball game I prefer to leave alone.

This leads me to remark on Wayne Roberts and Frank Richards "The Insiders Profit Matrix." I wonder just
how old this is? After buying, Richards answered my letters, but really never answered my questions. The
problem is I can't find any $200 puts or calls at market tops and bottoms, and I asked him about it with no
answer. In fact, it is hard to find any 3-mos or longer $200 options. So this destroys the $1,500 profit
rollover. The system is worthless nowadays.

I appreciate the articles on taxes. We need all the help we can get on this subject. The IRS is not fair on the
way they deal with traders and investors.

I certainly would not have known of Joe Ross' physical problems until he revealed all to us. I must say he is
one remarkable man to have done all he has with the curse of dyslexia.

Re: Rich Kuyser and the tippers or Hotlines, etc. Why do all the geniuses have to sell tips just as the
horserace hawkers at the gates of the racetracks and elsewhere do? He says he learns from them. Very
expensive tuition! Nick has good charts and info for technicians, but I do my own and do subscribe to
Pocket Charts, only $50 per year.

I certainly appreciate all your efforts with CTCN. P.S. - Jim Burke's tips are right on!

Opinion on Essex Futures Pro - Heinz Kellerman

As an owner of the system program, here are my views. "Futures Pro" is a break-out system program by the
Essex Trading Company and combines their former programs - *Eurotrader, Tradex 21 and Ace System";
Long, medium and short-term respectively.

What you are basically buying is a core system. You then have to add the markets you are interested in, i.e.,
Currencies, Grains, etc., long, medium or short-term are all extra. Usually about $200, sometimes on sale
for $100, or some package deals. In other words, for the $200 you get all the currencies for long-term only,
or medium-term only, or short-term only. Or $600 for all terms. I would strongly recommend, if interested,
to call and ask them for their special deals at 1-800-726-2140 - since my information may be dated.

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

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The negative points about the system are: The data bank is their own system including rollovers, which
are automatic. As a result, in my case I cannot use my 35-commodity CSI data bank from Dave Green's
Swing Catcher to feed Futures Pro. Of course, you may get data from CSI and other vendors. Also, you
can update it manually, which is a real joy. ‚ My biggest concern is the parameters with built-in filters. The
company provides updated disks every three or more months for an extra charge. The parameters seem to
be tested on 10-years or so of data.

Over the long haul, I am sure it is a money maker, but the drawdowns meanwhile are tremendous and
suitable for huge bankrolls, which leaves me out. Therefore, I have stopped using it except for
confirmation. In all fairness, I have not tried to calculate parameters myself for shorter periods of testing
time. The company believes in 5-years minimum testing time.

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

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

I would like to reply on the article by Joe Dinelli, about Jeff Rickerson's Market Optimizer.

Mr. Rickerson sells his Market Optimizer system with a "proven accurate and profitable track record,"
which can be independently verified by the user.

As you know, one of the most important aspects of trading is confidence in the system you're trading. There
is no system with entry rules and exit rules, so the track record he advertises, does not exist.

When someone writes such lies in a brochure, you do not have any confidence in the trading tools in the
program. As far as Dinelli knows, he is not selling his track record, but if Mr. Dinelli wants to have a copy
of his brochure in which he tries to sell his system(?) (It generates buy and sell orders on every swing high
and swing low) I would gladly send it to him by fax.

Trading for a Living - Don McCullough

December 30, 1994, l quit my regular job. I decided I knew enough to make a living trading the speculative
markets. Since then I have been busy getting hooked-up to real-time data and psychologically reinforcing
the validity of my signals via this data. Also, I have had a few months to see how the various futures
markets chart in real-time using my signals. This last resulted in my deleting over half the markets and I
think it's possible I may delete all markets except the S&P and the currencies.

Not only did I delete most of the futures markets, I also deleted about 400 stock charts. At one time, I was
working many 10-hour days at my regular job and coming home and going through around 700 charts each
night. Stocks and futures combined. I would sometimes fall asleep around 4:30 a.m. while trying to get
through all of those charts. How very grateful I am to be done with so many charts!

I expect many people who are new to the markets have the ego problem I had and attempt to successfully
trade every damn thing under the sun. Anonymous Trader is right, and so are some of the better authors
who suggest that you trade only a few markets.

Regarding markets. I place the S&P market way above any of the other markets for daytrading purposes. I
would rank the currencies next, especially the Swiss Franc and the German Mark. The highly rated T-Bond
market is one of the poorest charting markets I've ever had the displeasure to look at. Time and again, I see
the bond market making a paltry $200 move while the S&P makes a $500-1,000 move. Soybeans, Live
Cattle and Pork Bellies are (in my opinion at this point in time) about the only other halfway worthy
daytrading markets.

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I suppose that personal freedom and the potential for great wealth are the main reasons people like me quit
their regular jobs and attempt to trade successfully. Those are my reasons and the personal freedom may
come before the money. Of course, the money makes the freedom possible. Also, we like the challenge,
although I'm about fed-up with this part of it. Too many hours and years of studying the markets, when I
could have taken that same time and had more fun. Or could I?

About personal freedom, I don't think most people even know what it is in a complete sense. After 12-16
years of schoolteacher domination, they then work as a subordinate for another 20-40 years. Just about
everybody has somebody they are subordinate to for most of their life. Life is so short and look how most
people think they must live it! Such a dominated lifestyle is hard to avoid, no doubt about it. The markets,
especially the futures markets, offer a way out of this life long subordinate dominant bullcrap.

Hey, maybe I have the right mind-set. The great trader Marty Schwartz once said he couldn't stand most
established institutions. Independent thinking? You bet. How are most people going to be able to think
independently enough to find the right answers to the markets after a lifetime of domination? Good
question. They are just the kind of people the book writers and seminar promoters are looking for!

I am determined to succeed at this trading business. A few years ago, I decided that I was going to make it
in the markets and would do whatever it takes to get there. That decision to "do whatever it takes," is, I
believe, a crucial one. Talk is cheap for sure. However, at my present stage of trading ability, I know all I
have to do is consistently trade my signals-winners and losers!

Opinions on Gary Smith, George Angel, Ensign - Jim Moore

Congratulations on continued good work on your CTCN. As I continue to read these articles, I think I could
answer some requests for comments. I have traded commodities off and on for 15-years. I have tried a lot
of the same things the others have, so here I will give you some of my comments, mostly pertaining to S&P
daytrading.

One request was comments on Gary Smith's daytrading system. I have found his Break-out System very
effective, if you pay attention. Gary is very nice to work with.

A reasonably new system by George Angel and Dr. John Wang is the Spyglass am & pm for S&P
daytrading. This has provided a high percent return for me so far. Dr. John is unbelievably cooperative.

I have to agree with the party that said TradeStation is a fantastic system, but their customer service is
lousy. I have had to use my Technical Support friends to help me through problems. It cost me a fortune to
wait on the phone for technical service to answer.

If you want good service, an 800# technical service, and a simple but effective software, try Ensign. It is a
trader's dream. The only problem, no one programs their systems for the Ensign software. Let's hope this
changes. June 94 issue of Stocks & Commodities had an excellent, on the nose, article by John Sweeney on
the Ensign 5 product.

I'm ashamed to say that I lived within ten miles of Joe Ross in Leander, Texas and never knew about him.
What a shame. Think how many dollars I could have saved or made! Now I have to take a vacation to see
him. Enough said for now. Thanks again Dave for the good work.

Use of Sporadically Incorrect Data for Historical Simulations - Buzz Ross

I'd like to share some thoughts about concern over data vendors whose data contain errors. I do not know
how bad some data is, but in general, I believe the following principles apply.

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For historical testing, although using perfectly correct data might be ideal for perfect optimization, I do not
believe historical data needs to be this good to develop a dependable and profitable trading system for real-
world use. Assuming the errors in data are relatively infrequent and not obviously absurd, there should be
little concern in using this kind of data for system development and testing.

Since markets tend to look "continuous" on charts with occasional "common-sense" appearing
discontinuities, you can generally spot data that is grossly in error, and estimated corrections to this kind of
error can be made. Errors of a few ticks on either highs or lows of a daily range (or other sampling period)
may be considered "noise." Errors in opens or closes within high-low ranges may or may not be "common-
sense" detectable, so this data "noise" may be of most concern. However, although market behaviors do
tend to repeat, rarely, if ever, do patterns of behavior duplicate themselves tick-for-tick.

Therefore, to assume that a trading-decision strategy must be based on high precision tick-range patterns or
indicators is asking for trouble -- this would be indicative of over-optimization. Shallow-sensitivity
"robust" optimization, in my opinion, is quite desirable, but steep-sensitivity optimization is likely to be
disastrous. (Here, "sensitivity" refers to the change in simulation results as the characteristics of a market
change over time, and shallow/steep refer to abruptness of the change.)

My presumption also takes into account the total number of trades that a strategy may generate over its
useful lifetime. Fewer trades imply longer trending durations and, therefore, the "noise" relative to the
magnitudes of the moves will be relatively small and insignificant. As the number of trades increases for a
given lifetime, the trend durations shorten, moves generally become much less, and relative "noise"
becomes more significant.

However, assuming that a sufficient number of trades are generated both in historical simulation and in
real-trading so that, statistically, no single trade dominates the overall results, a robust strategy that
produces consistent "small advantages" (like the casino examples in recent CTCN issues) will by design, be
inherently "noise immune."

Bottom line: So what if the historical data is somewhat in error -- the future is likely to produce data that
differs somewhat from the past anyway, so a profitable trading strategy for any given market should be
tolerant of some reasonable variation in data, whether that data be historical or yet-to-occur as the future
develops. A "good" trading system should be reasonably "noise" immune, and data that is somewhat
"noisy" can be quite adequate for trading strategy development purposes.

Having said all this, would I, or could I, trust using potentially flaky recent data to create real-time trading
orders, for either day-trades or position trades? If I did not want to take time to look over data for obvious
gross errors before mechanically (blindly) generating trading orders, using unreliable data for this purpose
could likely result in some very expensive losing trades. (There could also be some serendipitous profitable
trades, but I wouldn't hold my breath!) So, in this context, having reliably accurate data is imperative and I
would definitely want to use a vendor whose data I could trust.

Understanding the strengths, weaknesses, and underlying design of one's trading strategy coupled with the
emotional considerations of trust, confidence, and belief in that trading model would dictate the comfort
level of using data that could have sporadic errors in certain ways. Even if I were willing to take time to
carefully examine all data for "common-sense" correctness, I might not be too comfortable using data that
would require my constant vigilance, even though my "noise immune" trading strategy would probably
produce reliably profitable results over the longer term. Bottom line: In real-time trading, for peace-of-
mind, get the most reliable data available.

Opinion on Trend Dynamics - Joe Dinelli

I would like to make everyone aware of what I feel is the best educational newsletter available today. It is
called "Trend Dynamics" and is written by Joseph Hart, a long-time active trader. This is purely an

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educational course and is sent out monthly. Mr. Hart holds nothing back and indeed provides a vehicle of
learning that is straight forward and invaluable.

This course work has been going on for about 18 months. All back issues would have to be purchased to be
on par with current subscribers. The cost is $59.00 per month, but is restricted to 250 subscribers.

A network of subscribers has been provided with FAX and phone numbers of fellow subscribers to fill in
the void of backup, along with an " Internet discussion group" in the planning stages. I believe this will
help in providing a communication network for sharing of information. All questions are answered by FAX
and if found pertinent, published in the newsletter.

It is obvious, Mr. Hart has been influenced by many traders in his quest for trading perfection, but his
obvious dedication to research and teaching shows through every issue. This is a true "jewel" of a
newsletter and is a must for the "Higher" education of the trader.

The phone number for "Trend Dynamics" is 1-805-481-4358 and the FAX is 1-805-481-9692. Their
address is 897 Oak Park Blvd, Ste 261, Pismo Beach, CA 93449. They offer a sample issue and "start-up"
package for $15.00.

S&P Traders Can Save With Delayed Quotes - Tom Cruckshank

Do you meet the following criteria? For day trading you trade only the S&P. ‚ You obtain your data
from Signal. ƒYou use the TradeStation Software. „ Your place of trading is served by a cable network. If
these things apply to you or you can make them apply, you can save a bundle by signing up for Signal's
delayed quote service that costs only $60 per month. You say WHOA, I need my data now, not on delay.

Well here's the trick: Signal gives you all the indices real time and end of day data for all the issues for this
$60. If you are familiar with Gary Smith's work, you know that the cash combined with the premium equals
the nearest futures price or is close enough as not to argue. Now you receive this real-time with the delayed
quote package. TradeStation, and perhaps other software, allows one to write programs that combine these
prices. For TS write the following study to plot the bars in any time frame from one tick on up:

INPUTS:DATAX(l),DATAY(2);
VALUE1O=C OF DATA(DATAX);
VALUE11=C OF DATA(DATAY) /100;
VALUE12=VALUE10 + VALUE11;
PLOT1(VALUE6,"S&P-H");
PLOT2(VALUE9,"S&P-L");
PLOT3(VALUE3,"S&P-O");
PLOT4(VALUEl2,"S&P-C");

I omitted values 1 through 9 for brevity, but they are for creating the high, low, and open. Set the properties
to bar high for PLOT1, bar low for PLOT2, and either a cross or a point for the open and close. Plot them
in the above order and the open and close will show if given a different color from the high/Low. When
you set up your chart window, be sure that the $SPX is data 1 and $PREM is data 2. Do not change inputs
in the study unless you change this data order.

What about applying studies or systems? No problem! Create this user function:

INPUTS:DATAX(NUMERICSIMPLE),DATAY(NUMERICSIMPLE);
VALUE1=C OF DATA(DATAX);
VALUE2=C OF DATA(DATAY)/100;
CSP=VALUE1 + VALUE2;

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This is for the close. If you wanted the other data points, just create them using this as a model. The name
of this function is CSP. To apply this to a moving average for instance, put CSP(1,2), 10 in the input value
area for a 10-bar average of the close.

Please note that I have never tried this ploy except on old data that I had from when I stopped receiving
Signal in late 1993; also, I am using the antiquated version 2.4 of TradeStation. However, it seems to work
beautifully. It wouldn't work for me anyway as I live outside the reach of a cable service. I don't know if
Signal still offers the $60 deal. This may work with other delayed data vendors, I don't know. I visually
inspected these bars alongside the then current contract and they were very close; certainly close enough
for all but the most demanding trading. The differences appear to be magnified at price extremes where the
premium or cash gets a little out of balance. It would be good if someone reading this who has the proper
setup would test this and report their assessment of the idea to the readers.

The Greatest Trader in the World? - Making $300,000-$500,000 Per Month Daytrading the S&P? -
Don McCullough

Marty Schwartz has got to be one of the best traders in the world. He's interviewed in Jack Schwager's first
"Market Wizard" book. Marty is so good that in nine out of ten trading contests he entered, he made more
money than all of the other contestants combined! This is truly outstanding.

I recently received an ad which told of the importance of having a market mentor to learn successful
trading from. They listed several of the people in the "Market Wizard" book and how important a mentor
was to each of them. Marty was one of the people mentioned and they went on to tell how he makes from
$300-500,000 a month daytrading the S&P market. That's right, per month!

No doubt many readers are going to have a hard time believing a trader can be this good. Personally, I don't
doubt it at all. When you consider that an individual trader can hold as many as 5000 S&P contracts, and
considering the average daily range of $1,000 or more per contract, you can then imagine even greater
profits being made. Not easily perhaps, but possible!

About 5-years ago, I read about Marty Schwartz in the first "Market Wizard" book. I decided then that he
was my pick for the best trader in the book. Now, after reading about how much he is making in the S&P
market, my wild guess would be that he's in the top 5 percent of all traders of all time. Like the Top Gun
navy pilots, he's one of the "best of the best."

Do you suppose, it would be possible to get Marty Schwartz to contribute an article or two to this
newsletter? Now wouldn't that be interesting?

Editor's Note: His address isn't in our data base. I will contact him if a member knows his address.

Favorite Book List - Don McCullough

Over my 8-9 years of market study, I've purchased, read and sometimes studied around 120 books about the
speculative markets. That's around $3,000 worth and, for the most part, a whole lot of time wasted.
Following are my favorites--and boy did I ever have to wade through a lot of baloney to come up with this
list!

Market Wizards, by Jack Schwager

The New Market Wizards, by Jack Schwager
Trading for A Living, by Dr. Alexander Elder
The Inner Game of Trading, by Koppel & Abell
The Outer Game of Trading, by Koppel & Abell
Market Masters, by Jake Bernstein
The Big Hitters, by Kevin Koy

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 The New Gatsbys, by Bob Tamarkin
Winning Futures Strategy, by Larry Williams.

Note that most of these books feature genuinely successful traders and not book writers, system sellers or
seminar promoters posing as successful traders! I have a recently published book in which the author
confesses, in the last chapter, which he's never been able to make a success of his trading. My response is:
"Put that statement on the book's cover and then see how many books you sell!" Recently noticed, he's one
of the speakers at a seminar. Are you getting the message?

Having Trouble Finding Book Sources - Ms. Pamela Chan from Singapore

I have been reading your CTCN newsletter. Referring to the Feb 1995 issue, there are a few trading book
recommendations which I am very interested in. They are as follows: -

1. Trading is a Business - Joe Ross

2. Trading for a Living - Dr. Elder
3. Wall Street Psychologist for Trading Improvement - Ruth Roosevelt.
4. What I Learned Losing a Million Dollars - Jim Paul (1994, Infrared Press)
5. A Short History of Financial Euphoria - John Kenneth Galbraith (Whittle books, 1990)
6. How to Make Profits in Commodities by Keltner & Profits in Soybeans (both out of print).

Unfortunately, the above books are not available at local bookstores. I would appreciate very much if you
could tell me how I can get those books.

Editors Note: CTCN is looking for an advertiser who has (in-stock) most of the trading books mentioned
in this issue, plus our past & future issues. A few months ago Ed Dobson of Traders Press had a paid
advertisement in CTCN, but Ed said he received no orders or inquiries from his ad so he cancelled it. That
seems very odd in view of the fact CTCN is mailed to many traders each month (in all 50-States and 34-
foreign countries), many of whom are newer traders who are very interested in acquiring helpful books.

Member Requests

Dave Helminen and several other members request opinions on Randy Stuckey's Catscan from owners of it.
In particular, they are asking for details on the size of drawdowns.

Scott Caldwell is a new member who would like to hear from members who have had experience with any
of the following option related info services: Don Fishback's "ODDS" video, Bernard Schaeffer's
newsletter entitled "The Option Advisor," or Jon Najarian's "Super Trader's Options Trading Course for
Off-Floor Traders." Day - 1-318-323-9686, Evening 1-318-396-5310

Ron Zahodny wants information on Bill Williams and his Profit-atunity method.

Greg Wika wants information on Mr. VanTharp's Peak Performance Trading & Investing Course.

Frank McCord would like to be in contact with other traders in the Sarasota-Bradenton, Florida area. Call
him at 813-355-7057.

Can anyone share some insight on a trading system called "Impulse" (or Impulse-80?) that appeared during
the early 1980's? Call Buzz at 1-303-443-7131 (or send contact info via CTCN)

Editor Quick-Scans & Resource Guide

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 Dave Reiter (1-817-665-8836) sent me his Trading Manual for review. It consists of 44-pages (spiral-
bound) of interesting and detailed information covering several trading methods Dave has used successfully
in his own trading, and has developed over the last several years. Earlier, Dave sent me a large number of
account statements which indicate he has had considerable trading success for some time. Dave says the
methods are disclosed in his Manual.

Some of the subjects covered include Diversification & Portfolio Selection, Trading Capital required,
Importance of Discipline to follow a system, Belief in Contrarion viewpoint, Time Cycles, Natural Cycles,
Importance of Trading the underlying trend. I found Dave's work on both Time Cycles & "Natural" Cycles
well-done. Some people may be inclined to call Dave's "Natural Cycles" - Seasonals.

Several very interesting trading systems are disclosed, both long-term & short-term. I can not vouch for
their profitability. However, Dave's Trading Manual is well-done and unique and warrants close study by
interested traders.

The Foundation For The Study of Cycles, (900 W. Valley Rd., Ste 502, Wayne, PA 19087, phone 1-610-
995-2120) submitted their Cycle Analysis software. For many years they contributed great cycle research.

It's an impressive and sophisticated program with many capabilities to find and display all major and minor
time cycles for any commodity. The graphics are good and the programming seems well done.

However, my main criticism is that the manual that comes with it is somewhat small and doesn't seem to go
into sufficient detail on many subjects. Most importantly, I didn't know how to actually use for trading
purposes the vast number of cycle waves being displayed on my computer screen.

In addition, there is the basic underlying question of whether you can actually make money using time
cycles. There's little question that time cycles exist. But they have a tendency to come early, or late or even
skip a beat entirely, making it difficult to make money with them. However, CTCN Members who are
cycle devotees should consider this program.

Issue 26.

I Knew the Market, Not - J.L.

Although I had read several accounts of futures traders who said that one of the most important factors in
trading was the preservation of capital. I guess I didn't fully appreciate what they were saying. I do now.

At the end of January 95, I had $97,000 in my account. I had made a gross profit in 1994 of approximately
$95,000, netting nearly $82,500. This was made trading primarily the S&P500, making two to three trades
daily, although close to $31,000 was made in two coffee trades. On January 30, I felt strongly that the
S&P500 was due for a major correction to the down-side. I sold two March contracts and then a couple
days later sold an additional two contracts.

When the correction didn't happen, I still felt it would at any time, so I held on though the market continued
to rise. I rolled the March contracts into the June contracts on March 14, and watched the market continue
to rise. I had a margin call and liquidated two contracts and shortly after that liquidated another contract.

Finally on May 19, I liquidated my final contract for a total loss since January 30 in the S&P of $56,500. I
felt like a person who had held onto a rope of a hot air balloon who didn't let go while he could and then
couldn't because he rose too high. I was in agony for several months.

You would have thought I had learned a lesson. Again being sure the bond market was due for a correction
downward, I shorted bonds eventually taking a loss of $7,093.

I had a system for trading the S&P market that I had usually followed that was profitable. I strayed from it,
though it had been profitable over a long period and followed a hunch that the S&P was sure to have a nice

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correction downward. I was sure of my hunch, but I was wrong. I have been nearly always wrong when I
follow a hunch, thinking I know what the market is going to do. I was wrong to the tune of about $25,000
on lumber in 1993 and wrong another time the S&P in the amount of $16,000 in 1994.

I have now stopped trading until the middle of July, while I evaluate things. I have lost confidence in my
trading due to the scenario above. Now I am not even confident of the things that proved to work prior to
my very stupid trades. Yes, I have called myself stupid among many other things in these past five months.

I hope I have learned a lesson, a very costly lesson. I have now decided I will always put a protective order
at the time of my original order to get myself out of the market whenever it goes against me, in the event I
follow a hunch rather than a system. Preservation of capital will be utmost in my mind.

I do have several systems I follow, one of my own for the S&P 500 market and the Gary Smith S&P
system. Also I plan to use another system I purchased from Lee Gettes for the bonds, S&P, coffee, cotton
and silver. I have been monitoring Gettes system for several months and I think it has merit.

My motto from now on will be: Don't rake the leaves against the wind. Don't stray from what works and if I
can't resist then always place protective stops that I am comfortable with at the time of the order. I find it
extremely difficult to place a stop after the order, unless I am following a system that calls for one. It is far
better to take a loss a little early than to take a large loss later. I now realize I don't know how high is high
or how low is low. I have become very humble. If what I have said turns out to be of help to anyone, then I
am glad I shared this terribly distasteful but very real experience.

A Data Vendor Wish-List - David Sligar

Continuing the recent comments by and about data vendors, I would like to submit the following "wish
list:"

Accuracy and reliability. Almost goes without saying, though I certainly agree with Buzz Ross in May's
CTC News that perfect accuracy is not essential, even if it were possible. Much more important is the
percentage up-time of the quote system, which one must hope is close to 100. Redundancy, anyone?

‚ Accessibility. Local phone access or in real-time data, cable or satellite feeds, should be inexpensive and
easy to set up. The data should be available in a format readily usable by all major charting/analysis
programs, and should provide conversion software accordingly.

ƒ Flexibility. A trader may need quotes on one (or a few) issues at a particular time. Data on issues
previously uncollected should be easily available, and beginning and ending dates should be easy to
specify.

„ Cost. A low monthly fixed charge for some base amount of information is good. If historical data is
required, a reasonable and well-defined surcharge for data collected is acceptable. (The adjectives are
important!)

… Completeness. Includes stock, mutual fund, commodities, futures and options quotes. More?

† Telephone support. Most information highway vendors I've dealt with came up short in this department.
Somehow, there are always excuses, e.g., "hundreds of calls per day," "explosive demand," "overtaxed,"
etc. I would suggest that an essential component of any product is its usefulness. If that's true, then it is the
seller's responsibility to provide to the buyer whatever will make the product usable, including, if
necessary, adequate technical support. Is this basic? When it comes to computer information and software,
I would prefer that systems be carefully designed, and manuals well written, that only a bare minimum of
telephone support would ever be needed. This can be done, though most often it's not. An example is
MetaStock. In almost two years of using their charting software, I have called them only once, and without
much difficulty.

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That's enough, from my perspective. If I've left something important out, I hope someone will help me
complete the list. Now, to be more specific. CTCN has run several comments in recent issues by Bob
Pelletier of CSI, including in the May issue a response to a letter pointing out some problems with CSI's
technical support. I recently stopped my subscription to CSI. My reasons may be of interest.

The difficulties I had were with the software. CSI data is no doubt quite good, but collecting it was
extremely time consuming, and the collection process was hard (for me) to set up. I had to create a new
portfolio whenever I wanted to collect data on only one security, or when I wanted to collect any subset of
my normal portfolio. The time required to set up the data collection process in this way was not acceptable
to me. It may be that I was simply not well enough schooled in how to get around in the program. I was not
able to discover better operating methodologies during the limited time I had to learn the system. I did
telephone for technical support on many occasions, and the response was that this is how the system is, no
one else is unhappy with it, and so forth.

That may be. But my interest is in trading, and I prefer to spend a minimum amount of time learning to use
my mechanical tools, and almost no time at all actually using them. The market and my psychological
responses to it are where I want to spend my time. Thanks, Dave, for providing this forum. I thoroughly
enjoy every issue of the News.

Emotions are The Key - Mike James from New Zealand

Thanks to John Brown for his contribution in the last issue. I have been meaning to write a letter covering
some of the same ground. I don't intend to repeat specifically the areas covered by John, I suggest for the
sake of your health and trading profits, reread his contribution in Vol 3 No5. It contains some sound advice.

Personally, I believe that your emotional state is the key element in determining your bottom line profit.
Trading success is a product of internal control. Without a healthy mind and body this control is far more
difficult, if not impossible to maintain.

There are many aspects to this. One example is an exercise program. Anyone who has committed to any
sort of aerobic exercise program will probably have experienced a more relaxed state, and found that they
can think more clearly.

If you are worried or stressed your brain doesn't function as well. Think back to the last time you sat a
formal exam. For most people examinations are stressful. Many people find that in the heat of an exam they
"forget" many pieces of information that they would usually be able to recall immediately. As soon as they
leave the examination room, the information they tried to recall in the exam room pops back into their
head! This is one simple example. You may have had something similar happen to you in a trading
situation.

As well as regular exercise, make sure you get some mental relaxation. Trading can be a very intense
business. So mental relaxation is important. Another important aspect is your diet. I'm fortunate that my
wife is a natural health practitioner, so I have some guidance from her in this regard. Personally I only eat
organic unprocessed food where possible. You may think that this is going a bit far. Don't you make sure
that you car has the correct grade of fuel? From a nutritional point of view, processed foods and chemical
additives de-nature foods and make them less than ideal as a fuel for our body. I want to operate at my
peak, make money out of the markets consistently and be relaxed. Processed foods just add one extra
stressor that my body has to deal with, that I for one want to try and avoid.

I also take one or two herbal and vitamin supplements every day. Seek qualified advice. To help with my
mental concentration, I take a vitamin B complex and the herbs Siberian Ginseng and Gotu Kola. These
herbs are available from Natures Way Products, which is based in Utah, and probably on the shelf at your
local health food retailer. Briefly, Siberian Ginseng helps the entire body adapt to stress. Because it helps
our cells to use oxygen more efficiently, it also increases stamina and endurance. Gotu Kola is termed a

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"Brain food" as it increases blood circulation to the brain. It also has a relaxing effect on the nervous
system. Among herbalists, it is renowned for its ability to promote memory and reduce mental fatigue.

Babcock's Systems Opinion - P. R. Rettino

I received Bruce Babcock's CTCR for 2-3 years. I purchased about 20 of his systems. After converted many
of these to SystemWriter, I discovered only losers or marginal systems. It appeared that they may have
been over optimized.

I succumbed to some very slick advertising and purchased his S&P Day Trading system. It was very
expensive. I lost a lot of money and all faith in CTCR.

Bruce Babcock Responds

Thank you for the chance to comment on Robert Rettino's letter. It raises some important issues for
consumers of commodity trading systems. Although I know Mr. Rettino is sincere, his letter leaves a very
unfair impression about me and my company.

I have checked our records and Mr. Rettino was a "Commodity Traders Consumer Report" subscriber in
1990-91. The "CTCR" magazine is separate from the systems we sell. He must have thought there was
something of value there as he renewed his subscription for a second year.

Between Jan. and Nov. of 1990, he also bought six written systems at an average price of $38. He says they
were "marginal or losers." We sell these inexpensive systems without undue hype primarily as a source for
trading ideas. Certainly, we make no claims that the systems are guaranteed to be profitable in every market
or time period in the future.

Only three of the six written systems he bought were capable of being comparatively rated. A cursory
check showed that in 1992, two of them were rated in the Top Ten Systems in Futures magazine on the
basis of performance after being sold. Other systems similarly rated in Futures' Top Ten sold for hundreds
or thousands of dollars.

Mr. Rettino also bought seven systems that came with computer software to allow historical testing,
parameter optimization and trading signal generation. He paid an average price for those systems of $163, a
small fraction of what others charge for equal, or most often, inferior software.

One of those seven was the S&P Day Trading Company system which Mr. Rettino specifically criticizes.
Its price was $495, which he says was "very expensive." I suggest that was not expensive for a mechanical
S&P day trading system with powerful software and an impressive historical record.

I don't know what he means by "slick advertising." Those who are familiar with my advertising know that it
is truthful, factual and realistic.

Mr. Rettino says he "lost lots of money." As I will show in a minute, he must have lost money because he
did not follow the system properly or long enough.

No system vendor can guarantee future profitability, but I think I do everything possible to demonstrate my
faith in my products. Is there any other vendor who actually trades with the systems he sells and publicizes
the results? I don't trade with every system I sell, but I have been trading a demonstration account with a
number of them since the end of 1990. This account trades only with systems I sell to the public. In fact, I
trade no secret systems for myself in any account that I do not share with my customers.

Additionally, none of them has ever been re-optimized. Far from selling "over-optimized" systems as Mr.
Rettino suggests, I must be the only system vendor who always tests and trades using the same parameters

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for all markets. Other vendors have different parameters for every market and reoptimize all the time to
show spectacular historical results because they don't plan to trade with the curve-fitted monsters they sell.

The annual returns on my demonstration system account have been: 1991 +63%, 1992 +61%, 1993 +23,
1994 +66%, 1995 (through May 24) +85%. That is not a misprint. This year's and last year's results use a
six-figure account. (Past results are not necessarily indicative of future results.)

Many of my customers report similar impressive returns. Unfortunately, Mr. Rettino chose not to purchase
the best of my personal systems though they were available in 1990 and 1991 for less than $500, including
the most powerful system software in the industry.

But what of the ones he did purchase? I actually traded the day trading system he mentions both before I
started selling it and for nearly three years after I had stopped selling it. It made real-time profits (including
a $25 commission) of $19,450 in the two years after I started selling it. That's not bad for a mechanical day
trading system that traded only 112 times during that period.

Mr. Rettino bought the system on 1-25-90. Because of excessive volatility then, the system did not trade
during Feb. and March 1990. That gave him several months to become familiar with it. If he had started
trading the system in 4/90, and traded it religiously until 4/91, he could have made more than ten times
what he paid with only 28 trades. The worst drawdown from starting capital during that period would have
been only $2,150, highly reasonable for an S&P system.

Another of the software systems he bought I stopped selling several years ago because I decided the
performance was not living up to expectations. However, I have continued to trade it myself in both my
demonstration system account and my retirement account to this day. Although its performance has been
marginal, I have not yet given up on it myself.

Under the circumstances, it is hardly fair to vilify me because a well-intentioned system did not perform up
to historical standards. After all, I sell all my systems (even the most expensive) with an unconditional 30-
day guarantee. In addition, they all have fully-disclosed trading rules. What could be fairer than that?

College Education Costs Money - Michael Ireton

Fifteen Years ago I started trading commodities with a couple of friends of mine and we became day
traders. However, we didn't have a complete understanding of what we were doing. We charted and thought
we were doing the technical things we needed to do, but in the end we went bust and had to give it up. This
experience, while costing mega bucks, was part of my college education in the commodity trading game
and my entrance fee. The experience forced me to go back to school and finish a couple of degrees so I
could move on.

Now I am back in the trading game. I originally wrote Dave to find out about a particular trading program
that was offered in the slick and glossy world of advertising. I mentioned that I consider much of my
investment in books, tapes, videos, etc., as part of my college education tuition in trading. Every piece of
information I pick up that adds to my personal trading techniques and that I can feel confident in, makes me
a better trader and will allow me to make better informed trades. After all, that is all college really does for
anyone is to help you make a better decision based on all facts. As I look back over the past months at the
money I have spent on different things, I realize that much has been in the search to assist me, so I am
willing to pay the price. I am trying to involve my sons in the market and use the materials to teach them
also. The old adage of "it takes money to make money" is appropriate.

The same holds true to dealing with brokers and selecting brokers. I am still conditioning myself to be
cautious of any broker recommendations. I have changed brokers recently because of poor information
leading to losing trades. I am gaining the confidence through experience and my "college courses" in the
technicals to back away from the teachers' (brokers) suggestions and to make my own decisions. Except for
a couple ill-conceived trades when first starting and not following the technical signs my system trades

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have been money makers. My losses have been in trades I Initiated at a broker's call and what was going to
happen. I have stopped this foolishness and am disciplining myself to only trade my techniques that work
for me.

Experience and education is important when becoming a trader. Everything you purchase is a part of your
education and everyone you talk to is your teacher. Your tuition is on a pay as you go basis. You know you
have graduated when you begin to make more money than you pay out and the decisions become yours and
not someone elses.

A Corn Options Trading Method & The Problems With Options - Fred Montgomery

This analysis involves a trading method involving Corn Spreads. The trade buys Sept Puts 15¢ out-of-the-
money and simultaneously buys Sept Calls, also 15¢ out-of-the-money, The idea being a big up-move
caused by weather concerns during June/July would make the calls skyrocket. Conversely, if no big up-
move the puts would go up in value as market drops. In addition, if the trade does not double its total
investment by July 4, it's recommended the calls be dumped and puts be doubled-up, as the market is very
likely to drop if no big up-move takes place by July 4. This year I executed this trade during the
recommended time frame (on June 4) with Sept Corn contract being priced at 275 at the time.

Though I have this commodity option (spread) trade underway now, I must confess I never really liked
trading options. Some years ago I traded them more frequently than now and usually never made money (or
lost money) using options.

My biggest complaint with all options is that if the price goes in your favor, they usually add to the option
value at a much smaller percentage than how much they take away from it when it goes against you. It's
always less you make when going your way, and more you lose when going against you.

For example, Friday, June 9, Corn closed down 2¢ vs. Thursday. However, they only added ¼¢ to the out-
of-the-money 260 Put, going from 5-½ to 5-¾. However, they took away ¾¢ from equally out-of-the-
money 290 Call, going from 10-½ to 9-¾.

In other words, my long put gained ¼¢, but my long call lost ¾¢. My loss for just one typical day was triple
my gain in percentage terms. I Have seen that occur often, both on this trade and other options in other
markets over the years, including a number of spread trades. In fact, I have seen many more extreme
examples.

After looking at the facts, I now believe it will be very difficult to double my money on this spread. For
example, the 260 call was 21-½ on Friday, with the call being 16¢ in the money. That means if Sep. Corn
went to $3 .06 it would then result in the 290 call being 16¢ in the money, and it may be worth about 21-½
or so.

However, it would likely be worth less than that because of time decay between now and the potential
$3.06 price. Speaking of time decay, I recall some trades where the market was flat or even went my way to
a degree, but I still lost money as they took away the time premium every day, making my option worth
less, even if going my way!

The put is similar to the call scenario. For example, the 270 put is now out-of-the-money by 6¢, and worth
10-½ as of Friday 6-9. For my 260 put to double, which I paid 5-7/8 for a week earlier, the price would
have to drop an estimated 8¢ in the money, or a price of about $2.52 or so. An even lower price would be
necessary due to more time premium decay, if the move took a while to take place.

These Sept. Options expire on 8-18-95 according to my broker. That means there's only a short amount of
time for the price to make a huge move either down to the $2.52 area for the put to double, or up to the
$3.06 area for the call to double.

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Moves of that magnitude in corn seem highly unlikely. For example, even with all the unusual major news
stories recently, such as flooding, late crops, Russian sales, other exports, etc., the price only moved about
½¢ today.

Keep in mind, even if the price does make a big move and the option doubles, what about the loss on the
other end! If the price goes up to $3.06 or so the 260 and 250 puts would be almost worthless. The opposite
is true with the calls being almost worthless if the price drops to $2.50 area.

If the price makes that huge move up or down and we double the value, it may only be a break even
because almost the entire investment on the other end would be a wipe out. If that's true, it seems to me we
would actually have to quadruple our profit on the winning end to in reality "double our money!" By the
way, what with daily time decay, the scenario on this trade is even worse than my above calculations, with
even a bigger move required, either below $2.50 or above $3.10 for the 260/290 options.

Some Comments and Observations on Recent Articles - Alfred F. Dougherty

I have been trading Gary Smith's system since 2/3/95 and recommend it. Each month has been profitable,
averaging about 5 S&P points, after slip and commissions (May was the best, +14.30 S&P points, after slip
and commissions). Don't use the Friday short pattern, especially in an up market; even Gary has quit using
it. I have an excellent broker, Reinhardt Watson, who trades this system for me and another person
(someone has to watch the market closely to trade the system, get the breakout point, make adjustments to
stops, etc., during the day). He's also familiar with Vilar Kelly's Daycare and Trophy systems, which he
trades for another person, and breakout systems for T-bonds and currencies.

‚ Tom Cruckshank outlined in 5/95 (V3, 5) a method for using TradeStation software and Signal delayed
data service to use the real-time S&P cash index plus the futures premium to create minute-by- minute real-
time data, or at least a close proxy. I'd like to hear from anyone who has done this using TradeStation with
Signal or other data vendors on real-time data. I want to use one and/or five minute data with Gary Smith's
system. As Bob Buran outlined in the most recent issue of a rival publication, using intraday data with a
mechanical system can significantly improve profits (yesterday, for example, taking profits at the 2.0
standard deviation band between 3:30 and 4 p.m., rather than MOC resulted in $300 profit per contract).

ƒ There has been some discussion recently about scale trading and Wiest's "You Can't Lose . . ." As one
who has tried his approach, subscribed to his newsletter, taken a bath in coffee a couple years ago when my
stomach couldn't take the drawdown (I've also looked for oceanfront property in Arizona), caveat emptor!
But, after this unpleasant exercise, I had the opportunity to review the manuscript of a similar, but much
more conservative and sensible method, called interval trading. Risk is substantially reduced.

The resulting book, "Conservative Commodity Speculation," by Ralph Fessenden, a professor at the
University of Montana. He has been trading commodities for years, including dabbling with Wiest's
system. John McDivitt, the lead broker at Zia, collaborated with Dr. Fessenden on the book and is an expert
on scale trading (he was recommended to me by Wiest) and interval trading, and is a superb, experienced
commodity broker. I understand he and Dr. Fessenden now use an intermediate to long-term momentum
oscillator (MACD) to attempt to avoid very premature entry (and, hence, terrible drawdowns, costly
rollovers, etc.).

When I looked at weekly and sometimes monthly charts over a 10-year period, and used a momentum
oscillator (I used stochastics), with the bottom 1/3 price range approach, I found that decent entry points
can be chosen. I think using seasonal data from an outfit like the Moore Research Center in Oregon to pick
high probability contracts and likely entry points would help further (like October-November entry at the
seasonal lows for the summer Cotton and Copper contracts). John McDivitt understands all this; he also
manages money if you don't want to do it yourself.

„ If anyone has done further testing on the work of Connors and Hayward ("Secrets of a Hedge Fund
Manager") on their "news reversal" system (how big a gap is necessary? Same for shorts as longs?) or has

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come up with a method for minimizing false breakouts using their "historical volatility" system, and is
willing to share and work together.

… Finally, the best book I've read recently on trading is the thin, pithy "Zen in the Markets," by Edward
Allen Toppel, Warner Books, 1992. Superb; shows how successful trading requires the discipline, fortitude
and calmness of the marathoner. You begin to understand why they were called "Turtles."

Odds'n Ends from Anonymous Trader

I wanted to make a few comments and observations after reading my May CTCN issue.

I enjoyed the article by Don McCullough. This man seems to grasp how much commitment, dedication and
hard work it is to be a successful trader. Fortunately, it is a labor of true enjoyment for many traders which
make it tolerable, but not easy. He has begun to learn things that I have learned like stick to one or two
markets and specialize (the S&P500 is the best market for risk/reward or bang for your buck) without a
doubt. He has seen how different it is to be focused watching 400+ stocks or even 5 or 6 commodities and
try to be totally concentrating on the trades without distraction. He is correct in his observations about the
T-bond market and currency market. They are tradeable, but the moves intraday are not as rewarding as the
S&P.

So that's the philosophy I have come to for myself. Find the market that has the best risk to reward value
for your trading and then just trade that and become good at it. Why trade another market that has less bang
for your buck, it doesn't make sense! Rather than watch 2, 3 or 4 markets, why not just then trade a 2, 3 or 4
lot in the best value market and concentrate on that. It makes life much more simple. I think Don and some
others are starting to find this out. For most traders this works better.

I'm not knocking the guys who trade dailys, weeklys and hold positions overnight. Some do well at this. I'm
only saying that after doing that myself, I've come to find it's not for me. I operate better specializing in one
market and holding no overnight positions. I think many traders are finding this out for themselves also.
How would you like waking up in the morning and finding the currencies $1,000-$3,000+ against you or
coffee $5,000-$20,000, cotton, lumber, OJ, soybeans going limit against you for several days in a row
sometimes? That's a heck of a way to start your day - no thank you sir.

Speaking of starting your day, maybe some would like to know how my day's schedule goes to give you an
idea! My office is upstairs in my home and is fixed up comfortable with my office equipment, plus sofa,
TV, reclining chair. Very much like a studio apartment, since my wife tells me I live in there.

To start my trading day: I come upstairs, relax and watch Good Morning America and CNBC while
drinking my coffee. Then at 8:15 a.m. or so I get situated at my desk. Review the market action yesterday.
Look at the Globex S&P, Bonds, Currencies just to get a feel for what kind of a day it might be (I can relax
and start the day off in a good frame of mind, since I don't have to worry about horrid gaps against me).

I look at my support resistance points displayed on my screen and watch the opening at 8:30 a.m. cst. Then
I usually get off one or two trades by 10:30-11:00 a.m. The markets usually start getting quiet. Then I'll
leave to go walking, catch lunch, run some errands and watch "All My Children." Then about 1:00 p.m.,
I'm back in my seat for the afternoon session to have some fun. Then I'll usually get 1-2 more trades off
from 1-2:30 p.m. Then I'm done. Sometimes if I have a good morning, I'll just quit for the day.

This makes trading enjoyable. Most people think daytraders are permanently glued to the screen seven days
a week - 10 hours per day. This is not so. You see that daytrading affords one plenty of free time without
the anxiety of overnight or over the weekend positions. Be honest, how many of you have had
overnight/weekend positions and find yourself watching the news or national weather to see how it will
affect your T-Bond or Soybean position Monday. On my God, it rained in the Midwest Saturday and I'm
long beans. Now I spend the rest of the weekend throwing up, waiting for Monday's open to kill me! I

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laugh now, because that's happened to me more times then I care to admit. No more, I enjoy my evenings
and weekends.

Also S.F. from Europe keeps making little snide remarks about how I would not like his method, because
it's so inferior to my $1,200 day amazing returns. First, just to get this guy's record straight so he doesn't
mislead other readers, I don't care about his trading or method. If it works for him, that's great. I don't know
why S.F. keeps worrying about whether I would approve of his % returns or not. Everybody is different,
and if he's happy, that should be all that matters to him.

He also keeps alluding to me making $1,200/day every day, where he picked that up I don't know. I read all
my articles and never found that. I have days when I do make $1,000-$2,000 or more. I have days when I
lose $300-$700 or more. On the average (with a 1 lot in the S&P) I aim for $200-$300 per day, day net.
This is realistic. That's $1,000-$1,500 per week plus some weeks even more. That's lots of money - when I
get up to a 5 lot or 10 lot someday. That's $5-$10,000+ per week. You can live very well on a 1 lot. How
many people you know make $6-$10,000 month working at home. So where this guy comes up with
$1,200/day, I don't know. Readers, if people tell you that you can make $1,000+/day trading a 1 lot every
day in real-time (not paper trading) run for the hills. In the beginning $100-$200/day is a good goal to shoot
for. Some may be disappointed in this, but I had to lower my expectations so I could trade properly.

On the lighter side, Don talks about the greatest trader, Marty Schwartz, he's one of my favorites. He, like
so many others, failed for so many years (10 losing years in a row for Marty) until he made it. These
experiences kept me going during my tough times. Also, he talks about how exiting a trade is the hardest
thing and he never seems to get good at this. I find I leave lots of money on the table also, so I feel I'm in
good company. Linda Raschke said she could retire from all the money she leaves on the table, but prefers
to take reasonable profits when they're there. So even the market wizards aren't perfect. They just make
money. I think their stories are very encouraging to see they make lots of mistakes also.

I have a little thing called steps to becoming a trader that I find was real good. Perhaps other traders will
enjoy reading this, and see themselves as I did.

On a positive note - trading is fun (hardwork but fun) and yes you can be successful after time. Maybe not a
market wizard, but successful. Keep trying, keep learning, don't be greedy. Happy trading!

Often Asked Questions From Many Members to Anonymous Trader & Anonymous Trader
Responds

Many members have asked these three questions:

(1) Q: Exactly what does "2-pivots back" mean, and how is it used by you?

Chart in Print Copy

A: Support - if broken I usually go to a sell mode

(2) Q: What is that apparent moving avg. plotted in the middle of your Keltner Band on your charts and
how is it used by you?

A: I think it comes out to about a 7-period exponential moving average (its close)

(3) Q: How do you determine the pullback amount before you act . . . why is it 35% one trade and 65% on
another trade?

A: I really don't measure them. Most of the trades I take though seem to pullback in these areas.

Chart in Print Copy

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 Mechanical System is Best - John Bowley

Many recent contributions suggest using discipline, commitment, trading skills, etc., rather than 100%
mechanical systems. I think this will cause more losers than winners.

The reason computer trading systems exist is to capture good ideas and determine the best way to apply
them. Basically, any idea one uses can be automated and tested. Various filters and stops can often improve
a system's 10-yr performance even after it's released. Otherwise, one may lose their skill or luck in
selecting trades.

Psychological Dysfunction - Don McCullough

I just came across that title while reading Anonymous Trader's April CTCN article. Today, while watching
tick, 3 min and 5 min bar charts of the S&P market, I was perfectly dysfunctional. (Funny and not so
funny!)

What a great day for trading the S&P! About $2,000 up and then about $3,000 down per contract. What did
I do about that? Not a damn thing! Not one trade, and I sat and watched one good signal after another pass
me by. How can that happen? Here's some of my best reasons and there may be others I'm not aware of.

Though I have been studying (and trading a little) the markets for around 9-years, I have never done any
daytrading until recently with the Mid-Am bond market. It's a very good jump from that, and similar
trading to the mighty S&P market. Also, I just had a $20,000 check cleared for trading yesterday and the
"shock" of confronting the fact that my big test with the markets is upon me is probably another reason. Its
been a long, hard road to this kind of "Judgement Day" and I am flat-out shy about "pulling the trigger."

Both Anonymous Trader and I have mentioned the difficulty of consistently trading your signals in this
newsletter. Now, you are hearing it from "the horse's mouth!" It's not the fault of my signals. My signals
couldn't be more definite or easy to see. It is my fault and I believe after a few trades, most of this not
trading my signals problem will be history.

The only comforting fact about this great day for trading the S&P is that my signals were, as always and for
the most part, "on the money." I have long been aware of how losses can cause one to miss the next good
trade. What I confronted today was how not trading the first good signal of the day can screw up the whole
damn day!

So, it's not just losses that can screw up your daytrading, but also good signals that should definitely have
been taken. So ... here I've given you a little road map to psychological dysfunction and it was possible
even though I have great confidence in the merit and high probabilities of my signals.

My final analysis of this great-bad day with the S&P market is: I was afraid to take a loss. It's that simple.
There is no way (I've known this for a long time) I am going to be in the market for the winners, unless I'm
willing to be in the market for the losers. NO WAY. Another problem I had today (and it just occurred to
me) is that I wanted my first big trade, of what I expect will be a long and very successful trading career, to
be a winner. Stupid ego problem!

I have had no problem taking losses in the past. I didn't like to, but seldom stayed with a loser longer than I
should have. The losses wouldn't have been that bad. My studies of the S&P market along with my style of
entry dictate placing the stop loss $150-250 from the entry point, on the volatility of the market.

I'm reminded of an old saying about how to make it in the markets that goes: "Plan your trades and trade
your plan." Well . . . I've planned the hell out of my trades--now on to the second, and many say, hardest
part!

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 Observations on Recent Issues of CTCN William Shelton

Dave, your publication is getting to be very interesting and would like to praise you for the extra work you
are doing for your readers, e.g., trying to get more information from Anonymous Trader, etc.

Now to more specific issues. January 1995 - Dave Reiter's article outlining his trading success and offering
advice to readers. He offers to backup his words with his account statements. He cautioned readers that he's
only a part-time trader, trading between his farming chores. February 1995 - Dave Green reports that Dave
Reiter submitted his account statements, but they failed to show the success Mr. Reiter claimed in the
previous month's issue.

Editor's Note: I never said that, all I said was the specific trades and details were obscured. Only the
monthly P&L figures were shown on his broker statements. Those numbers were in fact as good as Dave
had indicated.

March 1995 - Futures Magazine advertisement: "100% winning trades in 1994 . . . only three losing trades
since 1992. Purchase the system for $175 or rent it for $25 per month." Seller? Dave Reiter. What's wrong
with this picture?

To Bob Meadors - how in god's name could you let Alaron take 14 days to send you a written confirmation
of your trade, and at a $2,300 loss at that? My advice is to lodge a complaint with the CFTC against
Alaron. I have traded with many brokerages, including Alaron, and have never encountered such a
problem.

About Harriet Hodges' letter, I feel she is on the right track with reasonable expectations. But she should be
the last person advising anyone on how to find a good brokerage firm. Jack White is primarily a stock and
mutual funds brokerage and their commissions are fairly reasonable. I used them a couple of years ago to
trade mutual funds. If their commodities commissions are the same now as they were then advertised, I
don't care how good their service is. You're right Harriet, they are extremely expensive. Look around, you
can find good brokers who will charge about half of what Jack White charges. You also said you "have to
log four losses for that first win. That's the rule." Where in the world did you uncover that rule? Finally, I
think David Stone answered your question about Wiest's book and system. His system may work, but make
sure you have a ton of money before you try his system.

I would echo Miner's thoughts on all the trading geniuses talking the talk, but not putting their money up
when it comes to proving what they say. Futures magazine should hold a contest to make these geniuses
who advertise in their magazine prove that they can do what they claim they can do. Of course, their
advertising revenue would drop dramatically.

Finally, I would strongly suggest that readers turn to the back of CTCN first and see who is running an
advertisement, then look to see which of these advertisers have also submitted an article. While I am not
saying that someone advertising a product should not have their article taken seriously. I do suggest that
articles by advertisers should be taken with the appropriate grain of salt. In February's issue, products were
offered for sale by Randy Stuckey, Robert Miner, Kent Calhoun, Bob McGovern, Gary Smith and Michel
Arimoto, all contributors to CTCN with articles. Joe Ross, in his article last month seems to echo what I am
saying.

Editor's Note: The Feb. issue was unusual in that it contained a number of articles written by members
who also happened to be product vendors. Usually, vendor articles are not that common. In fact, this issue
has only two submissions by vendors, one of whom is little known in this country (from Europe).

By the way, if a vendor article promotes his product, it's not allowed as an "article," only as a paid
advertisement in the last page advertising section. Frequently, when the vendor hears that he cancels his

292
'article' as he may not want to pay for it. Also, there's nothing at all wrong with articles from vendors as
they typically have more knowledge to contribute to our publication than the majority of private traders.

Incidentally, all of Joe's fine books are sold through many sources with a money-back guarantee. I believe
that he offers his books with a money-back guarantee. I categorically believe that no book or system should
be bought if it doesn't have some type of money-back guarantee. I know I'm stepping on many trading
genius's toes, but if your product is worthwhile, no one is going to send it back for a refund.

Challenge Yourself to Grow to a Better Trader - D. C. H. from Germany

To prove myself and give other traders some advice, I developed the plan to make 125 traders, beginning 6-
1-95. My goal is to trade only US-Bonds on a short-time basis and to make 8 tics trade after trade. This
means I will make $200 (8 tics x 31.25=$250 US$, deduct $50 for commission and slippage).

I plan to make careful and sound decisions, so I don't have any losing trades. This seems to be hybris, but
Mark Weinstein is the Super-Trader-Model we all can learn from (see "Market Wizards" by J. Schwager,
page 321-342). As you can read Mark makes plus-trades in the vicinity of 99% (only some losing trades out
of the thousands of trades he made).

In Europe and Germany we hear about the American dream. Why not have a dream that a trader can be
right the next 80 or 100 trades and then turn the dream into reality? If Mark Weinstein can make 100
winning trades in a row, then we can do it also. Let's try it!

My plan is to trade only one contract of US-Bonds and to begin with an account of $6,000. If I will have 70
winning trades, the account value will be $20,000 (hopefully to avoid losing trades). Then I will trade two
contracts of Bonds per trade; same target: $200 per contract, so I will gain $400 per trade.

For every $10,000 I will make in the market, I will trade one contract more than before.

If you have the right understanding of yourself - of your inner parts and your psychologic issues - and of
the market you are trading, then you can achieve the goals I'm writing about. With patience and looking for
the right situation, it should be possible to avoid losing trades; with consistency it should be possible to
grow the account trade after trade.

Looking forward to notifying all readers how my account value is growing when the first set of trades is
executed - that means after 70 trades are done.

Validity of Methods - Michael Ireton

As a new subscriber and a new trader (traded 10 years ago and quit and now back in the game) I am
receiving multitudes of literature on many different programs, books, etc. Is there any place to contact and
find out how valid some of this material is?

I just received a flyer about Don Fishback and the ODDS Trading Approach. It looks like the program is
based on volatility, but does mention using probability statistics to get a better look at the percentage of
risk. This part interests me, and the cost is not overly expensive ($52 and change) but a person could get so
many of these "good trading" techniques that you can't decide which to use.

I am trying to work my way through various techniques to see what suits me best. I consider the materials I
purchase much like taking college classes. You have to accumulate a lot of data and then throw out what is
not suitable and keep the rest to make a system that works for the individual. Any help or thoughts on this
would be appreciated.

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 Trading Videos - Don McCullough

I have stopped submitting articles to Bo of Club 3000 simply because he (evidently by this time) refused to
print a couple of articles I mailed him. One article was an "add-on" to a previous article. The other article
had to do with how many people, finding success in the markets impossible, turn to "milking" the average
trader with their so-so to lousy books, systems and seminars. The title was "Mining the Miners." This is an
expression used by some store owners and saloon keepers of old California during the gold rush days.

GOOD VIDEO - I recently received (free) from the Chicago Mercantile Exchange a video that I found real
interesting. Interesting primarily because Linda Bradford Raschke is one of the people featured in it.

Some of you may not know who Linda Raschke is, so let me tell you. She is one of the professional traders
interviewed in Jack Schwager's book, "The New Market Wizards." Jack says in this book that Linda is one
of the most congenial people he's known. (Or something to that effect.) You can see this yourself in this
video. Mostly what I like about the video is seeing all the monitors at Linda's trading desk. I believe I
counted 7 monitors. Can you believe?

The old saying, "a place for everything and everything in its place" sure fits the description of Linda
Raschke's trading desk. A couple of male traders featured in this video had well organized trading desks
too. The older man gives a good piece of wisdom for the beginning trader. That is, go slow. He says that
was the best advice about trading anyone ever gave him and I certainly agree.

One thing I do not agree with is how simple some people in the video make successful trading out to be. As
most of you know, in the long run 80 to 90% of the people who trade the futures markets lose.

Linda advises keeping your trading methods simple. I couldn't agree more and yet I have to wonder about
her seven monitors in a row showing all kinds of indicators and how that "jibes" with keeping it simple.
Wouldn't it be nice if she could be persuaded to write an article or two for this newsletter?

At the very end of the tape, Linda comes on the screen and makes a three word comment about her trading
for a living lifestyle. She says simply and with conviction: "I love it."

Although I was charged nothing for this 7-½ minute video, I called the CME and ordered a couple for my
uncle and dad. Those will cost me $3.50 ea. plus shipping. Here's the phone number to call if you are so
inclined 1- 800-331-3332.

Playing the Corners - Bob Lahodny

One of the common axioms among successful traders is to never over trade. You must show patience in the
markets. I would suggest that theme be taken further to say that only the best trade set-ups be considered
for your trading capital. If the market is not unfolding exactly according to your pre-determined trade
criteria, then let it go. The markets are a painful teacher in correcting "almost" or "close enough" trade
selection. Once an ideal setup has been identified, a critical decision must be made . . . what is the proper
investment device for this trade.

This is really my point in writing. I'll share with you the benefits of this hardest learned lesson. If asked my
profession, I'm quick to respond that I am a commodity futures trader. If further asked as to my principle
methods, I'd probably respond as most traders would -----"I'm a trend follower." Sounds OK so far. In my
experience, which spans 20-years off-and-on, most "trend followers" are really "trend faders" or "bottom
pickers" or whatever else you want to call someone who tries to enter a "trend" at the very beginning, i.e.
the exact top or bottom.

It is those of you who cannot resist the thrill of pinpointing market turns that I am primarily addressing. If
you wish to take advantage of probable market turning points, such as Seasonals in grains, or extremes of
some nature, save yourself some money and sleeping time. Use a futures trader derivative ----- futures (bull

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or bear) spreads, an option, or even an option spread, straddle, or whatever. What I call "playing the
corners" in futures is extremely risky, and usually very costly. The markets just don't seem to have a sense
of (your) timing! However, if your chosen vehicle of market participation is a spread or an option, then
your "adversity" exposure is much more manageable. Your timing can be off while your theme is correct,
and you can enjoy tremendous returns.

Let me give you some recent examples, sharing my trading theme, setup and method of participation. First,
let's look at corn. As all market watchers were well-aware of, last year we had a huge crop of corn. Corn
was resultantly knocked down to the common lows of the past six years (including 1994) in July (weekly
price approximately $2.10-2.20/bushel). As we progressed into December, I developed a trading theme that
I felt would take advantage of what I considered a perfect trade setup. The theme was basically this: the bad
(bearish) news was out in corn and fully priced into the market. Corn was holding in a weekly trading range
of $2.10-2.28/bushel. My experience and historical chart review acknowledged that almost without fail,
speculators would run-up old crop corn as the new year planting season approached on sheer anticipation
(hope) of some weather phenomena. It doesn't seem to matter whether there is a catastrophe or not -----
speculators like to be there just in case. Fine with me. My strategy was to take advantage of this consistent
tendency, if the trade setup was perfect. The trading range pattern and parameters had held-up for 21-
weeks; long enough to establish a tradeable base (envelope) breakout. When corn broke to the upside,
defeating the five month old parameters, I felt very confident that they'd (speculators) run-up July corn
values well over the (at the time) price just under $2.40/bushel. To take advantage of this, and not get
caught-up in real breakout, false breakout stress, I decided to buy some July corn 240 calls. They were
reasonably priced at 10 ($500.00) due to low volatility (the base), and I had many months for my trade
expectation, which was to at least double my money, to work out. Experience had taught me that adverse
moves against me by deferred month (distant), options would be minimized by my time-value inherent in
the call, and that I could easily ride out the all-too-common whipsawing around the breakout. As of this
writing, my trade expectation has been met, with my protective stop now at double my money. My greatest
drawdown was (I believe) one quarter of a point ----- not too stressful.

A recent example of how to play extremes is perfectly illustrated in examining cotton. In this case, my
investment method was a very simple (bear) spread technique. Again, the setup is something I perceived as
an ideal situation, especially made for a "play the corners" technique. Spot cotton was trading at (high)
price levels not seen since the civil war, and the deferred (new crop) months were trading at a very
substantial discount to spot. Add to this, a history in which cotton typically comes sharply off spike peaks.
All I needed for implementation of my trading theme, which was to buy new crop (Dec.), sell old crop
(May) cotton, was a message delivered by the market itself that it was time to play the corner. That was
received clearly on March 17 and 20 in spot cotton closing down limit both days (in a row).

I know from history and experience that limit days are surpassed in the direction of the limit move
approximately 80% of the time. On the following day, March 21, the market gave me a wide trading range
to put on the (bear) spread. From that point, I had a very viable coverage of cotton's history to fallout, and
limited exposure to one of those inevitable market swings against me. As it turned out, and as of this
writing, this spread has been a tremendous performer, and is very safely protected by another double of my
capital exposure. I slept like a rock during those five successive limit-down days.

So, if you want to be more relaxed and a focused futures (trend following) trader, play the corners with
futures derivatives. What you'll like best about using these strategies ----- the relative ease of pain when
you're wrong!

How to Submit articles & How Can I Save Money on MY CTCN Renewal - Tom C.

At one time I subscribed to a well-known competitor of CTCN. He liked it if contributions were submitted
on diskette. I can do this, but I don't know what format or disk size you like to use. I use MSWord 6.0 to
write letters.

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Editor's Note: The best and probably simplest way to submit articles is by typing them using a word
processor and mailing or faxing it to CTCN. All I ask is that you do not use draft mode if using a printer,
and use fine quality mode if faxing it. That's because we scan in most articles using a PaperMax Scanner
and Word Scan OCR software, which works much better if the type is good quality and dark intensity. By
the way, submissions on disk in either ASCII , Word Perfect or MS Word formats are also OK.

Because of the aforementioned competitor's subscription, I was conned out of some substantial capital by
some less than honest people who read these type letters. I guess I really was born yesterday; I am just too
trusting of my fellow man. I really hadn't considered that I would make any contributions to the newsletter,
but I thought of something that might be of help and save some money for other traders.

Please preserve my confidentiality if you decide to publish this contribution. What is your extension policy
for accepted contributions? Editor's Note: See Special Request on Pg-12 for info on how you can save
substantial money on your CTCN renewal.

Power Indicator Offers Insight into Balance Between Bulls & Bears - Ron Bochan

I trade Options & Futures. In option trading, I use Bollinger Bands. I trade only with longer trend (Dow
Theory), and use waves for timing the short trend. But in options trading that's not enough. You can erase
one week's profit in one day. I developed the power indicator, which is based on volume. Trading based on
channels only can be very risky.

Power 05 - Accumulate the volume of today with the last four days, relate to close price

Power13 - Accumulate the volume of today with the last 12 days, relate to close price

A&F - The price rally, but power 05 traces a lower top

B -The price rally to a new high, but power 05 traces lowermost top

C - Power 05 ticks down after a long rally which is mean, there is no power left to push the price higher (to
the up band)

D-E - The price goes down to the Point E, while power 05 flat and shallow after a rally, which is mean.
There is no power left to push the price lower (to the down band)

Power 13 - Represents the activity of people in the market. If power 13 tick down while a trend continues,
that rally is ripe for a reversal.

When the price reaches high and higher, it is safe, add your position only when power indicator rally. When
power indicator tick is down "be careful" it means that no power is left behind the rally, and it's time to
liquid your position.

Member Requests

Dr. Manfred Wurr of Germany wants to talk to students or former students of Bill Williams' Profitunity.
Please call or fax your phone/f ax number and inform me of convenient times at which I can call you.
Phone:+49-40-672 79 80, Fax:+49-40-673 47 42.

Jennifer Appetta would like to talk with other traders in North Carolina. She can be reached at 919-493-
0128.

New member Doug Cragoe wants to know if members know anything about Renaissance System that
claims 300 straight winners!

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Jack Burns needs information on the ODDS method of Trading by Fishback, call 304-876-0650.

A Michigan Judge wants to know if anyone has code for Keltner Channel in SystemWriter format.

J.B. would like to hear from anyone who has experience with Kent Calhoun's English Entry methods. Call
him at 515-472-4606 - 3 to 5 p.m. c.t.

Any members familiar with Kent Calhoun's methods, please call. I appreciate your help, so call collect 1-
407-696-2828, John Bond. Also, member Gordon Thomas in Canada is looking for info on Kent.

Ron Stewart would like info on Gann Trading Techniques. Reply via CTCN or call 810-232-7310.

In the May issue, C.J. Casebeer mentioned Pocket Charts for only $50 per year. CaLey Wong would like to
know where to purchase this product. Please include company name and phone number.

Charles Cochran would like to know the following: The address of Marty Schwartz and to know if he has
services for other trades? Also, would like to know if any other traders have good experience using
Commodity Timing by Larry Williams? Also, any recommendations on best brokerage house to use to
follow Larry Wiliams' hotline?

Call Neal Graham at 318-237-8060 with info on David Wright's (in Canada) "Little Gaper" Currency

Daytrader and T-Bond Daytrader systems.

Editor's Note: Due to many requests received for info on both Kent Calhoun & Bruce Gould, I ask that
you reply via CTCN so we can all share.

Editor Comments

Last month's issue had a submission by Terry Davis in which he was critical of the CSI Customer Support
Dept. When we get negative articles we may ask the vendor to respond to the criticism as there are two
sides to every story. We especially want to get the vendor's side if the vendor is a well-known and/or well-
regarded vendor like Commodity Systems Inc.

For example, Bruce Babcock (CTCR) was given the opportunity to respond immediately to a negative
mention in this month's issue. Bruce may have some people who say negatives, but for the most part Bruce
is well regarded and does an excellent job as a newsletter publisher, system vendor and a respected book
author. Therefore, it's only fair we give Bruce (or CSI) an immediate rebuttal opportunity, as there are both
sides to the story, and it's not fair that a negative article (perhaps unjustly) hurt their business for 30-days
until they can respond in the next issue.

Getting back to Terry's comments, Bob Pelletier, president of CSI responded with a detailed article in the
same issue with Terry's negatives, in which he admitted there may have been support problems in the past,
which they have attempted to correct.

In response to that scenario, James R. Burke surprisingly sent us the following Fax:

"Editoring of a Newsletter" - Jim Burke

"I was appalled by the way the editor of this newsletter, Mr. Green, handled the article written by Terry
Davis on CSI. I thought members could share the good and bad experiences dealing with vendors without
the owner of this newsletter running to a vendor and snitching to them. What happened to integrity of our
articles? Well, I now know who comes first with this newsletter - Vendors! It looks pretty cheesy to me.
Since this seems to be the way it is, I will want a half-page article on the software I am selling called

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CHAZ without being charged and also offering a free free trial subscription to my fax service for two
weeks to all qualified members. Alright, editor should include this article in its entity to be just as fair to me
as CSI." - by James R. Burke, Jr.

If CTCN was biased toward vendors, we simply would not publish the negatives at all. The fact we publish
those negatives proves we are not biased. CTCN has in the past been heavily criticized and been subject to
revenge by one well-known futures firm for publishing negatives by a member.

It's truly amazing Jim Burke wants all that free advertising of his trading products to compensate him for an
alleged injustice done involving a matter totally unrelated to him and his trading products. Why in the
world would Jim demand compensation for a matter with absolutely no connection to him? Incidentally,
why does Jim think we are "snitching" when Bob Pelletier (who gets CTCN every month in the mail)
would in fact read Mr. Davis' comments anyway, regardless of if I sent it to him early or not? Isn't that a
ridiculous comment to make?

Could there be some type of connection with Jim wanting all that free advertising in CTCN and the fact in
the past he has attempted to submit a long "article" which was not allowed? That was due to it being more
like an advertisement for his trading system than a real article. When told he would have to pay for it as an
advertisement in the ad section, rather than an article, he didn't want to do it.

In the past, and in our CTCN InfoGuide, we have stated we do not want any so called "vendors in
disguise." A competing newsletter has in fact had "vendors in disguise" and had subsequent criticisms and
many upset members because of that problem.

It's interesting to note that Jim apparently is well acquainted with Terry Davis. In addition, Mr. Davis sent a
letter to us (approximately the same time as Jim Burke's astonishing fax) which was extremely
complimentary on Jim Burke's trading system. We are not going to publish that letter due to Jim Burke's
ridiculous and absurd demands and this controversy. It's also interesting to note that like Jim Burke, Terry
Davis is also a vendor, having sold trading methods to the public for a number of years.

Please let the Editor know if any members disagree with the way these matters are handled. By the way, we
don't necessarily make a practice of always asking vendors for immediate comment, as sometimes we may
forget to, not have the time, or may not think it very significant to warrant it

Curtis Arnold submitted his new book for review titled "Curtis Arnold's PPS Trading System." It's a
hardcover book detailing many technical indicators and methods for successfully trading commodities.
Including detailed coverage on many standard technical indicators. There are many charts in the book
which detail the method or technical indicator, so you can visually see how the indicator is applied to actual
trading situations. The book is professionally bound and of very good quality. The many subjects are
covered in excellent detail, well-written and comparatively easy to understand. The book also comes with a
free demo disk of Curtis's well-known PPS Trading System. This book is recommended to CTCN
members.

We also received Perry Kaufman's new book titled "Smarter Trading," which was submitted by Ed Dobson
of Traders Press for review. The book teaches traders how to create a "robust" trading model. It also
teaches how to make sense of other methods, such as neural nets and expert systems, etc. There's lots of
testing results and mathematics and sample charts included. It is very well done and is recommended,
especially for CTCN members who enjoy technicals and detailed analysis.

In addition, we received the new book titled: "The New Science of Technical Analysis" by Thomas R.
DeMark. Futures Magazine said Tom is known as "The Consummate Technician." Tom goes into great
detail on the sophisticated market timing methods he has developed and used over the last quarter century.
He emphasizes scientific and mechanical approaches and techniques, rather than "artistic" or intuitive
approaches. The book uses extensive chart examples of the many trading methods he covers in excellent
detail. This book is also highly recommended to CTCN members.

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 William F. Eng sent us his book: "Trading Rules - Strategies For Success." Like the other books reviewed,
it's also very professionally done and hardcover. It's a good collection of 50 market trading rules and
descriptions on how to apply them to the markets, with a chapter devoted to each rule. Studying these rules
and adhering to them should help both stock & commodity traders trade successfully. Many of the rules
are quite similar to rules originally contributed by W. D. Gann, but they go into much more detail than
Gann did, with some new rules and far more detailed explanations. All CTCN members should consider
buying this book, in particular newer traders who can benefit a lot from this valuable information.

In fact, you should all consider purchasing any or all of the books reviewed above, as they are all very good
books with lots of trading knowledge and wisdom, to help you traded successfully.

We have received so many great articles lately, unfortunately this has resulted in our not having room to
publish all of them in this issue. Some of them will appear in upcoming issues. Also, some contributions
are being made into Special Reports, the longer contributions in particular. For example, Joe Ross has made
a couple contributions on his childhood and making of a trader, which we have made a Special Report,
available to all CTCN members upon request.

Our next issue has a great contribution by Anonymous Trader titled "The 37-Steps to Become a Successful
Trader." We will also do Quick-Scan Reviews of Ted Shen's FutureSoft Benchmark Trading System and its
programming shell software written by Bob Bolotin. Also, William Wermine's Trading Currency Futures
books, volume 1 & 2.

Issue 27.

When You Try To Help, Sometimes It's Not Worth It! - Allegation Of Copying Method & Lawsuit
Threat - Successful Anonymous Trader

I am writing this article in order to clear up a misconception that has arisen since I began to write my
articles on daytrading. Most readers don't know about the problem. The main intent of the articles was
mainly to encourage traders and pass along some experiences I have gained. Many traders asked for hints
on how I trade. So I published a few charts showing some entry signals.

Since then a man named John Stenberg, who offers a trading course has claimed foul and said that I have
copied his secret methods of trading. He claimed this due to the fact that I used a Keltner Channel (which is
public domain, like Stochastics) in my trading.

John Stenberg has threatened to sue me. Well let me explain. I took John's mail-order course 2½ years ago.
Stenberg's system comprises using his step oscillator, multiple time frames coupled with uni-bands (support
and resistance Fibonacci lines) multiple Keltner Channel corridors. He even tells you to sell tops and buy
bottoms using Stochastics, like George Lane teaches.

There were some ideas I got from John's course, but he offered no concrete method or money management.
He asked me to write some letters and talk to some prospective students on recommending his course and
he would compensate me, which I did and he never compensated me - but that's O.K.

I have told readers that I have done it all, i.e., bought systems, went to seminars, purchased educational
courses like Stenberg's. I have taken classes from Bill Williams, Jake Bernstein, Joe Ross, George Lane and
have learned a little from each. I took Joe Ross's class and first learned about the Keltner Channel from Joe.
90% of my trading methodology comes from Joe Ross and his influence on me. I've had to develop my
own money management and signal identification. So most credit, if due, would go to Ross.

Stenberg thinks that if you use a Keltner Channel and sell retracements or buy pullbacks in a trend you are
copying his methods. Well all traders who now trade or even traded should pay John Stenberg a fee for this
remarkable discovery.

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John has been harassing me since I started the letters. He's mad because I didn't laud his course to the
heavens, but I did this for no one else either.

I signed a disclosure not to reveal any of John's trade secrets or reproduce, copy and distributed his manual,
plus tapes, which I have not. What John considers secret is public domain, i.e., Keltners - Stochastics RSI -
Fibonacci. So what I have shown in the newsletter would resemble many other similar methods.

John's method is so complicated and complex, I could not trade like his course describes. He has got so
many indicators and channels on your screen you can't see the price bars. My trading is far simpler.
However, some may like this, give him a call, check it out, ask for a brochure.

I no longer use the Keltner Channel. I just use a moving average as my visual aid. The fact is, my trading is
a compilation of years of education (some good, some not so good) and painful experiences. I had to
develop a consistent way of entering and a good money management method. No one taught me this, and
took much time to evolve into a simple but effective way of trading. See my steps to becoming a trader. I
hope all enjoy this. I'll bet many can see themselves here.

It's a shame that by trying to write some positive and helpful articles that someone's greed and ego can put a
damper on it. Yes I got some interesting ideas from John, none of which I use anymore.

John thinks he invented the world of trading pullbacks in trends, Fibonacci retracements, overbought and
oversold, etc. I don't think so I'm surprised Mr. Keltner and George Lane don't sue him for using their
indicators in his class.

I hate to write something like this, but the man made such a big stink about it with me and Dave Green, that
I felt I had to write. I've learned when you try to help, sometimes it's not worth it. A few bad apples always
spoil the bunch. Good trading and keep positive.

Never Be Sure - Don E. McCullough

I believe one of the worst things a trader can do is be "cock-sure" about market direction. This kind of
mind-set will very often make you get stubborn when it comes to taking a loss. As a consequence, you will
often have to take the "mother of all losses!" The first article in the 6/95 CTCN is exactly what I'm talking
about. J.L., author of this article, is to be commended for his willingness to admit his negative results. I
know he wrote this article, in part at least, to help the rest of us avoid the same mistakes and losses.

Note in J.L.'s article where he said: "I felt strongly, again being sure, and sure of my hunch." Unknowingly,
he was setting himself up for big losses. No doubt large numbers of traders have been making this kind of
mistake ever since the markets began. I believe learning not to be too sure about market direction is one of
the most important things you can learn about the markets. You have to remain flexible or open
psychologically to whichever way the market turns. The market is never wrong. The market is the boss.

J.L., you state you have now decided to always put a protective stop loss order in at the time you place your
entry order. I think that is very wise and will force you to keep your losses small, assuming you refuse the
temptation to move it further from your entry point as the market goes against you. I'm sure you know this.
Thanks for your article.

Hazards and Emotions of Trading

Without Stops - JLA

I have been a subscriber to your publication for about 6-months and found it to be excellent. I have been
trading for approximately 5-years.

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I recently started a subscription to the Moore Research Center Report, which gives high probability (80%
or greater) seasonal trades. Although the report is also excellent, the old rule of employing stops no matter
how successful a trade has been in the past was recently brought home to me.

On June 7, 1995, I went short Aug. Bellies based on a seasonal trend of 86% over the past 15-years with a
close-out date of July 5. Although I usually employ stops (2% of account, close-out after 3-days of loss,
yesterday's high etc.), I did not on this trade. This not following my rules saw an immediate small loss go to
a large maximum loss of $2,800 within two weeks and then back down to a loss of $160 when I closed out
the position today (7-13-95).

I consider myself very lucky to escape with such a small loss today. There was absolutely no reason at all
for my 5-weeks of anxiety. I know other readers have experienced this pain. I thought that by putting this
story in writing, it will force me to never have to experience it again.

Comments on Past CTCN Issues - George Bashar

For several months, I have followed with interest the submissions to CTCN and would like to make the
following observations.

First, it is refreshing to read a letter such as the one from J.L. in the June issue in which he is honest enough
to relate the dismal performance he had in his trading. We have all had disappointments in trading futures;
it is part of the learning process. However, how many of us would be candid enough to list our losses as
J.L. did? I would advise J.L. to stick with his own S&P system if it is working, and not spread himself too
thin in following too many systems - that can only result in a lot of future second-guessing.

I have also enjoyed hearing from Successful Anonymous Trader and Don McCullough. They both appear
to be trading systems they themselves developed or discovered. Don, you are right in stating the hardest
thing to do is pull the trigger. I know whereof you speak, but in the long run, if you have a sound trading
strategy you believe in and have thoroughly tested, just believe in it and do it!

This leads me to another observation. When we begin trading futures, almost all of us fall into the trap of
looking at, listening to or being tempted to buy other traders' systems.

My question is, why would a trader who has a proven, successful system sell it to anyone else? Futures
trading, as we all know, is a zero-sum game. For every $1,000 one person "wins," someone else has to
"lose" $1,000.

For example, if I have a successful S&P 500 daytrading system, and it gives me a signal to go long at
560.50, why in the world would I want anyone else to know to go long at 560.50. They could possibly get
their order in before mine gets filled, and possibly keeping mine from getting filled until maybe 561.00?
Doesn't that take money out of my pocket?

Trading futures is much like horse racing. After the racetrack takes out its profit, and the State takes out the
appropriate taxes, about 17% of the amount bet on a race is then divided among the winning bettors. If I am
absolutely certain that horse #1 is going to win the race, does it make any sense for me to let anyone else in
on my secret, thereby taking money out of my pocket and putting it into theirs by lowering the odds on my
winning horse? Of course not. Therefore, could someone selling a book, system or running a seminar,
please explain why, if your system is so good, would you not keep it to yourself? And please spare me the
explanation of altruism or humanitarianism or sharing your thoughts with others to enhance the mutual
learning process.

For those of you looking for the ultimate winning system, keep in mind what I am saying. You might want
to read Joe Krutsinger's book "The Trading System Tool Kit." Mr. Krutsinger's main forte is developing
and testing systems. In his book, he is honest enough to admit that he does not usually put out a specific

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system until he develops a better system to replace it. In other words, he saves the best for himself. Selfish?
Perhaps, but very honest.

The AST Network - Anonymous

Trader's Methods & Much More - Michael Maldonado

Back in 11/94, 1 decided to leave my job of 14-years and start a new career daytrading the S&P 500. I
definitely did not rush into this decision; but spent many months researching historical data. I discovered a
very simple, but effective method which produced good profits with minimum drawdown.

To make a long story short; when I started trading my "system" in real-time, it went into a drawdown
period. I quickly lost confidence in my "system," and stopped taking every signal. All of a sudden, I was
second guessing my actions and started believing all those "never daytrade the S&P" articles I've read.

In 3/95, I was invited to join the AST Network. The AST Network is a small group of S&P daytraders
created by John Stenberg. He has developed an effective training course that consists of lessons taught on
video and by computer B.B.S.

The course is not one of those "get rich quick" schemes or the "100% mechanical" miracles that flood the
marketplace, but actually teaches you to patiently and safety take $250- $1,000 a day profits in the S&P
500.

Some of the methods taught include: Keltner Bands, Oscillators, Fibonacci retracements and Cycle
Analysis. This gives the members a chance to study and chose the methods that fit their own unique trading
style. I believe that AST Network members are taking several different trades during the day depending on
which form of analysis they prefer to use. All of the indicators and customized computer software used for
the Network are developed and easily transferred to Omega's TradeStation. In fact, there is a full-time
computer specialist available to help with computer and B.B.S. related items.

One of the first lessons available to AST students is on the correct use of Keltner Bands. This was my first
exposure to this indicator. I was glad to read Anonymous Trader's articles on successfully using his version
of the Keltner Bands. His articles confirmed the fact that I was indeed learning a valid method for
daytrading the S&P.

I was so excited that I faxed John Stenberg a copy of Anonymous Trader's article. John was also excited for
Anonymous Trader's success story because he was a former student of his prior to the formation of the AST
Network. John sent me copies of fax communications between the two verifying this fact.

After completing the course and paper trading for over 2-months, I feel very confident in my trading
approach and have been achieving good results. I still believe the most crucial aspect of trading is the
mental focus that a trader must possess.

You must overcome the mental barriers that hamper the decision making process; such as fear, greed or
lack of discipline. These emotions must be absent from your trading routine if you want to be successful.

You must learn to pull the trigger quickly and without hesitation. Sometimes you only have a 3-minute
time window to place a trade before that window closes. To help confirm your decision making process,
John keeps in touch all day via fax and digital pager communication. He helps by giving support/resistance
levels, possible targets, and special price corridors.

I'm extremely happy with my experience in the AST Network. It has definitely changed my trading career
for the better. I believe it can give you the background and confidence needed to daytrade the S&P. I'll
write for a future issue to update readers on my progress.

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 Experiences of Amateur Trader & Review of Curtis Arnold's PPS Book
Tim Jewett

Here is a book review from an unbiased trader. That is, I am an amateur so far, not having opened a
brokerage account, but paper trade to learn the markets and gain experience using various approaches. I
have no turf to defend, have made no trading errors (by definition), and have neither profits nor losses to
cloud my judgment. I believe in and practice a slow, methodical approach.

In the past 15-months, I've read a wheelbarrow full of trading books, plotted lots of price bars, figured out
all the option spreads and synthetics, and audited (by tape) and attended trading conferences. My initial
orientation to futures trading was contrarian, and it took some time to discover how inappropriate that
really is for a new trader.

I have now settled into classical chart pattern analysis, trading breakouts within trends, and naturally have a
copy of Edwards and McGee's seminal work. The shortcoming is that this work does not purport to be a
guide to the futures markets, and there has been no similar source to turn to for this information. Most
authors in Technical Analysis texts seem driven to discuss mathematical indicators, or to offer brief
speculations on chart patterns, there being no research to abstract from.

Well, if you're with me so far, and you think you know all you need to know about chart patterns, I strongly
recommend you to Curtis Arnold's new book, entitled "Curtis Arnold's PPS Trading System." Dave
mentioned this book in a brief review last month. I'd like to amplify his endorsement because this book
meets so many needs of so many traders, including mine, for new pattern research in the futures field.

This is one of the very few trading books I've read, which I haven't sent back. Why? If you ever plan to
make a trade based on a chart pattern, you're essentially in the dark unless you read this book! The author,
having years of bitter trading experience, sat down and researched what actually happened with the very
common (futures) chart patterns over 10-years of market data!

He provides some of this raw data, so you can see just what he did. Data are presented for pattern reliability
and profitability for each pattern researched, and these numbers depend on the direction of the trend! The
conclusions are given very directly, and some of them explode popular myths about some patterns
(reliability of the head & shoulders, for one).

There is a pattern recognition workbook section, with answers. He also distills the very best of all the
major, must know trading topics to help you put it all into action - from psychology to backwardation. And,
if all this is not enough, there is a computer system which has been developed from these pattern concepts,
and its operation is well described - to include definitions of all the program variables. A partial demo disk
is included with the book.

The systems Curtis Arnold describes have stunning track records for the past 7-years, or since inception.
The software allows segregated or group plots of individual markets in a portfolio to analyze good and poor
performance markets.

I have no connection with Curtis Arnold or PPS, and have no stake in this review, except to share my
excitement in finding just what I had been looking for in a trading book for a long-time. I only found a few
obvious numerical errors (in an appendix), and plan to write with a few questions on interpretation of data
and conclusions.

Comments on Odds Trading Technique, Genesis Data, MarketArts Windows on

Wall St., Jake Bernstein - Tom Siemsen

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The June issue has two requests for information regarding Don Fishback's video on the ODDS Trading
Technique. Since I'm familiar with that video, I thought I'd take this opportunity to discuss that as well as
two or three other items.

As Mr. Michael Ireton points out in his letter, the video, "ODDS - The key to 90% Winners," is $52 plus
shipping. As far as I'm concerned, it's worth every penny. I'm not sure what the "90% winners" claim is
supposed to mean, unless it's related to the assertion that something like 90% of all options expire
worthless.

Editor's Note: Refer to the November 1993 issue of CTCN, Pg-2, "90% Wins Are Possible." In that
article, member Bob Edwards goes into detail on an approach to take advantage of the apparent fact 90% of
puts & calls expire worthless. If you don't have our back-issues, they are still available to current members
for only $87 (reg. price $182), for all 26 knowledge-packed issues.

In the video, Mr. Fishback carefully walks the viewer through a process of calculating the probability that
the price of an underlying equity or futures contract will reach a specified strike price within a stated
period, based on the underlying item's recent price volatility.

A written transcript accompanies the video and includes a short collection of sample calculations that
helped me understand the math involved. Mind you, the video does not offer anything like a trading
system, nor even a technical indicator like the RSI or stochastic %K and %D. What it does explain,
however, is how you can compute the statistical probability that a price will reach a target you select; I
think that's worth something. You will need access to a computer that has a recent version of one of the
better (Excel, Lotus 1-2-3 or Quattro Pro) spreadsheets on it. The video is obtainable through Futures
Magazine Learning Center.

On another subject, since several readers have expressed their likes and dislikes regarding data vendors, I'll
mention my current source of daily data: Genesis Financial Data Services of Colorado Springs, Colorado.
I've found their prices to be very competitive, downloading software (Navigator v3. 1) is easy to install and
use, and the few times I've had to ask for technical assistance, they have been intelligent, patient (I don't
always ask the question correctly) and helpful. They aren't always real easy to reach (which can be
irritating), but once you get through they are good at what they do.

I had one recent (minor) negative experience that I can pass on. I received an unsolicited mailing from
MarketArts, Inc., offering an "upgrade" of "Windows on Wallstreet" Pro, version 2.1 for the ridiculously
low price of just $43.90, including shipping. I didn't own any earlier version of WOW, but I figured that as
a registered owner of three other analysis packages, including SuperCharts, this was MarketArts' attempt to
lure me away from SC and to WOW.

I bought the offer and two or three weeks later I received the WOW software. The problem was, all I got
was the software. I thought that perhaps they had just temporarily run out of reference manuals because of a
surge in sales. But when I called and asked how long it would be before a manual would be sent, I was told
it was not a mistake or a temporary delay -- since it was an upgrade I would not be getting a manual, unless
I wanted to order one for an additional $30.

Admittedly, a price of $73.90 is still not a bad deal, but when I checked the solicitation they had sent me
and found not one single reference to the fact that the upgrade offer did not include a manual, I decided that
I didn't want to send this kind of company any more of my money, good deal or otherwise.

I cannot comment on the software itself other than to say that it did install easily; it may be a good product,
but it really is impossible to tell without a manual that would enable you maximize its capabilities. There is
an "on-line" help capability, but it not at all adequate as a reference tool. Again, the amount of additional
cost is small, but I can't help feeling that MarketArts owes its customers an "up-front" indication of what its
products cost and what you will not get if you decide to take advantage of one of their "special" offers.

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Finally, and back to a more positive vein, I've just finished reading Jake Bernstein's "The Investor's
Quotient" (2nd edition, John Wiley & Sons, Inc.) and I highly recommend it if you are interested in the
psychological side of trading.

As I read Mr. McCullough's account of how he sat in front of his terminal watching one signal after another
flash on the screen while he "waited," I felt that I had been there with him. I suspect that, with very few
exceptions, most traders have been there at one time or another. While the Bernstein book probably won't
transform anyone overnight into a supertrader, it does provide a basis for understanding why so many of us
experience what Mr. McCullough described and some practical techniques for escaping that predicament.

Risk Management - Jim Burke, Jr.

How much am I going to make? I am asked that repeatedly. I can always tell how much experience a trader
has by that question. It is not what you make that is important, but what one does not lose. After I have a
profit of so many tics in a daytrade, the most important ingredient to my trading takes place, the break-
even stop. I have not read any books giving much attention to this concept. What a stressless (for the most
part) feeling it is after I am at break-even!

I know you just called the broker with your stop placement order and 45-seconds later you must "cancel
and replace" that order, but whose money is it anyway? After a while, the broker will know your trading
style, at least mine knows. When I call he has written out my order ahead of time and I just acknowledge
the order - it's done. Also, if you can get on a one-on-one basis with an order taker at your brokerage, send
them a token of your appreciation, most order takers make very little income. To me, break-even is as good
as a profitable trade.

I believe anyone can design a profitable system, as long as one understands market principles, what goes
up, must come down faster. Twice as long to go up and half as much time to come down. So what does that
have to do with risk management? Think about it. Do we need to use the same amount of risk on buys as
we do on sells? I believe that if I am short the market, I need to trail my stops tighter to lock in profit than
when I am in a long position. As far as my original stop, all my systems risk the same amount - small. I use
to believe that the 3% rule was nonsense with a $10K account. But in the S&P and currencies, I daytrade
with less than 2%, I simply cannot get wiped out that way and my profits are at least twice as much the risk
in the S&P when trading one contract.

Although, it has taken me a long time to figure out who I am (and sometimes I wonder), trading is easier
when you are not your own worse enemy. Concentrate on repeating every process of your steps over and
over again, then one can profit.

Sorry Did Not Trade &

Looking for Capital - Randall Brooks

Well, it's a year since I purchased Swing Catcher Trading System by Trendx Trading Co., and let me give
you the lowdown on what has happened with my career as a trader.

As I may or may not have mentioned, I was never comfortable trading a $10,000 account with the large
stops SC requires ($1,300 on the Swiss, for instance) and the fact I could not get enough diversification
with a 10K account.

I tried getting other people to kick in with the other 15K I thought I needed, but most people who know
nothing about futures are hesitant to invest.

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I picked out a 10-commodity SC portfolio to follow and between mid-August and early October it
produced $20,000 In paper profits. Needless to say, I was mad at those folks close to me who wouldn't
"chip in" to the Randall Brooks commodity fund.

With the limited capital, I got back into daytrading the S&P. I didn't like daytrading before and found out
after the passage of time, that I still don't like It. Anyway, it was more disastrous than my first attempt. I
took a tip from someone on the Swiss and lost a small fortune almost overnight.

Here I am a year later and I am trying to generate interest from various folks to let me trade their money.

I canceled my CSI quotes the end of 10/ 94, and haven't received them since. I still have a strong interest in
Swing Catcher. It was the reason I got back into trading. I don't want to spend the money to start-up CSI,
just yet. I want to run the profit and loss reports for the last 9-months to see how SC did and need to
purchase data from Aug. 94 thru present.

Anyway, my girlfriend and I are coming into a substantial amount of money, next March, and Swing
Catcher is one of three systems we plan to trade (Commodex and PPS are the other two).

Dave Reiter Responds to William Shelton

I would like to make a few comments concerning William Shelton's article in the 6/95 issue of CTCN.

As I stated in the 1/95 issue of CTCN, my commodity trading has generated a net profit of $145,357.93
from 1992 through 1994. If Mr. Shelton would like to verify these results, I will be happy to send him a
copy of my account statements and IRS 1099 forms. However, I must ask Mr. Shelton to pay for my
copying and postage costs.

Mr. Shelton mentions an advertisement I placed in the 3/95 issue of "Futures Magazine." The purpose of
the ad was to sell a trading method which I discovered in 1993 (based on a price pattern). In 1994, the
method generated 11 signals. Every signal made money based on real-time trading. I discussed this
particular trading method on page 3 in the 1/95 issue.

On a different subject, I agree with Mr. Shelton that most trading vendors can "talk the talk" but they can't
"walk the walk." In other words, they can't verify the profitability of their trading systems by providing
real-time brokerage statements and IRS 1099 forms.

I also agree with Mr. Shelton that we (as readers of CTCN) should not overemphasize the "value" or
"importance" of an article which happens to be written by a trading vendor (particularly those who
advertise in CTCN, myself included). Personally, I know several "private traders" who are much more
knowledgeable than I am when it comes to the subject of commodity trading. Just because someone is, a
vendor does not necessarily mean that he/she has more knowledge than a non-vendor.

(Please write c/o Commodity Traders Club News) if a member of CTCN would like to contact me. Good
luck with your trading!

Views of a Novice - Jim Hill

I have been trading for less than 1-year and found you can get caught up in the excitement and hype of
newsletters and Fax services available. CTCN has lived up to my expectation, by being the most
informative newsletter I have come across.

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I have purchased many software packages over the last 9-months. I've been looking for the Holly Grail, and
like many of you, I have not found it. I have found tools like SuperCharts and TradeStation to be very
helpful. I use Future Pro from Essex, as my buy/sell guide. I have also subscribed to Larry Williams hot
line and found it to be 75% in-sync with Future Pro.

I now use Omintrader over SuperCharts and TradeStation for charting, system testing and accounting.
Omintrader is a full software package by Nirvana. A fun feature included is the Trading Game, a trading
simulator. For a low fee, there are seminars to help you learn how to take advantage of all the features
within Omintrader. The people at Nirvana are very friendly and helpful. I would recommend Omintrader to
anyone who does not want to write their own trading systems.

I have been looking at another software package, VantagePoint offered by Mendelsohn Enterprises. I was
hoping a reader may have made the investment into VantagePoint software and could find the time to call
me and shed some light on questions I have. (You can write c/o Commodity Traders Club News). Thank
you for any help.

Editor's Note: We have a Special Report on NeuralNets, which also discusses Mendelsohn's program. It's
available from CTCN for $5 S&H.

Scale Trading - Don E. McCullough

I keep reading articles about Robert F. Wiest's scale trading system in this newsletter and thought you all
might find the following interesting.

I have both the original and later version of his book, "You Can't Lose Trading Commodities." YES YOU
CAN! I suggest you write to Mr. Wiest and ask for a copy of his 1/9/93 newsletter called "The Scale
Trader." In this newsletter he reports net trading losses of $59,506.25, in what he calls "The Guarantee
Account," for the year 1992.

While you're at it, you might ask him for a copy of his 2/13/93 newsletter in which he states "The
Guarantee Account" lost $31,000 the previous month.

Dave: If the above article makes you leery of being sued, don't put it in the newsletter. I am keeping the
above mentioned issues of Wiest's newsletter and scraping the rest.

Editor's Note: I am not in the least worried about being sued. This country is based on freedom of speech
and as long as the author is believed to be telling the truth and is saying it without any malice on his part, it
can and will be published in CTCN.

Data Manager Program

W. J. Wojciechowski

I developed for my own use the data manager program ('DATAMAN.BAS) and supporting files. It is
written in Power Basic, which is not directly compatible with Microsoft Quick Basic. I don't know how
useful this program will be to you in its current form, as most data formats, directory locations, and modem
scripts are particular to my own system. You also need a program called QModem which is used as the
communications engine for data downloading. However, you can still read the Basic source code and
ancillary text files. The program performs the following tasks:

Automatically increments the date (and is weekend and holiday aware)

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1. Downloads day session data automatically from Ira Epstein BBS and Free Financial Network (one
minute each call)
2. Uncompresses downloaded data as required
3. Automatically determines rollover dates and extracts the necessary data (based upon my own rollover
schedule which is quite close to yours)
4. Checks and compares extracted data for accuracy
5. Updates historical ASCII continuous data files
6. Constructs compatible CSI format data files (using last 260 data days) for Swing Catcher use, and
7. Prints a daily summary of collected data
If I can modify or program anything for your use, please let me know.

Editor's Note: W. J. is very talented in programming this. As far as I know, no one else has ever done it!
He has been very generous and agreed to make this available to all CTCN members. Just send $5 to CTCN
for S&H, and your disk size. It's also possible he will customize it for CTCN members upon request. It may
even be possible to customize it for use with other data quote services, such as Lind Waldock, Jack Carl,
etc. Please write the editor and I will forward your specifications to W. J. There may be a small charge for
it. We will let you know, depending on how many requests are received.

Comments on Lind-Waldock - Terry R. Davis

Having read some previous comments on Lind-Waldock, I thought I should add my comments. I traded
(past tense) 6 accounts with L-W for about 6-months. During this time, the desk that I dealt with ('N') came
to know my voice and the way I traded. There back office is superb and I experienced very few errors
during that time. When their computer system is working (97% of the time) their order flow is flawless.

If their computer system goes down, god help you. During this down time, I experienced stops that were
not canceled. This is scary because there is virtually no 'trail' when this happens. The brokers were frazzled
(to put it mildly) when they experienced computer problems. They also verbally expressed their frustrations
about their computer problems.

Their fill quality runs from outstanding to absolutely horrible. No matter what there advertising implies,
they are employing outside floor brokers to handle their orders. They are not employees of Lind-Waldock. I
had many problems with fills and was very vocal about my perceived problems.

I might have 2-weeks of exemplary fills only to be followed by 2-days of terrible fills that would wipe out
all my better than average fills. This fill quality finally caused me to leave Lind-Waldock.

I pursued all avenues for redress all the way up to Ron Golding (VP & part owner) and was always told that
the fills were the best that they could do. The best that they could do, did not suit me.

The Holy Grail and Other Similar Matters - Cyde Lee

Some of the information contained herein has been sold as a "system." I did this as a bit of an experiment
and a desire to let people know about something I had discovered. I placed a one inch add in the IBD for 5-
days offering to disclose a system I trade which has made over 100% each year for the last four years. The
cost for this was $25.00. Believe it or not, I got enough takers to pay for the ad -- nothing more.

1. I have a rather long history with systems -- most of it for my own account and pleasure -- has to be
pleasure since up to the discovery of what I'm going to discuss I haven't done anything but lose money. My
biggest loss was in buying into a brokerage company without anything to sell and not anyone to see that
things were done right. At least I got out of the venture without any serious problems of the nature I later
learned I could have.

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2. I wrote my first Moving Average Crossover system and evaluated it on an IBM 7090 while taking a
FORTRAN class at the University of Houston in the early 1960's. I wrote a toolbox system for a Hewlett-
Packard 9820 which included most of the commonly used techniques of the time and also included a
spectral analysis and projection capability. I sold this for $1,500 in 1971 and it provided a significant part
of my income then. Recently I served as technical director for a firm that makes much to do about the
systems it sells.

3. In 1976, my partner and I acquired a seismic data processing company with one small but powerful l6bit
computer equipped with an array processor. During the 'boom' we expanded this to a company with a total
of 5 fairly large computers and 22 people using some of the most sophisticated software in existence to
attempt to unscramble signals from seismic sources for evaluation of oil and gas prospects beneath the
surface of the earth.

4. I am now about ready to retire from that operation and let younger people fight the battles that go with
that business today.

5. I expect to spend most of my time working with commodity and stock trading systems and hope to
enhance my retirement income from such work (trading mostly but some writing I hope -- haven't done
much of that since the mid-1950's.

6. The following pages outline what I have discovered and hope that you will see fit to include the
following in the newsletter.

Price High/Low Channel Breakout Revisited - A reexamination of the concept of trading on a breakout
from a channel defined by the highest high and lowest low for a given period seemed to be something to do
a couple of years ago when I decided to simplify my approach to the market. This concept had been
advanced by Richard Donchian in the early 1970's and his 4-week rule is still observed by many traders.

This reexamination began when I decided that after all these years of writing systems (for myself primarily)
I wrote my first trading system in 1963 on an IBM 7090 and "investigating" the behavior of all manners of
technical indicators and market price action, it was time to get serious about making money in the market
or get out altogether.

Prior experience indicated to me that:

In order to sleep comfortably, trading with the trend was necessary.

1. Where and how to exit a trade probably might be more important than entry.

2. The limitation of risk to a reasonable level on each trade is mandatory. The amount of risk might change
as a function of time in the trade.

3. A 'reversal' system probably wasn't the best idea. Waiting before reentry of a market after exiting might
be better -- this was a discovery, not an initial concept.

4. After exiting and waiting a given period, the length of the channel defining the long and short entry
points might be different. (The same may be true for exit, but I didn't examine whether this was true or not.)

5. It might be best to establish entry orders at some small amount above/below the highest/lowest high/low
defined by the selected channel parameters.

My initial work was with the Eurodollar market. I chose this market since it had the largest open interest
and the open interest was spread out over a number of contracts, so it would appear that 'near' and/or 'far'

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contracts could be traded and I would not have to worry about rollover each quarter to stay in an active
contract.

Eurodollar-Return on Maximum Drawdown 1982-1991 - In Print Copy

This chart shows that if we accept reasonable returns (50-70%) per year, then there is a wide variation of
channel lengths at which such results can be obtained.

Once I reached this point and started trading the system, I decided to examine the effect of requiring that a
trade be exited before another trade could commence -- NO Reversals of Position. I also looked at allowing
separate lengths for entry of long and short trades, causing a wait after exit from a trade, and establishing a
dollar stop loss order at a reasonable value -- sometimes different for weeks other than week of entry.

Below you will find two tabulations. The first covers an optimization for each of the listed commodities for
the period from January 1983 thru June 1993. The second covers the results which would have been
experienced using the same parameters as the optimized trades from November 1993 through June 1995.

Period: Nov93 to Jun95 Jan83 to Jun93 In Print Copy

Sometimes the system works -- sometimes it doesn't.

I wasn't surprised at the results. It appears that the currencies can be counted on to trade reasonably well.
Remember, BP has been sideways most of the time in the trading period after optimization.

I think this "old" method needs further consideration!

Opinion on Investograph 3.0 for Windows

Alfred F. Dougherty

I was one of the beta testers for the new Investograph 3.0 for Windows. I recommend it without reservation
for end-of-day analysis.

Bob McCullough, the developer of the software, has created the best proprietary oscillators I've seen:
Formula X is a short-term overbought/sold oscillator that detrend better than any I've seen, including CCI;
his H and Y oscillators have some of the characteristics of Stochastics, but are better. Formula Y is an
intermediate term oscillator and H is short to intermediate. These oscillators alone are worth the $795 price
for 3.0.

The software also comes with 22 built-in trading systems. The manual is excellent, describes them in
sufficient detail with example parameters to get you started using them. You can also create your own
systems. The manual walks you through the built-in language system to make it easy to use the limitless
array of oscillators in the software.

You can create your own oscillators using the language system (and Bob McCullough, the developer of the
software, has provided some of his favorite custom oscillators in the package). It's an incredibly flexible
software program.

With the exception of McCullough's proprietary oscillators, you can get some of this from some other
systems. But for trading programs, McCullough has come up with a process for managing the equity curve
which makes trading programs profitable in both trending or congested markets.

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This is the big breakthrough, in my opinion, in this software, and when combined with the proprietary
oscillators, makes for dynamite trading system development. I've looked at most end-of-day systems on the
market and owned several, but none is close to this software package, especially for the price.

In addition to trading systems (my primary interest), Investograph 3.0 comes with an excellent trade
filtering system and a profit pattern definition and filtering system. It also has all of the traditional technical
analysis tools. The software is easy to use, because the manual is so user friendly.

It has so much power and versatility that it'll challenge the most sophisticated computer using trader. That's
probably because McCullough is a trader who designed the software for people like himself. (Note: I have
no financial interest in Liberty Research, the company marketing Investograph 3.0 for Windows or
relationship with McCullough, other than hours on the phone during beta testing working on glitches and
bugs. I've never met him.

Consider the Risk! - Don E. McCullough

It's so easy to trade and think only about good entry and exit signals and of the potential profits the markets
make possible. Anonymous Trader in his "Odds'n Ends" article in last issue mentions he never holds his
day trade positions overnight. He has considered (even experienced?) the risks and, like he says, how
would you like to wake up and find yourself on the wrong side of a market that opens limit-up or down and
stays locked at limit for several days in a row? Sitting day after day and not being able to get out of a
position that's locked against you has to be a real nightmare.

I recently ordered and received some free literature from the Chicago Mercantile Exchange. One thing I
was especially interested in learning was the size of limit moves in the S&P market. The first limit day can
go 30 pts maximum. That's $15,000. If this first day closes locked limit, then the next day can go 50 pts.
That's $25,000. These figures pertain to only one contract. One or two limit days against you in the S&P
market would put a lot of traders, like myself, out of business. So, for many of us trading the S&P market,
carrying a day trade overnight is absolutely bad business.

Not only can you lose 15 to 25,000 or even 50,000 dollars you can lose much more than that if the S&P
market locks limit for several days in a row. Wouldn't it be terrible to end up in debt to your broker for 1-
200,000 dollars? I know this is not likely to happen, but the point is it's possible and no reasonable trader
can afford to take this chance.

This locked up, locked down business (as you well know) pertains to all of the markets and not only the
S&P. The numbers may be different but the results can still be devastating! Now get this. One of the great
things about day trading is you do not have to hold overnight positions and thus subject yourself to the huge
risk of markets opening locked limit up or down and staying locked for several days in a row. The typical
trader using daily bar charts has no choice, but to subject themselves to this risk. Although I have not yet
witnessed a series of limit-up or down days in any futures market via my intraday bar charts, I'm sure the
day trader on the wrong side of what comes to be a locked up or down market will nearly always be
afforded several chances to exit. For the daily bar chart user and longer term trader being able to get out
will often be impossible!

I have not, nor do I intend to make a study of spreads or options to lessen or perhaps even totally avoid the
above mentioned risk. Probably most traders feel likewise, so I again urge you to always consider the risk
and be very protective of your trading capital at all times. Like the famous trader Paul Tudor Jones says,
"defense, defense, defense!"

Views on Seminars & Systems - A.Y.

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I prefer not to disclose my name at this time, but I have no commercial connection with any of the
companies or traders mentioned below.

Comments on Seminars and Trading Systems. I've been trading and following the S&P market for six
years. I started trading the market on a full-time basis about 3-months ago. I attended quite a few seminars
and technical analysis conferences including one given by Kent Calhoun.

I have not applied many of the trading strategies taught in that seminar because I did not have the time to
validate their effectiveness. Perhaps Future Truth can provide such validation. On the other hand, I have
studied many technical analysis books and listened to conference tapes. Overall, I learned more from
diversified sources than from one single expensive seminar. There is no short cut trying to come up with a
personal system that one can have confidence in. The system internalization is necessary to trade
successfully.

My personal smart buys are as follow: 1. Gary Smith's S&P daytrading System. I don't trade this system,
but my real-time observation in the last 2-3 years has confirmed the soundness of this system. 2. Tolerate
(CompuTrac) conference or its audiotapes. My favorites are Linda Bradford Raschke, Joe Stowell and John
Bollinger. 3. Futures Magazine Learning Center Workshops and its tapes. Charles Faulkner provided
excellent insights on the prerequisite of a successful trader. I'm working on a shortcoming that applied to
me.

38-Steps to Becoming a Successful Trader Anonymous Trader

1. We accumulate information--buying books, going to seminars and researching.

2. We begin to trade with our 'new' knowledge.

3. We consistently 'donate' and then realize we may need more knowledge or information.

4. We accumulate more information.

5. We switch the commodities we are currently following.

6. We go back into the market and trade with our 'updated' knowledge.

7. We get 'beat up' again and begin to lose some of our confidence. Fear starts setting in.

8. We start to listen to 'outside news' & other traders.

9. We go back into the market and continue to donate.

10. We switch commodities again.

11. We search for more information.

12. We go back into the market and start to see a little progress.

13. We get 'overconfident' & market humbles us.

14. We start to understand that trading successfully is going to take more time and more knowledge then
we anticipated.

Most People Will Give up at this Point as They Realize Work Is Involved

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15. We get serious and start concentrating on learning a 'real' methodology.

16. We trade our methodology with some success, but realize that something is missing.

17. We begin to understand the need for having rules to apply our methodology.

18. We take a sabbatical from trading to develop and research our trading rules.

19. We start trading again, this time with rules and find some success, but overall we still hesitate when it
comes time to execute.

20. We add, subtract and modify rules as we see a need to be more proficient with our rules.

21. We feel we are very close to crossing that threshold of successful trading.

22. We start to take responsibility for our trading results as we understand that our success is in us, not the
methodology.

23. We continue to trade and become more proficient with our methodology and our rules.

24. As we trade we still have a tendency to violate our rips and our results are still erratic.

25. We know we are close.

26. We go back and research our rules.

27. We build the confidence in our rules and go back into the market and trade.

28. Our trading results are getting better, but we are still hesitating in executing our rules.

29. We now see the importance of following our rules as we see the results of our trades when we don't
follow them.

30. We begin to see that our lack of success is within us (a lack of discipline in following the rules because
of some kind of fear) and we begin to work on knowing ourselves better.

31. We continue to trade and the market teaches us more and more about ourselves.

32. We master our methodology and trading rules.

33. We begin to consistently make money.

34. We get a little overconfident and the market humbles us.

35. We continue to learn our lessons.

36. We stop thinking and allow our rules to trade for us (trading becomes boring, but successful) and our
trading account continues to grow as we increase our contract size.

37. We are making more money then we ever dreamed to be possible.

38. We go on with our lives and accomplish many of the goals we had always dreamed of.

Night Trading Feedback - Ken Biggs

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I have been reading a number of back issues as well as the current one and I'm finding some very good
information. It Is really good to read the insights and stories of fellow Traders. As they say: "A wise man
learns from the mistakes of others."

I would like to know if you or any of your subscribers have had experience trading on the night market:
NYMEX. I trade Crude, Silver and Copper among others. Trading in all three of these markets goes on
during the night, not in some foreign country, but right in New York. Is there anything special I should be
aware of when trading the Night market, or is it just the same as trading during the day?

It seems that there is a definite advantage to being able to start trading before the markets open up the next
morning. Please share any thoughts you might have on this subject.

Is Robert Prechter a Lucky Monkey? - John Piper

It is my contention that markets are essentially unpredictable. This is to say that the best we can do is
isolate low risk trading opportunities and then take them. Some will work out and others will not. We will
win as long as we follow the old adage, cut your losses, let your profits run. People make predictions every
day, I hear you say, and many of them are right. How do you account for this? This is where the lucky
monkey comes into it.

It has been conjectured that with enough monkeys, typewriters and time, that one monkey would eventually
produce the complete works of Shakespeare. Logically this is correct. It is an interesting aside that not only
would these monkeys produce all literature to that point, they would also produce all literature yet to be
published - including stock market reports of the future!

But let's just take 100 of those monkeys and get them to forecast the stock market over the next 10-years.
All they need do is choose the right ball out of a hat. Out of 100, how many will be right, allowing a
reasonable margin of error? Certainly a few. Now Robert Prechter made a forecast some years ago
concerning an ongoing bull market on Wall Street. At the time, he was one of many analysts all making
predictions. Most of them got it wrong, he got it largely right. But was he just then a lucky monkey?

Most people will argue that it was the quality of his analysis which made the difference, and we have
always had the highest regard for the quality of his work. But one of those monkeys would have got it as
right as well. If all those analysts were equally as good, then still only one would have got it right. Also, if
the quality of the analysis was so good, why has it not worked so well for last 8-years? No, the conclusion
must be that on that occasion, Prechter was the lucky monkey and that markets are not predictable (but nor
are they random).

FTSE 100 - FTSE has continued to move ahead and news that the Bundesbank had cut the discount rate
allowed it to break key resistance at 3170. The next key resistance is at 3280. It now seems likely that
FTSE will make it to 3280 and maybe above. If so, we will continue to view such a move as the final phase
of a corrective rally.

A blow-off in other words to match that which we are currently seeing in the US. Although having said that
it will remain important to keep an open mind - maybe markets will just keep on going! This week FTSE
has been tested and has passed - as such there is no reason why the rally should not now continue with
some speed. <F2P8B> At this point a move to 3280 is clearly indicated. <F255P255D>. FTSE is nearing a
level which could prove impassable.

Trading Trend - The TT is UP. The IOP System - System is Long with the stop below 3115. The 30-minute
system is also long. For further details ask about our daily fax service which continues to bring home the
bacon.

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 Opinion on Options Maven - Bill Wermine

I recently purchased Options Maven from Frost Marketing Group (address in our print version). The cost
was $212 and the cost is far less than the value. In keeping with my trading philosophy to keep trading as
simple as possible, this tool fits the bill.

It is a hand-held calculator for quickly calculating options volatility, delta, gamma, vega and theta. I use
this calculator in conjunction with Robert Krause's book, "Option Volatility" this book gives statistical
volatility studies of all the commodity contracts. You can know at a glance if you should be buying or
selling volatility or if you should be spreading.

Using this calculator gives you the correct value (volatility) quickly and eliminates time consuming,
complicated and expensive software. When trading, I am more focused and concerned with price and value
than wasting time with a lot of donkey work. By the time you finish the donkey work, the trade is gone.
Robert Frost's Options Maven gets you quickly to price and value.

More on Trading Books - Steve Krull

Sometimes it is the obvious that is the easiest to overlook. While deciding whether to "break down" and
shell out $50 for another heavily touted book on trading, I happened to look it up in the computer at the
public library. Sure enough, it was sitting on the library shelf! And also, as is too often the case, it turned
out to be of marginal value and after reading it, decided I would save myself the $50. Take care of the
"pennies" and the dollars take care of themselves.

Although many trading books are only available via a catalog, I have found that Barnes and Noble book
stores do have many of these books at 10% off retail and no shipping, and you can be reading them that
same day (it seems most catalogs charge full retail plus shipping on top of that) and save money!

I'm willing to bet that there are many traders out there with books on trading they have read once or twice
which are now gathering dust on their bookshelves. Meanwhile, someone else (maybe someone in your
own town) is preparing to dish out $25-$100 or more for the same book. Isn't there someway we could
"recycle" these books among ourselves? Maybe we could be trading books and trading commodities.

Idea For Exchanging Books - RWC

I have found a version of the Colver System, termed the "Modified Colver Method," in Charles Patel's out-
of-print book "Technical Trading Systems for Commodities and Stocks," and I enclose a Xerox copy for
you. I still have not found the Spike-35 System, and I don't have a catalog for Windsor Books.

In his book, Patel outlines in very brief terms the mechanics of 87 different systems, but unfortunately he
does not evaluate them nor give the results of any test runs, probably because the book was printed in 1980,
which was before personal computers began to be widely used for that purpose. My local public library
obtained a copy of the book from the Orradre Library, University of Santa Clara, Santa Clara, California,
on interlibrary loan.

Do any members by any chance happen to have a copy of the book "The Taurus Method" by Michael
Chisholm? John Hill, in an early issue of "Futures Truth," mentioned that this work contains an excellent
section on stops, which suggests ways in which various types of stops can be selectively used for best
results under various market circumstances, and I would like to see what it says.

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The book is apparently available only by purchase from Michael Chisholm himself, and it costs $75. How
many $50, $75 and $150 books does one have to buy in order simply to browse them for new ideas? I read
them once and then, except for a few standard reference books, they end up on a shelf somewhere forever.
We need a lending library for commodity traders. If you have this book in your own library, would you
favor me with a call, please?

Daytrading - Week #1 - Don E. McCullough

Perhaps you're wondering what's with all these articles coming from me in the past few weeks. Easy. As I
told you, I am now a free man daytrading for a living. Attempting to at least. Got more time on my hands
than I've had since preschool age. The freedom and extra time are wonderful while the daytrading is a
struggle. I'm confident once I begin executing consistently all things will be wonderful!

I've just completed my first week of (serious) daytrading and have made a grand total of 7-trades. Had I
taken all of my good signals, I might have averaged 7-trades per day. and I'd have made a good deal of
money for a week's "work." The S&P market is intimidating to the newcomer and I'm not ashamed to admit
it. My last trade was my best one in that I entered, took a small loss, and then reentered about 2-minutes
later and that caught the top. By best, I mean most difficult psychologically. I mustered the courage and
"got right back on the bucking horse!"

It was a week that reinforced the validity of my signals, but was riddled with my indecisiveness to trade
them. I expect daytrading the S&P will take some adjusting to, to an extent I would not have previously
believed. Being too hard on myself is not the thing to do while facing all the facts most definitely is.
Decisive action and/or consistent execution is really where it's at, providing your entry and exit signals are
truly valid

Another thing that didn't help was the very slow reporting of my offset orders. Can you believe having to
wait as long as 18-minutes to get an offsetting fill price from your broker? (Rather, order taker.) The S&P
market can move $1,000 or more per contract in 10-minutes. I may have to search out another brokerage
firm. These order takers tell me that the more experienced traders use at-the-market orders for both entry
and exit of their positions. By doing so they say you then will get a "flash-fill" and will thus not have to
hang up the phone before getting your fill price. Well . . . already I've seen where they cannot supply these
flash fills in a fast-moving market. Makes good advertising copy though.

I complained about slow reporting of my fills and got moved to another trading desk, but I'm not sure
there's been any improvement. I found out if I did a lot of trading, I might be able to place my orders
directly to the floor. There the order taker gives the trader in the pit your order with hand signals. Of
course, if you buy a seat on the exchange, then I expect there's more angles to placing an order than you
could shake a stick at! And, your commissions would drop to a very low (I forget exactly) 2-3 dollars per
trade. I am sure this would vary from exchange to exchange?

Steve, here's some quotations I think are pertinent to trading the markets. I got them from a notebook filled
with quotations I have taken from reading all kinds of books over a period of many years. The reason I
went to this notebook was to try and find some answers to why I was not trading my signals. Actually, the
answers have to be found in me and I think (with a little time) I'll find them.

"If we believe absurdities, we shall commit atrocities." - Voltaire

"The greatest victory a man can win is victory over himself." - Pestalozzi

"What is more mortifying than to feel that you have missed the plum for want of courage to shake the
tree?" - Logan P. Smith

"He had the power of certainty. " - Ayn Rand

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"I tried and failed, I tried again and again, and succeeded." - (Epitaph of Gail Borden, inventor of
condensed milk.)

"When someone referred to his 'Godlike genius' Edison snorted, "Godlike nothing! Sticking to it is the
genius!"

"Winston Churchill was once asked how he accomplished so much in so many varied fields-from painting
to politics. His answer was, "Audacity is the only ticket." - Bernice Fitz-Gibbons

"It takes a wise man to discover a wise man." -Diogenes Laertius

"Resolution in adversity is always half the battle for salvation." - Pestalozzi

"Writing, when properly managed (as you may be sure I think mine is) is but a different name for
conversation." - Laurence Sterne

This last one is, in part, why I contribute to this newsletter. I rather like his cocky comment in parenthesis.
Since trading and studying the markets has been said, rightly, to be a rather lonely business (for many, at
least) I believe newsletters such as this one affords the reclusive trader a means to "socialize at a distance."

Tidbits on Financial Astrology -

Carol Murphy

On August 21, 1995, we will have the sun conjunct Venus ( ) and the cycle should be the same.
(Chart appeared in our print version only)

An Opinion That The Vendors' Side Should Also Be Heard - Ken Biggs

Just received your latest newsletter (June 1995). I think you are doing exactly the right thing in regards to
the Vendor issue. Like you said there are always two sides to a story and it is best to hear both of them.

Member Requests

Gerald R. Barrington - I don't have a computer. Somewhere I read Internet has some valuable info, in
among junk, under commodities - miscellaneous. I told a friend of mine about it and using his computer we
tried to find what was available without success. I would like info on how to access and what one is likely
to find. Is it worth doing?

Thomas Schopen finds the S&P daytrading articles very interesting. He wants to know how the daytraders
follow the markets; i.e., data feed, software, computer speed and cost of these items. Any problems with
downtime?

John Bond daytrades the Swiss and uses Stochastics for an indicator. When the market gets into a trend,
Stochastics will peg at the top or bottom and become useless. If anyone knows of a better indicator,
especially for trends, he would be glad to hear from you and compensate you for your help. Also, is anyone
familiar with the software for Kent Calhoun's work? Call John at (phone number in print version only).

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In reference to Charles Cochran's request, I'm currently using the Larry Williams' hotline for customers.
Paul Adcock (phone number in print version only)

Special Report titled "Comprehensive List of Trading Book Sources" is available from CTCN courtesy of
Joseph Light, who did lots of research putting this list together.

Special Request - I ask that you please do all members a favor by making a contribution to the next issue of
CTCN. Don't worry about your submission not being interesting or useful to Members . . . rarely is that
true. Usually, most all contributions/ submissions/articles are quite interesting and valuable to other traders,
but the author usually does not realize the actual value of his knowledge or experiences. Submissions can
be any length, long or short; typed, handwritten or submitted on a disk. Formal or informal. Please
participate by sharing your information and knowledge with other traders. Please make a contribution about
your experiences, both good & bad with systems, services, advisors, data vendors, and other trading related
product. P.S. - Remember, as a special reward for making just one contribution/submission per year, you'll
qualify for a 50% price reduction off our regular membership cost on your next renewal.

Editor Comments

We are pleased to announce Lind-Waldock Traders Catalog is now a CTCN advertiser. They have most of
the books that have been mentioned in

CTCN in-stock and ready for immediate shipment. I believe they will give you efficient and prompt
service.

Last month we said reviews were planned on Bob Bolotin's software and Ted Shen's FutureSoft Benchmark
System, which was programmed by Bob. Unfortunately, due to time constraints and other limitations and
factors, I am not sure if I can do a detailed and adequate job doing reviews of software. It is much more
appropriate that our members do all the software reviews. That is particularly true since they have spent
their money buying it and are presumably using it much more intensely than myself.

There is a lot involved in software reviews. For example, the developer will usually insist on a review copy
before publication. He may then complain about the way certain things were explained and want them
discussed in a different manner or in greater detail. He may also complain about certain terminology. He
may also complain about petty matters such as a word being used which has a slightly different meaning
than the word he prefers. In fact, that has already happened. The vendor obviously does not do the above
things when reviews are done without notice by our members, which is the way it should be.

Due to the above reasons I will only be doing Quick Scan's of software programs such as Bob Bolotin's and
Ted Shen's. My preliminary opinion is they both looks good. The interface is well done and easy-to-use. In
addition, Bob is now enhancing his software with additional capabilities, etc. Bob also is very dedicated to
it. Ted Shen's Benchmark System was written by Bob using his software. The system is easy-to-use. The
trading algorithm is based on a simple concept. It appears to have the capacity to generate profits but the
problem with it may be that the stops have to be set large to make profits, which of course results in large
drawdowns.

Quick Scan Book Review of the book titled "A Six Million Dollar Man's Trading Advise," by Michel
Arimoto, 1995 Revised Edition:

It's an interesting book. It's based on an "unidentified mystery man" the author met. He claims to have
made that much money apparently trading commodities using Trend Lines formed by Point & Figure
Charts. It's filled with a number of large and easy-to-read charts which demonstrate the use of a great
number of well-known technical indicators. Including extensive coverage on volume & open interest,
divergences, symmetry and other subjects. This book is recommended reading.

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 Thanks to all who made contributions to this edition of Commodity Traders Club News.

By the way, CTCN is mailed-out at or near the END of the actual cover month, not the beginning. For
example, the August issue will be mailed out the last week of August, possibly as late as August 30. In fact,
one reason for that is we do not get the Futures Truth reports from Futures Truth until near month's end.

Issue 28.

About Gann and The Methodology Showdown Trading Contest and

Elder's Trading For A Living Book - Greg Meadors

Don McCullough (1/95) references Dr. Elder's statements regarding W. D. Gann, implying that Gann may
not have been a good trader based upon comments supposedly made by W. D. Gann's son, and the worth of
Gann's estate. Having corrected Dr. Elder years ago in Club 3000 News regarding these assumptions, and
the value of Gann's astro-methods, etc. I was surprised to discover that the same bunk was subsequently
included in his book, "Trading For A Living". Of course, when one has a mind-set that is closed to the
concept of astro-indicators for market timing, it is understandable they might attack those who have been
successful employing such methods.

Since W. D. Gann died with a mere $150,000+ estate (enough to buy 30 homes in his day) we are to
assume that he was not a good trader. We should ignore dozens of other testimonials, CPA reports and
published articles revealing that Gann lived the good life, had 35 employees at one time, and was a very
generous person. Surely, he enjoyed his last years, and knowing he had cancer, would not a person
knowledgeable of financial matters make necessary arrangements to avoid the tax-man upon death?

In regards to statements attributed to his son, it has been reported that his son was unable to follow in his
father's footsteps (reportedly because he did not understand how to apply astro-indicators), thus their
business relationship was terminated. Well, it does not take a psychologist to figure-out there was a
father/son-love/hate relationship, and his testimonials would be biased.

Of course, Dr. Elder's book, "Trading For A Living" does have some good psychological information as
would be expected from one trained in the field of psychology. However, as Gary Smith points out, most
vendors hype their wares, and one should always make a thorough investigation of the facts before handing
over their hard earned dollars.

For example, if your stockbroker recommends a stock, do you ask how many shares he is going to buy?
Likewise, when Dr. Elder was featured on the Prodigy Network last year, I asked the good doctor if he
would provide some proof that he was actually Trading For A Living, i.e., a copy of his IRS schedule C
showing trading profits, or a CPA acknowledgment of profits, or simply copies of monthly brokerage
statements. Surprisingly, no such proof was going to be made available, an invasion of privacy, according
to Dr. Elder. Yes, no doubt about it, Dr. Elder does trade for a living, he trades his books for dollars.

Interestingly, another Prodigy member was so impressed with Dr. Elder's book, and the Triple Screen
method, he starting posting his S&P trades on Prodigy using the Triple Screen method. The first trade was
a winner, but within a few months the losses were so embarrassing that he left Prodigy, never to be heard
from again.

Robert Miner reveals similar logic to mine, i.e., if they are so talented, have them show you how good they
are by trading in the Robbin's Trading Contest. According to Robert, he won in 1993 with 118% return. Of
course, one year does not make a long term track record. How did Robert do in 1994? Does the Robbins
Trading Company also publish the results of the losers in the major media? I doubt it. Doing so would lose
them clients and commissions. Of course, one does not need to pay $1,000, plus high commissions to show
what they can do.

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Others may not have the financial means to trade the S&P futures. On January 1, 1994, Traders Catalog and
Resource Guide (1-619-930-1050), following the suggestion of Gary Smith, sponsored the 3-year
Methodology Showdown Trading Contest for all the well-known vendors/market timers to demonstrated
their abilities. Real-time trading fills are obtained by a 3rd party, namely AUDITRACK (407-393-3876), a
professional firm that operates just like a brokerage firm, except the funding is simulated.

Over 50 potential contestants were contacted for the contest. Only 21 were willing to compete in this real-
time trading contest even though the results would be published periodically in various trade publications.
Also, the results would be updated monthly in AUDITRACK's Simulated Account Review Newsletter
which is mailed to 2500 industry professionals. The contest rules were simple, trade any of the Stock
Indexes using futures or options.

So why did so many well-known "gurus" refuse to participate? Obviously, some did not like the idea their
track record could be published in major media, in case they defaulted in performance. Interestingly, after
18-months, only 6 traders are still active in the Methodology Showdown Trading Contest. The others have
resigned or have gone broke. Yes, I am leading the contest, day trading the S&P. I have a 576% return,
with a 13.9% maximum monthly drawdown, after 19-months of trading. Here are the current contest results
as of August 21, 1995: Results are in Print Copy

Trading from Home & Taking $7,000 Acct in Feb to $171,000 by Aug - A.P.H.

I believe there is value in learning about other traders' experiences, both positive and negative. Therefore, I
will relate one of mine.

I've been in the futures business since 1980 and trading for a living out of my home since 1985. I do all my
charts by hand. I plan my trades weeks, sometimes months in advance. I don't have a computer and I got rid
of my quote machine many years ago. I get my information from CNBC, station 26 out of Chicago, and the
newspaper. My main tools are Gann lines, Elliott Wave counts, pattern recognition and experience. I
personally believe that short-term trading will pay the bills, but successful position trades (several weeks
or months) can change your lifestyle.

In early 1993, I thought the metal markets were ready to make a move. I use the XAU and certain mutual
funds as indicators of possible moves in the gold and silver markets. On 2/01, I started buying July silver
futures at 3.73. I've never been very successful using options. I had about $ 10,000 in my account. My
game plan was to buy as many contracts as I had margin for and ride the market up or down. I never sent
extra money to meet margin. I just liquidated positions to get back in-line. As usual, the market went south
instead of north. The market hit bottom at 3.60 at the end of February. I was holding 5 silver contracts and
had a balance of about $ 7,000.

The market began to move up. On 4/01, I was holding 13 silver contracts and had a balance of $22,000. On
5/01, I had 22 silvers and a balance of $57,000. May 21, I was holding 35 silver contracts and a balance of
$97,000. In June a larger correction then I had anticipated began. On 6/09, I was down to $29,000 and no
positions. I still believed the market was heading higher.

On 6/15, I bought 2 Dec Gold. On 6/30, I had 15 Gold contracts, 7 silver contracts and a balance of
$46,000. On Friday 7/30, my daughter wanted to go to Six Flags Great America. I checked out the XAU it
seemed solid after an hour of trading, so we left for the day. I called in after the markets closed, my account
was up $ 30,000 for the day. I closed the month with 20 Gold contracts, 25 Silver, and 5 Pork Belly with
$11,000 open profit. My balance was now $158,000. Monday 8/02, my balance was $171,000.

I now was looking for a place to get out. I had open orders to sell Dec Silver at 5.60 and Gold at 415, the
highs turned out to be 5.53 and 414 respectively.

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On 8/03, the metals began to back-up, I gave back $16,000 that day, on 8/04 another $25,000. I had grown
use to big swings in equity, but the market was getting close to my major support areas. On Wed 8/05, the
Chinese announced large sales of Gold. The market gaped down $20. I hadn't seen moves like that since
1980. The market never recovered. I liquidated in fast markets giving back another $100,000. Not one to
cry over give backs, I took my 5-year old to a local amusement park after the markets closed, I needed
some amusement. I took Thursday and Friday off and got back to it on Monday.

A week later Lind-Waldock called. They had reported some bad fills on 8/05, actually I had lost another
$6,000. I still have an account with Lind-Waldock. Knowing the company is going to be in business, is
more important than a bad fill once in a while or the commission.

I hope my fellow traders find my experience of interest and perhaps helpful in their trading.

If I Had Commodity Traders Club News Earlier It Would Have Helped

Me Limit Losses - Charles McDivine

I finally finished reading CTCN. I have been trading about one-year. During this time I made four trades. I
trade on my own and three trades were based on my broker's advice. I lost $600 on my trade in corn. Two
of my broker's trades lost $37.50 and $40.00, plus $300 commission. The 3rd trade cleared $450. The "
last" trade could have made $900, had we stayed in the market one more day.

After reading CTCN, I realized my broker was trading right in view of "no 100% hindsight" at the time of
the trade. Really, if I had CTCN before I traded on my own, I would have limited my loss to $250 instead
of $600. The way CTCN is written and those providing the material is what helps so much. I started with
$2,500 in my account and at this writing I have $1,996 and its been a year of trading. I consider myself
blessed. I have studied a course by Ken Roberts, which gave me sufficient basic knowledge, but it lacked
the "horse-sense" knowledge given in CTCN.

A tip - when I made my first trade, I knew to cut my losses, but I followed the course trading to the literal
letter and discarded my feelings. I didn't move my stop/loss, when I had several chances to do so. Also, in
my opinion, Ken Roberts teaches well what it teaches, but it's not complete enough for the new trader.
Also, his style of trading is not for the small guy. CTCN would complete his course. His big money
remains in his trading mind, not for the small trader.

Ramblings of a Demented Trader

Terry R. Davis

Psychology is the buzz word for most commodity books being sold these days and I'd like to relay where I
have gotten the most support in this field. Mark Douglas' book (Editor's Note: Book name is "The
Disciplined Trader," available from Lind-Waldock Traders Catalog and others) is the best book available
currently dealing with psychology in the markets. That said, I think his book is very, very marginal at best.

Rank amateurs will get some benefit if they pay attention to what he says... and then actually act on it. He
mentions stops in passing (as if they were something foreign to him) one time in the book. Stops are the
easiest way to take much of the psychology out of the markets. I read in many of the letters that are
published in CTCN, if traders had only used stops they would have been so much better off. Some
revelation, huh?

I read these letters and think to myself - what idiots! Let it never be said I was known for my tact! My
recommendation for psychological strengthening is the Sedona Institute in Phoenix. They have a video or
audio program that deals with the part psychology plays in life - not just trading. There are three things that

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control every single thing we do in life. They are: 1. approval (your own or someone else's) 2. wanting
control and 3. security. There aren't any others we ever have to deal with. The Sedona method helps you
understand how these relate to your life... and/or commodity trading. They have a 30-day money-back
guarantee on everything they sell. I don't see how you can go wrong. Contact them via CTCN.

About Market Structure & Simple Consistent Trading

& Five Vertical Bars - B. E. Kramer

I joined CTCN last month. After reading the present issue and then all the back issues, I felt I had to send in
my two-cents.

First congrats to Dave Green. I think you have a great publication. A forum that allows views to be
expressed like this aren't found very often.

I was very impressed with some of the contributions that have been written thru the years. In particular, I
enjoyed what Anonymous Trader had to say. It's very interesting. I've never had the opportunity to study
with John Stenberg or had the opportunity to talk to anyone else that has, but like Anonymous Trader, I've
been using Keltner Bands, Stochastics, RSI and retracements for years. Do I owe John any royalties?

Someone else I enjoy reading is Don McCullough. There have been many others. The main point is their
honesty and experience shines through.

I've been a student of the markets for about 15-years, an active trader for 10-years and a full-time trader for
the last 5 of them. I've been teaching people how to trade for the last 3-years, mostly friends that want to try
trading. I specialize in daytrading the S&P 500, but I also short-term trade other markets.

I don't teach a particular system, because I don't believe there is any one approach to trading that suits all
people. Rather, I show a methodology that allows the individual to develop a trading plan that they feel
comfortable with and therefore will trade. All my students have come to me by word of mouth, as I don't
advertise. I only help those that come to me.

Regarding the comments by George Basher in 7/95 issue, "I do this to help traders succeed where most fail
and I don't have to worry about having too many traders in at the price I want." I haven't trained many
people and I don't show a system, but a methodology that's based on structure of the market. There are
many ways to enter and control a trade and since my method is not optimized for a particular time frame
and/or market, the likelihood of a multitude of buy/sell stops sitting at the exact place I want in is very
unlikely. The possibility of this happening is lessened even further when one considers that an entry is
different for the trader working with 1-minute vs. 60-minute chart, a 3-minute vs. 5-minute or a 15-minute
vs. a half day chart. Throw on top of this that some use the techniques to trade Grains while others trade
Currencies and so on.

The best way to trade is to find something simple, that works most everywhere and then become very
consistent in your approach. I understand George's point, but he must try to understand there are people out
here that are only trying to help. I think Anonymous Trader is one.

The first time someone looks at a bar chart, of any time frame, they probably see a lot of confusion. This is
because they are viewing an unstructured environment. Without structure you basically have chaos. The
Elliott Wave is not a system per se, and is too subjective for me to trade with, but it has one outstanding
quality for anyone who uses it, it provides a definite structure.

To trade successfully, you need to know where you are in the trend of the time frame you are following.
There are many ways to define this trend - Elliott Wave, Anonymous Trader uses a 2-back pivot method, x
number of closes being taken out, DMI/ADX, moving averages, etc. The method I use is the 5VBTP. This
method was introduced to me by Kent Calhoun about 2-years ago and I've used it ever since. I like this

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methodology. It concentrates on the Price Action and not an indicator or set of indicators that are only
reacting to what the price is doing.

As I said earlier, I do use a few indicators in my trading, but these are more as a filter and confirmation tool
than a means of generating a signal. For instance, a high percentage of the time, I'll already be in a position
before getting a signal from any indicator. Once the indicator signals, it does two things for me. 1. It
confirms the trade I'm already in. 2. Everyone that is trading the oscillator and not the price action will just
be getting into the trade and driving the price further in my direction. This allows me to take profits on half
of my positions quicker and control the remaining positions with the structure of the market. From what
I've read, I think this type of trading is very similar to what Anonymous Trader has been talking about.

Pure money management stops don't work consistently. The market could care less what your pain
threshold is. But trading the structure works a high percentage of time. The size of the stop has no bearing
on probability of the trade being successful or not. If the stop is too big for you to trade comfortably, let the
trade go without you or look for another triggering mechanism to get you involved in the trade with a lower
risk, but again, use the structure.

I guess I've gotten away from what I wanted to talk about, which was the 5VBTP. The main advantages of
this methodology are as follows:

1. You know 90% of the time the side of the market you should be trading, regardless of the time frame you
are trading.

2. You know 100% of the time, to the tick where you are wrong. It's tough to cut your losses short if you
aren't sure structurally where you are wrong.

3. You have a clear profit objective that is reached 78% of the time.

4. By trading the structure and not the money, you keep yourself alive for the big moves, letting your
profits run.

I have attended quite a few seminars, read lots of books and have consulted with some well-known
authorities about trading. I have never done any of these things where I haven't learned something. Thru the
years, I have taken tidbits from here and there, and gradually personalized them to develop a trading plan
that works for me. Trading is very individualistic and to succeed you can't use what made money for
someone else. Learn from them, make it your own.

I think I've become a little long winded, but these few of the things I wanted to share with the readers. If
there is further interest, I'd be very happy to write more about Kent Calhoun's strategies and 5VBTP as well
as share other ideas I use for money management, stop placement, psychology, etc. There is quite a bit
more that goes into trading for a profit and a living, than simply learning a system, seeing the signals and
calling your broker. If it was that easy, there would be more successful traders than there are. Good luck
and stay focused.

Back To Basics - Bob McGovern

Is Technology/Computers/Information SuperHighway Too Advanced

Searching the Internet for the Emperor's Clothes - "You mean you haven't advance-ordered your copy of
Windows '95?" My friend was astonished. How in heaven's name could I not get on board this flight to the
future for only $90? The latest of Mr. Gates' products would thereby make my life "so much more facile",
said the friend, and incidentally, make Mr. Gates and Microsoft another $90 richer on top of the two billion
dollars from all the other "state-of-the-art" aficionados (any mention that I will require another 8 megabytes

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of Random Access Memory and a Pentium chip to upgrade my perfectly wonderful-as-it-is IBM 486 to
avoid a major slowdown of the unit would be gauche, to say the least).

I actually do pretty well with a 28,800 baud download of real-time data from my commodity futures data
vendor. The software for charting I use is 9-years old; the Stochastics, RSI, moving averages, and all the
other technical stuff still rolls in at 66 megahertz. I even have a buffer now that bounces the bad ticks
before they get on the screen.

In fact, my old IBM 286 (I guess it's an antique by all standards. No one admits they ever owned one to
start) with only 20 megs of memory and 640k RAM still kicks out all the necessary word-processing stuff I
need, along with my NASD and NFA "Focus" reports, and all my bookkeeping records quite well.

I must confess I'm on the Internet, and use E-Mail. However, I take an oath never to use Voice Mail. I spent
32 minutes punching keys on the phone and listening to canned voices and Musak just getting through to a
vendor software "technician" yesterday who knew far less about his product than I did. I learned a trick
from a friend about Voice Mail today. Don't press any buttons; just stay on the line, and they will think you
have a rotary phone and answer within a minute.

All this stuff about the Internet, World Wide Web, Gopher, etc., etc. poses one question. Who has the time?
Just to get on the local line for America Online is like pulling teeth; then once one is on, he gets a message
saying, "Wait while adding graphics".

I had a guy call me the other day, pushing his services, which were to place my company name and a
"product information" page on the Web for only $2,000. The first thing I thought of after the money shock
was, "How and why would anyone even look for me on the Web?" Some people still haven't figured how to
get past the rudimentary rules of the Internet to find the Web.

What happened to the idea of someone calling me for a sample of my work? It takes about 1-minute, and
costs a few cents for the call.

I feel the Information Superhighway is one of the greatest sales pitches of the past two centuries. It will
keep a lot of people employed, especially the guys who write, "Internet for Dummies", and jillions of
"consultants" who use up company employees' time and the company coffers ad infinitum. Technology
may again have jumped too far ahead of the average person, and any efficiency gained may be offset by the
dollar cost and loss of time learning new systems to produce the same word-processing and record-keeping
results previously attained by people who cannot read or write past an 8th grade level.

I don't want you to think I'm headed for the backwaters of cyberspace, or that I have a negative attitude
about all this, although it may sound that way. What I want to suggest is the thought that all of us, as
commodity futures traders, must watch this move to the center of the trees, thereby losing our view of the
forest. I see this happening more frequently with some of my clients. Technicians may become so
engrossed with the 70 or so indicators on a commodity that they will never recognize nor have the time to
"pull the trigger."

Computers are great! I can't do without them. But I'll say once again, "Let me have my straight-edge and a
#2 Eagle pencil; a determination of how much risk I want to take, and an estimate of my target price, and
all the rest will fall in place." Until next time, "Lord willing and the Creek don't rise."

Editor's Note: The following P&L Report was extracted from Bob McGovern's Seasonal Spreads
Newsletter (1-714-363-6667). This report shows how Bob has "bounced back" from a drawdown his model
account incurred several months ago, when the account dipped under its initial equity. This shows how we
can all comeback from adversity, as Bob did thanks to persistence and sticking to a sound trading plan.
Note: Bob did not request we print this P&L Report. It's printed as an example of a recovery.

Trade Update

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Initial Equity, Jan. 1, 1995 $10,000
Closed Out Trades through August 11, 1995 $5,731
Open Positions, as of August 11, 1995 $160
Ending Equity, August 11, 1995 $15,891
(All trades are before commissions)

Market Psychology, is Vitally Important

for Success - Trevor Byatt - Part One

1. Understanding and acting in accordance with market psychology is vitally important. It is no good being
a good technician if you are a bad tactician.

2. Market psychology is very different from the psychology necessary for normal business and/or academic
success. Many highly successful businessmen and academics have been abysmal failures as market
operators.

3. Develop your own system, test it, then stick with it. Other people's systems may work well for them, but
probably will not be compatible with your psychological make-up.

4. Accept total responsibility for the results of your trading results. Even if you authorized someone else to
trade on your behalf, it was you who made this decision - nobody forced you. Remember losers always
look for somebody else to blame. Winners look to themselves particularly if they have to take a loss on
some trades - as is inevitable for all traders and all systems.

5. Don't take the advice of others. They could be thinking in a totally different time frame from you.

6. Always place a pre-calculated stop whenever you open a trade and decide how you are going to move
this stop for all possible movements of price during the trade. Stick to your plan during the trade.

7. Do not keep ringing your broker during trading sessions to enquire about market prices. (The exception
of course, is the day trader who would be crazy not to have his own quote system.) Your stop will protect
the decision you should already have made. Ringing your broker will adversely influence your decision and
may well cause you to act irrationally and hence almost inevitably wrongly.

8. Never worry that you could have done better had you second-guessed your system. Concern yourself
only that you followed your system and predetermined stops. No system is perfect. The best systems can
only give you an edge - never 100% of profitable trades.

9. Do not trade for excitement. Avoid elation over fast profits and depression over losses. If you have a
good system it does not matter whether any particular trade makes a profit or a loss. Remember, all systems
will generate losses. Only chide yourself if you broke the rules of your system (this applies to profitable as
well as losing trades).

10. Always trade with a view to protecting capital and limiting the value (not the number) of losses and
never with a view to making large profits. Net profits will automatically follow if you execute a good
system well.

11. Never worry about the ratio of the number of profitable to losing trades. A good system may well
generate a relatively large number of small losses (and small profits) and relatively few large profits.
Sticking rigidly to a good system will however produce a good net profit over time.

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12. Cut your losses quickly and let your profits run (with a predetermined stop). You should have read this
advice so many times that it almost sounds trite - it is not - it is the best summary of all these rules that you
could have.

Editor's Note: Part Two is scheduled for our next issue.

Some Good/Valid Reasons Why Vendors Sell Systems

First let me congratulate you for the ongoing success of CTCN. I wanted to respond briefly albeit
anonymously, to George Bashar's comments/question in the July 1995 issue.

George Bashar wants to know if someone has a good system, why would they share it with someone else?
Here's my take on this. The first reason is obvious. In fact, George answered it himself in the last paragraph
when he said that Joe Krutsinger, whose main forte is developing and testing systems, does not put out a
system until he develops a better system to replace it.

There you have it. The system vendor may now have a better trading system which he/she is using in
his/her own personal trading while selling the older (but still profitable) system to the public.

The second reason can also be deduced from George's description of Mr. Krutsinger -- "his main forte is
developing and testing systems." While a system vendor may like developing systems, he/she may not
necessarily like trading them. Everyone does not possess the discipline or the psychological makeup for
trading. The logical solution is then to sell them. Even Jack Schwager of Market Wizards fame, says in his
book that he likes doing research and creating new trading systems, but does like the actual process of
trading.

The third, and perhaps the most important reason is leverage and transference of market risk. Let's say you
have $10,000 of trading capital and a great system that makes 60% per year. Starting with $10,000 you can
make $6,000 profits in one year, if everything goes according to plan. Not bad, but don't forget the amount
of work it'll take, with all the ups and downs and trading for a full 365 days.

Now lets say you use the same $10,000 as marketing capital to sell your system. You send out 1200 direct
mail letters to a targeted mailing list of people who have bought trading systems in the past. Even with
1/2% response, you get 60 order. Now if you charge $500 for your system, you generated $30,000 revenue
or $20,000 profit, not in one year, but in a couple of months. Plus all the market risk has been transferred to
the buyer.

Furthermore, if the system vendor wants, he/she can trade the system and sell it at the same time. In liquid
markets, it will make no difference whether 1 or 1000 people are trading it. Another factor to take into
account is that if 1000 people buy a system, less than 10% will actually stick with it for any length of time.

Half will never trade it, it'll just sit on their bookshelf gathering dust. The other forty percent will abandon
it after 2 or 3 losing trades. So ninety percent of these system buyers will dabble with the system, then
tinker around trying to improve it. Finally, blame the vendor for not living up to their claims, when the
system has a couple of consecutive losses. It will never occur to them that if they have trouble making
money with any system. The problem may lie inside them, rather than with the system.

Selling trading systems is like any other business. People in other businesses sell products or services for
profit. If it is possible to make a larger profit with less risk by selling a trading system rather than by using
it, doesn't it make more sense to sell it instead?

Why Not To Select A Broker Who's A Well Known Discount Firm - Simon Campbell

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Observations on Terry Davis' note in July CTCN: Terry Davis writes about his experience with fill quality
at the brokerage firm Lind-Waldock. I think he is operating under an erroneous assumption. Namely, a
brokerage firm's use of its own salaried employees is preferable to using "outside" floor brokers.

This is dead wrong! It is always preferable to use a brokerage firm that does business with independent pit
brokers. The fact that Lind-Waldock uses its "own people" in the pits is the very reason why I would never
open an account with them.

Think about it logically for a minute .... a salaried employee is merely doing a "job" albeit a stressful one.
At best, he'll do an adequate job (why should he kill himself to get you an extra tick?) An independent pit
broker on the other hand, has a personal and vested interest in giving out good fills. His livelihood depends
on having a large deck of customer orders to fill - if he does a lousy job, the brokerage firm can simply pull
the deck away from him and give it to another independent pit broker.

Just as with anything in life, there are good independent pit brokers and there are bad independent pit
brokers. If you suspect that your firm is using one of the "bad" brokers, put pressure on them to sack the
broker (pull his deck away) and use a better one. If they are unwilling to do this, and the fills don't improve
... vote with your feet and move your account. If it's a salaried employee that is giving out the bad fills ...
it'll be much more aggravation trying to get anything done about it.

When it comes to choosing a broker, I have two golden rules: 1. The firm must only use (quality)
independent pit brokers, never its own salaried employees; 2. The firm must not be one of the well-
known/heavily advertised discount firms that cater primarily to small individual retail customers. Find a
firm that caters to mainly larger clients (this is not so well-known to the small trader) that may do a bit of
retail business "on the side." The difference in fill quality will amaze you. In trading, you have more
likelihood of succeeding if you separate yourself from the masses. The same philosophy will serve you
well, when finding a brokerage firm!

Money Mgmt Method Based on Las Vegas Horse/Sports Betting - Tom D'Angelo

The purpose of these articles is to describe a comprehensive methodology enabling the trader to construct a
practical and disciplined money management plan, specifically tailored to his style of trading.

I learned these concepts from very successful horse and sports betting speculators in Las Vegas. I used my
15-years of experience as an accountant and trader to adapt these techniques for use by futures traders.
Eventually, I developed The Manager, which was reviewed in Futures Magazine, 3/95. It is money
management software to perform the required calculations and generate the necessary reports.

To achieve long-term success in speculation, trading must be organized and managed in the same manner
as a successful business operation. This requires segregating trading results into Profit Centers ( P/C's).

Operating and managing a successful business is nearly impossible without P/C's. P/C's reveal the strengths
and weaknesses of the business. Without P/C's, the manager can not manage.

Examples of P/C's are the Chevy, Cadillac, Oldsmobile, Pontiac divisions of G.M. The bakery, meat,
vegetable divisions of a supermarket, etc.

Each P/C becomes a business which must justify its existence by producing a profit. The following is a list
of suggested P/C's for commodity traders: Chart in Print Copy

When a trade is closed, the following information is entered into the appropriate Profit Centers:

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Date of trade - Name of trade - W=Winning trade L=Losing trade - $ Profit or loss - Number traded -
Commissions

A trade may be entered into more than one P/C. For example, a long S&P trade signaled by a GET wave 3
could be entered into the following P/C's: ALL, SP, SPL, GET, GETLONG, WAVE3, WAVE3L, LONG,
CME

Each P/C is bankrolled with an initial capital which becomes the funds with which the manager must run
operations. In effect, each P/C becomes a business which must be managed and which must justify its
existence by turning a profit.

After about 20 trades have been entered into a P/C, valuable information can be learned by analyzing the
trades. This information enables the trader to master the 3 disciplines necessary to achieve long term
success in speculation:

1. Trading Methodology 2. Psychological Control 3. Money Management

In my next article, I will describe the 6 components of a successful money management methodology. I
will describe the key money management statistics which must be constantly monitored and analyzed,
including the Trade Tracker statistic which I developed myself. This simple calculation gives an excellent
indication if you are letting profits ride and cutting losses short. Finally, I will tie all the ends together and
provide a Trading Plan which I personally use in my own trading.

Each Profit Center has its own Trading Plan. This Plan is a summary of all key money management
statistics in that particular Profit Center, similar to Management Reports business managers absolutely
require to successfully manage their divisions.

The Trading Plan reveals more about your performance as a trader than any other tool. You will be
confronted with your successes as well as your failures. You will instantly identify and capitalize on trading
strengths and make efforts to minimize weaknesses. You will be managing, not reacting. You will become
more informed, disciplined and confident.

The procedures I will describe in these articles are used not only by traders, but also by very successful
speculators in the sports, horse and blackjack arenas who risk very substantial sums on a daily basis.

Hopefully, these articles will teach you how to structure a practical and sophisticated money management
methodology tailored to meet your specialized trading style.

Learning Where to Expect the Unexpected L. B. Favot - Canada

Better than a year ago, I threw a satellite dish on my house and started tinkering with real-time data and
charting software. Since this was new territory for me, I figured I'd follow my usual routine. Check my
daily charts for signals, then watch and see if the live action unfolded along my expectations. My software
has price alarms, so I entered breakouts from recent highs/lows in whichever direction I figured that
particular market then tended toward.

So what happened? More often than not, the alarms were hit and prices reversed direction quite sharply.
Had I placed orders where I placed alarms, I could've bought the day's high or sold the day's low on several
occasions and quickly lost a fortune.

This was great! Not that I could lose million$ this way, but rather the insight I gained watching how/when
certain markets made new highs or lows; will this market Trend, or Trade, (bracket) sideways for awhile?
Now I know better!

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Trading could be a spectator sport - Seeing Emmitt Smith bounce off opposing linebackers is like watching
a trade market, while seeing him dash unrestricted towards the end zone isn't much different than watching
a trend unfold. If you see how/when/where he gets the football, you might be able to anticipate the yardage
he should gain - or lose - on the play.

P&L Report on Profitable Donchian Type Breakout Method Above/Below

X-Days High/Low - David Bryant

Further comments on Donchian Systems (Clyde Lee, 7/95). I have done a lot of work on Donchian systems
using daily data from 4/83 through 3/93. The basic approach is that if today's high exceeds the highest high
of the past x days, you buy on tomorrow's open. Likewise, if today's low is less than the lowest low of the
past x days, you sell on tomorrow's open. Pure reversal system -- no stops, no exits, no delays, and the
same value for x for both buys and sells, and the same value for x for all commodities.

X is robust over a fairly wide range of values. The attached table represents the one-contract results I
achieved using a value of 40 for x.

The "Totals" in the table assume, of course, that the maximum drawdown of the portfolio as a whole is the
sum of the individual maximum drawdowns. In practice, this is unduly conservative. My software doesn't
do portfolios, but from other work I've seen, one might reasonably expect a diversified portfolio to have a
maximum drawdown of 30-40% of the sum of the individual drawdowns. (Does anyone have a better
number on this?)

Using 40% of $252,950 ($101,180) as the portfolio maximum drawdown, the total profit, excluding the
distorting effects of the large S&P and coffee contracts, was $497,600, which is 354% of the estimated
maximum portfolio drawdown ($101,180) plus the margin ($39,405). This is about 35% per annum,
uncompounded.

Every tweak I tried (stops, exits, delays, etc.) resulted in a degraded performance. Better historical numbers
can be generated by optimizing x for each commodity, although I doubt this has much predictive value. A
somewhat similar approach, but imaginatively different (and slightly superior) is taken by Keith Fitschen in
his Aberration system, which he sells for $395. Keith is a nice guy from Bearvercreek, Ohio, and I thought
his system was a good buy.

Editor's Note: According to Keith Fitschen's ad which was in this (print) issue, the above price mentioned
by David Bryant appears incorrect, or perhaps he has raised his price.

It seems to me that the question we should be asking ourselves is not whether we can torture the historical
data further to produce even better ad hoc results, but whether these markets over the next decade will
behave the way they have in the past, i.e., will their "trendiness" be sufficient to make Donchian-type
systems profitable? Or will the markets correct these profitable inefficiencies, as markets have an annoying
habit of doing? Chart in Print Copy

Advice On Keeping Real-Time Data Feed Cost Low - Simon Campbell

Simon Campbell responses to Thomas Schopen's request for information on how S&P daytraders follow
the markets (CTCN 7/95), I submit the following:

Datafeed: Perfectly adequate: DBC's Signal: Cost $355/month (month-to-month basis) for real-time quotes
(via cable) on the CME and CBOT. No initial setup costs. Cost is less if you only go with the CME. Note:
request the "International" cable box receiver, because it transmits at 19200 baud as opposed to 9600 baud
for the "domestic" box ...which can lag the market by up to 2-minutes (a lifetime delay in the S&P's).

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Unless you specifically ask for the "International" box, they will ship you the domestic box. No price
difference.

Best Datafeed: FutureSource data for TradeStation: more expensive, plus 1-year commitment needed.

Software: Omega Research's TradeStation: Cost $1,895 (the best!) Lesser cost option: "MetaStock Real-
time"

Hardware: Perfectly adequate: 486DX-66mhz, 500mb hard drive, 16mb RAM (Contact Dell Computer for
a good price) Top-of-the-line: Latest Pentium-133mhz, 1.6gb hard drive, 32mb RAM, etc.

More Comments on "You Can't Lose Trading Commodities" - Terry Davis

I became interested in Wiest's work about 12-years ago and initially dismissed it as foolish. About 5-years
ago I became re-interested and even started trading it for my own account as well as writing an article (with
Wiest's permission) in "Traders World" describing the basic premise(s). At one time, I had a string of 22
straight wins before going into a marked drawdown in equity. I don't know about your internal constitution,
but waking up in the middle of the night and thinking about all of those open losses finally caused me to
give it up. I traded his methodologies for about 2-years before I finally had enough. The methodology is
sound, but it requires more mental stability than I have to follow it.

While I think the concept is sound, I would like to take exception to his newsletter that he publishes.
During the time that I took "the Scale Trader" he constantly re-did scales while ignoring the ones that were
already open with giant losses. Apparently these past scales just disappeared. What finally caused me to
contact him and tell him to quit sending me the letter was his constant whining about someone else being
responsible for the losses. Whether it was big government - the Arabs - or gray aliens - it was always some
outside force that was responsible for the growing (and sometimes) monumental drawdowns that the
"guarantee account" was suffering. On accounts that I manage that are down in equity, it is only one
person's fault - mine. Trying to pass blame on to someone else is non-productive. Scale trading stands on its
own as an effective methodology, irrespective of the person running it. If you think you have market
psychology under control, I suggest you try scale trading.

Trading Results of My Swing Catcher Trading System

Randall Brooks

I loaded a data update disk into my computer and ran the P&L statements on the portfolio I had been paper
trading since last August . Here are the results for 9/16/94 through 7/14/95:

DM $ 6,237
SF 7,249
S&P 29,875
Gold 755
Copper 2,410
Corn 31
Wheat 4,126
Lumber 13,057
Cotton 11,745
Gasoline 4,636
Total: +$80,120

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These trades are based on the harmonic files. Additionally, the drawdowns were very low, and the number
of consecutive wins in each commodity was very impressive. Since I was using a set of static parameters,
may I assume the Swing Catcher actually produced greater profits than those shown?

For want of an extra $15,000 in my trading account, I lost out on huge profits.

Maybe next year will finally bring things around, so I can finally start making the big $$$ with Swing
Catcher. Dave, you have a great program.

I'll be in touch next spring, unless good fortune comes sooner than expected.

A Case for "Bread and Butter" Strategies - Robert Lahodny

Many contributing writers agree that every trader must develop his own trading identity. This genesis takes
time, trade concept or system experimentation, and usually painful experiences. Key in this process is
establishing the time frame and methodology you intend to focus on.

I feel all-too-often this trading identity concept translates into "traders" purchasing a system, following it
with or without discipline, and ultimately defining themselves in trading via their system. I'm of the "old
school," which believes you learn to walk before you run in market education. You must study the
dynamics of markets through continuous exposure and hard work, of course starting with the basics.

Trading commercial systems can certainly be a very effective tool in the learning process, but doesn't
complete that process in and of itself. The markets are fluid and dynamic, often changing character, and
acting "abnormal". As such, I submit that trading is a constant learning process, and a key component of
success lies in being able to accommodate changing conditions in your methodology.

However, by whatever means or time frame you participate in the markets, I feel you are at an advantage,
both mentally (by positive feedback) and financially, if you have an extremely simple pattern or method
that consistently gives you small profits (scalps). Such a trade formula can serve as a "bread and butter"
function for you, deferring the costs of doing business and keeping you psychologically upbeat. This
system is an addition to your regular trading program, only meant to supplement your efforts. Happily, on
occasion a scalp trade turns into a substantial winner. The main purpose of this article is to offer a couple
scalp ideas that have served me well, and may be a consideration for CTCN readers.

First, let me explain the theory behind the scalp patterns I am about to share with you. In essence, our aim
is to take advantage of a market situation where the consensus perception of immediate value has changed.
Accordingly, price action naturally expresses itself in reversal dynamics. The key is in the pattern set-up,
filters incorporated and immediate recognition/action.

The first pattern was introduced by Larry Williams many years ago, and I have reconciled how I use it
(filters) according to my perception of the price action of the markets. For a buy scenario, it sets up by the
market opening (a predetermined minimum amount) below the previous day's low ---- a gap lower open. If
the market then moves up to the previous day's low, a buy signal is generated. The successful use of this
simple pattern/ phenomena is dependent on your execution filters, stop-loss points, and trade expectation
(the point at which you take profits). These are variables that require adjustment according to the nuances
of the particular market you are trading. Let's walk through some possibilities together, considering daily
bars (this pattern may be used intraday).

The grain's action during seasonal speculation offers a viable trading arena for this pattern. This is due in
part to the phenomena of bull or bear loyalties often turning on a dime based on a cloud fly-by or some
such "catastrophic" event. A simple set of parameters for this scalp pattern may be as follows: (again, for a
buy scenario)

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FILTERS - 1. Take signals only in the direction of the prevailing trend 2. Previous bar must have a lower
high and lower low than the day before 3. Gap open must be at least 1-½ cents below the low of the
previous day

STOP-LOSS - Current day's low or 2 cents, whichever is greater

EXPECTATION - Exit trade by third day's close, or on any close that is not higher than the day before, or
in upper half of the current day's range

Charts are in Print Copy

Both of these patterns offer a viable means to take a little off the table on a pretty regular basis, with the
noted caveat of always qualifying these patterns with filters and trade parameters. Again, this has important
positive feedback consequence. I have found success with these patterns in several markets and in different
time-frames. I suggest readers study their markets in their preferred time-frames and see if these patterns
offer consistent scalps in their favor. For me, putting these set-ups and patterns in one or two markets is a
consistently profitable contribution to my other trading strategies. I do encourage traders to study, test and
adjust these suggested parameters to best benefit them in their trading plan.

Finally, I suggest readers devour market work by Larry Williams and Joe Ross. These guys are very long
on market experiences and insights. I believe everyone can find useable material in their works. Thanks to
Dave Green, he is helping all of us grow with CTCN.

Personality Is One of the Keys to Success - Successful Anonymous Trader

Several traits are necessary for success. Patience and discipline. You must also have the persistence of a
bulldog. Do not quit or get discouraged easily. You must also be an optimistic person and must become
flexible to change and go with the market flow.

The biggest challenge to your success is not in recognizing what to do, but actually doing it and doing it
properly and consistently.

Another area that will give you trouble is boredom. You must not just jump in the market because you have
not done anything for a couple of hours and feel like you need to make some money. This can really play
havoc with your success. Your are there to make money by taking quality trades not quantity.

Editor's Note: As you know, S.A.T. is (believed to be) one of the most successful traders out there. I have
received numerous requests from members asking for additional details on his trading methods. In addition,
many of you have asked for Anonymous Trader's address or phone number. I have been unable to supply
that per Anonymous Trader's insistence on privacy. He wrote these great articles, as he wanted to help you.
However, he wished to remain anonymous so he could concentrate on his trading without interruptions, and
also preserve his privacy.

Due to so many requests from our members as he wrote all these fantastic articles over the last 8-months, I
have been trying to persuade Anonymous Trader to go into much more detail and teach his methodology to
CTCN members. Subsequently, we are asking for an expression of interest from members as to whether
you would like the opportunity to learn a lot more on a personal level. We have no definite plans, but
Anonymous Trader and I have discussed the possibility of doing an educational seminar for CTCN
members only, to fulfill the apparent large demand for more details on this methodology.

Therefore, I ask that you please complete and return the "expression of interest" response coupon, which
appears on the enclosed separate flyer. We may be offering a seminar to you, providing we receive

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sufficient advance interest in it. So please express your interest in the idea by mailing/faxing back the form.

Moving Beyond the Limits of Omega's SuperCharts Editor - Tom Dyste

The March article by Shawn Halfpenny (P11-12) on bamboozling the SuperCharts quick editor was a
fantastic contribution! I invested in a call to Nova Scotia to say thanks, but got his tape machine. I failed to
crack this puzzle by other means, but his solution is clean and workable. A similar approach to his method
on systems can be used to expand User Functions too. Many of the programming limitations noted in the
special report on SuperCharts can be overcome using Mr. Halfpenny's technique. However, there are size
restrictions that limit overall system complexity. A system can compile fine out of the editor, but too large
to actually run on your data.

Here are some further pointers for those who desire to move beyond the designed limits of the quick editor:
The numeric variables Value through Value99 are available for assignment and reference, and need not
(cannot?) be declared.

The logical variables Conditionl through Condition99 are available too.

When your Indicator blows you completely out of SuperCharts to the Program Manager screen with no
error message or explanation, check that your indicator is not attempting to display a value outside the User
Defined limits on the Analysis/indicator dialog box. Set Scaling to Screen for debugging. Also when
systems crash similarly, in my experience it is usually an illegal value being calculated since the logic has
passed scrutiny by the editor's compiler. Inadvertent divide by zero is a dandy for this. Put comment braces
around bunches of code and keep reducing the amount in braces until you "uncomment" the offending
code, then fix it.

If you get a message that your system won't run (but compiles fine) because ".EXE File Too Big", check
first to be sure that the quick editor hasn't copied code to a supposedly unused placelike "Short Exit" and
duplicated your code there. My editor does this from time to time.

Two items I'd like to request help for:

a. What programming techniques help get the most logic into a system before the dreaded "EXE too large"
starts appearing. What things like use of variables, functions, looping, types of branching used. etc.,
generate the tightest .EXE files? What else affects this error?

b. My SuperCharts 2.0 has an OR *.WRI file in \sc2\prog that says DLLs can be used to extend
EasyLanguage. Omega is talking about DLL's with TradeStation 3.5, but what about this capability for
SuperCharts 2.0? Check out the files named OR XXX.* in \sc2\prog. Has anyone tried to use this, and if so
what results?

Finally, anyone considering purchase of Omega products needs to consider the recurring comments on
frustrations of their Tech support & documentation.

There's A Difference Between Limit-Days & Locked Limit-Days - Dale Johnson

I think some people may confuse "limit" days with "locked-limit days". My understanding is that a "limit"
day is a day in which the price of the specific commodity fluctuates, trades take place during the day and
the commodity ends the day up/down limit. A "locked limit" day is a day where the commodity opens
up/down limit, the price does not fluctuate during the day (i.e., - stays locked-limit) and no trades can take
place.

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In either case, a day trader (should) have no real advantage over a position trader using daily data as
position traders (should) always have stops in place to protect the trades during the day and (should)
review the data every night and adjust the stops as necessary.

All traders should keep in mind that even during "lock-limit" days with no trading taking place in a specific
commodity delivery month, it is usually possible to go to another month and do a spread or to use options
to temporarily stabilize a bad position until you can figure the best way out.

The only advantage a day trader would have, would be that trades would not be held overnight and
therefore, the day trader would not be subjected to gap openings. As gap openings may be either for or
against a position held overnight, this perceived advantage may not be that great.

My personal opinion is that most technical analysis methods will usually work as well on daily data as
intraday data. You don't get as much "action" trading daily data. But at year's end, I think results would be
similar if a person used the same methods regardless whether daily or intraday data were used. A great deal
just depends on the person and whether they are more comfortable trading daily or intraday.

My trading has improved quite a bit since I got rid of my "live intraday data feed."

How To Read Trading Books At No Cost To You - Rich Kuyper

In response to recent letters on the subject of trading books, their expense and varying degrees of
usefulness, it occurred to me that my own discoveries might prove useful to readers. Our library in Boulder,
CO, (and I believe, almost all public libraries) is a member of the interlibrary loan system. I discovered this
last year, and have submitted dozens of requests for books I had seen in the various trader catalogs, but
which my own library did not own.

The results? About 95% of the time, my library is able to borrow the book I want from another library in
the U.S. and then lend it to me. It usually takes no more than a couple of weeks and the service is usually
free! Sometimes, if the book cannot be located in our western region, I have to agree to pay the postage (a
few dollars) in order to have it shipped from a library in Boston or wherever. Generally, I get to keep the
book for a month.

Very current books (this year's copyright) can be difficult to get, as libraries are reluctant to lend books to
other libraries if their own readers are waiting in line to read them. Books from 1994 and back should not
be a problem.

Another great service, for those who have computers with modems, is computerized card catalogs. I live in
the mountains and it is a real treat to be able to dial my local CARL (Computer Assisted Regional
Libraries) number on my modem and browse, on my own computer, not only my own library's entire card
catalog, but the entire (this is not a typo!) card catalog of the Los Angeles Public Library system, the
Houston system or, well, you get the idea. I settle in with a glass of my favorite liquid refreshment, type in
a Word search for commodities or futures, and browse the titles of the entire trading collection of whatever
public or university library system I happen to be interested in. When I find something that looks
interesting, I write down the particulars and submit a request to my librarian to borrow it from the library
in question. It sure beats standing at the terminal in the library and it's a local call! Check with your friendly
librarian to see if these services are available in your area.

Finally, no author or publisher of genuinely useful trading books should fear the dissemination of the above
information. I have an extensive library of my own books, some of which I have purchased after first
determining their worth to me via the above methods. In any case, libraries, like free enterprise, are a
wonderful American tradition. Use them!

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 Advice From A Trader With 30-Years Experience - Max Robinson

Thanks for your newsletter, it has been very helpful.

I have tried for 30-years to trade. I have read many books and bought several systems and lost at least
$300,000 cash! Do you realize what that amount of money would have been worth, if I had been lazy and
just bought savings bonds with it?

I have felt bad, depressed and worthless because of all of these losses, because otherwise I am a very frugal
person.

My problem! I would not use stops. I could not admit to myself that I would be wrong at least 5 times out
of 10. I wanted to, and thought it was possible to make pure cash with no expenses. The secret of my
enterprise is keeping the losses small, so that you can come back and try again! And guess what! You can
only take $3,000 a year of your trading losses off of your income tax! Do you want to pay a similar price to
learn how to trade?

Yes, I am still trying. I do not want your sympathy, but I would like to warn the beginners that trading for a
living may be impossible for some people. Trading is the toughest game there is. After all, the smartest
people in the world are your competitors, and one of them must loose before you can win.

Only one person in 20 can make money at any business. Be sure to read the July 1995 CTCN article by
Anonymous Trader, where he outlines the 38 steps to becoming a successful trader. Note, he spent many
years becoming successful.

The market is like a conveyor belt, that has $1,000 bells on it, and it is passing right in front of you, but you
don't dare try to pick one of them off!

Profitable commodity trading is similar to deciding that you will assemble your own TV set, by using
component parts that you can buy from the surplus store. Only commodity trading is more elusive, because
there is no written or absolutely correct way to trade it and win every time. Profitable trading requires lots
of time and discipline.

Successful trading is not achieved by vowing that you will never make a loosing trade. In fact, this could be
your reason for failure. In order to succeed, you must be flexible enough to accept a small loss when it
occurs and stay with a profitable trade. Sorry, but a positive attitude will not replace knowing what is really
going on. Lind-Waldock Traders Catalog has a book called "The Trading Rule That Can Make You Rich",
Item No. T1328, price $23.96. This book could be a very good investment.

Info on Bruce Gould System is Hard To Get But Here's Some Info - Leonard Sinodis

I have enjoyed reading CTCN over the last several months. You do a good job. One thing I had hoped to
see was some feedback on Bruce Gould's Money Machine. I'm trying to make a decision on whether or not
to purchase. Please answer via CTCN.

Editor's Note: For a number of months several other members have also asked about Bruce, and we have
had difficulty getting much info. Therefore I wrote to Stanley Rhea, who is a mutual client. Stan's
testimonial to Bruce Gould's Money Machine is used in Bruce's advertising mailings. Stan called my office
and left the following message. Unfortunately, his reply was too short: "I use it, I like it, It works" ... this is
all I will say, and won't go into any details."

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 Member Requests

William Schoonmaker would appreciate any comments, either pro or con, from members familiar with
Advanced GET 5. 5 or 6. 0 software. Ditto Joe Rondinone's Fibbostock 2.20 software. Also, with regard to
the former, I would like to know where to write for information.

On another subject, if any of your European members care to comment on their experiences with end-of-
day or real-time data, comparative prices, reliability, etc. I would very much like to hear from them. Please
reply via CTCN, so that other members might benefit.

Answer to RWC's request from Jim Burke - I read the request from RWC on "Idea for Exchanging Books"
for the use of "Spike-35 System" by Mr. Hadam, which I would gladly send him. If you would be so kind
as to give him my number.

A.P.H. wants info on AdvanceGet. A friend of mind called me the other day raving about a system called
AdvanceGet. Is anyone familiar with it?

Special Request

I ask that you please do all members a favor by making a contribution to the next issue of CTCN. Don't
worry about your submission not being interesting or useful to Members . . . rarely is that true. Usually,
most all contributions/ submissions/articles are quite interesting and valuable to other traders, but the author
usually does not realize the actual value of his knowledge or experiences. Submissions can be any length,
long or short; typed, handwritten or submitted on a disk. Formal or informal. Please participate by sharing
your information and knowledge with other traders. Please make a contribution about your experiences,
both good & bad with systems, services, advisors, data vendors, and other trading related product. P.S. -
Remember, as a special reward for making just one contribution/submission per year, you'll qualify for a
50% price reduction off our regular membership cost on your next renewal.

Editor Comments

We received an extremely comprehensive and interesting submission from Terry Davis titled "Elliott Wave
And You". Terry sent that along with his shorter article titled "Ramblings of A Demented Trader, which
appears in this issue".

Unfortunately, "Elliott Wave And You" is 14-pages long, including seven pages of charts! It's far too long
to publish in this issue. Therefore, we have made it into a Special Report, which is available to members.

There's a similar difficulty with Kent Calhoun who has written several long contributions to CTCN which
were too long to publish. Kent wrote one very lengthy article on his difficulties with regulatory authorities
and other subjects. He also wrote an 'article' titled "Homo- Sapiens vs. Monkeys", which we were unable to
publish in this issue. Therefore, we have decided to make a Kent Calhoun Special Report containing those
articles by Kent, and some other information about Kent. P.S. Enclosed with this issue is a flyer advertising
an upcoming Dow Jones Telerate Seminar. On the reverse side is a listing of Special Reports available for a
$5 S&H charge per report.

Many CTCN members have asked over the past few years why most trading systems which are top-ranked
by Futures Truth Ltd seem to suddenly stop working once they buy it! The latest Futures Truth data will be
used to explain this odd phenomenon.

For example, the Futures Truth tables on their 7th ranked system (1-2-3 System by John Schmidt) had the
following performance: Bonds -7%, Euro +24%, Swiss Fr -56%, Coffee + 436%, Sugar -141%. (Avg Gain
+88%).

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 The 10th ranked system (Grand Cayman System by Taurus Corp.) performed as follows: Sugar +56%,
Cotton +173%, Cattle -216%, Bonds +201%, Euro -48&, BPound -36%, JYen +76%. (Avg. Gain +80%).-

In your editor's opinion, one of the major reasons the performance varies so much is due to the market itself
(not really the system) not performing well. In other words, the market patterns, trendiness, volatility or
signature was in-synch with the system's algorithm at time of testing by Futures Truth. It very easily could
be in synch due to luck or chance, not necessarily because of curve-fitting!

However, after a while (about the time you start trading it) the market itself no longer conforms to the
systems algorithm (perhaps strictly due to luck or lack thereof) and its performance degrades quickly. The
changing market signature does not have to be major. In fact, with many system's even a slight change in its
signature can seriously effect a systems performance. Sometimes the change is so minor it's not even
noticeable on a chart. However, performance may decline greatly from very positive to very negative.

It's not likely you will see much visual difference between the charts of a positive and negative performer,
with the exception being the positive P&L chart may appear to have better trending time periods. Most
systems will in fact perform much better in a good trending market, which is a major factor as the market
may have been trending well during the FT testing period, but not at the time you start trading it.

The luck of portfolio selection vs. the systems algorithm may be the primary reason why the above two
systems had such major variable performance. There's a good chance, luck may be the major factor, in the
surprisingly variable performance from market to market. This is true with many other systems.

This also accounts for the fact I talk to some traders who report they are very happy with a system, but
sometimes (perhaps the same day) someone else calls saying how poor the same system is! Keep this (luck)
in mind the next time you wonder why you are losing money, but the FT Reports show the system was
highly profitable! Note: A solution to this problem is usage of a method which ranks all markets traded by
the system, according to their profit potential. By the way, trend analysis and ranking is used by
Commodity Traders Club software. In fact, its been an important part of our system since 1990.

This issue is a combined Aug/Sept issue. Thanks to all who made contributions to this edition of
Commodity Traders Club News.

Issue 29.

Tom D'Angelo on New Money Management Method

To Improve Your Trading

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. In this article, 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 reports and calculations together into a Trading Plan which I develop for
each Profit Center. The Trading Plan is my business plan of attack for each Profit Center and is designed
for the trader who wants to attain a professional skill level in the discipline of money management.

I will be demonstrating The Manager software at the next Dow Jones-Telerate conference at the Riviera
Hotel in Las Vegas in October. If you decide to attend, feel free to stop by and I will try to answer any
questions you may have.

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I created the following nine reports for each Profit Center. 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 I will trade if I 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 Center 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 5 trades, +500, +700, +200, -
100, -600. He has a series of 3 consecutive winning trades and a total of $1,400 won in the series followed
by a series of 2 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
Management Formulas."

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 uptrending 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% foundering novices, who will inevitably go broke.

4. Pessimistic Return Ratio - Formula found in Vince's book mentioned above. Calculate after each trade
for each trade for each Profit Center. Excellent measurement of profitability.

5. Centers comparison - I generate a report which instantly compares any 4 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 4 trading systems.

6. Percentage analysis - Calculate total profits 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 2 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).

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Some Centers demand consistency in trading results, winning or losing the same amount on each trade.
Percentage analysis reveals your success or failure in achieving consistency. If you are consistent, all
percentages will be about equal.

Excellent measurement of trading performance for day traders who attempt to realize the same profit or
loss on each trade.

Portfolio construction - Sorry, I can't explain this concept in a few words. 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. Basically, I select the best of the best and put these commodities in a separate Center
(portfolio) and then establish a bankroll for that Center and then trade the Center. This ensures I am taking
trades in areas where I have been very profitable in the past. Great confidence builder.

7. Statistical Analysis - I calculate the following statistics after each trade for each Profit Center. The
statistics are eventually incorporated into my Trading Plan.

Trading Efficiency: 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

Profitability: 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
your 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.

8. 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
profitability.

Final comments: 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. 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. In my last article, I will attempt to tie everything together into the Trading Plan.

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 are close to zero.

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
"Market Wizards" by Jack Schwager.

Successful Anonymous Trader (S.A.T.) Speaks Again - Up $4,300 in 2-Weeks

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 With One-Lot Small & Consistent Wins & Nuts & Bolts of Trading

Last two weeks of trading up $4,300 with one lot only. No big killer days, just small wins and consistent. It
adds up. This is what I want to teach.

I just wanted to write a short helpful piece that deals with the business or nuts-and-bolts side of trading. So
many people (including myself) start out spending lots of time looking for the system or method that will
make them financially independent.

Few people ever get into spending and devoting time and thought to their trading organization at home or
in the office. This is extremely important to run your trading as a business. (it is one you know - not a
pastime). Very little if nothing is mentioned about this. It is important to be professional and organized.
This is also good for your mind-set. You must feel like a businessman in control. It really helps. Here's
some things I believe every trader should have and do.

• Have a morning routine to prepare for the day - that includes: a) checking your equity run to make sure
all trades, confirms and positions are accurate (you should have your equity run faxed to you each day).
Settle any discrepancies before the markets open. b) Check the markets you are trading and review last few
days' action. Just for point of reference. c) Look for support and resistance areas. d) Make sure your
equipment and quotes are working - sounds stupid, but you'd be surprised sometimes. e) Get a reopening
call. f) Relax and get ready.

• Have an end-of-day routine to close your day: a) Review your trades - did you follow your method? b)
Log all trades - keep a record. c) Have a comments/or diary setup to make brief observations on the day.

• You should have designed the following: a) Trade ticket that makes sense for you - 1 ticket per trade. b)
Daily trade log with weekly and monthly results - keep up daily! c) Monthly log sheet. d) Monthly diary or
comments sheet.

• You should also have a goals sheet listing your goals for the year and not just monetary - things like
improving discipline, patience, etc.

These things are important. I recommend reading Joe Ross's book "Trading is a Business." It goes into lots
of detail on these things I mentioned.

Also, many of you have voiced a concern that you cannot find a good broker who will execute your orders
in a timely manner, receive good fills, report back quickly and offer you good back office support on your
account statements.

Finding a good broker is part of treating your trading as a business. May you all continue to learn, improve
and increase in your success.

More On Why Someone Sells Systems Rather Than Trades It - John Piper

I was interested in the letter from George Bashar in the July 1995 issue. It makes a number of points to
which I would like to add. Firstly, he comments that we all seem to fall into the trap of listening to others.
But then haven't we been taught to do just that. At school are we not taught that the teacher is the font of all
wisdom, and if not the teacher, what about the broker or that adviser, etc. This is a thought made by Dr.
Tharp in one of his recent newsletters. But it is obvious why we behave as we do.

Now on the question of systems, I think it is easy to come up with a number of reasons why someone may
want to sell a system rather than trade it themselves. There are two primary reasons, either because that

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individual likes the intellectual challenge of "beating" the market, but does not want to get involved with
the emotional turmoil which it involves. Secondly, Anonymous Trader (S.A.T.) lists 38 stages through
which a trader passes before he meets with success. This list is going to be a little different for us all, but
also broadly similar, I suspect. However, that is quite a process. I can see a lot of sense in selling a system
rather than relying on the uncertain profits from the market.

There is also the question of personality to consider. I may devise a system that works, but it may just not
suit me. In fact, I have devised a number of systems which I have sold. But I strictly limit the number sold,
in one case to just five, another ten. Part of the deal is that I help the purchaser with any trading problems
he may encounter, i.e., try to guide him to an extent through that list Anonymous Trader (S.A.T.) produced.
Also, part of the deal is I share in trading profits that result. I believe that this structure gives both parties
the best of both worlds. Although it suits a trader who is nearer the beginning of his journey rather than
near the end.

Finally, I think one point hasn't been made in the newsletter, that trading becomes a lot simpler if you just
look to take the best opportunities. Certainly the market gives signals every day, but a lot of them are fairly
mediocre. Less frequently, it gives a strong signal and I'm finding that just taking the strong signals has a
lot going for it. Of course, with some techniques you cannot tell which is which. But using Market Profile,
for example, it becomes fairly clear when that Minus Development means something a little bit extra!

More Comments on How To Use The SuperCharts Editor - Tom Dyste

More comment on Shawn Halfpenny's (CTCN 3/95) solution to fooling the SuperCharts Quick Editor:

A. In my testing systems rewritten directly into EasyLanguage using Mr. Halfpenny's method run at least 2
times as fast as their predecessors did for equivalent functionality. So, more than twice as much back-
testing can be done per hour of computer time.

B. It is now possible to implement many system concepts that are otherwise impossible in SuperCharts.
Way more logic and conditionality can be incorporated. Pyramiding can now be done and various types of
entry and exit order types and price levels are readily combined in a single system or indicator.

C. Users can print out all the B*.asc files in \sc2\prog\ to examine built-in functions as examples of the use
of EasyLanguage like it can be used when programming a la Halfpenny. The SuperCharts documentation
offers limited help in defeating the product's programming limitations, but these examples show many valid
coding techniques.

This one tip from Mr. Halfpenny has tremendously increased the value of SuperCharts to those serious
enough to explore its ramifications. One system of mine has nearly doubled its historical performance
through an added rule that I could not program until now. Thank you CTCN for being the forum for this
kind of sharing of information.

The Methodology Showdown and Greg Meadors - Experts Not Willing To Trade With Real-Money &

Put Their Money Where Their Mouth Is - Gary Smith

There's a need to address some of Greg Meadors' comments from the last issue of CTCN regarding the
Methodology Showdown. True, I conceived the idea for this three year trading contest, but with the
stipulation that it be with real money and with the participants all trading at the same firm. I even had a
company lined up to handle this task and at reasonable commission rates of under $25. But alas, none of the
so-called experts contacted were willing to trade with real money citing the fact that $50,000 was above
their means. That alone should tell you something about these legends in their own minds. Making

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predictions via hotlines and newsletters are one thing, but never ask these guys to put their money where
their mouth is. As a result, this contest then dissolved into a meaningless paper trading match at a simulated
trading firm with the competitors trading like a bunch of crash test dummies.

The reason I resigned after three consecutive winning months, and I suppose the reason some other bona
fide trading experts refused to participate in the first place, is that it is impossible to simultaneously trade a
real money account at one firm and an imaginary account at another. Daytrading the S&P often requires
split second trading decisions, and getting your order in to one firm even a minute or two late can result in
an opportunity loss of $500 or more. Apparently this dilemma of which firm to call first wasn't a problem
for Greg Meadors and most of the others who entered the Showdown competition, since they were not real
money traders to begin with.

I'm reminded of Russell Sands and his observations on trading contests. Russell says that in a trading
contest environment, the proper gaming strategy is to maximize your short-term results by going for broke,
risking all to build an insurmountable lead over your opponents. But this type of strategy, Mr. Sands says is
not prudent or proper for those of us whose goal is to grind out a long run living out of the market.

As Mr. Sands relates, there are sometimes talented traders who win these contests, but on the other hand
says Russell, not everybody who does win these contests is a talented or prudent trader. And remember,
Mr. Sands is speaking only of real money trading contests. The all important psychological aspects of
trading aren't even a factor where no real money is on the line, such as the Methodology Showdown.

Greg Meadors really jumps on Alexander Elder's case for marketing a book about trading for a living. Mr.
Meadors implies this is a bit hypocritical since

Dr. Elder doesn't trade for a living, but supports himself by trading his books for dollars. That's pretty
strong stuff from someone like Greg Meadors who himself has never traded for a living, yet sells a home
study course on the very same topic.

Still, as annoying as Greg can sometimes be when boasting about his paper trading triumphs, it may
surprise many to know I actually respect the guy. In phone conversations I've had with him, I have found
him refreshingly honest about his lack of real money trading credentials. This is a change of pace from
most prominent vendors I have encountered who have fabricated their trading experiences in order to sell
their products. I have always suspected that Greg Meadors, just might be that one in a million vendor that
actually does possess some true trading talent. Supposedly, many of his hotline recommendations have
been very accurate over the past several years. As a result of Greg's imaginary trading performance in the
Showdown, he has been funded with some real money to trade the S&P. I for one will be rooting for him to
succeed in the real world. If he can just grind out a 30% to 35% return year after year with real money, then
he'll be performing at a rate above 99.9% of all the other CTAs and money managers.

Greg Meadors Responds to Gary Smith Re: Methodology Showdown Contest

Gary Smith states that the Methodology Showdown Trading Contest became "meaningless paper trading
match ....with the competitors trading like a bunch of crash-test dummies." In some cases, that is true. For
example, Dr. Harry Schilder who had profited $300,000+, slipped into second place earlier this year, after
holding a narrow lead for several months. When I took the lead in Feb., Dr. Schilder stated in his weekly
KWHY-TV interview that he would soon be in the lead again. However, each of his losses was followed by
a bigger trade which ended-up being a loss as he continued to short the S&P. He lost it all in two months
trading against the main trend. Commendably he lasted 14-months while most didn't last even 6-months.

Gary states that he resigned after three months because it was impossible for him to simultaneously trade
his real money account, and the simulated account, since the S&P can move 100 points ($500) in one or
two minutes. He supposes that this is another reason why other "bona fide trading experts" refused to
participate in the first place. However, the contest was not open to "bona fide trading experts", unless they

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were well-known vendors, newsletter writers, or were representing a particular indicator or methodology
they had developed.

As the sponsor of the contest advertised, "Sure they can give Newsletter & Hotline advice, but can they
trade?" The Methodology Showdown Trading contest was intended primarily for the vendors, with Gary
Smith being the only exception.

In respect to Gary's difficulty making trades at two different firms simultaneously, this was apparently a
singular problem of his methodology, i.e., daytrading breakouts. After making his real-money trade, the
two-minute delay on the simulated account apparently had a significant impact on his performance, yet he
was still profitable when he resigned after 3-months. Since the sponsor of the contest, TC&RG, provided
free space for contestant commentary in the magazine. I would have preferred to have seen Gary stay in the
contest, while commenting in TC&RG on the difference between his real-money results, and the Simulated
Account. Remember, it was Gary's idea to show the world that the "vendors" were full of hype, and
couldn't trade their way out of a wet paper bag. In most cases, he is correct, in fact, it's true with most
people, not just vendors.

In respect to what Gary attributed to Russell Sands, I would agree, in that even real-money trading contests
open to the public for prize money, etc., would have a gaming strategy of maximizing profits, risking all to
win the big 1st place prize money. However, I disagree with Gary's assessment that the Methodology
Showdown Contest did not have the "all important real-money" psychological aspects, i.e., fear of financial
loss. On the contrary, for myself and the other vendors, the "fear of financial loss" was and still is
considerable. Why, you may ask?

Each of the vendor's potential business income is at risk for at least 3-years or longer, since the monthly
results are advertised periodically in the major financial media. Those who do not perform well are subject
to losing clients to those who do perform well. For example, if you were seeking to purchase a $3,000
trading system or home study course, would you buy it from the vendors who lost money in the contest, or
from someone who demonstrated superior returns over a sustained period of time?

Also, those who trade for a living have only to trade. Whereas, the vendors might be distracted from their
trading in order to do their intraday hotline updates, send faxes, publish their newsletters, and run their
businesses. There is no prize money, and you have to pay a monthly fee to Auditrack to continue
participating in the contest. Thus, for the vendors, the potential loss in a real-money trading account would
be less than the potential loss of business income. Yes, the "all important real-money" psychological
aspects are even more intense for the vendors.

In regards to my comments regarding Dr. Elder, Gary states that I implied that Dr. Elder was "a bit
hypocritical", since Dr. Elder doesn't trade for a living, but supports himself by trading his books for
dollars. He states my comments were "pretty strong stuff", since I don't trade for a living, yet sell a course
on the same topic. Of course, I never said that Dr. Elder does not trade the markets for a living. I stated that
Dr. Elder says that he does trade for a living, but that he is not willing to provide any proof that he is
profitable, or for that matter that he even trades the markets.

Gary is correct about the fact that I don't trade the markets for a living. It is not yet my primary source of
income. I still make more money providing market timing advice via my newsletter, and trading advice via
my hotline, plus selling my home study course.

Editor's Note: Commodity traders are frequently highly suspicious as to why vendors sell their knowledge
or their trading system, rather than use it themselves as their main source of income. The truth is, it's
usually much more lucrative and easier selling knowledge and teaching others, compared to doing it
yourself.

For example, I recently listened to a speech by Robert Allen, the well-known author of the popular book on
how to buy real estate with no down payment titled "Nothing Down." Even though he is an expert on the
subject and has successfully invested in 125 properties, he admits he makes much more money as a vendor

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of the "nothing down" knowledge versus doing it himself. He also says it is easier, less time consuming,
less risky, and has far greater profit potential being a vendor of information on how to do it, rather than
actually doing it.

If you can market and sell your own product, regardless of what it is, you can make much more money
teaching others how to do it versus just doing it yourself. This is true in many diverse types of businesses,
including trading and investing. If you think about it, it makes sense why this is true...because knowledge is
power.

Remember the old Proverb "Knowledge is of more value than gold, receive my instructions and not silver,
and knowledge rather than gold." In fact, due to the tremendous profit potential trading commodities
successfully, commodity knowledge is probably more valuable than any other endeavor. This is why there's
nothing at all wrong or suspicious about someone being a vendor rather than trading full-time for a living.

However, I do manage some private accounts, and they are profitable. Unlike Dr. Elder, I am willing to
show the proof of profitability. In addition, my hotline advice has generated over $30,000+ per S&P
contract over each of the last 5-years; thus I don't believe I was being hypocritical advertising my Course as
the Professional Traders Home Study Course, with the promotional line -- Learn The Art of Market Timing
and Trading For A Living.

Greg Meadors Should Teach Us How He Won The Contest & Info On Gann - NY

Greg Meadors' recent article about Gann is very unfortunate, because by listing his name at the top of the
Methodology Showdown Contest, one might be tricked into thinking that either he or his methodology is
better than any other systems.

The "FACT" about his records and Greg Meadors' comments was published in Vol II,No 3 of the Traders
Catalog & Resource Guide. According to Greg Meadors' words --- "Gann's most valuable information was
sold in his $5,000 Master Course, the price of a house in his time."

Can you imagine charging $5,000 for a course in 1900's? Would you say one is a good trader if someone
charges you the price of a house today, around $120,000 for a trading course? Dr. Elder might be 100%
right by assuming "Gann may not have been a good trader." A good trader would not ask for other peoples'
money.

Besides, Gann was charging too much (I think). Gann made the following statements (according to Greg
Meadors) which could cast a shadow on his "ability to trade" - Gann said: "I discovered that Law of
Vibration enabled me to accurately determine the exact points to which a Stock or Commodity would rise
and fall with a given time."

Have you ever met anyone who can "accurately determine the exact points to which a Stock or Commodity
would rise and fall." ???

Is Greg Meadors tooting Gann's Mystic to toot his name or services? As for Greg Meadors' records for
1/1994, he had 179 wins and 119 loses. It's not too bad, but is it the best system around, as one may get that
impression from the way the published listing showed? Article failed to mention the starting amount.

As for Gann's methodology, the result for Gann's Methodology contestant was (-) $15,468 for the same
period (see CTCN page 2 Vol 3-8). What happened to Gann's "accurately determine the Exact Points"
system?

Dr. Elder's "Gann may not have been ---- etc." may be "correct assumptions." Greg Meadors may be
tooting his name and service by using Gann's mystic numbers, but we are lucky that he is not saying that
his course will cost us the price of a house nowadays.

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Greg Meadors said that "Yes, I am leading the contest, daytrading the S&P." Since S&P has been going up,
up and up for two years, anyone who bought at 10:15 a.m. and sold the S&P at 2 p.m. everyday could have
said the same thing. Let us stop attacking someone's assumption unless Mr. Greg Meadors himself has a
copy of Mr. Gann's monthly brokerage statements from 1909.

A better idea could be that Mr. Meadors could kindly tell CTC members how he won the contest rather
than just showing us the amount. (Editor's Note: Amen!)

Forward Testing - How To Avoid the

Dangers of Curve-Fitting - Adam White

Forward or out of sample testing is one of the few tools we have when system testing to avoid the dangers
of curve-fitting or optimization. For the purposes of illustration, say we are testing a new system over
10,000 bars of data. Typically we'd divide this data in half; call the first 5,000 bars segment A and the
second 5,000 bars segment B. We'd test the system over segment A, tweaking the parameters and logic
until we get acceptable results, then run it over segment B. If the results on segment B are not acceptable,
it's back to the drawing board and a repeat of the process: designing on A and verifying on B.

One thought is how many times do we have to go through this very same process? If we're not having luck,
would it make sense to reverse the procedure and design a B and verify on A? This way the seemingly
more difficult data gets to speak first, and the odds of acceptable results on A is higher. By this thinking,
we should always design on the more difficult data segment and verify on the easier data segment.

This main approach can be brought to the next level by breaking the data not into just two segments, but
several segments. (Assuming each segment remains large enough to be statistically significant.) Say we've
broken our data into 10 equal segments, then the above process involves designing on all ten, but verifying
or judging on only the worst performing three (?) segments.

Here we are employing a "minimax" solution: we want the worst case results as strong as possible. But is
this too strict? Perhaps there is some give and take involved. What weight we should put on the worst
performing segments versus the overall performance? If the overall performance is very strong, can we
look the other way on the few segments with less attractive performance? Anyway, hopefully these insights
and questions represent constructive food for thought.

Comments on Last Issue - Don McCullough

First of all, I want to thank all who contribute articles to this newsletter. For the most part, I know the
quality of your character through your articles and I want to say--I'm impressed.

Greg Meadors, you may be correct about Gann. There's a saying about reading books that goes: "Keep one
eye on the author." I found Gann to be a rather caustic or bitter man and that's just one more reason why I
think he was not nearly the trader he's generally thought to be. Probably the most famous trader of all was
Jesse Livermore. Edwin Lefevre writes about Livermore's trading exploits in his all-time classic book:
Reminiscences of a Stock Operator.

What most readers probably don't know about Jesse Livermore is, he lost everything more than once in the
markets. (He traded commodities too.) And, he ended his life by shooting himself in the head with a
revolver. The present day famous trader Richard Dennis said he didn't see how Livermore could be
considered a great trader since he went bust so many times. I agree, and am certain that the average reader

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of most books about the markets would be very shocked to find that many, if not most, book authors are
poor to mediocre traders and some don't even trade.

It's so easy for most of us, at one time or another in our lives, to fall into the expert trap. Most of the time it
would be to our advantage to recognize that if the "expert" writing the book or speaking at a seminar knew
enough and could be enough, he'd probably be making millions from trading and we'd probably never
know he existed. Such traders do exist and I doubt that any of them will ever consider writing a book or
speaking at a seminar.

"In the country of the blind, the one-eyed man is king." I submit that most traders are being "led" by one-
eyed people and the two-eyed people are making fortunes in the market.

L. B. Favot wrote an interesting article in the last issue. I had to smile when he said he found that most
breakouts he had his alarms set for proved false. Like Linda Raschke and other pros, I believe you've got to
be quite a bit of a contrarian to succeed in the markets. What looks bad to the average trader will often be
an entry point for the pro. What looks good to the average trader will often be an exit, and even a reversal
point for the pro.

Anonymous Trader (S.A.T.), you just keep on keeping on. More power to you. My approach to trading is
very different from yours, but I still get a lot from your articles. Keep them coming! You wrote a small
paragraph in your last article which is pure gold. It starts with: "The biggest challenge to your success..." So
very painfully TRUE !

Dale Johnson had a nice article in the last issue. I have to disagree with him when he says a person trading
daily bar charts will make as much as the intraday trader over a year's time. I haven't proven it, but I see
much more potential profits from daytrading. I wonder how many top pros can trade most of the market
turns that occur during the day? I think some of the best can do that and by doing so, they will double or
triple what the long-term trader will make. I don't recommend this as a goal for the average person. I'm
pretty sure a few top traders catch most of the tops and bottoms of each day. Consider, it probably took
them 10-20 years to be able to do that.

Max Robinson, I have a lot of respect for the losses you admitted to in the last issue. I have a lot of respect
for the general tone of the whole article. You say you're not asking for sympathy and you're still trying. I
think that's just great! In your last paragraph you talk about not wanting to take a loss and how that may be
one of the things keeping many people from succeeding. Take it from me, I fight the battle of not wanting
to take a loss (several times a day!) with my daytrading of the S&P market. I'll bet I have plenty of
company. I believe many of the main reasons traders have trouble trading their signals consistently would
fall under the heading of Stress Avoidance.

In many ways trading the markets is like life in general. In everyday life you must learn to take the bad as
well as the good. Likewise, in the markets you must take the losers as well as the winners. In both life and
the markets you must take the negatives in a proper manner if ultimate success is to be achieved. In life, as
in the markets, too much thinking before acting is counterproductive. Sometimes you simply have to jump
into the thick of things and give it your very best effort. Nothings for sure, but sometimes that's all it takes.

Cycles are Perfect - But Misunderstood

K. Turkin

The concept of Market Cycles evoke strong feelings from anyone who has tried to deal with them. Some
people swear by them, but most swear at them. Their notorious reputation comes from what we expect
them to accomplish for us.

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The word Cycle comes from the Greek "Cyklos" which means circle or ring. It represents a time period and
time only. However long it takes to complete whatever it is manifesting is the length. Several repetitions is
the rhythm or frequency. The extremes it measures is the amplitude. The relationship or starting point of
this cycle to another is the phase.

Cycles are Natures way of doing business. Everything in our universe vibrates. Our senses and sensitive
electronics pick up these oscillations. This spirit energy combines with other cycles to form all that we
know. Therefore, everything is the same but of different scales or octaves. Cycles are perfect...almost.
There is just enough of a deviation to cause change. If not, there would be no growth or evolution and
devolution. The causal element of cycles is not being discussed here. That's like talking about religion or
politics. What is important is their effect on us whether assumed or real.

Market cycles found on charts are first sensed or felt, then identified and quantified. A big problem for us is
that they do not repeat every time to the Nth decimal point, nor do they turn on a dime. A day is a day, but
how many are exactly 24-hours long sunrise to sunrise. Night doesn't turn into day in a second nor does
spring immediately become summer on 6/21.

All markets are the sum total of the different groups of people attuned to different cycles and should be
analyzed as to their various contributions. The same natural laws of attraction and repulsion cause us to act
with compulsion to trade the way we do as individuals and yet leave our mark on a chart as part of some
group. Just like trying to judge a book by its cover will not help identify the finer details inside, neither will
analyzing a chart in its totality offer any insights relating to specific internal future moments. When looking
at any chart (stock, commodity, etc.), the data available determines the largest cycle either by appearance or
its effect. One consolation we get from Nature, is that the bigger cycles will tell you where the smaller ones
must go and the smaller ones will tell you where the larger ones are going.

We live in a multi-dimensional world. Our perspective of the cycle or actually the effect it has on us is not
flat. Imagine a spinning bicycle wheel going around and around. Walking in front of the wheel has not
changed the time required to make one revolution. Our view of it has changed, now it is up and down. The
same holds true for some effect it might have on us. Tilting it on an angle also changes the size or the
appearance of the wheel's top and bottom.

The data which makes up our cyclic composite on charts or screens should be analyzed carefully. By the
time we see it, its purity has already been tampered with through vendors, broadcasters, price reporters and
other human conditions. How accurate is measuring the depth of bath water while standing in the bathtub?
Exotic filtering and over manipulating the data removes and distorts the essence of what we're looking for
in the first place.

The love-hate relationship we have with cycles is based on our assumptions. As convenient as we would
like them to be, our expectations are unrealistic. Nature and her cycles are fine. Their effects can be
counted on. When there is human intervention and analysis of the effects on people is being done with
dollar oriented motivations, the correct solution becomes difficult. It seems ironic that the same
understanding and respect mankind has shown for Nature shows up in the markets where people are quick
to blame their losses on those damn cycles that don't work right.

Protection Is Needed for Both Buyers & Sellers & Feedback on

Bruce Gould's Money Machine - Robert Meaders

This problem may have been discussed before I became a CTCN members. We badly need some method of
protecting the developer of a system, and the purchaser of the system. If the developer discloses the system,
it is lost. If it is not disclosed, the buyer is buying a pig-in-a-poke.

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The trouble with Futures Truth is that they also sell to traders. Someone completely independent would be
of great value. I wish the CFTC would back-test systems that were submitted and publish the results,
without comments. If a buyer wished to purchase a system that was not submitted for tests, it's his risk.

I purchased a system which contained material that I did not like. Without making a single trade I tried to
return the system. I could not get the seller to agree. I finally received a letter from an attorney stating that I
had never submitted the agreement. I had not even noticed the agreement which was imbedded in the
manual and could only be removed by tearing it out. The buyer should have a right to see the agreement
before he sees and buys the system. Any system costing more than a couple of hundred dollars should have
an electronic lock. When he returned the lock he could not use the system.

New traders should understand that there are as many commodity fiction writers, as there are fiction writers
in Hollywood. Even Larry Williams, who everyone knows is a most successful trader, misnamed his book:
How I Made One Million. It is a book I would recommend to any novice, but it does not say that he bought
one million bushels of totem pole nuts on Jan 1, why, where he placed the stop, why, and why he closed the
position on July 4. If all his trades had been so listed, then the title would not be misleading.

I noticed inquiries about the Money Machine. Three of the first four signals that were triggered failed
immediately, after I learned of the system. The commodity in the fourth had made approximately 70% of
its move before the signal fired. Several months passed without a comfortable signal. Then a signal failed
almost immediately. The system is based on a movement that was used by traders when Bruce was still in
swaddling clothes. He does introduce a filter which is of value. There are a number of variations of the
filter which may be better, or worse, depending on the circumstances.

Joe Severa on Greg Meadors and Others

I don't know Greg Meadors, but for such a successful trader, why does he lower himself by blasting a non-
trader. Jack Schwager is a non-trader and states clearly that he likes research and creating new systems, and
Mr. Meadors isn't all over his case. I don't recall Dr. Elder's claiming he is a successful trader, do you? Mr.
Meadors first agrees with Robert Miner's logic and then asks about '94 performance. Let him get '95 or the
summary of traders advice Mr. Miner gave subscribers to Commodity Trend Service until he was discreetly
dropped, as was Kent Calhoun, from this service.

I loved their charts, but Messrs. Miner, Calhoun, VanNice, Robert Burg, etc. Interpretation of these fine
charts drove me to my own satellite system. Their mechanical trend-setter program put them all to shame.
But the system has no money management filter and gives back too much hard earned gains and has
cumulative losses in corn, beans, coffee, bean oil, the entire meat complex, gold, platinum, heating oil, Br.
Lb. Most of these contracts were profitable earlier, but who can own or portfolio 40 some odd contracts and
get the return this system claims yearly?

A. C. Moore with his seasonal ag spreads did better than any of the other "experts" and isn't that odd? He
uses many spread trades, which reduces his chances of making a killing on any given trade.

Too many people look up to the Soros', Roger's and even Jesse Livermore, who died broke and suffered
other severe losses in his career. Everyone embellishes their wins and plays down their losses.

I believe Greg Meadors daytrades the S&P 500 only and that on the face of it, is risky. Soros made a killing
in the British Pound, and now and again gold or some other singular market. When he lost over a billion
dollars of clients' money, he had the nerve to tell members of Congress that he didn't understand derivatives
either. Huh?

Did Congress explore that pronouncement further? That body is an embarrassment.

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Sure trading for a living is possible, but how many of us have the skills, guts and ability to pull that trigger
and take those losses? Less than 10%, some say 5%, but it surely isn't common.

Most plungers lose eventually and if Mr. Meadors only trades the S&P, he'll find that out when least he
expects it.

An Easy to Calculate Oscillator

Joseph Stuermer

A lot of trading systems are usually making use of an oscillator of some kind, at least once in their system
logic, mainly for detrending a price curve.

Just for the record, as most of the members will know, an oscillator curve will move forever between a
positive value and a negative value, depending on the price volatility of the commodity being monitored.

There are really a great number of different ways to calculate an oscillator. I would even consider Welles
Wilder's Average Directional Movement Indicator and also the RSI as types of oscillators.

The most common type of an oscillator is usually calculated as the price of a commodity minus the moving
average of the Commodity.

Oscillator=Price - (Moving. Average of the Price)

Therefore, in order to obtain the above mentioned oscillator, one has to calculate the moving average of the
price first and then deduct it from the price.

Calculating such an oscillator with a computer, is of course no problem at all, but 30-years ago when I
started out in this game, there were no personal computers available, because they were still waiting to be
invented.

Calculating a moving average oscillator then, was a time consuming affair. For me it was a problem in
search of a solution.

After a lot of experimentation, I finally came up with my quick and dirty "JS Oscillator" I which was easy
to calculate, had little lag and was very responsive to the changes in the price curve.

I have no idea, whether the JS Oscillator conforms to all the mathematical and scientific principles, but it
has been very useful to me, for many years.

Having read a great number of books about futures trading in the past, I have never come across the
methodology of the JS Oscillator before. If members have heard or seen it before, I would encourage them
to share it with us in CTCN.

Here is how to calculate the JS Oscillator:

1. Set the decaying factor ALPHA to .9=90%

2. Set the first day's oscillator value to zero and start with the calculation on the second day.
3. Add today's price change to ALPHA times yesterday's oscillator value.
4. Repeat step 3 for every subsequent day. That's all.

Chart that follows is in Print Copy

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The decaying factor ALPHA to be used, will depend on the commodity and the time interval being
analyzed (5-minute, hourly or daily). It will usually range between 0.80 and 0.98 (80% - 98%).

Anyone with a computer can calculate the JS Oscillator with the very simple Basic program below:

120 DIM PRICE(500)' JS OSCILLATOR

140 FOR I=1 TO 500: READ PRICE(I): NEXT I
160 ALPHA=.9
180 FOR I=2 TO 500
200 OSCIL=PRICE(I) - PRICE(I-1) + (OSCIL * ALPHA)
220 PRINT OSCIL
240 NEXT I

A Very Negative Opinion of DBC Signal by A 5-yr. User - George Moldenhauer

I would imagine that there might be a few of you that are using real-time data to trade . . . as am I. In fact, I
have had real-time quotes for more than 14-years. Wouldn't you agree that real-time data should stave to be
as flawless as possible?

Currently I am with Signal which I have been with for over 5-years. Unfortunately, they don't seem to
value that long term client relationship. I would have to say that their service was never the best, but of late
it has become unbearable. As I write this letter, I am on hold with their self-proclaimed customer service
department. I was on hold with them for more than 25-minutes while one of their skilled technicians
attempted to find the answer to my question (I have a timer on my phone which I pay close attention to).
Rather than answer my question, they simply hung up the phone! This after making me wait for more than
25-minutes.

Since there have been changes in the trading times of many markets, I have experienced nothing but trouble
and frustration with this organization. As you probably know, many markets now have an after hours
session. Some of these markets (bonds, metals and currencies) open for business before the close of
business of some other markets (S&P). The problem arises when these markets reopen before my program
has had the chance to up date the data for the day. My software updates the daily range once per day by
capturing the data on the screen. Now, I can't get complete charts for all markets since there is never a time
when all markets are closed for the day.

When I address this problem with the service reps, I am lead to believe that I am the only one experiencing
problems. They are completely unreceptive to the needs of their clients. When I call the customer service
line, I usually pack a lunch and prepare to wait for up to an hour just to get them to answer the phone. In
addition, the service department opens at 5:30 a.m. Pacific time. . . .

10-minutes after the Bonds, currencies and Eurodollars. If there is a problem, it usually can't be resolved
for quite sometime after the markets' trade.

I've had it with the poor service, unreliable data feed and the arrogant attitude that the entire organization
has. If you, are considering a quote service, I urge you to look elsewhere as I am now. The Signal people
also provide the QUOTREK handheld service. I would like to hear soon from other members that use real-
time data. I want to make a change immediately, but would appreciate input from other members first.
Please call me by phone or FAX at 801-647-9478 as well as sharing your experiences with other members
via this publication.

The Psychology of Successful Trading

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 Part I - Kent Calhoun

At our 1995 KCI seminar, I asked attendees why they were attending the seminar. I stated if they thought
the answer was to become a better trader, or to learn to make more money, to think again on a deeper level
of understanding.

Most people attend seminars to pursue their goals and feel better about themselves. Many traders are
dissatisfied with certain aspects of their lives, yet believe by obtaining valuable trading knowledge and
taking action, they may improve the quality of their lives. Once traders become aware of why they are
trading the markets, their attitudes become more positive as they increase their levels of acceptance to new
ways of trading.

The Importance of Attitude - In the Webster's New World Dictionary the first definition of "attitude," does
not mention "one's manner of acting, thinking, and feeling that shows one's disposition." The first definition
is "the position or posture assumed by the body in connection with an action, feeling, or mood etc."
Webster's implies that a person's actions and body posture expresses his attitude.

A person's attitude is the way he looks at life, and this is reflected in his actions and beliefs. People who
believe life and people are basically good, have a positive attitude. The opposite applies to a negative
attitude. How is your attitude? Your answers to two questions will define your attitude. How is the world
treating you? If your answer was "good," then so is your attitude. If your answer was "okay," or you took a
while to answer, then your attitude is about average.

If your answer was "badly," here is another attitude question. Do you expect good things to happen in your
life? If the answer was "yes," then your attitude is good. If your answer was "no," then you should
definitely not trade markets. There is a strong correlation between expectations and results. If you expect
negative results, then that's exactly what you will get.

A person who expects negative things to happen in his life has a losing attitude, and is labeled a pessimist.
Instead of dwelling on the future opportunities for success, the pessimist looks to his past failures as
justifiable excuses for not making an effort to move forward with his life. The worst psychological aspect
of being a pessimist is that the possibility of positive behavioral change has been eliminated.

To the pessimist, a glass of water is half empty, but to the person with a positive attitude, an optimist, the
glass is always half filled. The optimist expects good things to happen in his life, because he is willing to
take responsibility for the events that occur in his life. The assumption and acceptance of personal
responsibility is the key difference between optimists and pessimists, and between successful and
unsuccessful traders.

A positive attitude does not guarantee success, but little success in life would be achieved without a person
believing in positive results from their efforts. A positive attitude finds opportunities in the midst of failure,
and is considered to be the psychological foundation from which all success is possible.

Think about this for a moment. Do people attempt to achieve goals they absolutely know they can not
achieve? Or do people attempt to achieve goals they believe are within their ability? A person's probability
of success is directly proportional to the belief in his own abilities.

Expectations create attitudes. When the nation's 100 largest corporations had their CEO's list the
psychological characteristic they felt most responsible for their success, 93 of them placed the word
"attitudes," as their first selection. High levels of peak performance and positive attitudes elevate one
another to even higher levels, but the positive attitude usually preceded the actions.

The Cosmic Law of the Universe- There is one immutable Cosmic Law of the Universe, that has many
different applications, "for every effect in life, there is a cause." This is sometimes called Socratic Law,
since it was observed by Socrates over 400 years before the birth of Christ. The Bible recognizes this law

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as the "Law of Sewing and Reaping." It is recognized in physics as Newton's Second Law of Motion, for
every action there is a corresponding reaction. Ralph Waldo Emerson called this the "Law of
Compensation," given in his essay with same title.

Cosmic Law states we live in an orderly universe, which has specific laws that lead to success. For every
effect there is a cause or series of causes that preceded it. If a person wants to achieve a specific effect, the
individual needs to institute the causes to achieve the desired effect.

The Law of the Cosmos applied to individual psychology and trading states, "thoughts are causes, and
conditions are effects." Winning and losing, and success or lack of it, are direct causes preceded by
actions, or inaction's, which were in turn preceded by thoughts.

Expectations define attitudes, and attitudes dictate actions for any given set of conditions. Success is
basically knowing what trading actions should be taken in any set of technical circumstances, and
developing the iron-willed self-discipline to take those actions.

By the way, Socrates believed an idea could change the world, and taught this to Plato, who was the teacher
of Aristotle. (Fortunately, Plato wrote down the teaching of Socrates, who never recorded his lessons.)
Aristotle was the teacher of Alexander the Great, who conquered the world.

The Four Steps to Trading Success- Only one person can give you success, and that is you. The most
difficult step to success is the first one, which is total commitment to achievement of a specific goal.
Commitment to achieving a specific goal is 51% of all trading success. It is very important for each person
to decide what, and why and when a person wants to achieve any goal before making any commitment.

The second logical step to successful goal achievement is to acquire the education necessary to obtain the
goal. Doctors go to medical school, attorneys go to law school to receive the education necessary to
practice their trades. Successful traders must seek out educators, and try to learn from their instructional
presentation of materials.

The third step is what Einstein labeled the most important step to achieve success - action! "All the
knowledge in the world is useless without the ability to take action," as Einstein pointed out. Step three
applies the knowledge obtained in step two to real world situations.

There are two kinds of trading 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 examines 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.

Summary of Part One- Traders have learned the value of a positive attitude, and how important it is to have
a game plan to achieve trading success. This presentation on the basic psychology of successful trading
may leave the reader with the false impression that achieving trading success is an easy process. Not so.
Unfortunately, three powerful negative emotions stand in the way of successful trading; fear, anger and
guilt. These deeply internalized and intertwined emotions undermine trader's development of self-
discipline, a vital necessity for trading success.

General George Patton stated, "a warrior's greatest asset is self-confidence," this comes from self-
discipline. Understanding how the three negative emotions relate to trading, and managing their negative
effects, so self-discipline may be achieved is the subject of Part Two.

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 Should We Organize A Book

Exchange Library? - RWC

I have found a version of the Colver System, termed the "Modified Colver Method", in Charles Patel's out-
of-print book "Technical Trading Systems for Commodities and Stocks," and I enclose a Xerox copy for
you. I still have not found the Spike-35 System, and I don't have a catalog for Windsor Books.

In his book, Patel outlines in very brief terms the mechanics of 87 different systems. But unfortunately he
does not evaluate them nor give the results of any test runs, probably because the book was printed in 1980,
which was before personal computers began to be widely used for that purpose. My local public library
obtained a copy of the book from the Orradre Library, University of Santa Clara, Santa Clara, California,
fHG, 6046, P37, on interlibrary loan.

Do you by any chance happen to have a copy of the book "The Taurus Method" by Michael Chisholm?
John Hill, in an early issue of "Futures Truth," mentioned that this work contains an excellent section on
stops, which suggests ways in which various types of stops can be selectively used for best results under
various market circumstances, and I would like to see what it says. The book is apparently available only
by purchase from Mike Chisholm, and it costs $75.

How many $50, $75 and $150 books does one have to buy in order simply to browse them for new ideas? I
read them once and then, except for a few standard reference books, they end-up on a shelf somewhere
forever. We need a lending library for commodity traders. If you have this book in your own library, would
you favor me with a call, please?

Editor's Note: On the surface, this sounds like a great idea. Members lend others their books rather than
spending money buying them. However, some authors and trading book vendors would not be happy with
that arrangement, as it may detract from their sales. Subsequently, they may be less likely to put in all the
effort required writing and marketing new books. After spending a great amount of time and effort writing
a book, the authors believe the book should be purchased so they receive some income from all their
efforts. Commodity books are very specialized and different than most other library books. They are also
sold to a limited size small niche market. That's one of the reasons you see very few of them in public
libraries.

Daytrading - Week #1 - Don E. McCullough

Perhaps you're wondering what's with all these articles coming from me in the past few weeks. Easy. As I
told you, I am now a free man daytrading for a living. Attempting to at least. Got more time on my hands
than I've had since preschool. The freedom and extra time are wonderful while the daytrading is a struggle.
I'm confident once I begin executing consistently all things will be wonderful!

I've just completed my first week of (serious) daytrading and have made a grand total of 7 trades. Had I
taken all of my good signals, I might have averaged 7 trades per day-and I would have made a good deal of
money for a week's work.

The S&P market is intimidating to the newcomer and I'm not ashamed to admit it. My last trade was my
best one that I entered, took a small loss, and then reentered about 2-minutes later and that caught the top.
By best, I mean most difficult psychologically. I mustered the courage and "got right back on the bucking
horse!"

It was a week that reinforced the validity of my signals, but was riddled with my indecisiveness to trade
them. I expect daytrading the S&P will take some adjusting to, to an extent I would not have previously

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believed. Being too hard on myself is not the thing to do, while facing all the facts most definitely is.
Decisive action and/or consistent execution is really where it's at, providing your entry and exit signals are
truly valid

Another thing that didn't help was the very slow reporting of my offset orders. Can you believe having to
wait as long as 18-minutes to get an offsetting fill price from your broker? (Rather, order taker.) The S&P
market can move $1,000 or more per contract in 10-minutes. I may have to search out another brokerage
firm.

These order takers tell me that the more experienced traders use at-the-market orders for both entry and exit
of their positions. By doing so, they say you then will get a "flash-fill" and will thus not have to hang-up
the phone before getting your fill price. Well . . . already I've seen where they cannot supply these flash fills
in a fast-moving market. Makes good advertising copy though.

I complained about slow reporting of my fills and got moved to another trading desk, but I'm not sure
there's been any improvement. I found out if I did a lot of trading, I might be able to place my orders
directly to the floor. There the order taker gives the trader in the pit your order with hand signals. Of
course, if you buy a seat on the exchange, then I expect there's more angles to placing an order than you
could shake a stick at! And, your commissions would drop to a very low (I forget exactly) 2-3 dollars per
trade. I am sure this would vary from exchange to exchange?

Since trading and studying the markets, it has been said, to be a rather lonely business (for many) I believe
newsletters such as this one affords the reclusive trader a means to "socialize at a distance."

Love Being a Full-Time Trader From

Home - Paul Ryan

It is great to have a forum like yours, especially for one who is striving to be a successful trader whose life
and well-being are really on the line trading everyday. I can't share any great easy secrets, but I'd like to
share some thoughts and perhaps a path with the potential to introduce you through your desire and hard
work to someone who can help you.

I'm approaching my 50th birthday. After 22-years working night and day in the fine dining restaurant
business, which I loved, realized after a divorce and children I never knew or saw, that there was more to
life. Having been an investor for many years, I began to think about becoming a full-time trader. I was
fortunate to meet a wonderful woman who has encouraged me to become the best that I can be. We have
beautiful twin girls now and two years ago after a lot of soul searching.

I took the plunge to working alone. No employees, no customers, very little contact during the working day
with anyone. I love it as I'm sure you do. The decisions we make are totally our own whether we win or
lose, we learn and hopefully grow. For years I have bought and read many books, magazines, etc. As you
have, we all search for the so called "Holy Grail" and stay within our comfort zones, never realizing
greatness because we don't step out.

Back in February, I spoke with Kent Calhoun of KCI Seminars. During our conversation there were many
chords that rang a bell with me, both from a trading perspective and on a personal level. At the time I was
trading the S&P on a one lot and scared from all the dues and tuition I have paid while trying to maintain
my family, Kent has always been compassionate, understanding and sincere and immediately offered me a
lot of personal insight.

I purchased his work and after these many months and still amazed that he shares his life's work and love
for so little in terms of dollars. I could not produce so much truth and knowledge in two lives. It is
overwhelming and I am ashamed that I can't honor him by being a supertrader yet. He has given me a sense

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of order to the market which my mind could never have imagined. I know that how I use his shared
knowledge depends upon my own psychological strengths and weaknesses.

I encourage any and all of you who still struggle in darkness and can't see the proverbial "forest through the
trees" to call Kent and find a mentor who both professionally and spiritually is a human being that lives a
life based on truth that is absolute. He is truly the epitome of the qualities that life has implanted in all of
us, but few have achieved. You will have the opportunity to uplift the life you love to levels that you never
expected.

I would publicly like to say to Kent, thank you for sharing the results of a life that will long be remembered
and that I will strive to put your effort to work in my own life, both professionally and on higher human
plane. The best is yet to come for all of us.

Sometimes You Have To Give Back Part of Your Profits - Dr. R. Bunshah

Bruce Kramer raises some interesting points in his article on "About Market Structure and Simple
consistent trading & Five Vertical Bars." 5 VBTP is certainly an excellent technique. However, as is stated
at Kent Calhoun's seminars by the professor himself, a lot of the profits are given back. Therefore, I would
be very interested in hearing Kramer on money management, stop placement, psychology etc., but more
importantly on methodology for profit taking. So, I await further writings from Mr. Kramer.

Candle Power Anyone? - George Campbell

Since subscribing to CTCN this year, I have found it most informative and enjoyable reading. Of course,
not all of the submissions I can relate to directly. And some touch software or trading plans I am not
familiar with. But on the whole, it is refreshing to hear from the "doers" instead of the "teachers."

I have been trading for about 5-years and have enjoyed a modicum of success. From my perspective, the
most essential rule the new trader must learn, practice and never violate, is sound money management. For
me, that means I never risk more then 5% of my trading account on any one trade. That one principle
allowed me to make at least (if not more than) my share of mistakes early on and survive. And all those
mistakes were great, ego deflating lessons that are long remembered.

Since I started reading CTCN, and judging from content, there seems to be a shortage of "option" traders
making submissions. I know as my trading style has developed, I find that about 90% of my trading activity
is in options. And that brings me to the subject that prompted me to write.

I use FutureLink, OptionVue IV and 6-months ago purchased Candle Power 4.5 (version 5.0 has just been
released) from North Systems of Salon, Oregon. I have found it to be a very useful tool that is easy to use
with a lot of potential. It can be used to trade any market, but I would very much like to hear from anyone
using this to trade commodities.

Don McCullough wants the Following Information from Bob McGovern

1. Buffer that eliminates bad ticks

2. His real-time data source. 28,800 baud?

I just found out the newest MetaStock real-time program and the international receiver provided by Signal
can double my present real-time baud rate. From 9600 to 19200. The less the delay the better when you're
daytrading the S&P.

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I have ordered this latest MetaStock real-time version (4.52) and already have the international receiver.
Also I had to switch from C-Span to CNBC. C-Span does not transmit the faster baud rate.

The data I receive appears on my screen about 30-seconds after the floor traders see it. This is not a well-
tested number and I determined this by asking my order taker in Chicago to give me S&P quotes and
waited for that number to appear on my screen. This was during a very slow S&P market on Sept. 7, when
traders were rolling over to the Dec. contract. In a faster market, the delay might be as much as a minute or
more.

Someone in a recent article mentioned that the delay might be as much as 2-minutes. That's terrible. I can
tell you for sure that most of my signals must be taken within 1-3-minutes. Giving traders delayed data
that's sold as real-time shows a lack of ethics on the part of the vendors. Especially so when you consider
the high price of such data.

In fairness to the data vendors, I do think they are trying to narrow the time gap between when the quote is
seen by the floor trader and the average trader sees it on his screen. I would like to see this gap narrowed to
just a few seconds. Of course, I'd like no gap whatever, but we all know even the speed of light requires
some time.

Information on Bruce Gould's Money-Machine - G. M. Sun

This money-machine costs $2,500. Mr. Gould said it was the one method which stood out above all the rest
in his 28-years of commodity trading experience.

His basic method is 1-2-3 price patterns and breakout patterns. He is the author of the following books: 1.
How to Make Money in Commodities: The Successful Method for Today's Markets 2. Dow Jones-Irwin
Guide to Commodities Trading 3. The Greatest Money Book Ever Written.

Options & Spreads: the Business, the Profession, the Sucker-Trap - Greg Donio

A cloudy afternoon in Manhattan. At Minerva's art studio the model Barbara arrives, a brown-haired Venus
in blue jeans. She chats with us--artists, students, hobbyists such as myself--in a tiny accent that hints an
Italian cathedral town. Then she doffs her clothing, strikes a pose, and becomes Aphrodite on the misty
shores of Cyprus.

During a break, I stop trying to be the ink-sketch Botticelli momentarily while art studio owner Minerva
Durham lets me use her business phone to call a broker's 1-800 line. I doubt if I would qualify as a
Renaissance Man, but I try to give attention to both the fine arts and the gold florins.

"Your option spread order was executed," he says. "You sold 10 April 70 calls at 2-½ and bought 10 June
70 calls at four." He mentions the underlying stock, the option symbol, and the point-and-a-half debit that I
required iron-clad when I phoned in the order earlier that day.

On the same day, I both bought and sold out-of-the-money call options on the same stock. The June's I
bought being "richer in time" with more months until expiration than the April's I sold. Also more
expensive due to time value. Buying $4,000 worth (four points times 10 calls) and selling $2,500 worth (2-
½ points times 10). I paid only the point and a half debit or the $1,500 difference plus commissions.

This was a "horizontal spread" using call option contracts on the same stock at the same striking price (70),
but different expiration dates, a couple of months apart. Whether or not I would enjoy a profit would not be

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known for at least two or three weeks. But the odds favored it by more than 90% because of that important
"going in" bottom line: $2,500 of somebody else's money and only $1,500 of my own!

I live a do-what-I-want life, poring over musty volumes on the Kingdom of the Two Sicilys or the life of
Verdi, then checking with the broker via the library phone booth. I take a college course in archaeology at
the New School for Social Research and Finance & Investments at New York University.

After one class, NYU professor of finance and floor-trader Rich Bensignor remarked to me, "The way you
make your living, you must spend your day glued to a computer screen." "Not really," I replied without
elaborating. No need to mention the ink-sketch Dianas and exquisite brook-naiads from Deer Park or New
Rochelle.

Almost as much as any Greek temple or Roman pantheon, the Mercantile library on Chestnut Street in
Philadelphia stands brick-firm in my memory even though it was demolished years ago. In its business
section, I first read about "spreads" and "spread strategies." I use them with stock options or equity options,
but they can also be used with futures options and futures contracts themselves.

The substantial advantages of spread strategies include the following:

1. The likelihood of a profit is over 90% as opposed to over 90% losses when options and futures
are "played long."
2. You "make out like a bookie" in that you use plenty of other peoples' money--amplitude that
sweetens the pot.
3. Other peoples' money cushions and shields your own investment capital when markets, portions
of markets and individual stocks and futures contracts become tempest-tossed. Bob McGovern wrote in
CTCN (2/95): "I don't have to figure how much my short October is making or losing, or calculate how
much the long April contract is making or losing. All I have to check is the difference in price between
the two contracts." Thus the spread strategist can be seen relaxing while financial cyclones wreck other
traders' money and nerves.
4. There are at least two ways to profit, one of them termed "time-decay." Being closer to the expiration
date, what you sold (short-end) shrinks faster in value than what you bought. Your investment is in the gap
between them, what McGovern called "the difference in price between the two contracts." The widening of
that gap means your vein of gold becomes broader.

With time-decay, you use "the ravages of time" as a force to swell bank accounts.

The second way to gain is a switch to the long position. Let us say that an underlying stock or futures
contract rises to the "striking price" level of your horizontal call option spread or descends to the level of
your put spread. You buy back the short-end and let the long-end remain. According to trend theory, that
underlying security has "broken through a barrier" and will probably continue in that direction. Such a
continuation increases the long position's dollar-value.

Some spread strategists wait until the underlying security passes through the striking price and into the
money before they buy back the short-end. I close out the short-end when the security "touches" the
striking-price even though it is not yet "in the money." The continuation failed to occur only once and
succeeded more times than I can count. Delaying the buy-back would have meant more cost and therefore
less profit because the continuation--Bless it!--swells the short-end while beefing up and fattening the long.

Remember that American-style options can be exercised at any time, unlike the just-before-expiration
European ones. Buy back, close out any in-the-money short positions fast! Also, when following trends,
remember a statement by Nicholas Darvas: "There is no such thing as "can't" in the stock market. A stock
can do anything!"

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Due to space limitations, this article contains only bits and pieces of information on spread strategy. This
form of trading offers plentiful profits with amazingly low risk, and the use of other people's money while
they take the big risks. But read and learn you must, and in no small depth.

Several excellent books suitable for this purpose will be named shortly. Apply their instructions wisely and
you will make a mental shrine of where you first read them, as I have with the Mercantile Library and
earlier books on the subject.

One text earns mention right now--Wasendorf & McCafferty's All About Options, because on page 149 it
contains the following combination checkered flag/warning flag: A negative personality rarely earns profits
consistently. They are usually attracted to options for the wrong reasons--to make a lot of money fast
without exerting much effort. Therefore, they don't spend the time required to learn some of the more
complicated strategies that are more conservative by comparison.

Spreads stand prominently among the "more complicated strategies that are more conservative by
comparison."

The minimum needed to become a trader in stocks, futures or options is low: A checkbook and enough
mental competency to sign a few papers. Little more than the requirements for a racetrack sucker! People
are "attracted to options for the wrong reasons--to make lots of money fast without exerting much effort.
Therefore, they don't spend the time required to learn." Did you ever read a more concise description of an
empty-pocketed horse-player?

It brings to mind a book not about investing: Magic in the Modern Manner by stage conjurer Cecil Lyle, in
which he devoted a chapter to a stand-out card trick. He wrote, "Many will stop reading when I say you
need four double-faced playing cards for this effect. Many others will continue reading, but will not bother
to obtain the necessary items from a magic dealer. A few will take the trouble, and they will possess a gem
of card magic."

What a lament! How fed up he must have been with would-be Houdinis who craved spotlight and applause,
but got lost when it started requiring effort. Not restricted to conjuring, this ilk teems in the financial world,
comprising the "sucker trade" at many an exchange and brokerage office. It's easier to write a check than to
develop one's brain and know-how.

For those willing to devote professional-grade time and effort toward trading and options and strategies
theme books possess locked vault value: Sure-Thing Options Trading makes the honor roll on both the
basic and the sophisticated levels, authored by George Angell. Outstanding is the word for David L.
Caplan's The New Options Advantage; it deals with futures options, but its techniques also apply
excellently to equity ones.

All About Optionsby Russell R. Wasendorf & Thomas A. McCafferty has already been cited, but it
deserves a second mention and a third. Allan S. Lyons' Winning in the Options Market and Harvey Conrad
Friedentag's Investing Without Fear--Options, should both be required reading, gunpoint compulsory
maybe. Too little has been written about the worthwhile long-term options, but thankfully there is the
loaded-for-bear-and-bull LEAPS--Long-Term Equity AnticiPation Securities by Harrison Roth.

I have detoured around books that are calculus-heavy. Physicist-turned-Wall-Street-broker, Basil Venitis
told his NYU finance class that information contained in obtuse mathematical formulae can be stated just
as well in plain English.

Webster defines diligence as "persevering application; persistence; characterized by steady, earnest and
energetic application and effort." The financial world is full of wrecks who do not fit this profile, who
wrote a check and expected wealth to fall into their laps. It all comes down to this: Acting on your own, can
you educate, train and discipline yourself as a West Point cadet or a medical student is educated, trained
and disciplined?

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Actually, you need not put in nearly as many hours as they do. But you must put in substantially more time,
effort and perseverance than the "fast and easy money" crap-shooters, you must handle trading as a
business or profession with the diligence due a business or profession.

Except for some dividends, nearly all my 1994 income was Form 1040 Schedule D--Capital Gains, thanks
to covered calls and spread strategies. I have the time to peruse an archaeological text and to try creating a
new Medici Venus on pearlcoat studio bond. Paradoxically, I have the time because I put in the time, and
what Webster called "steady, earnest and energetic application and effort."

Technical analysis or chart analysis fits in well with spread strategies--the horizontal calls above the rising
security, the horizontal puts below the falling one. Wall Street's and NYU's Rich Bensignor said of charting
and trading, "Old support lines become new resistance lines and vice-versa. You will lose the bulk of the
time unless you make it your passion or profession." The passion, the profession, the intricate know-how,
sets apart the scientific trader from the racetrack sucker who uses a broker in place of a bookie.

Try to Realize it's All Within Yourself - No One Else

Can Make You Change - George Harrison

You are providing a wonderful forum for ordinary traders to share their experiences with others. Here are
some thoughts that I wish to add to the melting pot from my own experience.

But, first some background. I had been racking my brains for 11-years trying to figure out a way to beat
the markets. During this time I lost enough money to pay for my house. I became so frustrated and angry
(with myself) that I lashed out at the world, almost losing my family and friends in the process.

In my attempt to discover the Holy Grail, I purchased numerous books and tapes, attended seminars,
always hoping that the next one would provide the answers. Instead, what I discovered was that the books,
tapes and seminars were for the most part a complete waste of time. For example, one famous teacher and
his partner purported to reveal three mechanical systems that had been computer tested and proved to be
over 80% accurate. I subsequently discovered that the sample size was so small as to be statistically invalid.

The same celebrity (hustler?) then sent me in the mail news of a startling new discovery he and his (new)
partner unearthed. Do you recall the words of P. T. Barnum. Yes, you guessed it. I fell for the pitch hook,
line and sinker. The state of the art software had proved to be over 68% profitable with profits exceeding
$70,000 over 2-years.

Three weeks into real-time trading, it became apparent there were a number of bugs in the program. The
software developer issued two (or was it three?) revisions in as many weeks. When I confronted the
promoter he Indicated that his results - presumably after the bugs had been eliminated - were profitable.
These individuals are still promoting the product through seminars and magazine advertising. Amazing!

About this time in my trading career a number of things became blindingly obvious. Firstly, I had to
develop my own approach to the markets. Secondly, the simpler the methodology the better. Thirdly, and
most important of all, the key to profits is knowing how to trade.

I have developed an approach that is based solely upon market action. No oscillators, no convoluted
relationships between market internals, just a simple assessment of what is going on in front of my eyes.

I have settled upon trading the S&P 500. Although, I am a day trader, I do not trade everyday, perhaps,
eight to ten times per month. Typically, I risk less than $200. In a recent conversation with a fellow
subscriber to CTCN, he asked who was the best teacher I had met. In all honesty the answer to that

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question is I AM. As you are your best teacher. I firmly believe that you have to distill what makes sense to
you and then make it a part of yourself.

There is so much to learn from real-time trading that cannot be learnt from books or simulated trading.
Unfortunately, most of the material out there is written by theoreticians. Connors and Hayward in their
book, Secrets of an Investment Fund Manager, discovered from their publisher that 80% of his clients do
not trade. And still the public consumes the product as fast as it is produced. Forget all this nonsense. You
already have the answers you need.

TradeStation Historical Data - Terry R. Davis

Anyone using TradeStation continuous data for testing or as a basis to buy an advertised system should be
very careful. As a general rule, I am suspicious of anyone supplying me with historical results on
continuous data. After my experience this week my suspicions have been confirmed. I was approached and
asked to put one of my systems in the TradeStation format. No problem! I was to work one-on-one with an
expert "Easy-Language" programmer. It didn't take long to get program coded, but when we ran the
historicals they were horrible.

The TradeStation printout of historical results were saying that the system over 15-years was only about
22% accurate. I decided we should zero in on a smaller time-frame where I had the actual data - not
continuous. We selected soybeans from 90 to 93. I always pick soybeans because it is such a dog to trade.
If I can get something to work on beans it will work on anything. We ran the program first on continuous
with poor results - a loss of $1,400 over the 3-year time-frame.

Since I had the real data for that same time-frame, I checked it trade by trade by hand. The differences were
outstanding! Many trades in the continuous feed didn't even exist in real-time. There were also several
winners in real-time that weren't printed out on the continuous sheet. The continuous data showed $1,400
worth of losses. When in actuality, there were over $5,000 in gains when applying the real data. Quite a
difference wouldn't you say? Be careful what you believe in!

During the above scenario I met an excellent TradeStation Programmer named Jeff Panic. He is very
conscientious, helpful and best of all he can get your program going in a hurry. I'm sure he will be able to
help.

Miscellaneous Ramblings from a Neophyte Named Zas - Ron Zasadny

First, I want to thank and encourage Anonymous Trader (S.A.T.) for sharing his very encouraging thoughts
on his trading concepts. Unless a person is ego driven (are there any ego-driven successful traders out
there?) it takes a fair amount of effort to make the time to sit down and put your thoughts in writing. It took
me 3-months of procrastinating before I wrote this.

From what I understand of copyright infringement suits concerning "Intellectual Rights", Anonymous
Trader has nothing to fear from JS as the burden of proof is on John Stenberg to prove what Anonymous
Trader shared thru his comments in CTCN is proprietary and not public domain.

Coincidentally, the same day that I received CTCN Vol.3-7, I received a mailing from John Stenberg
touting his program. From the information in the sales literature, it appears that his systems have almost
every known indicator in it plus. By the time you could evaluate all the indices it would probably be too
late to "pull the trigger" to make the trade.

Anonymous Trader mentioned and other successful traders have alluded to it, that as a trader matures and
becomes more profitable he uses fewer and fewer indicators. In my searching for the "Holy Grail of

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Trading" there seems to be a perverse ratio of wannabe indicator crazed techno geek traders to actively
trading Real Traders, at the various seminars I have attended.

Could it be??? na.... but then again maybe... The Holy Grail might be found in the kingdom of K.I.S.S.
(Keep It Simple Sweetie) I think I am on to something.

Re: G.Bashar comments on sales of trading systems (Vol 3-7) and an excellent response from
"Anonymously" (Vol 3-8) add another slant. Most successful trading systems are of a trend following
nature, consequently as more traders use the system, more volume is generated which has a tendency
validate or confirm the trend and drive the trend further, thus becoming almost a self-fulfilling prophecy.
As the markets are so large and traders so diverse, it would be impossible to sell or even give away enough
programs to adversely effect the market. A good example would be to attend any market seminar and
observe the many divergent opinions in attendance (the bigger the ego the more divergent the opinion
seems to be).

On "Advanced G.E.T." - I recently attended a free seminar sponsored by Trading Techniques Inc. (216
645-0077) the producers of "Advanced G.E.T." I learned more from their presentation of Elliott, Gann, and
the Fibonacci ratios then I have from many paid supposed "educational seminars" which end up being
thinly disguised sales presentations. Apparently, Tom Joseph is a 18-year trading veteran. He hired some
computer programmers to computerize some of his trading ideas using Elliott wave counts, Gann's concepts
of squaring of price and time and Fibonacci ratios thus creating "Advanced GET" which he then preceded
to market to recoup the costs of programming.

The seminar was conducted by Andy Bushak who actively trades, plus two other customer support
members which are active traders. He is very easy to listen to, humorous and knowledgeable speaker. The
agenda consisted of a simplified approach to Elliott wave counts, some statistical analysis of various wave
probabilities, Fib. ratios, risk reward ratios and Gann counts. Again and again he stressed keeping it simple
in regards to comments from the attendants. After a sumptuous free lunch (who said there ain't no such
thing as a free lunch) he spent a couple of hours demonstrating the software, including using it on any
current markets that the attendants were interested in. The total sales pitch was about a minute's worth of
telling us how much and how to buy the software. He let the software do all the selling by actual real-time
any market you want analysis. The software has a built-in trading simulator that can really teach you how
to use the program and by gosh ... actually trade. I suppose one could write some of the oscillator and wave
counting algorithms into existing toolbox type programs, but why reinvent the wheel. This baby really
works! As usual all the customary disclaimers (no financial interest, all markets risky etc.) apply. I don't
even own the program yet.

Money Management is 70% of the Game - James Vick

I'm a new member, and first I'd like to express my respect for this newsletter and its members/contributors.
High quality of dialogue, interesting editor's comments, etc. Definitely a welcomed addition to the futures
trading community!

Second, I must compliment Tom D'Angelo for his imaginative approach to money management as
described in the Aug/Sept issue. Anyone who has the persistence and staying power to develop a product
and bring it to market in this business deserves credit. I believe that Tom published his methodology in
Technical Traders Bulletin in 1990. So although it is not new, it still is better than nothing, which is where
most traders start out in money management. By the way, I consider money management to be the
determination of what size positions to carry. In other words, your system or method tells you when to buy
or sell and at what price, and the money management tells you how many contracts.

While the Profit Center concept may have served gamblers and sports bettors well as Tom says, futures
traders should view it only as a first step. After all, many traders already have their trades grouped within

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systems if they use system testing software. If you trade systems without testing them or at least knowing
the track record, then you can't or won't, use most methods of money management!

Ralph Vince has taken trading money management way beyond Profit Centers in his three books - Portfolio
Management Formulas, The Mathematics of Money Management and The New Money Management. Each
of these short but intense volumes has built upon the previous, and at the end, Ralph has a quite
sophisticated (albeit hard to understand) model which is mathematically rigorous, statistically correct and
"State of the Art."

While readers may be able to glean from these books, the concepts of how money management should be
implemented, as a practical matter most traders won't be able to actually put the methods to use until some
software is available, which hopefully will be soon.

Tom has included the first of Ralph's concepts, optimal f, in his money management software. But
members should be aware of both the downside and potential of optimal f as explained in Portfolio
Management Formulas.

There were also two articles on money management using optimal f in Futures Magazine of September
1995, the second of which explains it in more general terms. In all of these materials, however, the focus is
on money management for a single system or method. Ralph's two later books extend the theory to
portfolios of systems or methods.

So what about the 70% proportion of trading that money management represents? As Ralph Vince points
out from the start, a trader can't succeed with bad money management even if he has a great system, but
good money management can make even a marginal system quite profitable. It's all a matter of odds, time
and reinvesting profits - but you have to trade the right size positions!

Market Psychology, is Vitally Important for Success - Trevor Byatt - Part Two

13. Reverse the natural reactions initiated by hope and fear, i.e., you should hope that profits will increase
and fear that losses will increase. The overwhelming majority wrongly do the reverse i.e., they take profits
too quickly (fearing they will disappear) and keep losing trades (hoping they will decrease). They should
keep winning trades (until stopped out by rising protective stops) and quickly close losing trades (however,
much it may damage the ego - if you are rich enough to afford the ego you do not need to trade).

14. Never become complacent. This frequently happens after a string of good profits, which often are
followed by unacceptably large losses. In such a situation, lighten up or stop trading and take a look at
yourself. The unacceptable losses will inevitably be the result of complacency and consequent failure to
follow the rules. Start trading again only after you have fully recognized your mistakes. If necessary, take a
vacation or an extended period of not trading. "A great many smashes by brilliant men can be traced
directly to a swelled head-an expensive disease everywhere to everybody, but particularly in Wall Street to
a speculator" - Jesse Livermore.

15. Never think as a biased bull or a biased bear. Decide from your system whether the situation is bullish
or bearish or neither and act accordingly. By all means "Have an opinion on what the market should do but
don't decide what the market will do" - Baruch. "There is only one side of the market and it is not the bull
side or the bear side, but the right side." Livermore

16. Never trade for the sake of trading. Only trade when your system indicates a high statistical probability
of success. Exercise patience (often difficult) and wait. "It was never my thinking that made the big money
for me. It was my sitting. Got that? My sitting tight...... Men who can both be right and sit tight are
uncommon. I found this one of the hardest things to learn........It is literally true that millions come easier to
a trader after he knows how to trade than hundredsdid in the days of his ignorance." - Livermore.

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"Knowing when not to trade - patiently standing aside until just the right moment to enter the market - is
one of the toughest challenges facing the trader." - Kroll

When in doubt get out or do not get in." - Gann

17. Act promptly and decisively and do not procrastinate. When your system indicates a potentially
profitable situation - ACT (also, of course placing a suitable stop).

18. Work hard. Always keep your charts and analyses up-to-date and your hard disk organized. You must
be organized in order to conform with 17 above. Remember that successful trading is not easy any more
than is success in business and/or a skilled profession. A 10- year period of study and experience is usually
necessary prior to any spectacular success.

19. The human mind is more flexible than any computer. But it is subject to adverse behavioral patterns.
Hence the best approach for most people is a good system - aided by a computer to save time - and then
followed by analysis by the trader provided he or she exercises rigid self-control as indicated above.
Maintain an open mind. Do what is right (which is frequently not what feels comfortable). Dogmatic and
rigid personalities rarely if ever succeed in the markets.

20. Follow the rules of Neuro Linguistic programming (NLP). For further details, see "The New Market
Wizards" (Faulkner) by Jack Schwager.

(i) Use both "toward" and "away from" motivation.

(ii) Break down potentially overwhelming goals into chunks with satisfaction geared from the completion
of each individual step.

(iii) Have a goal of full capacity plus - anything less being unacceptable.

(iv) Fully concentrate on the present i.e., the single task at hand rather than the long-term.

(v) Personally involve yourself in achieving goals as opposed to depending on others.

(vi) Make self-to-self comparisons to measure progress based on past performances.

21. Never be loyal to a trade. Close it when the time is ripe. The market is utterly ruthless and it could not
care less about you or your opinion.

22. Never get mad with the market if you make a loss. If the loss is small, it may well be consistent with
your system. If it is large, it is almost certainly either your fault for not following the rules or the result of a
surprise event beyond your control. Chalk it up to experience and move on, but never consider that
particular stock or commodity owes you - it does not.

23. You can't win if you feel you have to win to survive. This is irrational gambling not logical speculating.
Never turn to the market because you want money from it for a specific purpose (e.g., a new car, boat,
house, etc.) - you will inevitably lose and be worse off.

24. The key to building wealth is 1. to preserve capital and 2. to wait patiently for the right opportunities.
Then and only then will extraordinary net gains be made.

25. Remember price movements are largely, but not entirely random. They give statistically valid signals
and stay trending long enough to make substantial profits in short-term, medium-term and long-term
trading. Which time-span you choose will depend on your own individual psyche and lifestyle. However,
under no circumstances will you make net profits unless you exercise strict self-discipline along the lines
indicated above.

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I hope the above will help you. It is the result of hundreds of hours of research and study of the opinions
and rules of a large number of traders who have proved themselves to be highly successful over extended
periods of time.

References (and Recommended Reading):

Market Psychology Books - Schwager, Jack - Market Wizards; Schwager, Jack - The New Market
Wizards;

Letevre, Edwin - Reminiscences of a Stock Operator; Bernstein, Jacob - The Investor's Quotient

Elder, Dr. Alexander - Trading for a Living (Market Psychology & Technical Trading Book); Krastins,
Ivan - Listen to the Market (Tech analysis & trading book)

All books available from: Research Technology Corp. Proprietary Ltd of Sydney Australia. Editor's Note:
Many of the books mentioned in our publication may also be purchased thru Trader's World Magazine,
phone number 800-288-4266. Editor Larry Jacob's is offering a 20% discount to members of CTCN on
most trading books. Tell them you are a CTCN member to receive your book purchase discount.

How to Use Carrying Charge Spreads to Make Money- Bob McGovern

Most traders know little and care less about carrying charge spreads. However, at times, these simple
spreads offer good opportunities for profit.

What is a carrying charge? Normally, it is considered to be the amount charged for storing, insurance,
handling and financing the cost for any storable commodity.

So, what is a carrying charge spread? It is a spread between two different futures delivery months of the
same commodity. The distant month would be at a higher price than the nearby month. If the distant
month's price is equal or greater than the near month's price, plus storage, interest and insurance for the
period between, the spread is called a "full carry" spread. (The exception is in Frozen Pork Bellies, which I
won't cover now).

To enter a carrying charge spread, the trader would buy the nearby month and sell the distant month. He
knows that if he sells the distant contract at or near full carry to the nearby contract, the chances are slim
that he will have much risk. Unless there is some unusual factor influencing the market, such as the
possibility of rapidly rising interest rates.

Most of the time a full carrying charge does not occur. Sometimes the opposite happens, and the nearby
month is higher than the distant month because of market conditions.

Usually, full carry spreads happen in a bear or down trending market which has been going on for some
time. Of course, this is probably the time to enter such a spread, based on contrary opinion and low risk
factors.

As the spread gets closer to full carry, it attracts more traders, causing upward pressure on the nearby
contract (the buy side), and downward pressure on the distant contract (the sell side). This causes the spread
to narrow and move away from full carry.

One risk in a full carry spread is that nothing at all will happen. The trader must get out before expiration of
the nearby contract, thereby losing his commissions, or he rolls over to the next delivery month, with hopes
that the spread will narrow sooner or later. In either case, commissions are paid.

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Carrying charge spreads are thought to have less risk, yet they still have good profit potential compared to
many other commodity trades. Sometimes a spread will go to 70%-80% of full carry, and in fact, very
seldom in actual practice do they go much higher. This is because actual loan rates are less for commercial
interests, causing full carry to be less for them than the trading public.

There are times when a spread will go beyond full carry, usually due to extremely bearish sentiment. Such
an event provides the trader an opportunity to lock in a known profit, assuming interest rate stability.

Most traders don't understand spreads, and pay little attention to them. The commercials do. However, they
may want to purchase the cash product and sell cash forwards, rather than trade the futures. They have
many other reasons for such actions, and I'll talk about that in another letter.

Pay attention to the carrying charge spreads. They could be another avenue of profit for you in your trading
activities.

To figure carrying charges on a few more popular commodities, I have compiled a table below which you
may find useful. The table is in Print Copy.

Good Spreading to All!

On PocketCharts/Anonymous Trader/PPS/6-Million$Man

Gann/Club 3000, etc. - C. J. Casebeer

For CaLey Wong and all readers, pocket charts are published by Russell R. Wasendorf, Box 849, 802 Main
St., Cedar Falls, IA 50613, and the yearly cost is $52. They are also a broker and publish "Factor", futures
newsletter. All I get and use are the charts.

Anonymous Trader (S.A.T.) has good points on daytrading and OK for those that want to watch the screen
for 6-hours a day. Not for me. I'll stick to position trading, as I have done for over 20-years.

Don McCullough sure gave us a good use for spreads to "play the corners."

DCH from Germany is brace! I think he should use his system for a few months at least, and then if
successful, he should write how and what he did. Saying he is giving traders some advice before he has
proved his methods, again brave. When he has proven his goal, I may be interested because he'll have more
advice and will be more practical. Will 70 trades be a fair test? How many trades per day, etc.?

Curtis Arnold's PPS is simply a rehash of a certain classical patterns, but interesting reading. Michel
Arminoto, " Six Million Dollar Man" is also rehash of years of publishing books and systems, but a lot of
charts to study. It seems there is little really new.

There is so much written about W. D. Gann and his mysteries. I recently read that his son said his dad died
with an estate under $100,000 and most of it and his living was made by selling his methods, books and
course. Gann was a master of keeping everyone guessing his secret, if there really was one. So people
bought it. All his lines and squares, etc. are too much for most traders. There are easier ways to trade, than
by all his astrology and vibrations, etc. I tossed him out years ago, because I believe in KISS!

Larry William's stock & futures books of the late 60's and early 70's got me started. Ken Friske of Tread
Master got me going on long-term charts, Bruce Gould helped in the late 70's, early 80's. Even Ted
Warrens' futures charts were helpful back in the old days of the 70's. I did subscribe to Bo Thunman, Club
3000 for a few years, but too much on computer subjects for me. An old Onion trader named Kimball was
helpful for a few years too.

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 Subjectivity in Determining Pivot Points

Jim Mann

Consider the following bar chart:

Charts in our printed version.

Is C a valid pivot? On the computer, A, C and E have pivot laws of strength 1. However to the eye, A, C is
insignificant compared to A and E. So do you use C in your trading system, even if it only takes out the law
of the previous bar by 1 tick?

There are ways to filter out C as a pivot using minimum price swings and/or detrending moving average
techniques. These filters tend to optimize price swing determination by introducing more rules and
parameters.

Jim Mann wants to know if anyone has developed a system for trading Merrill MW Waves on an intraday
basis? I encourage everyone to read about this swing method by Scott W. Barrie in the August 1995 issue
of S&C magazine. Feel free to answer via CTCN.

Advice from A Polish Trader on Real-Time Data & TradeStation - Stefan Krajcir

If you want to be a good trader, you have to work hard all the time. You said you don't have enough money
to trade comfortable with. My suggestion is, if you get enough capital for trading, you should run your
software at least 3-months before you trade. Most software has too many features and problems. It takes 6-
months to operate to feel comfortable using it. You should get software that is capable to chart intraday.
You don't have to trade intraday, you can use intraday as a filter for entry and exit.

I have TradeStation 3.x and Bonneville satellite data feed on a 10-minute delay, it cost me $50 a month. If
you have time you can watch 10-minute delay on your computer and practice with that. There is lots you
can learn. There is nothing wrong if you have 10-minute delay and can't watch it. If you come home
everything is in your computer and you can review specifically what has happened during that day with
your orders. Fifty bucks is cheap tuition to pay every month for data and see what was happening all day,
you never can get that much knowledge from end of the day data service.

My reason for purchasing TradeStation is if I rent their software it will be expensive, as 10-months=$1,800.
By buying it, I don't have to pay any more.

You have to count on yourself to straighten out your problems, it takes time to learn that. I don't know
which software is best. It costs lots of money to buy them all and a great deal of time to operate them.
When you trade you should concentrate only on trading. If you trade and figure out how to use the software
at the same time, then you won't know what you are doing. You need a clear head and specific rules on
what you are going to do, not guess.

Also, very important is discipline and money management. You can trade well if you follow rules right. If
you second guess, you go no where.

My suggestion is whoever writes in CTCN should indicate what software he is using and rate its quality,
including his data source. He should include his system name and % return. That way we can see what the
members are using and how they are doing.

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Write c/o CTCN If fellow members would like to contact me to exchange information:

Only discipline succeeds - second guessing is like swimming with the sharks!

Does anyone have the formula for TradeStation 3.x, Elliott Oscillator 5/35 (difference between a 5- period
moving avg. and the 35-period moving avg. Good luck with your trading.

Editor's Note: Stefan is from Poland and his English is not good. Therefore, per his request to do so, I
made a number of word modifications and interpretations, so it was easier to understand.

Biggest Day for the S&P 500

Don McCullough

On October 19, 1987 the DJI and the S&P 500 fell an all-time record amount for one day. I'll concern
myself with only the S&P in this article.

From the close on Friday 10/16, to the close on Monday 10/19, the Dec S&P contract fell 79 points. In
dollars per contract that amounts to $39,500. I wanted to see the worst case scenario and see if I'd be able to
get out of such a mess without losing enormous amounts of money. (Actually, several locked limit days
could hurt you more than this one day.)

See the 3-minute bar chart showing Oct 16 thru 20. Putting the 19th in context you might say. Also there is
a daily bar chart of this contract.

A 3-4,000 dollar range for the day is a pretty big day for the S&P. Multiply that by 10 and you can see just
how large a move occurred on Oct. 19, 1987. The day started by gaping down 19-pts or $9,500 per
contract. One hell of a way for a bull to start his day--wouldn't you say? Now, there would have been
several one-half hour suspensions of trading on such a day. Also, the first limit-up or down day is now
limited to 30-pts.

When you look at 10-19-87 on a daily bar chart you see one super huge bar down for the day. Makes you
wonder if it was possible to get out and save your can on such a day. I wanted to see this day as it appears
on 3-5 minute, intraday, bar charts. There were several places during the day when a day trader could have
cut his losses. They could have been substantial, but nothing like the full drop of this day.

Several days previous to the 19th were very bearish, so there really wasn't much excuse to be long at the
close the day before. Fact is, on the 16th the market dropped more than 20-pts from its high to its low.
That's $10,000 per contract. Why on earth would anybody want to be long that market at the close or for
the next day?

If you'd like to buy the data pertaining to this super down day and related days you may do so by phoning
Tick Data, Inc. at 1-800-822-8425. A couple of other wild S&P market days are: Oct. 22, 1987. On this
date, the S&P gaped down 55 points at the opening. Also, Oct. 13, 1989 the Dec. 1989 S&P fell 30.60
points from its high to its close for that day. That equates to today's 30-pt limit for the first day.

As I mentioned, a day like this is not the worst possible thing that can happen to you in the S&P or other
markets. The worst possible thing will be when something so terrible happens that nearly all markets will
lock limit down for several days in a row. Then, I can imagine where the officials of the exchanges will
stop trading for from one to several days. Then, I can imagine (I'm stretching now!) where the markets still
continue to lock limit down. This may be stretching things too far, but you have to agree that atomic and
germ warfare, (to name a couple of very negative happenings) although not probable, are possible.

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Of course, the markets are about probabilities (never certainties) and "end of the world scenarios" are not
the type of thing to be constantly pondering. However, sometimes something very close to that happens.
For instance, have a talk with the guys who kept shorting the grain markets when the blight hit the fields in
the 70's.

The right mind-set is: the markets can do anything at anytime. I don't mean you should be constantly
worrying about this, but only to keep that in the back of your mind. Play the probabilities or good bets, but
be ready for anything, and the market is never wrong. The market doesn't have to "get with you." You have
to get with the market.

What I've just written reminds me that we have had one heck of a bull market in stocks (and the indices) for
around 13-years. Check it out on some weekly or monthly charts. This could continue for several more
years--who really knows? However, sooner or later, there will be a big drop. How big and when, I have no
idea. And, because a lot of people have this in mind that just might help to extend the bull move! Tricky
stuff these markets.

Editor's Note: Charts appear in our printed version but are not available in our free online edition of
CTCN.

Don McCullough on Real-Time Data

At the start, I subscribed to Signal's delayed data and futures markets only. This cost me $60 a month and
the Chicago markets arrived on my screen about 10-minutes delayed and the New York markets about 40-
minutes delayed. Now that's delayed!

A few days ago, I changed to bonafied real-time and only the two Chicago futures exchanges. This is much
more expensive than delayed time and now I pay $355 a month plus $31 a month for my cable TV service.
I got the cable TV hookup mainly for the markets and receiver to connect to. That's a total of $386 per
month for my real-time data. This means I'm serious about the markets or I sure as hell better be!

That delayed data was a real pain. I was constantly having to guess what the bond market was doing 10-
minutes ahead of what I was seeing on my screen. I had a little help from Signal's free Dow Jones Industrial
data which was real-time. When the DJI looked like it was strong and going to get stronger, I would
sometimes buy. I also would call my broker's quote service for the latest price before making a trade. The
New York markets being 40-minutes ahead of what I was looking at on my screen were totally out of the
question!

I'll start trading seriously using real-time charts in a few weeks. I have to send more money to my broker,
so I can afford one or two S&P contracts. It's a struggle finding out what markets you want to trade. To me,
the S&P charts the best and offers the most potential, so my choice is rather easy. I have spent years going
over charts of all the major markets as far back as the 60's, so my selection of the S&P market is for good
reasons. By the way, and I won't tell you why, I think the best chartists are in the S&P market.

I nearly forgot to include an important problem I had. I don't think it's very serious now, but when it
occurred, I was not happy. Seems about once or twice a year the cable TV companies do what they call a
"cable sweep." That is, they check out the reception in various portions of their total area. One morning
about 5:45 a.m., my MetaStock program told me my reception was poor. I immediately turned on my TV
and had no reception on any channel. I then called the cable company and was told there was a "sweep"
going on in my area. I lost about 14-minutes of bond market data because of that sweep.

There have been a couple of other 1-minute or so lapses in reception and some rather lengthy ones during
non-market hours. I don't think this is reason for anyone to not use the cable TV hookup. I would prefer
satellite reception and may eventually change over to it. Even then the Signal people tell me in cloudy,

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snowy and rainy areas satellite reception can fail at times. Here in California, I expect satellite would be the
most dependable.

Hope this article will be of some help to you soon to be real-time enthusiasts. If I'm in error about anything,
let me know. It'll be my gain.

I'm trying to find a book either titled or about Drummond Geometry. I read about it in one of my better
market books and think it may be helpful with the markets. Can subscribers help me locate it?

Real-Time S&P Data from Signal's Delayed Quote Service - Ernie Bacal

When I read about Tom Cruckshank contribution in Vol 3-5, May 1995 of CTCN, he asked if someone
with the proper setup would test it since he did not have the proper setup. Since I have the proper setup I
tried it. I placed side by side a real-time 1-minute S&P chart next to a formulated 1-minute S&P chart made
with Signal's indices quotes. Signal includes real-time indices in both delayed and real-time broadcasts
which would make the delayed data possible to do this with. This allowed me to place these charts as 2
separate windows in TradeStation. In the enclosed printout the top chart is formulated with Signal's indices,
the bottom chart is real-time one minute S&P data. As you can see the charts are very close, but not exact
as Tom said. The differences are only out-of-line when the premium or cash gets out-of-balance. But for
the money this is as good as it gets and certainly good enough to make money from. Yes, Tom this setup
does work.

On the funny side of this, traders who need to keep costs down would find this helpful, but may not be able
to afford trading the S&P. And traders who trade the S&P can easily afford the real-time data. In any case,
if you want to follow the S&P real-time and save $200 a month, this can do it.

CTCN has been very educational and useful.

Editor's Note: Charts appear in our printed version but are not available in our free online edition of
CTCN.

Fathoming Larry Williams 1987 Robbins Trading Contest - Tom Schlobohm

No, this is not a success story. I didn't figure out how Larry did it. However, I felt my approach would be of
interest to others. So, here it is.

I was fortunate that some years ago I obtained a copy of Larry's 1987 Robbins Monthly Commodity
Statement Activity and Open Positions reports detailing his contest results. Unfortunately, these reports had
essential information blocked out whether Larry had bought or sold and the number of contracts traded.
Lack of this data made everything else useless. All that was available was the liquidation date, the futures
contract traded, and the results, i.e., the dollar debit or credit.

Anyway, I stumbled on a method of determining the number of contracts traded. Then, knowing the
number of contracts traded, I could calculate the gross (before commissions) profit or loss. With this
information and by making an assumption about whether the trade was liquidated at the close as a day trade
or the following morning at the open (my reasoning to be discussed below), I would have a handle on the
possible entry point. Sometimes, based on price action just prior to the probable time of entry, it was
possible to assume whether the position taken was long or short. Other times no such assumption could be
made.

How then do you determine the number of contracts traded? Simple, just use the formula total
commissions=number of contracts traded times per contract commissions, or T=N * C. It follows that N=T

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/ C. But, wait, all you have is one equation and there are three unknowns. As everyone knows, you can't
solve an equation like this. The first thing to do is to determine the commission charge per contract (C).
Then you have one equation with two unknowns. However, since these two unknowns can assume only
certain values, the equation is therefore solvable (within limits). The number of contracts (N) must be a
positive integer.

On any trade the total profit or loss (before commissions) can assume only certain values and must equal
the product of the dollar value of one tick and the total number of ticks profit or loss. Therefore, total
commissions (T) on a trade must equal the difference between the total tick value and the net profit or loss.

To determine the commission rate for T-Bonds or the S&P, for example, go to the early January trade
results (when fewer contracts were traded, making calculation easier). Arbitrarily assume the minimum and
maximum amounts charged for commissions, say $5 to $20. For example, on 1-07 Larry had a net profit of
$453.60 trading T-Bonds. You know that the smallest gross profit he might have had was $468.75 (or 15 *
$31.25). This means that the smallest amount of total commissions for the trade might have been $15.15 (or
$468.75 - $453.60). If this were the case and if one contract had been traded, then per contract commissions
would have been $15.15; with two contracts, $7.58; or $5.05 with three. But, maybe gross commissions
were $46.40 ($15.15 + $31.25). Using the $5 to $20 limits and the above procedure, additional possible
commissions per contract can be calculated. Anyway, you end-up with a dozen or so possible amounts with
no idea which is in fact the actual one. Next, follow the same procedure for another trade. What you then
have is another dozen or so possible values. You will find that in your two lists of possible commissions,
there is one value in each list which is the same. This is the commission rate. Does the same procedure on
two or three other trades, and you can confirm you have found the correct amount?

Having found the number of contracts traded on a particular day for a particular contract, how do you
proceed? First, try to determine if Larry liquidated his position at close on a day-trade or next day's open.
On Pg.-126 of his "The Definitive Guide to Futures Trading Volume II," Larry discusses his Overnight
Formula. I won't repeat this formula here, but I did use the Overnight Formula to try to see if the trade
might have been for one day only or could likely have been carried overnight for liquidation at the open.
Then I checked one possible entry procedure Larry might have used. This procedure was the "Profitable
Day Trade Patterns" shown on page 122 of the same book. Well, Larry doesn't seem to have used this entry
procedure nor any of the others I hypothesized.

How did Larry clean up? I really haven't been able to figure it out. Maybe Larry will tell us at one of his
seminars, if he hasn't already made it public.

The Elliott Wave and You - Terry R. Davis

Have you ever read that Elliott Wave is too subjective to trade with?

I have a friend, who shall remain nameless, who sought Elliott's knowledge. He searched for a chaotic
mentor and finally found one who promised great knowledge for a great fraction of money. He flew to his
house and was taught at the feet of the master for a weekend. One of the mentor's favorite sayings was
"when in doubt about the wave count, you are in some type of wave four." This is closely akin to saying
you speak all languages but Greek. When asked to speak Spanish you reply - "that's Greek to me."

My friend came home bubbling with his new found knowledge. He was so impressed with his
psychological mentor, that he let him trade a $100,000 managed account. After a month's worth of
following the markets, my friend came to a remarkable conclusion: Elliott Wave is too subjective to trade
with. Unfortunately, this knowledge came with a price tag in the thousands. What about my friend's
managed account? The mentor increased the account by $5,000 the first month. At the end of the second
month, the account was back to even and the mentor had frozen ... couldn't pull the trigger anymore. So
much for Elliott Wave, right? Not exactly!

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You may think from this preceding paragraph that I think Elliott Wave has no value. After all wasn't it
George Lane who said "any system is a success if it sells enough copies." Being in the "systems" business
myself, I must say that I would have to agree with Mr. Lane's comments. There I go again ... rambling. I am
a Christian and believe that the cyclical nature of all things (including the futures markets) has to be in
harmony with nature.

Elliott Wave has been referred to as Nature's Law. I would rephrase it and say "Elliott Wave is one of
nature's laws." I do not think of EW (Elliott Wave) so much as a system, but as an adjunct to determining
which side of the market I should be on. For this it is excellent. Wave four is the hardest to identify,
because of the many formations that take place there: double threes, a-b-c's, quadruple bypasses and the
like. If this sounds like so much B. S. That's because it is. For us to identify wave four, we need to look
outside of EW structure for another technical.

Editor's Note: This is Part One. Part Two will appear in our next issue. We originally wanted to publish
this article in its entirety but were unable to due to its length and the fact we were limited to 14-pages at
that time. Therefore, we made a Special Report out of it. However, Terry called to say he was disappointed
and wanted the article published in the newsletter, not only a Special Report. Consequently, we are
publishing his contribution in several segments. This problem caused by lengthy articles should be avoided
in the future thanks to our new 28-page format.

Member Requests & Announcements

Daniel Fidlow has an answer for Don McCullough who asked for contact for "Drummond Geometry." As
of 1991, his address is Charles Drummond, PO Box 209, Bridgewater, NS, 4V2 2W6, Canada.

Enjoyed last issue, keep up the good work. I think it's pretty ridiculous when a person, such as Anonymous
Trader gets threatened with a lawsuit because of his several helpful articles in this newsletter. D. M.

Don Kasischke wants info on Gann Pivot System by Bruce Babcock, contact in writing via CTCN.

Tom Dunkerley wants info on David Wright's S&P Cherry Picker. Contact in writing via CTCN.

OEX option traders: Who has real-time trading experience with "CMI Index Options Trader" newsletter &
hotline out of Florida? Anyone have real-time trading experience with an OEX advisory of some sort that is
consistently profitable? Please contact Marc in writing via CTCN.

Stephen Sturgis is interested in meeting other traders in the San Francisco Bay area. Contact in writing via
CTCN.

Joe Ferraris wants to have opinions on George Fontanills' Optionetics Trading System.

David Fent wants the following info: I noticed in the Aug/Sept issue that both Greg Meadors and Randall
Brooks have good things to say about "harmonics or harmonic files." (Editor's Note: See our web site
www.webtrading.com for Harmonic Data Files info). Can you advise me as to what literature I can buy that
discusses this topic? Can you advise me where I can obtain the Joe Ross course "How to Place Trading
Orders" as mentioned by Simon Campbell in the Nov '94 issue? Suppose my methodology says buy a
futures contract based on a swing point or breakout. I want to participant in the anticipated price movement,
but cannot tolerate the risk of being locked out while limit move nor trading days go against me. Are you
aware of any information I might access that deals systematically with safer ways to speculate, i.e., using
options or putting on a bull spread instead of being "naked" with a futures contract? Also, wanted to buy 50
to 100 S&P 500 5-minute tick charts, hard copies only (a non-computerized member).

Buzz Ross is looking for an issue of the Desk Set of out-of-date Fall 1993 Knight-Ridder's (Commodity
Perspective?) "10-Year Weekly Range Charts." Contact in writing via CTCN.

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 Editor Comments & Reviews

We received a review copy of Gary Smith's new book " Live the Dream by Profitably Trading Stock
Futures." Published by and available from Bruce Babcock.

Gary Smith is a CTCN member and contributor. He is one of only a few traders who has a documented
real-time profitable track record. Over the years Gary has successfully traded the Stock Indices (mostly
one-lots in the NYSE Composite Index). Bruce says Gary is "the only person in the world with a
documented 10-year record of day trading success," and Gary "has been profitable 95 out of the 122
months from March 1985 thru May 1995, with a batting average of .779."

This book is a very-well done hardcover 250-pg. book. I read the entire book and found it very interesting
and informative. Gary goes into great detail on the many methods he uses to trade successfully. Including,
69 large 5-minute bar charts used as examples, and 21 historical testing reports on variations of Gary's
mechanical day trading systems.

It seems Gary has succeeded in identifying non-random, exploitable situations he uses to trade stock futures
profitably and consistently. One of the most amazing things about Gary's trading success is the fact he has
done it without using a computer, without intraday charting and without live quotes! The book is available
from CTCR Products. Contact in writing via CTCN.

Adam White is now publishing his own newsletter titled " Investors Timing Service", It is geared toward
longer term stock market investing. Adam is a very knowledgeable and well regarded technician. He has
written many excellent articles dealing with market technicals, which have appeared in several publications
and magazines. He has also written several articles for CTCN, including a few reprints from Technical
Traders Bulletin, written by Adam.

Adam's Sept 1995 issue covers subjects such as Long-Term Buy & Sell Signals in the S&P 500 Index. The
Present Position, and Advanced Dollar Cost Averaging Program. A free sample issue is available to CTCN
members. Contact in writing via CTCN.

Effective with this issue we are changing to a semi-monthly publishing schedule. Don't worry about
receiving less information than in the past. In fact, if anything you will get more information as we will be
publishing 28 or more pages semi-monthly. That compares to our current 14-pages monthly. In addition,
we plan to do occasional extra mailings and offer additional benefits.

We are making this switch for the following reasons, not necessarily in order of importance:

1. It will allow us to publish more in-depth articles. There have been several submissions lately that were
far too long (multi-pages) to publish in one issue, and still have room for many other important
contributions. Therefore, we were forced to split those unusually long contributions up in more than one
issue, or else not publish them. Alternatively, we occasionally will make a Special Report out of them.
Some of our contributors of those lengthy articles were disappointed due to our space limitations.

For example, due to extra space we are able to publish the long article from Tom D'Angelo, covering his
excellent money management article, in one issue.

2. It will let us to be more in-sync with Futures Truth Ltd., whose rankings are looked forward to by many
CTCN members. They also publish their reports semi-monthly. That way every issue will have up-to-date
FT rankings. We will no longer have to publish a notice in alternating issues, about the reason there were
no FT rankings in that month's issue.

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 3. Due to extra time available, we will be better able to cover both sides of important or controversial
issues, in the same issue. You may not have to wait until the next issue arrives to hear about the opposite
side to an article. For example, in this issue Gary Smith writes about some items he does not agree with
involving Greg Meadors and the controversial trading contest. As a result of extra time in putting this issue
together, we received an article from Greg Meadors with his side of the story. That was due to the fact Gary
was nice enough to have faxed a copy of his article directly to Greg.

4. Even though you will be getting the same (or more) pages of knowledge (28 vs. 14), we will still save
some time. Putting 28-pages together takes about the same time as 14-pages times two. However, there are
some other time savings involved. Our new schedule will allow us to devote more time (between issues)
involving other benefits for you. Such as possible educational seminars, video tapes, trading manuals,
special reports, software and other potential benefits for you. In the past, we have had little time to devote
to other beneficial activities. For example, our series of Special Reports were delayed due to time
constraints.

5. One reason this change does not detract from CTCN's value is the fact we are not an advisory service and
do not give specific trading advice. We are an educational journal, so rarely is there a need for rapid
transmission of news, and quick publishing schedules aren't necessary. If in fact fast information is needed,
you can participate in our optional Knowledge Groups. They will allow you to get super fast information, if
you need it. See below.

6. The fact we now have (optional) Knowledge Groups, also known as Special Interest Groups, is an
important factor. This means if you are a Knowledge Group participant you can call other members for
speedy information on products and services. You can now get fast and easy information directly from
other Knowledge Group participants. You will not have to wait for the next issue of CTCN to arrive to
receive written product information from others. You may still wait for a written response, especially if
you do not want to join the Knowledge Groups, or not in a particular hurry to receive the information.

7. The extra space will allow for expanded editor comments. There have been many times I wanted to give
additional insight into a subject under discussion but was unable due to space constraints.

Our new schedule results in the Oct/Nov issue (this issue) being mailed mid-October. Subsequently, the
next issue will be the Dec/Jan issue, mailed out about mid-December, etc.

Thank you for your understanding about the need for our revised schedule. You can be assured this new
publishing schedule will be of benefit to you.

Issue 30.

Anonymous Trader Meet J. L. - We Get Out Of Trading What We Want

As eloquently as Anonymous Trader speaks with the 10% that are making it, let me try to speak with us
who are "making" it - you know, for whom a year $3,000 up or $3,000 down is a pretty good year. Even
after that 10% with a death wish is subtracted, we still out number you!

I've got to bore you with some background. New subscriber, just waded thru last year's issues (I would be a
millionaire if members bashing members made me any money). A musician all my life ( a good one - Las
Vegas, etc.) I discovered commodities 14-years ago. Since then, it would have been simpler to just tape a
bar chart to the end of my nose! Now at 60-years old, I'm musically a big fish in a little pond, and that's
OK. But now $300 a week or $12,000 a year is really swingin! And the pension will stink even more.

Do you see where I'm going yet? The crux of my "problem" is I'm happy! I've been super successful at
staying "poor." I've got my little house paid for in the country (dig that address), a great woman and good
health. What has this got to do with trading? Do I really want to screw up my life by making $100,000 next
year? Isn't that really the essence for 80% of traders?

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We all agree that the first battle in trading is with ourselves. Right? This is called the subconscious. The
boss. The conscious mind craves to make a million and win the lottery, but it's also busy playing gigs,
mowing the lawn, etc. My sub is on the market 24-hours a day. That is why I get my insights when I first
wake up in the morning or I'm in the throne-room brushing my teeth! When I'm way ahead, my
consciousness thinks I'm hot stuff and my sub says, "Hey Boy - What's an old piano-player like you doing
with all that money?" Wanna guess who wins out?

Bottom-line? We are all getting out of trading what we want (from a reason to get up in the morning to self-
destruction) or we will stop! Now that's "success - making it!"

Well, if Dave doesn't cut me off, I really do know how to make money in the markets. Who says I have to
be ready to? I've traded in a vacuum for last 13-years - with only one chat with another trader! I've got
tricks that work that I've never seen in print. A little coaxing and I've got a lot more articles in this old head
of mine. What do you think, Dave, you sly fox? I wish I had thought of starting a newsletter that my paid
subscribers write for me! Your mamma didn't raise no dummy!

You May Also Trade The Daily Charts Successfully

Not Just Intraday Charts - Successful Anonymous Trader

For Those Who Want To Trade The Daily Charts - These signals: the bull and bear hook and the reversal
bar work on the daily charts as well. There is a difference though in execution and volatility and market
trends.

Daily bars tend to gap a lot on opening above or below the previous day's high or low. Also, the volatility
on the daily bars will not be anywhere near the S&P 500. So you will be getting less bang for your buck,
and the daily charts will not trend as well and as long as the intraday S&P 500 relatively speaking. With
that in mind, there is still good money to be made. I believe you have to treat it a little bit differently. So
here are some general guidelines that will work very well to get you started. These are only guidelines and
you can modify them to suit yourself.

The way I would try to trade the dailies, is that I would look for a decent trend to develop. Get in on the
pullback using one of our two types of entries, and then look for a quick 3 to 4 day pop in our direction and
then exit.

So try this:

1. Enter about $50 above or below your signal bar whichever way your trading (allow up to $150 limit on
order for gaps)

2. Initial stop (or risk): 75% of signal bar

3. Then use a one bar trailing stop ($50 to $100)

4. Exit on the fourth days' close

5. Have a profit target of say $1250 in market each day with an O.C.O. order in with your trailing stop.

You may ask why I would use a profit target. Well on daily charts that's a pretty good move in most
markets inside of 4-days of being filled and most trades off the dailies will average about $300 of risk, so
this will give you a 4 to 1 risk reward ratio which is not bad if you can get it. Remember, these are just
guidelines.

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For those who want to be quite mechanical and cannot watch the market during the day, these rules should
work very well considering you take reasonable trades in trending markets. Be picky about the trade
selection and markets you trade.

Since most daily markets these days do not trend as long and as frequently as in the past, you want to take
the quick 3 to 4 day moves and move on. I would recommend you look at 8 to 10 markets and that is all.
There's plenty of money to be made in that many. You do not and should not watch 23 or more markets.
Stay away from orange juice, lumber, silver, gold, soybeans, sugar, pork bellies, sugar and cocoa.

The markets that trend best and work the best from my observations are the following: Wheat, Cotton,
Coffee, Copper, Crude Oil, Heating Oil, Treasury Bonds, Treasury Notes and Eurodollar. The currencies
trend wonderfully off the dailies, but the gaps every day can be stomach churning along with sleepless
nights and weekends. If you don't mind big risk and big gaps you can trade these.

There are some tremendous moves, but can you really stay in real-time? Only you can answer. I can tell
you up front that I cannot and will not. I like the short-term, low risk type trading. These other markets will
give you something of that nature for those who can't watch the markets intraday.

After 11 Losses In A Row A Member Changes Trading Strategy &

A Way To Avoid Those Losses - W. A. Sanderhoff

After 11 loss trades in a row , I laid-off trading for 6-weeks while I updated Omega Supercharts to version
3.0, reviewed trade strategy and looked for new educational and informational resources. On Oct 29, I re-
entered futures trading based on the CBOT 3rd Qtr "Chart Book on Implied Volatility" and Dr. Elder's
"Triple Screen Trading System", using MACD for an indicator and a modified Slow Stochastics for an
oscillator.

In back-testing the Triple Screen Trading System against my losses, the system would or should have kept
me out of the 11 losing trades. "Influence" in making the losing trades had also been provided by
newsletters/hotlines of Ken Roberts. Commodity Trend Service and Channel 23/26 Chicago.

In the next several weeks, I plan to implement access to Internet to reach interesting, new (last 2-6 months)
Web-Pages of commodity and stock exchanges, brokers and other sources of information. The CBOT Web-
Page looks to be quite exciting.

Impetus for all of the above changes is due to visits on Oct 18 and Oct 20 to the Futures Industry
Exposition in Chicago. I met Dr. Elder (bought his book "Trading for a Living") and talked in depth with
representatives of the CBOT, CME, Mid-Am and other exchanges and Internet providers.

Will keep CTCN posted on the results of my change in strategy and methods . . . hopefully a string of
winners. P.S. - Sanderhoff & Assoc. Inc. is a management consulting firm specializing in logistics with
clients involved in global operations.

How I Became A Successful Trader By Reading CTCN &

Now I Can StayHome & Trade - Dan Fretter

I have purchased a dozen books in the last 2-years to learn how to trade. I purchased Recurrence IV (what a
mistake). I've spent another $3,600 on The Natural Order from Steve Cox (Natural Order Educators), teach
Elliott Wave - very promising, but not easy. I also purchased a method from a local trader in the Detroit
area, along with 3-days sitting next to him to learn how to trade. He used so many indicators you could

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barley see the price bars and he didn't even take one trade in 3-days. One of the days was a 10-pt day in the
S&P, what a trend there was.

I was all set with live data and would come home from work and look at the markets. Keeping track of my
trades everyday (divergence, STOC, RSI). Thinking to myself how most of these days I would have made
a killing. So I quit my job as a cad-cam automotive body designer and started to trade, but what a
difference when trading live. I wasn't doing well. I spent another $1,800 on the Cherry Picker and Intra-day
Lil Gapper Systems. I couldn't trade them.

I received an ad in the mail for CTCN and as I read through some topics, I became interested in
Anonymous Trader. I immediately sent for a 1-yr. subscription and all back-issues. I called Dave and asked
if he would rush the package. (Thanks a million Dave). When I received the back-issues, I devoured
articles by Anonymous Trader and found that I knew all this stuff, but I was usually counter trend rather
than with the trend. The next day I took a trade in the S&P. My first trade was a $825 profit. This stuff
works. I also bought a couple of Joe Ross books, who Anonymous Trader also likes. Now most of my
trades are profitable.

I almost went back to my old job, but now I can stay home and trade. Thanks Anonymous Trader, Joe Ross
and Dave Green.

Isn't it amazing that when you take a phone call during trading, you miss a beautiful trade.

I would like to hear from anyone who also thinks Recurrence IV is trash.

Bob McGovern's Spread of the Month

for December 1995

Long March 10 Yr. T-Note/Short March T-Bond ("Buy the March NOB")

Historically, the March NOB (Notes vs. Bonds) has never been at current levels. That doesn't mean that it
won't move out to a "negative 224" (7 full points, Notes under the Bonds) before a return to a "normal"
relationship between Notes and Bonds. Usually, in the cash market, 10 Yr. T-Notes trade at a premium to
the 30-Yr. Bonds, paying a lower interest. A higher interest would have to be paid to holders of a 30-year
bond, making the 30-Yr. Bond lower in price. Why would anyone be interested in buying a longer-term
instrument that paid less interest?

Since 1982, Notes have fallen below Bonds only during the last half of 1993 and the early part of 1994,
before this year (see chart). In fact, as late as 4/95, the 10-Yr. Notes were 21/32 over the T-Bonds.

The bailout of the Japanese banking system, which has been assured by our Federal Reserve in public
statements could swamp the bond market with supplies released by the Japanese banks in exchange for US
dollar liquidity provided by the Fed. I would think the spread between bonds and notes should narrow on
such action.

Due to the tremendous corporate merger activity and stock buy-back activity this year in the United States,
I believe that any slowdown of our economy could create a cash-strapped situation where demand for cash
at higher interest rates could occur quite rapidly. High debt credit card consumers are already paying higher
interest, as mentioned in a CNBC commentary this week.

Of course, the Mega-mergers of banks almost require the surviving entity to raise interest rates as a matter
of "good banking practice" and stockholder responsibility.

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My suggestion: Buy the March 10-Yr. T-Notes, and Sell the March T-Bonds at a negative 185-190 (Notes
5 25/32 - 5 30/32 under the Bonds). I would not take over a $500 loss on the spread if it went against me,
which would be 16/32, as each 1/32=$31.25 per spread. Margin is $890 per spread. Target would be 3
00/32. Notes under the Bonds, with a possibility that the spread might go to even money on a really good
washout in the Bonds. Profit on the spread, if it narrowed to

3 00/32 from approximately 5 25/32 would be around $1780.

(Note: The chart which appeared here in our print edition is not available here online)

Recap Of Past Articles & Planning For New Year &

More Details On How To Trade Successfully - Successful Anonymous Trader

Well, again it is that time of year again. That is the time that most people reflect on their success and
failures and try to plan ahead for next year to make it productive and prosperous. It has been a very
interesting year to say the least. The markets were all moving in big swings like copper, coffee, lumber and
cotton. Some were trending more than anyone thought like currencies, bonds, stocks and stock indexes.

As I look back at the year and examine my style of trading (intraday trading the S&P 500) I am even more
excited and committed to this type of trading. Why? Well here are some points that I will review that I have
found to be beneficial to myself and hopefully to others. These are all points that I have brought out during
the year, but it is a good time to reflect, review and plan for next year.

Many people are still searching for a trading method and have been for years. This is one of the most
frustrating modes to be in, because how can you plan for a prosperous year if you still don't know exactly
how you are going to trade or approach the markets. You simply cannot have any confidence if you do not
have a method or way of identifying trades along with money management guidelines. You're lost in the
woods, so to speak. I was there for many years. What did I do? This may help a lot of you.

I threw out 99% of all the crap I learned about oscillators, divergence's, Elliott Wave, cycles, timing,
seasonals, Gann, pitchforks, volume, fractals, RSI, stochastics, overbought/oversold (this is a good one -
the stock indexes, currencies and cotton for example everyone said were overbought and topping in
February and March this year). Look what they did. Needless to say, I don't pay attention to this anymore
either, etc., etc. The list goes on to infinity almost. I went back to the basics. I went back to a few simple
chart patterns, (a simple moving average and trendline now and then for a visual aid).

I came up with a low risk money management plan and put it together with trading with the trend and wah-
lah, presto, an effective and time tested trading plan. The plan is simple and has worked since trading began
and will last me a lifetime. What a relief not to have to spend countless hours every night trying to find a
new way to trade. I am sick and tired of that after 7-years.

When the day is done my analysis for the next day is automatically done in less than 5-minutes on my own
software program I had developed and I'm off to enjoy my evening. No more, honey, I need to analyze the
charts till midnight again and all weekend. Now I can concentrate on improving my psychological or
mental skills during the trading day.

This will be an ongoing lifelong challenge. Nobody ever stops learning and trying to be a little better. Is my
method perfect? No! (None are) am I perfect? Surely not. But it is the simplest and most accurate way of
trading that I have come up with, and I've looked at lots (tons) of ways of trading. My method or approach
works just as well on daily, or weekly charts. I choose not to trade that way.

I really enjoy and believe in the daytrading concept. There are so many advantages. No overnight exposure
to huge gaps, not getting sick to your stomach over the weekend if it rains in Iowa and your long soybeans

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or some government official makes the wrong comment over the weekend on "Meet the Press" and your
life flashes before your eyes, because your long currencies and they're going to tank on the opening
Monday morning. I've been through it and so have many of you. No thank you anymore. Every day is a
new day. You start fresh with a clean slate.

You slept at night. You enjoyed your weekend with your family. If you made a mistake yesterday, you can
try to do better today. I realize that some traders cannot trade during the day because of other commitments.
That's OK, you will just have to deal with the overnight risk. So trade small size and use stops. Perhaps use
the Mid-Am or a smaller equivalent to the market you're trading if available. If you can have some access
to intraday charts, you can use this to establish a longer term or intermediate term position with very low
risk.

For example, when a daily trader sees a trade setup, they can go to the intraday chart and wait for the same
setup intraday. Establish the position with a fraction of the risk, turn the monitor off, walk away, and then
monitor it from a daily perspective. You just need to be aware of gaps (there's that nasty word again) of
which you have no control. So daytrading even has a place for the position trader.

I also believe at becoming an expert at one market and its behavior and then putting all your skills and
energy to work in a concern(traded) manner. Get good at that market and trade the heck out of it. Increase
your size over time and you'll make more money with less effort. There are lots of professionals that do
this. Look at some floor traders or locals that stay in the pit for many years trading one market exclusively.

You say you can't do it. I have two words for you. Tom Baldwin made all his money watching, waiting and
learning the intricacies of the bonds until he could trade them in his sleep (which I'm sure he did, I do it all
the time, most traders do!) and then traded the hell out of them. Point Made!

One thing that I have learned this year, is that I am trying to cut back on the number of trades I take and be
more selective and not trade in congestion as much as I did before. I miss some good trades out of
congestion, but I save myself a lot of mental energy, buy myself some more free time during the day, and
get better more profitable trades.

My attitude is changing now to one or two good trades, and that is all I need to make my week (a triple or a
home run, so to speak). There are plenty of them during any given weeks time. There are also a lot of
singles and doubles to add to that and a few strike cuts or losers to absorb. This is part of the learning
process and part of getting older. So I pass these observations on to you, in order that you may profit from
my experience. Don't try to reinvent the wheel.

Trading is fun. Once you have a method and money management in place, it allows you to concentrate on
trading and not on searching and researching. That gets old and frustrating. Make it your goal to find a
simple method for next year. One that you can hang your hat on and that will last you a lifetime. Trading is
simple. Remember that it's the Execution or implementation of your trading plan that is the bigger
challenge.

Most people make finding the method the big challenge. That is because there is so much junk thrown at
traders. They feel like a child in a candy store and have to try every doodad in the place. When they are
done, they are sick and never want to see another candy store (trading gizmo) again. They could have had
the plain piece of milk chocolate at the front of the store (simple method price patterns) which would have
done everything they desired and fulfilled all their needs.

I think CTCN has evolved into a very good sounding board for ideas and interaction. I'm glad to see a lot
more discussion on the psychological aspects of trading. I feel that this is where the most improvement for
traders will come.

I wish to all a great new year. I hope some will be able to end their journey in search of the holy grail or
indicator that will turn their life around. Search for simplicity. You will be surprised what has been right

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under your nose all the time, right there in front of you on the chart or price bars. Pay attention to what they
say and they will tell you everything. You need to listen and get to know them. It can be that simple.

How Can I Communicate With Knowledge Group Participants? - S. Jackson

I just got the recent newsletter. How can I become a Knowledge Group participant?

I'd like to communicate with several members who write articles. I wonder if it might be possible for you to
compile a list of members who don't mind giving out their phone numbers or addresses and make that list
available to the rest of us?

Editor's Note: New members are asked on their Response Coupon if they want to be an optional
Knowledge Group participant. If they do, they are able to call or write CTCN to obtain the phone numbers
of other knowledge group participants who have agreed to share their information on products they own or
use in their trading.

Older members who did not join by completing the Response Coupon can simply send us a note and ask to
join the Knowledge Groups. You should also list the products or services you own or are familiar with, so
they can be entered into our computer data base. That way we will be able to do a search to identify
members who have listed the requested product or service. We will also try to give the phone number of
members who are in the area of the requester.

The editorial about forming a lending library between members, most of your comments seemed to be
against the idea, for fear the book writers "would not be happy." The writers may not be happy, but so
what? CTCN exists for its members ... the majority of whom purchase books and don't write them. A
lending library would benefit the members, and should be pursued. Members would no doubt also like to
exchange systems and software they have bought and no longer use, and this should be explored.

Editor's Note: OK, if members want to pursue setting up a lending library that's all right with me.
However, I doubt I could do it, because of all the potential time involved. In addition, I do question the
legality of CTCN operating it, as we are not a government run public library. Therefore, someone other
than your editor would need to volunteer to actually run our "library."

System developers and software writers may not like members exchanging, loaning or trading materials
they have purchased, but again . . . so what? The Supreme Court has decreed that books and software
belong to the purchaser, and purchaser may give it away or loan it to whomever. The software shareware
industry has found that if a program has value, it will be bought by someone allowed to try it out for a
limited time. The same would be true of a book or trading system.

If members wish to participate in these exchanges, why not have those of us interested send you a list of
books/systems/software we have bought and would lend? You could then make the list available to
interested parties. If you are unable to do this, I'd be glad to help compile the list, and would make it
available to anyone who wanted it.

Do Seasonal Trades Make Money?

Dave Reiter

Basically, I use two types of trading methods (a short-term breakout method and a long-term method). My
long-term method is based on seasonal trading patterns. I'd like to discuss the pros and cons of using
seasonal trades.

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First, please allow me to provide you with a definition of seasonal trades. Seasonal trades are repetitive
price patterns that occur at approximately the same time each year.

Personally, I've been using seasonal trading patterns sine 1992. Overall, my trading results have been quite
positive. However, seasonal trades (like other trading methods) are not perfect. For example, some seasonal
trades have a tendency to experience "contra-seasonal moves." In other words, they move in the opposite
direction of their "normal" seasonal pattern. Obviously, these trades will lose money.

Why do "contra-seasonal moves" occur? They occur because "outside forces" cause these markets to
"abandon" their normal seasonal patterns. Examples of "outside forces" are droughts, floods, early freezes,
wars, and anything that disrupts the natural flow of the "commodity channel" from producer to consumer.

The good news is that contra-seasonal moves do not occur very often. The bad news is that we never know
when an "outside force" will enter the market or how long it will last. However, sooner or later the markets
will return to "normalcy" and the seasonal patterns will begin to work once again.

As most traders know, there are a large number of vendors who sell seasonal trades. Some are better than
others. However, the major problem with most "seasonal vendors" is the fact that they offer an excessively
large number of individual trades. It's not uncommon for a seasonal vendor to include 200 to 500 trades per
year in his/her "seasonal package." A trader who purchases this information is overwhelmed by the number
of trades. Obviously, it would be virtually impossible to take every trade (unless you had a extremely large
trading account).

The trader who purchased the list of seasonal trades is faced with a major dilemma. Which trades should be
taken and which trades should be ignored? At this point, most traders simply pick one or two trades and
hope for the best. As is usually the case, the trades that were picked end up losing money and the trader
quits in disgust. Unfortunately, the trader is now convinced that seasonal trades don't work.

In order to reduce my seasonal trading list, I adhere to a very strict rule which each trade must possess.
Specifically, each of my seasonal trades must have an "accuracy rating" of at least 70% over the past 20-
years. In other words, these trades have shown a profit at least 70% of the time over the past 20-years (or
longer).

By using this "rule of thumb," I have managed to reduce my list of seasonal trades to 25 or 30 per year.
Therefore, I generally establish about 2 or 3 new trading positions per month.

Based on my research and experience, I have found that seasonal trades will perform best during periods of
moderate economic growth (2% to 3%) and moderate inflation (2% to 4%). It also helps to have a "calm
and peaceful" trading environment (no wars, droughts, floods or international crises).

I've also found that "industrial commodities" contain the most accurate seasonal price patterns. Examples of
"industrial commodities" include: Copper, Cotton, Crude Oil, Lumber, etc.

In conclusion, seasonal trades are certainly worth looking into (based on my trading experience). However,
seasonal trading methods do require a great deal of patience and commitment.

Not Very Successful Until I Developed My Own Methods Of Trading &

Misc Comments on Others - Bob Perry

I've been reading Commodity Traders Club News for about a year now and have run across many good
ideas. Unfortunately, there are many readers who have good ideas that want to keep them "secret" so that
they can make a buck from selling them. I'm a daytrader and have gone to seminars, bought systems and

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tried ideas from several major vendors. I wish I would have saved my money instead. Until I developed my
own methods of trading, I was not very successful.

It has been very refreshing to read the articles written by The Anonymous Trader. He clearly dispels the
notion that you cannot make a living from day-trading. I like his mental approach to trading and have found
that most of the problems a trader has is of the mental variety. I recently received an ad for Ruth Barrons
Roosevelt's Power Trading Strategies, that he also endorses. This looks like a good program to look into,
because it address the psychological and strategy side of trading.

I am also glad to see that B. E. Kramer is weighing in on the subject of trading. I talked with him for about
all hour on the phone last year when I purchased Kent Calhoun's notebooks. B. E., along with Pat
Raffalovich, were quite helpful in understanding the 5VBTP analysis technique and I hope he decides to
write more articles.

I never realized there was anything like this. I've been so fed up with all the "vendor sharks" out there, that
I have grown cynical of the commodities industry. Just when I resigned myself to the thought I would only
be able to "just make a living," I am actually starting to build my trading account up slowly and look
forward to the day when I will trade multiple contracts and still just take 50 to 75 pts/contract and 1 to 3
trades per day.

Reading CTCN has definitely paid off for me. I continue to look forward to each issue for all the great
ideas that people have discovered and share with their fellow traders.

Editor's Note: Bob goes on to detail his experiences with a trading product and method which was
previously mentioned (positively) in CTCN by other members. However, that vendor located in a
Northwest State was upset and had his attorney send CTCN two very intimidating certified mail letters
threatening a suit against CTCN for "several hundred thousand dollars" if we somehow reveal trading
information he claims his client has copyrighted. Of course, we would never knowingly do that anyway.
However, due to his saber rattling threats we have decided for legal reasons not to publish his name or
information on his so called "network." That's a real shame because most of the information and feedback
on it have been very positive, not negative.

Therefore, due to this vendor's threats he is not getting a lot of very good free publicity published in
Commodity Traders Club News. Instead he is spending lots of money adverting heavily in various over-
priced magazines and publications trying to get sales for his product. What a stupid and dumb thing for this
vendor to do. He is missing out on all this excellent free and very valuable testimonial type of publicity,
just because he was worried his copyrighted trading method may be revealed. We would never knowingly
violate his copyright or anyone else's.

Random Thoughts About

Daytrading the S&P 500 - Don

I started collecting intraday data the later part of Feb 95 - delayed data for the first couple of months or so
and real-time data for the past 5 months. I have done very little trading during all of this time. My advice to
most people new to day trading would be to do likewise. You may have the right knowledge, signals or
method for daytrading the S&P, but you may not have the right psychology. Inability to trade your signals
in a consistent and decisive manner is a problem you can never fully appreciate until you begin daytrading
the S&P.

Here's why I fail to trade my signals: Stress avoidance--stress of a possible loss--stress of picking up the
damn phone and calling in the order--stress of picking up the phone and moving stop loss to break even--
stress of having a position in the market--stress of having to follow up a loss (perhaps very soon) with

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another trade--stress of continuously and aggressively looking for new trades--stress of acting decisively
during moments of uncertainty.

My signals often come at tops and bottoms and that's when you have to have tremendous confidence in the
probabilities of your signals. You have to believe, without question, that you may lose on this next trade
and will lose on many trades-- but you will definitely come out ahead, in the long run, if you consistently
trade your signals. A considerable amount of psychological adjustment may be necessary before the
inexperienced daytrader can act decisively in this very uncertain environment. Again, acting decisively
without hesitation, and without undue emotion during times of considerable uncertainty can be really tough
for the newcomer.

The old saying: "He who hesitates is lost" is extremely pertinent to the daytrader. I often find myself
hesitating and then looking at the other S&P charts for confirmation. Then it's usually too late to take the
signal. By other S&P charts I mean the tick and 5-min charts. The 3-min bar chart is my main S&P chart.
1-3 minutes is all the time I have to take most of my signals. I may soon stop using 4 chart layouts and have
only a 3-min bar chart of the S&P on my screen. Then, I'm more "locked-in" to taking my signals. I may
delete all markets, except the S&P, from my hard disk. The S&P is really where it's at!

The stress and emotion of daytrading is much greater than that experienced by the long-term trader using
daily bar charts. The "live" market confronting the daytrader is much more intimidating than the "sleeping"
market the intermediate and long-term traders deal with. I recall the relaxed environment daily charts and
longer-term trading afforded me. I would often call in my orders at 9 or 10 p.m. Very quiet, calm and
relaxed. Also, the long-term trader doesn't have to experience his losses while they happen! And, he doesn't
have to take the next signal within the next few minutes. Big, big differences!

The famous trader and author Larry Williams once expressed his definition of what a trader should be. He
was called the good trader, "The Impeccable Warrior." Impeccable meaning his trading approach and
psychology are viable and warrior referring to the positive aggression effective trading requires. These are
my definitions of what Larry means.

I gave Dave a copy of a new form I made-up. It's a sheet of paper with the title, "Daily Signals." Date: is to
the right of this and numbers 1 thru 7 follow below. After each number are the words, "Took ---- Missed
and several spaces followed by the word Why? Just my way of holding myself specifically accountable for
each and every signal that occurs throughout the trading day. Expect such a form would be of help to many.

My failing to trade my signals has not resulted in a complete loss of time and money. I have continued to
learn more about how the S&P moves during the day. One thing that really stands out is the fact that the
price will very often do the unexpected. No, my signals have not been proven wrong. In fact, I have more
confidence than ever in them.

When I say "the unexpected" I mean unexpected to the typical trader. I have heard it said that to be a good
trader you must be able to turn your head around 180 degrees. There's a lot of truth to this. Larry Williams
said you have to learn that what looks good is usually bad and what looks bad is usually good. Once again,
from the viewpoint of the typical trader.

I find that often there is a false move and then the really big move goes the opposite direction. A kind of
"set-em up and stick it to-em" procedure! Newcomers Beware!

An Opinion That The Vendor's Side Should Be Heard, But Delayed

Sam Jackson

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While it is proper to give individuals or vendors an opportunity to respond to critical comments, I don't
think they should respond in the same issue as the critical article. I accept your statement that you are not
taking sides, but by giving some vendors (and not others) a chance to respond immediately, it appears that
you're at least more kindly disposed to them. This is simply because other individuals or vendors (like
Lind-Waldock Brokerage and Robert Wiest) apparently are not given the same immediate opportunity (or
perhaps they declined to respond?). There is no harm in having responses appear in next issue.

Editors Note: A very god point. In fact, a few other members have said the same thing. To be completely
fair and unbiased to all vendors, it's better to either give everyone a chance to respond in the same issue
(very difficult to do), or simply let them reply (if they want to) in the next issue. Therefore, effective
immediately, we will normally not advise a vendor in advance about a negative article. However, the
vendor may still reply in the same issue in the event the article author (not the CTCN Editor) let the vendor
know in advance about it.

Here Is A Seemingly Highly Profitable System Based On The Moon

Does The Moon Help? - Harold Uney

Twenty years ago, I read about trading with the phases of the moon in a small book called "Trader's
Instruction Book" by Burton G. Pugh, published in 1929, price $20.00.

I tested it with various commodities and found that it worked well with Pork Bellies. Then I had a costly
drawdown period, and I stopped trading it.

September of this year, I thought I would test it again. The system is simple. Buy the open on the day of the
full moon and sell and reverse on the open on the day of the new moon.Paper traded results for 2/ 96 Pork
Bellies are in Print Copy.

In the above there are no commissions, slide or stops. If anybody has any experience with different ideas on
how to trade with the Moon, I would like to hear from them. Please contact me via CTCN.

About Taxes & Trader Status

Jim Bunyan

Recently I read Ted Tesser's book, "The Trader's Tax Survival Guide," notably chapter 13.

Consequently, I am in a position to comment constructively on the article by Glenn Skirvin in the 4/95
issue of CTCN. Glenn mentions the disadvantage and complications of the self-employment tax and
Schedule SE.

However, Glenn is mistaken. In chapter 13, p.249, of Tesser's book, he says that a trader's capital gains
income is not subject to self-employment tax. Note, however, his advice to submit Schedule D for capital
gains and Schedule C for expenses.

The explanation for the above is simply that trader's status (& no SE tax) comes from the courts and their
rulings. Presumably one could look further by looking up particular cases in law journals.

As I understand it, the two categories: 1. floor trader and/or dealer and; 2. investor, were created by the IRS
and/or Treasury Dept., while the courts have found these two categories inadequate to cover all traders
satisfactorily. Therefore, thru its decisions it has created a third category. Thanks Ted for making this info
available to us.

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 Comments On Precision Day Trading System - Charles Hardy

Based on several people having interest in this product, I will share my personal experience. I purchased
this system in 1993. I was hoping to have a method that would allow me to produce a steady income, as I
am trying to support myself totally from futures trading.

Based on my purchase of a number of other systems that failed to perform as advertised, resulting in
substantial losses. I chose to paper trade this system to determine its viability and to develop a sense of
confidence in it.

After 4-months of tracking the S&P 500 and Swiss Franc daily, I was down several thousand dollars. I
never had more than a few hundred dollars profit at any time. Given my objective to have a steady income,
I determined this wasn't for me. However, what I did like about the system is that it was very objective and
mechanical. Everyone who trades it should theoretically get the same results.

However, when I contacted the developer and his programmer, they claimed their results were much more
positive. Given that I was using real-time quotes from DBC Signal and that all rules were very precise on
entry and exit, I was confused. Further research revealed that the data they used frequently had opening
prices slightly different than mine. Due to the nature of the system, this could definitely alter trading results
since your trade for the day is often determined by the opening price.

Bottom line, I added the system to my collection of purchased systems that I won't trade. I understand there
is now a new version of the program which I am not familiar with. It may be much better.

Keeping A Trade Journal Is Important - Hypothetical Results Are Not Very Valuable -
Comments On Good Trading Books & Misc - Mark Harris

I'm a new subscriber and a few weeks ago received my subscription. I honestly can't think of when I've read
anything (i.e., concerned with trading) that I enjoyed more, that was educational and contained such high
quality and thoughtful articles. Like many other readers, I'm extremely grateful to all the contributors who
were willing to share their thoughts, experiences, 'war stories' and of course, to you for making it all
happen. The downside is that having too quickly devoured all the previous issues, I now have to wait for
almost 2-months before getting another 'fix'. Well, I guess I'll just start over and read through all the issues
a few more times.

I got interested in trading when I was in my early 30's. (Well I was interested even before that - but I didn't
have any loose money I could afford as tuition). Anyhow, that was more than 40-years ago. Still, I can
recall my first wheat trade. I was convinced that wheat had a powerful (bull) chart pattern, so I went long a
couple of contracts (details now forgotten).

Just a few days later we (the US) had some great confrontation with the Ruskies and either they canceled
all their grain orders or maybe we told them they couldn't have our grain until they did this or that. What I
do recall was looking at an almost instant loss of about $3,500 which, needless to say, was real money in
those days.

After just a few years of trading (and mostly losing, of course) I got smart enough to realize that it's
essential to keep a journal of your trading, thoughts and reasons for entering a trade, thoughts along the
way, and of course, how it all turned out. Perhaps the most instructive book I've ever read is MMJ (My
Market Journal).

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When you've built up 20-years worth of scribbling, it's very instructive to go back and read what you were
doing and thinking way back when. My early scribblings are about how the market or politics or whatever
caused my losses - but I finally figured out who the real culprit was. As Pogo said: We have met the enemy
and he is us.

Sometimes, I wonder whether I've really learned anything in 40-years. I humbly admit that I held a long
position in Gold just prior to the start of the desert storm operation. Now (in the strong light of hindsight)
this was clearly dumb! (A stop order was NO help here - look at gap on the chart!)

Now I'd like to say a few words about back-testing. I feel that only real-time trading where the market can
(and does) react to your system has any meaning. Data mining and back-testing certainly have their uses as
long as one doesn't get sucked into saying: "I could have made a million with this system between 1985 and
now." Even walk forward testing is flawed in that it treats the market as static.

Like other CTCN members, I don't think much of hypothetical results and feel that ads such as: "you could
have made $300,000 trading this system last year" are extremely misleading.

Suppose there were a 100 traders (the Yertles) using this (fantasy) system. They would have theoretically
made 30-million bucks. My question is: where did the 30-mil come from? Look at it this way: the losers
already lost their stake, closed their accounts and went back to dentistry. So the money came from winners!
Now, instantly, one sees how silly the idea of "could have made" is. Surely the winners aren't going to sit
idly by while you are taking away their hard earned bucks.

Let's load these 100 system traders (Yertles) into my time machine and take them back one year and let
them trade their system for a year (hey, isn't this better than having tomorrow's Wall Street journal - you've
got a whole year's worth of 'future' data!) I predict four things: 1. the losers will still lose; 2. the winners
won't just sit there and let the Yertles have their 30-mil; 3. some of the Yertles will win and some will lose,
but on the average it'll be a wash; 4. the data generated by including the (new) Yertles trading will depart
drastically from the data we had before we sent our Yertles back in time.

What I'm really saying is that the market is a dynamic and most likely chaotic system and even a single
order may cause large down-stream effects (the so-called butterfly phenomena).

I often read stuff that says: A few hundred traders using this system will not affect a market as liquid as T-
bonds or currency futures or whatever. However with non-linear (chaotic) systems it's well-known that
infinitesimal changes in conditions can completely change the system's trajectory. (There are a jillion books
on Chaos & Complexity. A trader ought to read at least a few).

Books: I agree with CTCN reader's selection of must have books (i.e., Schwager, Elder, Plummer, Koppel
and Abell, etc.). I didn't see any mention of Gallacher's "Winner Takes All" which, I personally think is a
gem.

I highly recommend Grant Noble's "The Trader's Edge" (Probus 1995) and particularly his opinions on "the
holy grail," the REAL costs of trading, and the importance of the open (which many ignore).

Also interesting is Fred Gehm's "Quantitative Trading & Money Management" (Irwin Prof. Pub, 1995)
especially his exposition on catastrophic risk including a discussion on the distribution of prices which (as
cited in a previous CTCN) Mandelbrot showed was clearly not normal (i.e. not gaussian).

Both books are available from either Lind-Waldock or Trader's Exchange.

Also, I note that there's frequent reference to the need for "30 samples or more" for statistical significance.
This, too, is only true if one is dealing with a population which is normally distributed. There are, of
course, distributions where increasing the number of samples will not increase the accuracy (i.e., increase
the confidence interval) of the estimate. (That is, what we have is a population distributed in some

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unknown way and we are attempting to determine the distribution via samples chosen at random from the
population - incidentally the "at random" is important as many a pollster has been chagrined to discover).

Well, I've thrown in my 2¢ worth. I hope all other anonymous traders will keep the "war stories" coming.
As Dave says, your experiences and knowledge are valuable to us all.

PS: I suggest that members with e-mail addresses who want answers to questions (etc.) post their address
along with their phone/fax numbers. (Reply via CTCN.)

Reducing Investment Risk

Modern Portfolio Theory & Money Management - CC

Congratulations and thanks, Dave; the CTCN is a valuable forum for traders to share their ideas and
experiences. We, the members, also deserve a "pat on the back" - for contributing and helping to make
CTCN so interesting. Similar to many other members, I look forward to reading Commodity Traders Club
News.

Modern Portfolio Theory: Several decades ago, the Nobel Prize was awarded to the father of Modern
Portfolio Theory for developing concepts which showed the benefits of diversification. The underlying
theme of the research is that diversifying an investment portfolio can materially reduce risk, without
decreasing expected returns proportionately.

On the other hand, there is a school of thought which believes that investors should learn as much as they
can about a given market. There is a clear tradeoff between 1. being an "expert" on a few markets and 2.
diversifying a portfolio into other markets to improve risk and return characteristics. It is difficult to track
more than a few markets - but the benefits of diversification should be examined. This is a personal
decision since it is important to be comfortable with everything we do.

Quantifying the Benefits of Diversification: The following table shows the expected reduction in volatility
a portfolio can achieve through diversification. It should be noted that the chart makes some simplifying
assumptions - most importantly, that the additional markets are totally unrelated to the original markets.
Many assets are related at least to some extent - due to inflation or currency effects. Table in Print Copy.

Money Management and the Use of Stops: minimizing losses is an important concept in money
management, and indeed, the accumulation of wealth. Many investors use stops to limit their losses in the
form of either 1. actual orders with a broker, or 2. a mental stop which the trader monitors.

Although stops are a very effective money management tool, investors should not blindly place stops for
the sake of using stops. For example, if the stop is positioned too close to the current market price, the
trader will be whipsawed by the "noise" in the markets. The magnitude of the stop should be a function of
volatility, the investor's time horizon, and the characteristics of the trading system.

Feedback: I am interested in other people's experiences and ideas about the following: day-trading, short-
term systems, counter-trend systems, and fundamental/seasonal trading. Readers: please share your ideas
with your fellow CTCN members!

Important Question, Is It Trending Or In A Trading Range?

Look At Big Picture If it's Not Trending - William Ward II

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1995 has shown some nice trends. However, many of the markets did not trend considerably, in view of
daily charts. Understanding traders have varied frames of time in which to trade, one question must be
answered; Is this Marketing a Trend or a Trading Range?

If in a trading range, then trade the market accordingly. Step back and look at a bigger picture, maybe 6 to
9-months or longer -12 to 18 months, considering daily data. Look for the high and low price of that time
frame, which become the boundaries of that time frame's trading range. Look at a daily chart of soybeans
for 1995, for example. You should be able to see a trading range, some time during this year. A trading
range may last for many months, which may seem discouraging. These are times when options strategies
become useful. If options aren't for you, then be patient, the market will soon break out of its trading range,
given some fundamental reason. Yes, another basic concept. But one that has to be remembered and used
with each trade; Is this Market in a Trend or a Trading Range?

I learned a great deal on the subjects of trading ranges, defining a trend, and options from the following
authors: David L. Caplan - The Options Advantage; Joe Ross - Trading By The Book, Trading The Ross
Hook

Of course there are many more wonderful books on these subjects, by very qualified authors. I plan on
reading more of them myself. For me, a good source of learning material has been: Traders Library.
(Contact via CTCN). They can supply the above books.

I enjoy learning from CTCN. There is much wisdom and experience from traders who write in and I thank
each of them who shares.

Expect The Unexpected - DM

One of the most important things I have found out about the markets is: Expect the unexpected. You will be
"setup" time and time again by the reverse psychology of the markets. This is especially true when
daytrading the S&P 500, but surprises are also a part of the other markets and time frames.

Today, 11/15/95 (date article was written) is a good example of what I'm talking about. I'm sure the typical
trader was thinking down. The market did make a rather sharp move down, but that was the setup. It then
turned around, whipsawed a bit and then went up approximately $2,500 per contract. The reverse
psychology of the market had once again put the screws to the common sense psychology of the average
trader.

I have always disliked it when book writers would refer to a good trader as being a kind of artist. Seemed to
me like mysticism was being given some credence. I still don't believe in calling a good trader an artist.
However, I can see where having the ability to sense the psychology of the typical trader, and doing--or
getting ready to do--the opposite, does approach an artistic rather hard to explain ability.

My signals are more than adequate. I will continue to develop my ability to sense the psychology of the
average trader looking for the setup. I believe a trader is well on his or her way to success when most of the
unexpected moves become the expected. Surprise is very much a part of the markets. Perhaps it's the
primary thing that allows markets to survive and pros to prosper.

A flexible mind that can change its market direction mode of thinking, in a minute or two, is a very
desirable thing to have when daytrading the S&P 500. Something I have to work on--always.

For Some Of Us The Older Version Is Better Than

The UpgradedSuperCharts 3.0 - Tom Dyste

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I got my SuperCharts 3.0 CD ROM upgrade a few days ago. Your readers may want to know Omega has
revised the Quick Editor to prevent expansion of its capabilities in the way Shawn Halfpenny described in
an earlier issue of CTCN. With SuperCharts 2.0, I had access to nearly all EasyLanguage capabilities, but
not with SC 3.0. So, I removed SC 3.0 and restored my SC 2.0 configuration from tape backups made just
prior to installing SC 3.0.

If any readers have figured how to bamboozle the revised Quick Editor, which now screens for semicolons
to prevent multiple statements in the If clause, please let us know.

Should Book Writers, System Sellers, etc. Be Successful Traders? - Don McCullough

I agree, they do have a right to sell their wares for huge profits. What I don't like is when they (or their
publisher or promoter) make it sound as though they are extremely successful traders. They often don't say
that exactly, but you can bet that is what they would like to have you believe. That is what's wrong and
suspicious!

Like Gary Smith says, a lot of vendors can do the talk but can't do the walk. I have been a real sucker for
book publishers' hype. I have around 120 books about the markets and now value only about 6 of them.
Fact is, I could do without all but two. Those two are the "Market Wizard" books by Jack Schwager. In
these two books you meet the real pros who have proven they know what they are talking about. These two
books inspire!

Why is it that in all other areas of endeavor it is considered both prudent and proper to ask for credentials,
while in the advisory business anything goes? Would you want to take lessons about how to perform brain
surgery from a guy who only writes about it, or from a guy who has performed many successful
operations? Would you want to learn how to farm from a guy who merely writes about farming or from the
best farmer in the state?

Its been said: "Those who can, do. Those who can't, teach." Actually, good teaching is good doing but, it is
so much better when the teacher can exhibit proof of his teachings in the real world!

K.I.S.S. - Don McCullough

I was pleased to see this "keep it simple stupid" abbreviation alluded to several times in the Oct/Nov 95'
issue. That is the truth! I have messed with many of the indicators, moving averages and oscillators. I find
them totally useless.

When I start to read an article and they start talking about systems, I go to the next article. Back-testing and
all that baloney--I don't believe in it. I do think a few people succeed in this manner, but I simply (speaking
of charts) "eyeballed" the damned things--for hours and hours and hours. Find your own answers to the
markets is my advice, and expect to spend a good deal of time and effort before you do.

Then, have or achieve the ability to act properly with that knowledge. This proper action--made possible by
a proper psychology--will probably be harder to do than you'd imagine. This is my current battle.

I've read lots of books about how to win in the markets, and many more on other subjects. About the best
thing I can say about most of them is they helped to teach me concentration over long periods of time. You
really need that ability when daytrading.

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My guess is, if most people were told how to really trade the markets -- they wouldn't believe it. The
"Gospel" they've been reading and hearing simply wouldn't permit it. These markets have been given a real
"snow-job."

Comments on Swing Catcher System & Misc - Part One - Michael Maldonado

Here's the latest copy of the fax. Sorry about all the scribbling on the last line,- but I cant help it, my streak
of consecutive winners is like the energizer bunny - it keeps going and going and going.

P.S. - Just thought that I'd drop you a line to let you know how well Swing Catcher has been working for
me. During the past year, I've decided to trade commodities full-time. I spend most of my time daytrading
the S&P, but I still use Swing Catcher to trade the T-Bonds. I have been using (CTCN's) Swing Catcher
(System) since Aug. 1992 and have consistently pulled out profits in 8 out of 10 trades in the T-Bond
contract. I use the harmonic files exclusively and would recommend this program to anyone trading this
market. In fact, I closed out a trade today for a small profit! This trade gives me 4 winning trades in a row
during the past 8 weeks for over $3,500 in profits.

The last line on my original fax (above) now reads: "This (Swing Catcher) trade gives me five winning
trades in a row since August for over $3,800 in profits!" Feel free to quote me on that because what I wrote
is the truth and I do recommend Swing Catcher for T-Bond trading.

Reply to Bruce Gould from Editor

Your anger about the negative experience of our member Robert Meadors is very surprising. Do you recall
there have been a couple very positive comments about your system. One in particular we published was
very positive.

Just because Robert had 3 or 4 losing trades doesn't mean your method is not good. Traders realize all
systems sometimes have several losing trades in a row. As you know, there isn't any system out there that
has nothing but winning trades. Yet you are mad because one of your clients says he has had several
straight losers. Are you trying to say you have the only system that never has 3 or 4 straight losers? Do you
want to say that? If you do, I will be glad to publish that in Commodity Traders Club News.

You are also mad because for some odd reason you are afraid I will publish your trading methodology.
There's no way I would do that, with the knowledge it was in fact your exact method. However, it may be
published if someone is speaking in general terms without specific violation of your copyright or
nondisclosure. They may say your method is based on a method in the pubic domain, such as moving avg.
cross-overs, for example, without actual disclosure of your exact rules.

What I was saying in my prior letter is a hypothetical case of unknown to my mutual client sending a
method similar to yours and claiming it was his, without mentioning your name. You then said I would be
liable if that occurred. That is ridiculous for you to say, how in the world would I know in advance it was
your algorithm?

P.S. - Bruce, Is it OK with you if I publish your recent faxes, so my members can benefit by seeing the
reaction of a vendor to a member contribution not liked by the vendor? If I do not hear back from you, I
will assume it's OK to publish them. Editor's Note: Bruce replied he absolutely did not want his words
published.

About the Free G.E.T. Seminar & Andy Bushack - Ken Lindauer

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I just attended a seminar given by Andy Bushack of Trading Techniques, Inc. on the Advanced GET
software at the Newark Airport Marriott in Newark, New Jersey. The seminar was very well done and
presented by somebody who trades for a living. It was approximately 7-hours long and included a buffet
lunch which was surprisingly-good.

The morning session included a 109-page handout with charts and descriptions printed on both sides of the
page. All charts were clear, generally up-to-date and easy to understand. This session included simple and
clear instruction on Elliott Wave applications, the 5-35 oscillator, Type One trades (trading with the trend)
which are trades taken at a pullback within an established trend at an Elliott wave 4, and Type 2 trades (top
or bottom picking) which are trades taken at the end of a trend at an Elliott wave 5.

The afternoon session included a second 75-page handout that also consisted of many clearly illustrated
charts and descriptions. This session included Gann techniques, Fibonacci methods, use of the Advanced
GET software and analysis of current markets.

The presentation was done via transparencies and an overhead projector. Each transparency matched a page
in the handouts. During the second session, the Advanced GET software was projected via the overhead
projector onto a large projection screen for all to see. During breaks, three assistants and Andy were
available for questioning about the markets, any particular tradable that was in their database (they would
actually do an analysis for you of whatever issue you were interested in), and of course their software's
capabilities (which are impressive). They had three computers connected to 27- inch monitors in the back
of the room with the software up and running for demonstrations.

From what I saw of their software, it is impressive. It will automatically do Elliott wave counts (quite a feat
in itself), compute seasonal plots that are graphed on the price scale, present Gann and Fibonacci lines,
automatically pick change in trend dates and many other interesting things, including the ability to run
searches of your tradables for various conditions. It also has all the standard indicators that you expect.

What I liked best about this seminar was that it was totally free of charge, even lunch and parking were
free, and the course content was excellent. They provided useful information, 175-pages of charts and
descriptions and the elusive free lunch. The material was applicable to any market whether you own their
software or not.

I learned many valuable ideas and was exposed to interesting techniques. Much to their credit, they didn't
do a hard sell. In fact, during the 7-hours of the seminar, I only recall a 10-minute sales pitch. It seems their
philosophy is to show some useful techniques. Show the capabilities of their software and then let you
decide.

I suggest members call Andy Bushack at Trading Techniques (contact via CTCN) and find out when they
will be giving a seminar in your area. They also have an excellent demo and literature package you can
request. In closing, I have no affiliations with Trading Techniques or any of their
employees/representatives and I am not receiving any compensation for this contribution (other than an
extension to this newsletter subscription).

CTA Recommendation - Gary Adamson

In appreciation for some helpful information extended to me by contributors to CTCN, I am returning the
favor by divulging the phone number of a CTA who has more than doubled my money in a few weeks: Dan
Parker. Editor's Note: Contact phone number given was not a valid number)

He works for Currency Cap of Deerfield Beach, FL, (Alaron). My brokerage statements from 10/13/95
(beginning equity of 5K), through 11/13: $13,264.84. Dan's fee is 25% of gross profits per month, going up
to 30% 1/1/96. Should anybody wish to take advantage of this profitable opportunity, they are welcome.

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Percent of winning trades: 72% with a profit to loss ratio of 3.4. Rates of return for July through October
were as follows: July 24.80%; Aug. (-8.73%); Sept 28.42%; Oct. 35.86%. It's a managed account in which
Dan uses his proprietary program based on Elliott waves and Sequential.

Commitment of Traders Report Is On The Internet - Michael Ireton

The Commodity Futures Trading Commission (CFTC) has its own Internet Web Page and has the
Commitment of Traders Report available for download either through FTP or as individual files. The
WWW address is as follows: CFTC Home Page:

http://www.clark.net/pub/cftc/home.html

(Editor's Note: The CFTC & Commitment of Traders Reports may also be reached via a link from CTCN's
web site www.webtrading.com)

Commitment of Traders Report Page:

http://www.clark.net/pub/cftc/home.html

This will allow a quicker access than waiting for the papers or news services to put it out.

Circular Progression, Not Linear - About Trading Plans,

Money Management, Etc. Ray Barros

It has been my experience there is a perception among traders that there exists a linear progression among
the three requirements to be successful: psychology, money management and a trading plan.

However, my own experience as a trader suggests that the progression through these three elements is not
linear, but a circular spiral.

Our careers as traders will be circular, because we will continuously move around the circle seeking to
improve these three elements, incorporating new ideas and improving with the experience that only 'hands
on' trading can bring. In the words of T. S. Elliott, "We shall not cease from our exploration and the end of
all our exploring will be to arrive at where we started and know the place for the first time."

As novice traders, we need to begin by formulating a trading plan. Once a trading plan has been developed
to the best of our ability, then we move on to money management and lastly to the psychology of trading.

I will come back to money management and psychology, but meanwhile let's look more closely at the
trading plan.

The role of the trading plan is to provide a structure to work within an environment perceived as
unstructured. This perception can give rise to the 'fear of the unknown'. The trading plan allows us to deal
with this unknown. Also, once we have begun trading our plan, we need to have continued confidence in
our ability to deal with the market. Here we are dealing with the efficacy of the plan to produce profits and
our state of mind as the plan interacts with the market.

Our trading plan will need to have an edge. In my experience, the plans that deliver an edge have the
following common elements:

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1. Trend Identification of moves of similar magnitudes. This includes tools to identify probable changes in
trend. Once the trend is identified, we can determine the appropriate trading strategy.

2. Low risk entry. This includes: identifying appropriate support and resistance areas; setups or warnings
that alert the trader to a low risk opportunity; entry and initial stop placement techniques.

3. Trade Management. Once in the trade, we need to be able to manage the trade. Trade management
includes trailing stops and where to take profits.

4. Finally, the trading plan needs some tool to tell us when not to trade. For example, when there is an
increase in volatility to the point that the our previous experience is of no assistance.

The next point in the circle is the development of a set of money management rules. I believe that money
management comes after the trading plan, because the money management rules will depend to a large
degree upon the real-time results of the trading plan. Also, we will not truly appreciate the importance of
money management until we have experienced for ourselves the erratic or disappointing results that come
from applying a promising trading plan without a set of money management rules.

The questions the money management rules need to address are:

1. How much capital is needed to finance one contract in a particular market? For example, a trader may
decide he needs $40,000 to trade one Bond contract and $30,000 to trade one Japanese Yen contract.

2. What percentage of capital is to be risked on each trade. For example, is it 2% or 5%?

3. Are opportunities across competing instruments treated as equal?

4. Are trading opportunities within the some instrument treated as equal?

5. Are successive opportunities in the same instrument treated as equal?

Once a trading plan and a set of money management rules have been developed, we need to take the plan
into the market. It is at this point that we will not only discover more about our plan, but more importantly
we will discover more about our own psychology. For instance, we may discover we are unable to execute
the plan in the market, or we are unable to execute it flawlessly.

Before we can progress, we must remedy any problems that have arisen so far. To overcome these
problems, we may need to adjust our trading plan and/or look closely at our own psychological makeup.
For instance, the trading plan may need to be made simpler or more robust so that we find it easier to
execute it. Another example, could be that we find our psychology is such that we are more suited to a type
of trading other than the trading style of our plan, for example long-term trading rather than daytrading.

Once we are able to execute the trading plan flawlessly, then we can go to the next step - that is, are we
ready to accept the rewards from the perfect execution of our plan? We may suddenly find ourselves unable
to accept a steady stream of money from the market. This problem normally manifests itself with having a
series of wins only to give back profits in one or two unplanned trades finishing from where we started.
Again, we will have to go back and look at our own psychology and try to remove any blocks that are
stopping us from reaping the rewards of our efforts.

At the completion of this task, we will be back at the beginning of the loop - the trading plan. After
completing the loop we will not only have new ideas to test and incorporate, but also be able to adjust the
plan to better suit our psychological development as a trader.

Once again to quote T. S. Elliot, "through the unknown, remembered gate when the last of earth left to
discover is that which is the beginning."

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 Successful Traders Have Identified

Low Risk Opportunities - John R. S. Piper - England

I have a few thoughts on a few of the points raised in the last issue.

Firstly, Don McCullough makes what I consider to be an important point. He says he wonders "how many
top pros can trade most of the market turns that occur during the day." I reckon the answer is "Zero." I think
the question denotes one more of those things we might call "The Holy Grail" which serve to mislead those
who are struggling towards trading success. But maybe I am wrong. Does anyone know anyone who
catches most of the turns or even claims to?

On the assumption I am right, I believe the truth is that successful traders have identified a number of low
risk opportunities and they have developed the ability to follow those signals without deviation. I think that
is the secret - although really it is staring us all in the face.

Secondly, Robert Meadows suggests protection for those buying and selling systems. Yet the market is a
far more devious combatant than any system seller. What is the next step? Further regulation of the market
followed by closing the market down because it is too dangerous. Apparently in trading, we are our own
worst enemy. If we learn that by being ripped off on a system, maybe the lesson will cost us less than if we
have to learn it in the market itself. Trading is all about looking after yourself. If you think you need
protection buying a system, maybe a trader's life is not for you.

Well-Known Vendor (Who Doesn't Want To Be Named) Asks About Our Ethics

I have a general question for you personally, as a publisher and as a developer of trading systems. If one of
your subscribers were to send you the precise mechanical details of a trading model or system that he/she
did not originate and was copyrighted and/or protected by non-disclosure agreements signed by purchasers,
would you feel free to publish these precise details? Or would you feel bound by legal, publishing or
business ethics not to publish material protected by copyright, trade-secret or non-disclosure agreements or
law?

What is your general publishing ethic regarding the publishing of the precise mechanics or trading details
of any trading method or system copyrighted and/or protected by non-disclosure agreements? I would
appreciate knowing your company and your personal policy in this regard.

Editor's Note: CTCN and its editor would never knowingly publish a vendor's trading methodology or
violate their copyright or non-disclosure agreement.

Protective Stop Placement

Robert Miner

It's important for traders to decide the conceptual philosophy of each phase of a trading plan before
constructing specific trading rules. Traders are often at odds as to the method of protective stop placement
that should be incorporated in their trading. The concept of protective stop place should be: Place the
protective stop at that price level which invalidates the reason to be in the trade. The protective stop signal
must be determined by the same method as the entry signal.

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A couple examples will illustrate this stop placement concept. My analysis techniques are oriented toward
identifying trend changes at coincidences of projected time and price targets. While these time and price
projections are very accurate, they are not prophetic (100% accurate). Trend reversal trades are usually only
initiated if the market provides an initial trend change signal by making one of three daily reversal signals
which are reversal day, signal day or snap back reversal. Since a reversal day pattern is well-known by
traders, I will use it as the example.

Let's consider the market has trended into the coincidence of a projected time and price zone where we
anticipate a trend change low will be made. We will buy on the close if the market has not exceeded the
time and price targets, and the market makes a daily reversal signal where a new low is made on the day
with a close above the prior day's close. The trade is entered on the close of the reversal day. There is only
one logical place to place the protective stop loss; one tick beyond the reversal day extreme, in this case
one tick below the low of the reversal day. If that extreme low is exceeded, the reversal day is no longer
valid as the trend change signal.

The same method that triggered the trade entry signaled the exit strategy. The reversal signaled the trade
entry. Exceeding the extreme of the reversal day invalidated the reason for the trade and signaled that the
trade should be exited.

For another example, let's use stop placement determined by Elliott wave pattern analysis. Let's assume the
market is in a bull trend and we enter a position on the breakout above the wave one high and believe the
market is in the initial stages of a five wave, impulse advance.

An Elliott wave rule is that a wave four must not trade into the price range of the wave one. If our Elliott
wave analysis determines that the market has completed a wave three and is making a wave four correction,
the stop loss on a long position cannot be placed any lower than one tick below the wave one high. If the
market declines below the wave one high, it has invalidated the reason to be long according to our Elliott
wave strategy and rules and requires that we exit the trade.

The same method that triggered the trade entry (buying the breakout of wave two while anticipating a five-
wave impulse advance) signaled the specific price which must be the extreme stop loss level. Other
analysis factors may indicate that the stop loss be placed closer to the market than one tick below the
suspected wave one high, but the stop loss must not be placed further than that level if the stop loss
strategy is to complement our trade position strategy.

Every trading method that signals a trade entry also always signals a specific minimum dollar stop. If a
trade entry signal and its corresponding stop loss signal require a capital exposure that is greater than what
is acceptable for the trading plan, the trader has no choice other than to pass on the trade. When this is the
case, he may only enter the trade if subsequent market provides a stop loss signal allowing a trade entry
with an acceptable capital exposure.

For example, if gold makes a wide-range reversal day at a projected time and price for a trend change low
with a close at $390.0 and a low at $384.0, the capital exposure will be $610. Trade entry on the close of
$390.0; protective stop loss at $383.90, one tick below the reversal day low; $390.0-$383.90 x $100=$610.
If a $610 capital exposure per contract on a gold trade exceeds the amount allowed according to the trading
plan, the trade cannot be taken on the close of $390.00. If the maximum capital exposure allowed per
contract on a gold trade is $500, the trader has no choice but to place an order to buy gold at $388.90 or
better ($383.90 + $500). If the market declines to allow the trade entry, all of the conditions have been
satisfied to enter the trade.

I assume all traders know they must have a specific maximum allowable capital exposure per trade as part
of their trading plan. If a trader doesn't, he or she will not be trading for long.

The concept that protective stop losses are always determined by the same methodology that signals a trade
entry is applied to any method of analysis and trading whether it's based on volatility breakouts, indicator
crossovers, swing highs or lows, etc. The protective stop loss placement should not be a difficult decision

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to be made by a trader, as long as the trader is making decisions according to a plan that includes a well-
defined methodology approach. If the trader has not settled on a definite trading approach, it doesn't matter
where the stop loss is placed, as long-term success is impossible without a definite plan.

E-Mail For Members? - Ray Barros

Is there any way we can set up an e-mail address of CTCN members? As Internet becomes more popular,
sent an address book would enable inexpensive communication between members in different countries.

Editor's Note: We are looking into this and will let you know. Our e-mail address is
ctcn@webtrading.com

The Pros and Cons of Using an Oscillator - Dave Reiter

To determine if a particular market is overbought or oversold, most traders use an oscillator. For those who
are unfamiliar with this term, an oscillator is a momentum index which is used to identify
overbought/oversold conditions in the marketplace.

Most oscillators fluctuate between 0 and 100. Generally speaking, a market is considered overbought when
the oscillator rises above 70. Conversely, a drop below 30 signifies an oversold condition.

The most popular oscillator is the Relative Strength Index (RSI). Besides RSI, there are also several other
"canned program" indicators which are religiously followed by many traders.

The major problem with oscillators is the fact that their entry signals tend to come early. In other words, the
market will continue to rise (fall) for an extended period, though the oscillator has advanced into
overbought (oversold) territory. For anyone who has traded the markets using an oscillator, this can be a
very frustrating occurrence.

The "key" to making money with oscillators is to avoid the many "false signals" which will inevitably
occur. Unfortunately, this is easier said than done!

Recently, I discovered a pattern which seems to work fairly well. The pattern is not perfect, but it's
certainly better than using the "traditional approach" of buying when the oscillator falls below 30 and
selling when it rises above 70.

Specifically, I wait for the market to reach an extreme overbought condition for an extended period (i.e., at
least 5 consecutive trading days). The next step is to allow the market to fall below its overbought level
(usually 70) for a few days. Next, I wait for the market to become overbought a second time. Ideally, the
second overbought reading should not last as long as the first.

Finally, when the market falls below its overbought level for the second time, I enter the market on the
short side. Obviously, the opposite scenario will occur for buy signals. As I mentioned earlier, this method
is not perfect, but it certainly reduces the number of "false readings."

If you have specific questions concerning this trading approach, contact me via CTCN.

Very Reliable Way to Identify A Reversal Ashley Howes

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An item that Kent Calhoun pointed out: The so-called OVB. This means an outside vertical bar, or an
outside day. If you look at any bar chart, you can identify the OVB's and calculate: what percentage of
the time they occur (usually around 5 - 15%); ‚ what percentage of the time they give profitable signals.
Also, how many profitable when other factors are present such as overbought/oversold at end of a trend, at
beginning, etc.

One combination I have found very reliable is simply this: If the previous two highs are exceeded by the
day's price action in a current bear market that signifies a reversal. In Kent's pure 5 vertical bar method, you
have to have two days' data to get a reversal.

What he refers to as a POP or a SOP are proprietary break-out numbers that he has optimized for each
market that are x- points above and below the open each day. They are used as entry and stop/reversal
points in his daytrading methodology.

Can't Afford Real-Time? Look Into This LeRoy Jenke

If you like to watch market action, but need to be lean and mean, I have a solution that is cheaper than
Signals' delayed quotes and on top of that is real-time. The requirement is a modem. For roughly a $100
startup, $25 per month and 10¢/call, CISCO offers a real-time update on the hour and every ten minutes
interval past the hour. Simply call in on the minute and you have a real quote. CISCO is in Chicago, contact
via CTCN.

For a little inspiration to hang tough in this difficult business, I reread Self-made in America by John
McCormick, which is in the library. It's about recent immigrants who stepped on our shores with literally
nothing more than the clothes they were wearing and became business successes.

Thanks for the support this club has offered to another reclusive student.

God Didn't Help Me Get Insight To Trading &

Human Behavior, CTCN Did - My First Year - Charles McDaniel

You can't imagine how hard I have prayed this year. At first I was asking God to manipulate the markets
for me. The pressure of these prayers was killing me, so I quit praying that way. It wasn't doing any good. I
guess God felt it wasn't fair to everyone else. Then I joined Commodity Traders Club News and began to
get real insight to trading and human behavior regarding the market psychology.

I read about daytrading and decided to try it. I made $100 and got out. This was the first money I made on
my own and it felt good! The world was mine. Everybody should be a trader. The winners make you happy
to be alive. The losers make you humble and bring perspective to us and what you really are. Just a
common person living in the greatest country on this good earth. I relish our opportunities to excel in this
economy. CTCN members write and tell us everything about trading. Help us grow. I love you all.

Gary Smith - Harold Neer

I have followed anonymous trader's letters with considerable interest since daytrading the stock indexes has
come to be my main interest (forsaking position trading, bellies, bonds, cattle, grains, OJ, coffee, etc.). Now
using the NYFE, maybe S&P later.

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I have used Gary Smith's methods. I consider his books worthwhile; also, methods of my own
development. CNBC and phone quotes; no quote screen as yet.

Way To Enhance Futures Truth Report

& Info Wanted - Phil Baker

Your newsletter is getting better, because more members are writing about how to trade, which is why I
subscribed.

In each issue you list Futures Truth Top-10 systems for 12-months and since release. If possible, I would
like you to list what kind of system each is, so we will have an idea on what kind of system is doing the
best. Example, short-term breakout or long-term oscillator or intermediate channel break.

Editor's Note: A good idea. I will ask Futures Truth for their feedback on your idea and permission to
publish more details on the systems. Perhaps we will start doing that commencing with the next issue.

I have SuperCharts and would like your readers to write about what are the two or three things to look at
that can help determine if a system you have developed and tested will be profitable in real-time.

I would like B. E. Kramer or other members to write more on KCI and the 5VBTP and other systems. Plus
info on a way to use different cycles then combine them and accurately forecast turning points in the future.
Does anyone know what books or software have info on this?

CFTC vs. Kent Calhoun &

KCISeminars - Anonymous

I'm new to the markets, but not necessarily to the business world. For nearly 10-years I owned a profitable
7-figure business. Upon nearing forty, I grew tried of the same ole, same ole and decided it was time to
change hats. I zeroed in on commodities, because I felt it was the ultimate business and still do. Different
from my previous business (no employees, lawyers, on demand reports, financial responsibilities of
meeting $½- million a year in salaries and fringe benefits), I saw commodities as a way to be my own
person.

When I first "zeroed in" on commodities as a beginner, I missed my mark like too many beginning
commodity students do. My first experience exactly 1-year ago was losing $230,000 in 90-days. All of this
took place with a charlatan full-service broker in Florida, who practically described himself as being only
one step below Jesus Christ (or was it one step above?) Either way, he ended up making $80,000 in
commissions, which even at $100 a round-turn would have been acceptable then, if he had made $230,000
instead of losing it for me.

I learned very quickly, albeit not quick enough. The only way to make money in commodities was to
become knowledge self-reliant and call my own shots. This I knew even then, was the only way I had ever
made money in anything else I had ever done. Mid-life crisis. So, I began my search for someone in this
business with real integrity. My personal search ended when I met Kent Calhoun.

My previous business allowed me to come in contact with more than 15,000 people each year. I still make
mistakes in judging people as with the Florida broker, but my experience in dealing with so many people
gave me a great opportunity to get to know and learn about people.

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When I met Kent for the first time, I felt a genuine care and concern which came from him toward others
who were genuinely interested in him teaching them to be successful traders, especially neophytes like me.
I could tell he meant business and didn't really want to be associated with those who weren't willing to
work hard and learn. There is nothing unusual about this. For in all of life's endeavors, successful people
want to be around other successful people.

The CFTC investigation against Mr. Calhoun is, as far as I can see, totally without merit. Never have I ever
failed to see a disclosure violation or fraudulent, unsupported advertising of any kind. I've never heard him
say "I'm the best" or boast or brag in any way. Although, there are many traders who will gladly say it for
him. In a recent conversation with a group of traders, they all said "Kent is the best teacher and his systems
are light years ahead of what anyone else has to offer." They said this, not me, but with regard to many
other good people in this profession, I believe it personally to be true.

My observations of the world are that the hardest thing for people to do is stay positive in a world engulfed
by negativity. Those of us who know Kent, are grateful for all he has taught us about trading and life's
integrity. We take great pride in watching him stand proud, tall and without fear against his adversary. This
world is filled with so many people with damaged egos, jealousy, low-self worth, decayed self-esteem,
points to prove (bosses to please) that the only way many can make themselves look and feel good is to
make others look and feel bad.

If the CFTC wants to do something positive for traders (which at this time it appears they don't) they
should clean-out the commission hungry full-service brokers who couldn't make a living trading their own
account, but instead prey on beginners. Truth is, most of them couldn't make a living doing anything if it
weren't for preying on suckers.

My thoughts since losing $230,000 in 90-days have been that no full-service broker should be allowed to
advise the public unless he or she can show at least a 2-year track record, of positive returns of at least 25%
per year. Do I have the attention of all you traders who have lost with the misguided advice of a full-service
broker? I know you're out there. You have permission to crawl back out from under the woodwork and take
a stand. Does anyone have the power to change what happens to most new traders?

So CFTC, its been 6-months. If you have "KCI" proof positive, let's see it in writing." If not, its time to
issue a statement to the trading world that the wrong doing you suspected of Mr. Calhoun wasn't factually
based, along with a formal apology to him. This way, Kent can get on with doing what he does best.
Teaching others to be successful in life and trading.

I still have several thousand dollars to make back, and S&P 500 just dropped a thousand ticks.

Info Wanted On Market Timing Group In Dallas - Gerald Barrington

Steve Kelson previously marketed "Trade with $200 Stops" and now developed a system that claims to
catch most major turning points.

He recently ran a pretty big ad in Investors Business Daily. He says the system was reviewed by "Club
3000." Has anyone had experience with "the System" or the developer?

Keltner Channels Designation Never Used By Me,

But The Work Is Copyrighted By Me - Chester Keltner

I really don't know how anyone should be designating any of my work as the "Keltner Channels." That
designation was never used by me in any of my writings or otherwise. What I think it is, pure and simple, is

398
a reference to the buy and sell points explained and illustrated in the trading rules published in my book
"How to Make Money in Commodities," by Keltner Statistical Service, Inc.

This work is under copyright by me and should not be published by someone else with the representation
that it is theirs. This is the kind of infringement that could lead to serious legal trouble for the party doing it.
I don't mind being credited for the work I have done, but I don't want my work passed on as belonging to
someone else.

Failure Is Stepping Stone To Success &

O.C.O. OrderExplanation - Mark Owens

I ordered (CTCN's) Swing Catcher trading system a couple of months ago, but shortly before receiving it, I
decided I would "go it on my own" for a while before trying your system. If failure is indeed but a
steppingstone to success, then I have a very bright financial future ahead. My losses appear even worse in
light of the track record for Swing Catcher over the same period, and I'm now (better late than never) ready
to give the system its turn.

I do have one question regarding order placement. I know that OCO orders are accepted for currency
futures, so stop and target orders can be placed at the same time, but I am not sure how your system
recommends doing this for markets that do not accept OCO orders. It seems a risky business to place
separate stop and limit/MIT orders given that on a volatile day in some markets both could be hit: should I
just trade with the recommended trailing stop order and get out at the open on the day after the target price
is reached or is there another strategy?

Answer from Editor: About O.C.O. (One Cancels the Other) orders: They are accepted at some
exchanges, but not others. It is required to place two separate orders on markets that don't take OCO. There
usually is not too much risk, as the chance of both getting hit prior to your broker fill call back on order one
is very remote. It is possible, but very unlikely! Once in the trade, only use the trailing stop.

With Help And Counsel Found In CTCN,

I Can & Will Trade Successfully - David Fent

Thanks for creating this forum. Eight to 10-years ago I washed out on my first effort at trading
commodities and haven't traded since. As a recent subscriber to CTCN, I have been greatly encouraged to
the extent that I'm certain I will be successful when I resume trading in the future.

Now for the amplification. The reason for this wonderful new confidence is twofold: First, the
contributions of those who recounted their trading misfortunes, exposing themselves to all that we may
profit from their mistakes. Some of what I did wrong was present in many such articles, particularly having
a strong opinion (mostly based on seasonal expectations) and therefore "stretching" my entrance signals
because I wanted in. Also, getting overconfident and relaxing my vigilance after some initial success.

Secondly, the tips and advice from successful traders kind enough to share them with the rest of us. Thus to
see that anonymous trader is making a living using essentially the same market entry signals that I failed
with, shows me that my trading tools will work if I can get out of the way and let them.

Recent articles by Robert Lahodny, present some worthwhile concepts. In short, my belief is that a person
with a rudimentary acquaintance of trading from chart signals can make a living trading with no more
information than the articles contained in CTCN.

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It is scarcely possible to describe with words the despair you feel when you tackle the markets and lose, not
only your stake of risk capitol, but also the hope of being able to succeed. Though I have not yet resumed
trading, my entire experiences of what it feels like to be alive, has been profoundly uplifted by the certainty
that with the help of the counsel offered here, I can and will trade successfully.

P.S.: David Fent wants CTCN member and article contributor Robert Lahodny to contact him (via CTCN).

Internet For Historical Data - Bill Quinn

I have been using the Internet for historical data retrieval and have found the CBOT site to be very
extensive. I would like to see more information concerning other sites and their usefulness for traders.
(CBOT is found at WWW.CBOT.COM)

Made Over $4,000,000 Using Gann Methods

and Kept It! - An Anonymous Contributor

I enjoy the articles, especially anything relating to W. D. Gann. Lucky he existed or many would have
nothing to argue about.

Trading his methods have been very kind to me and many whom I know very well. I have only had one
article published in US That was in Gann/Elliott Magazine 1989. The forecast was for a top on 10-20-89,
then a panic reversal. No question. In Australia I published a date of 10/3. The actual top came in on 10/4 at
1855, which was my exact call. Of course, we had the crashette of 1989 on 10/19-28. Gann works for me.

It has been worth about 4 or 5 million dollars, which I have kept. I have traded for 10-years. I always
predominately trade by W. D's Methods. Suppose I should back this up with an article. I just don't need the
flack that it sometimes produces. Anyway, thanks for a great publication.

Successful Interval Trading With Options - Mervin Pearson

For those of you in commodity land that insist on Interval Trading, I have a simple method that might be of
interest. The example I use will be on soybeans, but it can be used in all markets. These markets should
have sufficient liquidity in the options, so that you can get filled.

In soybeans I start selling the closest month bean Put, 6.00 right now, I am using the November contract. I
sold the 6.00 Put for 10¢ or $500 per option. Sell another at 20¢, 30¢, etc. On the first option you sell - do
nothing. All the others take a 10¢ profit; i.e., buy the 20¢ Put back at 10¢, then put in another sell at 20¢.
Simple enough!

Hold your position(s) until the options either go out at 0 (worthless) or you are exercised.

Good Broker - Terry Davis

After 15-years of trading, I finally found the right place to trade. It is Index Futures, but more specifically
Susan Green. Fills are excellent, and service is the very best I have ever dealt with. Contact her via CTCN.

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 Omega SuperCharts Tips & Questions Edited by Nom D. Pflume

Question: "Dear Nom - Fooling the Quick Editor as Mr. Halfpenny describes is great, but how do I learn
about EasyLanguage? I can't buy only the manuals to TradeStation."

Nom Responds: "Learn mysteries of EasyLanguage at no added cost by studying the lxxxx.ASC,
Fxxxx.ASC, and Sxxxx.ASC files, which contain all your built-in indicators, functions and systems.
Basically anything they can do, you can do. Don't declare inputs, since the QuickEditor does it for you."

Question: "Dear Nom - When I run my system I get the ".EXE too big" message and my system won't run
even though it 'verified' OK in the editor. Help!"

Nom Responds: "Unless your system gets really complex it should run when you employ these techniques
to shrink it. First, and most important, if your system uses any built-in indicators or functions, or user
functions, then rewrite your system (using Shawn Halfpenny's methods to gain full access to
EasyLanguage) so these are called one-time even if you use them several times. For example, if you use the
Parabolic stop, which is a built-in function, in 4 places, then assign it once at the top of your system to a
variable, and use the variable 4 times instead. When SuperCharts loads your system it apparently adds
space for the function for every time it is called."

Note that MaxList and MinList are only used once each in the following example, so there is no space to
gain by assigning them to a variable.

Program example:
OLD:

IF ADX(ALength) blah-blah1 Volatildy(VLength) or MaxList(Value1, Value2, Value3) >=0 THEN

ExitLong Next Bar at Parabolic Stop - 1 point;
IF ADX(ALength) blah-blah2 Volatility(VLength) or MinList(Value4, Value5, Value6) < 0 THEN
ExitShort Next Bar at Parabolic Stop + 1 point;

NEW:

Value7=ADX(ALength); {The only tome ADX()appears now.}

Value8=Volatility(VLength); {Ditto Volatility().}
Value9=Parabolic; {the only time Parabolic appears now.}
IF Value7 blah-blahl Value8 or MaxList(Valuel, Value2, Value3) >=0 THEN ExitLong Next Bar at Value9
Stop - 1 point;
IF Value7 blah-blah2 Value8 or MinList(Value4, Value5, Value6) < 0 THEN ExitShort Next Bar at Value9
Stop + 1 point;

Secondly, reuse variable names when possible. For example you could reuse variables (Value1,
Condition17, etc.) from long exit in your short exit, since a system is unlikely to be long and short at the
same time. This saves less space than avoiding function calls, but it helps.

Third, do repetitive calculations only once. Example - If you calculate a stop and use it in many orders
statements, rewrite it as shown and your system will shrink:

OLD:

If whatever THEN ExitLong Next Bar at L - lnt(50/PointValue) Points STOP;

If something else THEN ExitShort Next Bar at H + lnt(50/PointValue) Points STOP;

NEW:

401
Value6=lnt(50/PointValue); {only do this calculation one time, use results over and over}
If whatever THEN ExitLong Next Bar at L - Value6 Points STOP;
If something else THEN ExitShort Next Bar at H + Value6 Points STOP;

How to program an exit for the bar of entry: Many systems, especially breakout systems, have rules for exit
on the bar of entry to control whipsaw losses on reactions. In EasyLanguage this can be a problem, but as
an hypothetical example, to exit on breakout systems that enter from flat the following approach will work
--

{ Put code like this in near top of system, before entry orders }

Condition9=MarketPosition(0) <> 1; {Not Long.}

Condition10=MarketPosition(0) <> -1;{Not Short.}

{Example - IF EXIT ON OUTSIDE DAY REVERSAL ON ENTRY DAY }

IF Condition9 AND Condition10 Then EXITLONG ("IxEntRev") Next Bar at Low - 1 point STOP; {exits
if entry day is outside reversal}

IF Condition9 AND Condition10 Then EXITSHORT ("sxEntRev") Next Bar at High + 1 point STOP, {see
above}

Explanation of above example:

EXITLONG and EXITSHORT only work after an entry has happened. Your breakout system only buys
new highs so if are long there was a new high, and if the bar then goes below the previous low it is an
"outside day reversal." On the flat day(s) BEFORE your system gets long Condition9 and Condition10 are
TRUE and the EXITLONG order is active, but after the first bar in a long position Condition9 is FALSE,
so these orders only apply on the actual bar of entry. Hopefully, this will inspire fresh thoughts on how
your system can have exits for the actual bar of entry besides those built-in money management stops.

Note: SuperCharts will sometimes exit on this order even when you doubt the exit stop price was hit later
in the day/bar than your entry price.

How to program orders for the next bar after an entry bar:

{Put code like this in near top of system, before entry orders } Condition9=MarketPosition(0) <> 1; (Not
Long.}

{After long entry order(s) code, put the following }

If Condition9[1] And MarketPosition(0)=1 Then Begin

ExitLong blah-blah

Sell Blah-blah2

Condition79=TRUE;

Value4l=3;

End;

{Same idea for short entry days too }

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Explanation of example:

The manual says position variables are updated at the end of the day, but MarketPosition(0) is an apparent
exception. The above IF clause catches the case where the system was not long yesterday
(Condition9[1]=TRUE) but now the system is long (MarketPosition(0)=1). This is the definition of day/bar
of entry, so any orders, exit variable initializations, etc., placed between Begin and End will only be
executed on actual day/bar of long entry.

In a future issue, Nom D. tells a way to completely beat the 64KB size limit for systems without hiring a
programmer to write DLLs or moving up to TradeStation. However, as noted by Robert Prechter, many
good systems are destroyed while being made into perfect systems. 64KB is really quite a bit of room.

The most interesting tips and questions from you, our sharp and/or befuddled SuperCharts users, will be
presented! Send in your items to share.

That's all from for this initial column. Send/Fax your Supercharts tips, techniques or questions to
Commodity Traders Club News, Attention SuperChartsSwami (or whatever). DO NOT contribute any
material that you consider proprietary. Nom's focus is on maximum effective uses of SuperCharts, so
system ideas or indicators are only commented on incidentally to discussing how to program them. All
materials become unrestricted property of CTCN when received from you. If your SuperCharts tip is
printed, you get your choice of CTCN Special Reports, a $5 value, for only $5.01. All decisions of Nom D.
Pflume, while admittedly arbitrary and inscrutable, are final. All submissions will be reviewed, but only
those selected for publication will receive a response, since Nom also has a wife, three teenoids, a dog and
cat to attend to, not to mention a job and multiple trading accounts. Nom, being only half Norwegian, has
his limits, as Mrs. Swami so kindly (and frequently) reminds him.

Fundamental Analysis

Of GrainMarkets - Alice Sanders, CTA

Bean Talk - September USDA estimates of soybean crop was 2.285 billion bushels; its average yield
estimate 37 bushels per acre.

One market analyst estimated frost damage at 100 110 million bushels; a 2.067 million bushels total crop
size, an average yield 33.5 bushels/ac., carryover into the 1995/1996 crop year he estimates al. 250 million
bushels.

The November 9 crop production report will be based more on harvested yields.

Soybean purchases seem more front loaded than corn; farmer may hold the beans in hope of higher prices.

Brazilian crop is 22 million tons (3 million tons short of last year's).

Argentina needs relief from draught. In view of above analysts predict: March soybean futures prices at:
$6.80 up to $7.50 at a January pivot.

Wheat Talk - September USDA estimates of wheat crop is 2.187 billion bushels. 1995/1996 carryover is
projected at 427 million bushels.

One analyst observes that export demand is the key issue. In South American: Argentina a major supplier
of wheat is plagued by drought, may not be able to fulfill Brazilian demand. The European Union will be
out of the market till mid-November. In view of these and some historical review, some analysts predict a
strong market at year's end making contract highs this crop year, however they expect an even stronger

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market move later around March due to bad planting weather and light carryover in 1996: Dec. wheat
futures price forecasts $5.00 - $5.11 - March wheat futures price forecasts $5.25 - $5.40

Corn Talk - September 29 USDA estimates of US corn corp. was 7.832 billion bushels: this is over 3% less
than the August US corn crop estimate. A market analyst from Professional Farmers of America expects
final crop size to fall to 7.55 - 7.6 billion bushels, since the September freeze may have cost farmers 365
million bushels. A commission house sees the final crop as low as 7.450 billion bushels. August and
September frosts and continuing frost threats could force a consolidated corn and soybean harvest,
according to a professional expert. This could result in a rapid basis price appreciation: 20¢ - 25¢ in first
half of November due to weather.

Market may not feel its real tightness until December/January, he says. Farmers already have sold much
corn forward, relative to beans, so they may hold on to the rest in hope of higher prices. An other expert
adds: this time of the year corn prices have not reached such highs for the past fifteen years (above $3.00).
Some analysts forecast a pricing turning point for January others for March 96.

December corn futures price forecasts: up to $3.50 if pushed by speculators; up to $3.40 due to need to
ration usage.

Though exports are being front loaded, a rationing of demand may come in January, analysts expect. China
now importing and Argentina having sold out most of its crop, just a small rise in wheat prices may send
corn prices higher, says one analyst.

March corn futures price forecasts: up to $3.30 - $3.35; up to $3.50 - $3.60 depending on the involvement
of importing countries.

One leading house takes a more conservative view, setting the general corn futures market in the $2.95 -
$3.15 price range until January or later, and more volatile markets after March depending on US crop
growing conditions.

Also Everything I Do Works Because I Learned

How To Trade (Like The Anonymous Trader) - Joe Ross

I received your postcard and would love to accommodate. Believe me on that, Dave. However, my trading
methodology is such that if I still haven't been able to get it down on paper after having written six books,
with a 7th in progress.

My whole approach to trading is so vastly different from your own. From what I gather, you are primarily a
systems trader with a methodology. My own trading style is eclectic. I approach the market with a vast
toolbox full of techniques. I trade the markets dozens of different ways. You and your readers have seen
one of them in anonymous trader's S&P trading. But frankly, I would be bored to tears if I had to trade only
one way. My nature is that of an adventurer.

Though one simple technique for trading the S&P may suffice for making money, I can't stand to do only
one thing. My trading jumps all over the place. I'll fall in love with Options and trade the dickens out of
them. Then I get bored and switch over to Spread trading. Other times I look at outright futures trades. I
usually trade on News if I feel it gives me some sort of edge. Seasonality plays a large factor in my trading.

I don't care if a market is trending or going sideways. I don't care if it is exploding or collapsing. As long as
I have the right tool for trading what I see, I'll go for it. I have used and still use darn near every technical
study ever invented. Yet I prefer to simply trade what I see on a plain vanilla bar chart.

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In the last few years I have traded almost exclusively in the Interbank, because I don't have time for short-
term trading anymore. Being an educator is my most recent passion. There is little thrill for me in only
trading the markets. I want to teach others how to do it. The challenge of doing that is utmost in my life
these days. I'm having a lot of successes, but there are still more traders who fail than who make it. Helping
others has been the most rewarding thing I've ever done, better than just trading for money.

My trading methodology, if I have one, is to have learned how to read a chart and to know which tool to
use and when to use it. Almost everything I do works, because I've learned how to trade. I think
Anonymous Trader has been explaining that concept to your readers. Much of my trading is intuitive,
judgmental, and based on what I see happening when I go to trade. The least part of my trading is involved
with entry. It's what I do once I'm in the market that counts. That aspect of my trading is almost entirely
subjective, and based upon long years of learning personal discipline. When I am trading, I know who I am,
what I can do, and where I'm going. To me, trading is at least 80 percent personal discipline.

Benefits From Anonymous Trader & Psychology Evaluation &

Advice To Sell L. C. Puts - The Enemy Is Within- Robert Edwards

As a personal note, I want to thank Anonymous Trader for having the guts to publish an article nearly a
year ago in which he pointed out my negative psychological perspective. I decided to be evaluated and was
determined to be manic depressive. Through counseling, an anti-depressant (Zoloft) and a good support
system that has been set up, I have made tremendous psychological improvements and my trading has
benefited as a result.

I realize now that my obsession for technical analysis was a futile attempt to overcompensate for my
psychological frailties. Realizing where the enemy is and learning to effectively deal with it, may someday
make this my strength rather than my weakness. Well, thanks again, Anonymous Trader I strongly urge
other readers to study one of the many good books on the psychology of trading and seek help if they are
not making money!

In closing, for those who have been following my option articles, I explained selling cattle Put options in an
article a year ago. My recommendation of selling Put options this time of year in Feb. and April live cattle,
appears to still be valid. I have progressed greatly toward the development of an unbelievably profitable
program of selling out-of-the-money Puts and Calls (short strangles).

One trade I will have on by the time traders read this is that I will be short April Cattle 64 strike Puts.
Contract lows in the April 1996 Cattle contract is 63.90 and it is highly unlikely we will make new contract
lows this time of year.

Contact me via CTCN.

Options & Spreads: The Neglected Klondike - Greg Donio

Everybody wants to be wealthy. Economists tell us, alas, that if everyone were a millionaire, a loaf of bread
would cost a thousand dollars. So what if there were a sure, quick and easy way of tripling your money?
Everyone would use it again and again. We would all eat sirloins costing two or three grand per pound.

Many investors and traders overlook this hard economic fact as blithely as do horse-players and casino
customers. Thus innumerable venturers in stocks, futures and options end in bankruptcy court, sitting next
to an "I had a system" roulette-player. What could they have done differently? How about letting others pay
for most of the chips?

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With both option spreads and futures spreads, you buy one batch of contracts and sell another batch usually
on the same day. The money from what you sell pays for most of what you buy, with you paying the
difference or the "debit." That meaty buffalo herd--other people's money--beefs up your ability to make full
and replenishable profits.

How much is an ample profit? No easy answer; wealth-seekers argue over this frequently, with opinions
hemispheres apart. Let say that a gambler goes to a racetrack or casino with $100 and emerges with that
plus $10. Disappointing. Barely pays for parking. He hoped to parlay it up to $500 or $1,000.

Hold on, Charlie. A 10% percent gain in one day annualizes to 3,650%. A federal bond or a certificate
paying that much would be astronomically fantastic, an ecstasy of wealth if an agony of inflation. Yet the
small-time gambler is disappointed. On the pittance end of the spectrum, a retiree tolerates one or 2% per
year from a "blue chip" in his portfolio. "A good company! Well-established."

In the throes of speculation fever, many futures traders and options traders resemble the gambler in their
notions of what to expect and what to call disappointing. They feel devastated if the complex, surprise-a-
minute market does not function in their hands like an easy-to-operate money-printing machine. If the
market dished out fortunes as easily as they wish or anticipate, it would make everyone a millionaire. It is a
zero-sum game, not a money-printing game.

A zero-sum game means that someone must lose a dollar for each person who gains a dollar. This conflicts
with the vision many have of a bountiful cash-crop, although plenty of bushels can be gained. W. D. Gann
once wrote, "People expect more profits in speculation than in any other business. A man who would be
satisfied with a return of 25% per year in a business is not satisfied if he doubles his capital every month in
Wall Street."

Many people are satisfied with 4% in a savings bank, but when they come to Wall Street and put up $1,000
they expect to make $1,000 in two or three weeks. They are the people who buy on a 10-point margin and
always lose. Do not expect the impossible in speculative markets.

You may think an average of ½-point a day, or 3 points a week, is too small a profit to bother with. Yet, in
52-weeks it would amount to 156 points. Make speculation a business, not a gamble. Go into it to stay, not
to gamble all on a few trades, lose and quit. Be patient. If you can double $1,000 the first year and keep
doubling it for 10-years, you would have over a million dollars.

I dislike gambling because it goes beyond mere risk or unknown factors. Racetracks and casinos are
systematized against, mathematically rigged against the wagerer. Yet a glance at the track can instruct.
There are professional handicappers who bet the races and win with fair consistency, but that is because
they approach it differently from the masses of horseplayers.

Professional handicappers avoid any race in which the horses are too evenly matched or there are too many
unknown factors. So they bet only about one race in 10, which requires more self-restraint than most
horseplayers possess. For avid gamblers cannot scratch only one bad itch out of 10. Also, pros settle for
about a 20% over-all profit. This requires less greed than grips the wagerers who craves to double their
bankrolls quickly or better yet turn $100 into $500.

The parallel to the pari-mutual junkie can be found in the financial speculator. He itches to trade too often,
over trades, craves astronomical profits, takes licking after licking, and writes one check after another to
replenish his depleted brokerage account. With unbusiness-like Land of Oz logic, he expects a zero-sum
game to disgorge easy wealth into his pockets. He overlooks the fact that with a more scientific map-
reading and a better-engineered dig, he really could tap the mother-lode.

Gann wrote, "Make speculation a business, not a gamble." The spread strategist in either options or futures
is, in effect, a combination racehorse-buyer and bookmaker. While purchasing the thoroughbred, he pays
for most of it with bets that he took, i.e., other people's money. If the horse subsequently loses a quarter or a

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third of its market value, the trader nevertheless resells at a profit because his bankroll paid for less than
half of it. Better still if, so to speak, the pony increases in value.

According to an old saying among racehorse-owners, "Nobody ever committed suicide while he had a good
two-year-old in the barn." Also, the phrase "making out like a bookie" emblemizes prosperity. With spread
strategy, the long-end of the spread is your thoroughbred in the stable and the short-end your lawful betting
parlor. Not no-risk, but low-risk thanks to the admixture of horse-player bank notes to the greenbacks in
your treasury. Not risk-free. Limit: A 10th of capital per venture.

Precisely how does one go about setting up the horse barn and the betting bank? I begin by getting a "fix"
or a bearing on a category of underlying securities--in my case, an industry group of stocks and individual
shares--that is gradually trending either upward or downward. After reading W. D. Gann's two books bound
in one volume "The Truth of the Stock Tape" & "The Wall Street Stock Selector," I saw shares bounce
between floors of support and ceilings of resistance practically in my sleep, and could notice them pulling
toward the floor or the ceiling they would crash through.

The two-in-one Gann volume is available by phone and credit card from L & S Trading 303-586-6262 or
from Lambert-Gann Publishing 509-843-1094. You may get results just as good from other technical-
analysis systems such as classical Charles Dow Theory, Elliott Waves, Wyckoff point & figure, Darvas
pyramids of boxes or Japanese candlesticks. These are not gospel, but can serve amply as a nautical
almanac when you steer a financial ship through the winds and currents of trends. Gann's axiom: "Discover
the trend and go with it."

Investment fundamentalists denounce the above technical-analysis systems as phrenology charts on the
walls of fortune-telling dens. A citizen-of-the-world eclectic, I slip across schismic boundaries and look at
the fundamentals. What if a stock trends upward and has a strong P/E and increased earnings? That can be
my whig/tory or Sioux/Cheyenne signal to position a horizontal spread of call options a few points above
the share price. Conversely, a floorward trend and Delmonico-to-hash financial figures code a put spread
below share price.

For long players of options or futures, the trend of the underlying security or commodity must continue in
its direction to produce a profit. For spread strategists, it helps but is not essential thanks to the two ace
cards of time-decay and somebody else's cash. Several weeks ago, for example, I took to noticing that the
gala party enjoyed by semiconductor and software was past midnight and starting to wane. Cirrus Logic
common stock fluctuated in the mid-40s on the downslope from a high of 61. P/E of 30--the hungry side of
the late-teens median.

So spoke both technical and fundamentals. I scrutinized Cirrus Put options with striking prices of 40. This
was late October, just about. The 40 Puts with November expiration dates seemed runty in value, already
shrunk by time-decay. Not a lot for the selling end or horse parlor end of a spread. Happily, the December
and January 40s both still bulged with bankrolls.

I phoned the lower Manhattan office of York Securities, my discount broker. Discounted commissions
mean much with spreads, a buy and a sell going in, likewise going out. In options, beginning an investment
is called "opening a position" and pulling out "closing a position." "I want to open a position in Put
options," I said. "This is a spread, a buy order and a sell order going in together, each dependent on the
other. The stock is Cirrus Logic, stock symbol CRUS, option symbol CUQ.

"I want to buy 10 contracts, January 40 Puts to open, and I want to sell 10 contracts, December 40 Puts to
open. With a one-point debit." The debit meant the price I was obligated to pay out of my personal
investment capital. One point equals $100 for each set of a contract bought and one sold. On my 10 and 10
orders, it meant $1,000. The amounts for which I would buy the January and sell the December were open-
ended, but my one-point debit order riveted the difference between those amounts to one grand or less, not
counting commissions.

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Order executed, I sold the 10 December at 1-7/8 and bought the 10 January at 2-7/8; the latter cost just
under $3,000 and the former pulled just under $2,000 into my brokerage account-other people's cash, the
swag, the horse-player loot. That paid for most of the January and my capital--my end of the ante-paid the
remainder. The December I sold represented the "short end" of the spread, the January I owned, the "long
end."

Long means owning something, short means owing or being obligated. Both mean letting time pass. In
about a week and a half, time-decay slightly reduced the values of both the December and January, but
more and faster the December because of their nearer expiration date. The one-point spread or $1,000 gap
between the two batches of contracts grew to 1.5 points or $1,500. Thus the phrase "the ravages of time"
falls like a sweet utterance or holy benediction on the ears of the spread strategist.

The wider the gap or spread between what you own and what you owe, the broader and more diamonded
the sash. I waited for additional time-decay. Then the might-or-might-not-happen part of the plan occurred.
The underlying security, Cirrus shares, kept trending downward. It briefly hit 39-7/8, "nicking" the in-the-
money territory of the 40 Puts, before spending time at 40 & a fraction /41 & a fraction. Good news the
trending, but the nick of the striking price sent a fast-action danger signal.

A spread trader should never let the short end be in-the money, however briefly, beyond the trading day
that it happens. Options move into-the-money during the trading day, but are "assigned overnight." That is,
execution orders get matched up with in-the-money contracts after the close of trading. An exercise of the
short end wipes out the spread investment; add the commission cost of stock-buying and selling to fill the
exercise order. But you are safe until the closing bell.

An execution order can stand and detonate overnight, even if options move out of the money the same
trading day they move in. So I spent $2,050 buying back the December 40 Puts, closing out the short-end
on the same day the shares touched 39-7/8. This turned my $1,000 venture into a $3,000 one, but I held
onto the long-end January 40s because of favorable trending.

Days passed. The stock touched 39-7/8 again and rose as high as a particle over 42. I stood ready to resell
the December 40 Puts if the shares found a floor above the striking price. Ready to re-open my betting
windows and turn the $3,000 investment into a $1,300 or $1,500 one, plus wagerers' chips. If the stock
waned, I would play the long Puts.

November 7th. I phoned about an hour after the start of trading and thought the broker was mistaken when
he said, "Cirrus Logic 30-¼." I took a breath to tell him he had the wrong stock when he added, "Down 10-
3/8 from yesterday." Half reeling, I asked about CUQ January 40 Puts. Market value of the 10 long
contracts $10,250. Bellissimo! Buongiornata!

November 7th--14 business days after the opening of positions. So what did I do right? Reading extensively
on options and other investments certainly mattered. Blending technicals and fundamentals while the
zealots of each declared the other a false science. Watching for trends with telescope, nautical almanac and
sextant. Like the professional handicapper, passing up at least 9 out of 10 chances to bet. Like the
economist, knowing the rarity of money machines and cash cows in the real world, and thus being more
alert to a true one. Like the spread strategist, detecting opportunities that others ignore.

I call spread strategies with options and futures "The Neglected Klondike." Vast cliques of financial people
pass them up, and for reasons as different from each other as the cliques. The blue chippers lump them in
with all option and futures activities as seedy, murderous gambles. Contrarily, the hot-blooded, fast-buck
speculators crave astronomical profits quickly and so shrug off a spread's not-infrequent 30 or even 50%
weekly gains. Nearly everybody mines elsewhere.

Additions to recommended readings: "Getting Started in Options" by Michael C. Thomsett - Jon Schiller's
"The Insider's Automatic Options Strategy" - Robert T. Daigler's "Advanced Options Trading" - Richard
M. Bookstaber's "Option Pricing and Investment Strategies."

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Let us close with a statement from W. D. Gann's "The Wall Street Stock Selector" - "The lone hunter or
fisherman is the man who bags the game. . . . The big men are just as often wrong as the little fellow, but
most of them are smart enough to change quickly when they find they are wrong and do not hold on and
hope, as the public does." The lone hunter or fisherman or spread strategist who tracks not the masses, but
the trend and the opportunity.

Check Out The Internet For Lots Of Trading Info - Robert Edwards

Beginning with the Chicago Mercantile Exchange http://www.cme.com/ and the Chicago Board of Trade
http://www.cbot.com/menu.htm - now all the exchanges have a web site where traders can access end-of-
day prices for futures and options which can be downloaded for free. I love to check out the volume that
traded in various option strikes within hours of the close of trading, along with a survey of the open
interest.

In addition to these exchanges, I have located hundreds of financial-related web sites and locate new ones
every day. There are all kinds of free samples, free newsletter trials, etc. and a host of information, both
fundamental and technical. There are hundreds of software programs that can be downloaded for free or for
a small price, and various demos. You can find people with similar interests and send each other e-mail
messages or chat on-line. You can locate these people and make contacts by posting to one of over 15,000
news groups and bulletin boards, like misc.nvest.technical and misc.invest.futures

I signed up with Infinet which is based nearby in Norfolk, VA and I get 100 hours/month for $25. There are
several good vendors who give unlimited access for $20 to $30. America Online marketed by giving 10
free hours is an inferior product and too expensive if you spend as much time on-line as I do. You want a
full-fledged carrier that offers it all so forget AOL and Prodigy. Netscape is considered the best browser,
but if your carrier doesn't offer it, you can down-load it several different places on-line. The best place to
download software is at TuCows which is at http://gfecnet.gmi.edu/software/mirror.htm/

Two home-pages that offer great lists of sites for readers are the Waldemar's home-page and the Sauers 14-
page list. These lists show you where to download historical chart prices and info for free or for a minimum
charge. They are located at:

http://www.internode.net/~allend/futures.html#2 and at http://www.voicenet.com/~rsauers/swsll9

You can also get delayed prices from the exchanges or at various home-pages for free. PAWWS offers
delayed intraday S&P charts during the day at:

http://www.Secapl/com/Secapl/quoteserver/Sp5OO.htm1

Most of the major commodity vendors have a site and many allow you to trade on-line or allow you to
instantly verify your positions. I will not name these companies in case I offend someone by leaving them
out. Traders Press and Windsor Books have a home-page along with Barrons magazine, Oster
Communications (Futures Magazine) The Wall Street Journal, Investor's Business Daily, etc.

I even have my mutual funds tracked and updated daily through a company for free, but if I started listing
these various sites it would take up the whole newsletter and may not interest all readers. The main thing to
remember is that while using a browser like Netscape, you can bookmark entries you want to return to and
you'll never have to enter the name again, as you can click on the entry from your personal list and it will
be automatically dialed. Also to save money, read and write your e-mail message off-line and only stay on-
line while down-loading files.

You can use a "gopher" program to search out key words. Because I sell out-of-the-money calls and puts in
the hog market, I researched the words "pork," "hog," etc. I got articles from various ag magazines and

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fundamental and technical research from the major universities. I even setup my own home page for free at:

http:www.agriculture.com/cgi-bin/page.index with information I got from Successful Farming magazine at:

www.agriculture.com/contents/sf/sfindex.htm1

Every Monday evening I see what Jake Bernstein is recommending at:

http://www.trade-futures.com/

For readers interested in scale trading check out: http://www.au.com/psm/scaling.htm

You Keltner Band fans will love the homepage of this company: http://www.cisco-futures.com/

Or try Elliott Wave study at:

http://www.iinet.net.au/~cewa/

Novices check out the services offered at Commodity Traders Advice:

http://infomatch.com/~adas/login.htm

Well, I hope I wet your appetite and you come surfing with me on the web. My e-mail address is:
edi@norfolk.infi.net (Some services have to use the "norfolk" in my e-mail address and some can leave it
out). Let me know your interest and I'll try and steer you toward that area. I can be reached (via CTCN), but
it is cheaper and more convenient to e-mail me. Get surfin' on the world-wide web and surprise me with an
e-mail message this afternoon. Well, maybe tomorrow. It is not easy to get setup and you better have a
good technical support group to call, but once you get things going it is well worth the effort.

Editor's Note: Many of the sites referred to by Bob may also be easily reached via links on Commmodity
Traders Club News web site www.webtrading.com

Bus Driver To Full-Time Trader

Not Easy - G. Haynes

Going from a city bus driver to a full-time trader has not been easy. After scrimping and saving for quite
sometime to accumulate minimum account balances on two different occasions, I am once again on the
learning threshold of financial devastation. Tried a top name full-service broker; tried a top name discount
broker; went from doing my own point-and-figure charting to two versions of MetaStock now mixed with a
candlestick software. And yes, I am still driving a city bus.

Two questions for any big brother/sister-mentors out there that may be good enough to shine some guiding
light my way:

1. Does anyone know of the Bressert Group Ltd. In Chicago, I.B.'s of R. J. 0'Brien - can anyone share some
insight? Opinions?

2. Can anyone suggest a replacement for Dial Data to download 50 to 60 futures and indexes daily into
MetaStock for Windows 5.0? Dial Data has been messing up very badly of late and is impossible to reach
because "all representatives are currently busy" all day, every day.

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Any/all helping response to this call for assistance is and will be greatly appreciated. Please contact me via
CTCN.

Trading Chaos Recommendation

Robert Miner

Wiley & Sons have recently released Bill William's new book Trading Chaos. This is one of the very few
books available that takes a comprehensive approach to trading methods and techniques. There is more
good, easy to understand, practical techniques in this well-organized and prepared hardback book than is
presented in most 2-3 day workshops for hundreds or thousands of dollars.

Williams is a Ph.D. Psychologist with over 30-years trading experience and over 10-years of training
traders through workshops and private tutorials. He has learned how to teach in that time and it shows in
his book. Williams rightfully doesn't pull any punches regarding his opinions of many of the useless trading
techniques that are commonly believed to be useful by the naive beginning trader.

As a psychologist/trader, he provides his unique and practical perspective into the characteristics of
winning and losing traders and what you must do to be on the winning side. His psychological insights are
relatively brief, but more valuable than most books that are entirely devoted to the subject. If you have ever
wanted to make sense out of chaos, linearity and non-linearity about trading and traders, read this book.

Every serious trader will study this book. Even if you don't directly apply the specific trading approach and
techniques described in the book, you will find a wealth of ideas that will be directly applicable for the
practical trader. Trading Chaos stands head and shoulders above the usual rubbish prepared by
inexperienced and unsuccessful traders that comprise 99% of the trading literature. Trading Chaos is
available directly from Williams or from trading literature booksellers such as Trader's Library. Contact via
CTCN.

About Joe Severa Comments &

The NFA & CTCN's Oct./Nov. Issue - Robert Miner

In the above referenced issue, Joe Severa said that I was "discretely dropped" as a contributor to the Trade
of the Week format was included with Commodity Trend Services weekly chart book service from April
1994 through August 1995. He implies that Commodity Trend Service and their customers were not
satisfied with my weekly comments and trade suggestions. Not only was I not "discretely dropped" by
Commodity Trend Service, but the Trade of the Week page which included my comments each week was
discontinued abruptly and very reluctantly by Commodity Trend Service in August.

The NFA is making a concerted effort by litigation and threat of litigation to force any publication that
provides any type of advisory service to register as a Commodity Trading Advisors (CTA). It is unclear
whether they have the right to require registration. The NFA's activities are becoming a very important
issue regarding free speech and government intrusiveness which I'm sure will become more widely
publicized in the relative future. Most traders are probably not aware of the NFA's relatively low key but
relentless effort to require all market analysts and trading advisors to register and therefore be regulated by
the NFA.

While I have been a registered CTA since 1987, Commodity Trend Service (CTS) is not and felt they did
not want to expose themselves to potential litigation by the NFA until the issue is resolved. As a result, they
reluctantly discontinued the Trade of the Week page much to the disappointment of the vast majority of

411
their subscribers who eagerly awaited the weekly comments by myself, Steve Moore and CTS staff as an
added benefit to their chart service.

Joe Severa's comments are not only completely incorrect, but offensive. Possibly he has an agenda other
than truthful comments in mind with his submission. Severa's illogical thought processes are clearly evident
from his other comments. He states that he "loved the charts" provided by Commodity Trend Service
(CTS) but discounted the service because he was not satisfied with the weekly trading comments or CTS
Trend-Setter program comments.

Providing comprehensive charts is the dominate purpose of CTS. Each week, CTS provides over 150-pages
of charts of all actively traded futures markets and just 3 or 4-pages devoted to market commentary and
their Trend-Setter program. Why would Severa discontinue what he considers a valuable chart service,
because the market commentaries were not of interest to him? Apparently he does not have the discipline to
focus on what he believes is valuable and ignore the rest.

Commodity Traders Club News embodies the rights and principles of free speech with a minimum of
editing, if any, for most contributions. As a result, contributors are free to provide personal opinions and
judgments and even misinformation and generally let their egos run rampant, if they so desire. Severa
clearly provided misinformation which he could easily have verified with a quick, simple phone call.
Fortunately, most contributors provide positive, thoughtful contributions which makes CTCN a valuable
source of information for its subscribers.

The Christmas Stop

J. S. from California

This is the time of the year when I use my version of what I have heard called the "Christmas Stop." The
trading volume of the markets drops considerably and moves can be exaggerated during the last 2-weeks of
the year, especially the last week of the year.

If your stop is hit, expect more slippage than usual. I think the original idea of the "Christmas Stop" was to
use wider stops during this period. My version is, I just stop trading during this period. I also like to be flat
all positions because of the way the tax laws for commodity traders are written. You must pay taxes on any
profits on open positions you have on December 31.

Member Requests

Jack would like to know if anyone has information on Todd Mitchell's training course or manual. Contact
via CTCN.

Arkansas trader, M. Diaz looking for futures traders in Arkansas. I trade mainly the S&P 500. Contact via
CTCN. .

Vince Desai is looking for a futures firm that will give him a rate of $10 per round turn, including all fees.
Reply via CTCN.

Several members have asked for info on

Top-Step Bond System.

Don Glasscock would like the formula for Parabolic Stops written for SystemWriter - Contact via CTCN.

412
 I would like to trade an enhanced Signal Box for a Signal Plus Box. Contact via CTCN.

Charles Meyer would like info on the Magic-T Theory. If you have experience with this product and can
explain the different properties and intricacies. Contact via CTCN.

James Albrecht is looking for info on Grandmaster by Emil VanEssen? It's sponsored by Windsor Books.
I've been following Bruce Gould's "Money Machine" for 3-months. It has given me one signal which was
an instant loser. I'm not very impressed at this time. Enjoy the newsletter immensely.

Correction to Gordon Thomas's article published in Oct/Nov issue. At the end of article he attached a quote
from a song written by George Harrison for the Beatles' rock album Sgt. "Pepper's Lonely Hearts Club
Band." However, we incorrectly credited the article to George Harrison.

Editor Comments

A well-known trading system vendor and author (who has told us in very strong language to not identify
him) has sent us a series of very threatening and intimidating letters. For example he has asked for our
"liability insurance carrier." All because he was mad that a member had said he had several losing trades in
a row using the vendor's system. This vendor apparently doesn't want the public to know his system is
capable of generating consecutive losing trades (like all other systems in fact do).

CTCN will not let an odd and extremely sensitive and unreasonable vendor like this intimidate us. Go
ahead and keep writing those articles about vendors, either positive or negative.

Last month we incorrectly referred to a new "semi-monthly" publishing schedule, which of course should
have read bi-monthly schedule, not "semi-monthly." Also, thanks in part to our new bi-monthly schedule
we have been able to increase the size of CTCN once again to 32 pages from the prior issue of 28 pages.
You will be able to save money or make money thanks to our expanded size and in-depth coverage of
commodity services, products and methodology.

Issue 31.

Please Note that our Printed Copy is in booklet format and in double columns

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
most important.

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:

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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.")

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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
distribution.

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.

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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
discipline.

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
not sufficient.

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,

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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
position:

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
mechanical.

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
offspring.

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-

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buyer to purchase the stock at a given "striking price" if the shares rise above that price before the contract
expires.

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

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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
money.

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
share price.

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.

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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
accounts?

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 money.

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
order."

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.

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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
in.

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

Keith Carr

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

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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
arrive weekly.

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

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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
them again.

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
in options.

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.

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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.

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 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
the gain.

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
better way.

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.

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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
envelope.

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.

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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 -

Ron Chacey

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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
results later.

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'

Robert Lahodny

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.

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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
CTCN)

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
follows:

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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.

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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
actions.

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

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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
signal.

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
taken.

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.

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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
acceptable.

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.

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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
Successful Trading."

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.

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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
succeed.

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.

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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
CTCN)

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.

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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.

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 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
equation."

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
you.

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
suddenly come?

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
reports:

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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
management.

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
Management Formulas

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.

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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:

Trading Efficiency-

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

Profitability -

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 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
profitability.

Final comments:

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.

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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 -

John Bowley

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.

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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
Addison.

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
my trading.

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

443
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.

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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
programs.

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

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 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
trade).

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
gross profit.

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.

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 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
are right.

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

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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
losses.

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
difference psychologically.

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
profitable system.

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
was.

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.

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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.

http://www.yahoo.com

http://www.webcrawler.com

http://www.altavista.com

http://www.cts.com

http://www.thegroup.net/invest

http://cpug.org/user/invest/futures.html

http://www.rhythm.com/~prash/inc/inc.shtml

http://www.centrex.com

http://www.futuresmag.com

http://www.cosm.sc.edu/~poszkarz/futures/html

http://commodities@trading.com

http://www.numa.com

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http://www.ino.com

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

Steve Dallas

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
easy money.

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

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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
personally.

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
Trendx Portfolio.

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.

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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
secret!

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
issue.

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!

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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
thousand ticks."

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

Terry Davis

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.

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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
plans..

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
next issue.

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
have.

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

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probably, not have a reasonable amount of time to analyze fully your particular situation - but that is not
their fault.

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"

George Campbell

Ah yes . . . it's that time of year again folks, and I thought some comments on Ted Tesser's book might be
in order.

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.

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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.

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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
management software.

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
buy/sell signal.

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.

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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
losses.

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
time.

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.

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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
CTCN)

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
changes.

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).

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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
70-pt stops?

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
then.

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"

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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

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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.
Arnold's research.

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?

Member Requests

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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
very informative.

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
CTCN.

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.

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 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.

Editor Comments

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
mid May.

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.

Issue 32.

Buy Both MetaStock & SuperCharts - Gregory L. Morris

I have noticed a number of requests for information about Omega's SuperCharts and Equis' MetaStock
programs. Since I have been involved in this business since the late 1970s, I am quite familiar with most of
the analysis programs and have even developed a few.

Here is what I tell people when I am asked, and I am frequently asked. In fact, I will be speaking at the
AfTech'96 seminar in Dallas on this subject.

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"Purchase either MetaStock or SuperCharts and then take advantage of the competitive upgrade to the other
one. For about $400 - 500 you can have everything. Keep your data in MetaStock format so BOTH
programs can read and use it.

You will find that each program offers special features that you will like and eventually you will use both
of them to do your analysis. With both of these companies in hot competition, the upgrades will be
inexpensive and exciting. You will actually look forward to receiving them.

Tax Regulations Are Unfair & Biased RFK from Texas

Well, I finally completed reading all back issues. It was truly enlightening. In Vol. 4 -I, the Editor's Note
requested information regarding "Futures Contracts Tax Regulations" and the year-end, "Marked to the
Market Rules." The following should help clarify these unfair and biased tax regulations.

I referenced two publications: The first and most obvious is the IRS Publication #550 "Investment Income
and Expenses; "the second is the "Professional Edition - J.K. Lasser's Your Income Tax 1996."

The following tax regulations concern Section 1256 Contracts which by definition include: Regulated
Futures Contracts. (These tax regulations do not include Non-Regulated Futures Contracts which are
treated in the same manner as other capital investments).

I quote directly from these referenced publications: "Marked to Market. Marked to market means that each
section 1256 contract you hold at the close of the tax year will be treated as if you sold it for fair market
value on the last business day of the tax year. This means that gain or loss is determined even though you
continue to hold a position."

Determining Gain or Loss (Marked to Market). 60/40 rule. Under the marked-to-market system 60% of the
gain or loss that you would have had on a sale on the last business day of the tax year will be treated as a
long-term capital gain or loss, and 40% will be treated as a short-term capital gain or loss.

This is true regardless of the actual character and holding period of the property. When you later dispose of
your section 1256 contracts, any gain or loss you have will be increased or decreased by the gain or loss
that you had previously recognized. You can also elect to carry back losses from section 1256 contracts.
(losses may be carried back for three years under special rules requiring that amended returns be filed) . . .
Carryover limits.

If only a portion of the net section 1256 contracts loss is absorbed by carrying the loss back, then an
amount equal to the unabsorbed portion can be carried forward. The character of the amount carried
forward is determined by: (The 60/40 rule).

"The marked-to-market 60/40 rules, do not apply to certain hedging transactions."

Please reference IRS Publ. 550 for details concerning hedging transactions and the tax rules for straddles.
These regulations in these areas can be complicated and are beyond the scope of this response. Seek
professional tax assistance.

"Form 6781 is used to figure gains and losses on Section 1256 contracts that are open at the end of the year,
or that were closed out during the year. These amounts are then transferred from Form 6781 to your
Schedule D."

The absurdity of these tax regulations are more than obvious. However, they are not unique. Consider the
tax laws concerning the "Phantom Taxable Income" that is generated when you own "Zero Coupon Bonds."
How equally ridiculous to have to pay taxes on interest income that you have never received.

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The United States is one of the few countries which so "aggressively" taxes capital gains and investment
income. In most countries around the world, capital gains are not taxed at all. It is unfortunate that the well
considered and forward thinking ideas of Steven Forbes are so misunderstood and denigrated by self-
serving career politicians.

My Opinion On Trader Status Requirements - RFK from Texas

I am a new subscriber and look forward to receiving future issues. Your membership club is a very
interesting forum, and in an effort To "get up to speed" I ordered and have been reading all your back-
issues (with highlighter in hand).

I came across a significant error in the April'95 issue in an article by Glenn Skirvin. Mr. Skirvin references
Mr. Ted Tesser's (CPA) article concerning the tax side of investing in the March '95 issue, Mr. Skirvin's tax
analysis concerns the different IRS tax treatment between "Trader Status" vs. "Investor Status." Given the
complexity, and lack of clear references in the tax code to "Trader Status," a misinterpretation in this area is
very justifiable.

Mr. Skirvin's article specifically references "Self-Employment Taxes" being due on the "Net Trading
Profits." His article highlights an example in which a "Trader" generates $25,000 of futures trading profits
and deducts $5,000 in various direct expenses associated with generating those profits.

Mr. Skirvin indicates that the "Net Taxable Trading Profits" of $20,000 would be reported on a "Traders"
Schedule C as "Business Income" subject to "Self-Employment Taxes" in a similar manner as any other
type of net business income would be taxed that is reported on a Schedule C. This is an error.

Mr. Tesser's original article in the March'95 issue was completely accurate in all respects. However, limited
space prevented him from fully describing the unique tax nature of the "Trading Profits" generated by a
trader, hence the confusion, and basis for Mr. Skirvin's article.

To begin a little foundation is necessary. There are three distinct tax classifications for those involved in the
investment markets: Investor, Broker-Dealer and Trader.

An "Investor" is what most of us are, we trade our own account and generate capital gains and losses, along
with dividend and interest income throughout the year and report this income on the appropriate Tax
Schedules B and D. We are considered "Investors" by the IRS.

A "Broker-Dealer" on the other hand, is defined as a securities merchant with an established place of
business. A Broker-Dealer regularly engages in the purchase of securities and their resale to customers with
the intent of making a profit. None of us are Broker-Dealers unless we own our own brokerage firm or act
as market makers or market specialists.

A "Trader" is not specifically defined by the tax code, hence its controversial status, (Note: The IRS will
not let you have "Trader Status" easily, for reasons that will become obvious with a better understanding of
the tax advantages).

To qualify as a "Trader" there are no fixed requirements in the tax code. However, various tax court cases,
tend to establish acceptable parameters. Your investment activities must be of a nature that raises your level
of involvement to that of a trade or business.

There are certain indicators the IRS looks for when evaluating your "Trader Status", such as: Trading time
frame: (Of all the qualifiers, this is probably one of the most important). All or a significant number of your
trades and the resulting investment income must come from short-term trading as opposed to long-term
trading.

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Daily tracking of the markets: A trader must show that he spends a great deal of time managing the buying
and selling of securities for his own account. The more intently you follow the markets throughout the day
the more likely you will be to qualify for "Trader Status."

The use of "Technical Analysis" over "Fundamental Analysis" further supports "Trader Status" since
fundamental analysis is more appropriately used with longer term position investing.

The extensive use of margin can also support "Trader Status:" Short-term trading tends to reduce the high
costs and risks associated with heavily margined positions, which tends to lend further support of your
"Trader Status."

Trading frequency: Although the number of trades is not an exclusive factor in determining "Trader
Status," ideally the IRS would want to see a large number of short-term transactions consistent with
someone who monitors the market on a daily basis. However, the primary determining factors are the
length of the trades and the type of trading that you are doing, as opposed to the exact number of
transactions.

Special Note: Given the complexity of the tax code and lack of clarity concerning "Trader Status," I think it
would be interesting for fellow members, who maintain "Trader Status" under IRS regulations, and have
weathered a "tax audit" to comment on their experiences and relate those key elements that the IRS Tax
Examiner focused on which assured their allowability for maintaining "Trader Status."

Once establishing yourself as a "Trader" for tax purposes, the next question is how to handle the Profits and
Expenses?

I would like to reference the following paragraphs directly from Mr. Tesser's fine book "The Trader's Tax
Survival Guide" which specifically address this question:

"Once you have determined that you qualify as a trader . . . Expenses such as computer programs and
equipment, on-line data retrieval services, investment advisory fees, and other such related expenses now
are directly deductible from your trading income.

The question, however, becomes, How do I set this whole thing up? The way to do it is similar to the way
in which any sole proprietor in business would do - on a Schedule C. It is obvious that expenses should be
reported on the Schedule C; however, the question has been raised, Since the income for a trader still
consists of capital transactions, shouldn't it be reported on a Schedule D?

The answer is yes. The transactions are basically transactions as defined in Section 1221 of the Code.

Another question usually asked goes something like this: Since the income generated is not really
investment income, but rather is considered as active business income, shouldn't it be subject to self-
employment tax? In this case, wouldn't it then be reported on Schedule C, as well as Schedule SE, the form
for calculating self-employment tax.

The answer is no. The income is still considered to be capital gain income (or loss), and is not subject to
self-employment tax. A loss would thereby still be limited to a net $3,000.

In addition, because the income is not earned, no retirement plan contribution should be made against it.

Because the income is of one type (capital) and the expenses are ordinary, you must use two forms to report
it. The income should go through Schedule D and the expenses through Schedule C. If there are Section
1256 transactions (futures and certain kinds of options), you must use Form 6781 first, and then go to the
Schedule D. It is as simple as that."

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Thank you Mr. Tesser for a fine book. It is one of the only sources that I have ever found to directly deal
with this complex and unique tax issue. I would personally recommend this book to anyone who actively
trades securities.

As you can see having "Trader Status" is truly the best of all worlds. You get to deduct all expenses
associated with operating a small business without the usual deduction limitations associated with
investment expenses. Yet all income is treated as capital gains & losses without being subject to the high
self-employment taxes.

I hope this information is helpful to members who may be considering "Trader Status."

I am very impressed with the open and frank forum created by CTCN, and once I complete the review of
all past issues, I look forward to contributing some of my own experiences in hopes that, in some small
way, it may help others.

A Positive Vendor Opinion Counteracts A Prior Negative One - Frank Chin

The letter from R.E.H. describing his unhappiness with Mel Peddy's course is not at all like what I have
experienced. I purchased Mr. Peddy's course in 2/96. It is a manual describing 10 trading systems (some are
daytrading systems; some are longer term).

It came with a software diskette that contained indicators to put directly into either Tradestation or
Supercharts. It also came with Mr. Peddy's telephone and fax numbers. I have called Mr. Peddy several
times with questions, and have always either spoken to him on the first call or been called back the same
day.

He has patiently answered all my questions, and has even sent faxes of daily charts to illustrate his points.
There is an Internet users group dedicated to trading Mr. Peddy's systems, so additional help is there as
well.

While I have not yet attended his seminar, that option is available at no additional cost to anyone who
purchases his manual of systems.

So I would say that R.E.H.'s experience must surely be a typical, and unfairly denigrates a good man's
name.

Trading Can't Be Taught Like Professions Can & On Buying Systems, Seminars and Books
John P. Meehan

You may look at hundreds of systems, cheap or expensive, study with dozens of gurus, genuine and fake,
or spend the money and time on reading hundreds of books on trading and investing.

All of these have, in my opinion, only one value for most people. They teach you that you cannot use them.
And that is a great lesson, which you will never learn until you have learned it. What do I mean you cannot
use them? Simply this.

Trading cannot be taught the way carpentry, flying jets or neurosurgery can. (Richard Dennis to the
contrary--what he did was carefully pre-screen 1,000 candidates down to 10 and then trained those 10.

What this proves is that selected people can be taught a skill, and among those a few turn out to be really
good it at. It's the same with carpentry, jets, law or surgery--one out of ten are truly first rate--the rest are
mediocre to disasters. Trading is the same.

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The oft cited numbers are that 90% of traders loss money. The other 10% take the money the losers lose.)
After a while, the true value of looking at many systems, methods and philosophies, is the learner begins to
find what it is that begins to fit his or her own personality.

You cannot buy success. You have to make it yourself. It comes from within. You cannot buy success in a
trading system. What works well for the honest vendor (and there are some--they will give you copies of
their brokerage statements) will not work for the average system or method buyer. The buyer will do one of
two things. He (she) will not take all the trades, or will take them all until a bad spell hits, then give up. The
buyer's personality is not the vendor's. What the vendor's record says, this system worked for this vendor
during this period of time. That's completely all it says. It says nothing about how it will work for that
buyer in that different time and place. There are as many trading methods as there are personalities trading
in the markets.

In St. Paul's day, the Greeks used to walk around the agora and ask each other in the power language of the
time, "Quid novi?"--what's new? It's so easy to discard an old system and try another new one instead
(which promises your money-back in 30 days if you don't find success). I am afraid many traders do this
their whole lifetimes.

The few who break out of the pattern finally stop walking around the agora trying everything new,
withdraw into themselves and build their own, usually simple, trading approach which, eureka! works well
enough to make them a living or a fortune. (They are the one out of ten persons mentioned above).

Another very important point, even if you join the limited group of successful traders, there come periods
some of the time when what you do doesn't work at all well. For some traders what they do doesn't seem to
work any of the time. For others, it comes and goes.

Coming and going suggests possibly a cycle or cycles in your own personality behavior or in the way in
which from time to time you (probably) unconsciously change your inter-reaction with the markets. There
are not only cycles in the market. There are cycles in the way you respond to the markets. I double that they
can be stopped. The best thing you can do is step back and observe both of them, yours and the market's, as
a third-party observer, and relax into keeping them in balance all the time.

I read an article by a student trader who started out in 1987 and made all the classic mistakes, spending and
loosing a lot of money. In his relating his story, he went right by his biggest mistake of all. At one period,
he simply withdrew, stopped trading, and simply studied the markets for a year, then recommenced trading
and ran his stake up to four times what he started with that time around.

Then he made his mistake. He figured he needed more education. So he spent thousands of dollars with a
series of individual gurus (the kind who invite you to spend a couple of trading days or a weekend with
them personally, one on one) until all the money he had made was gone. That was his biggest mistake of
all: not stopping when he found for himself a system that worked for him!

The "quid novi" syndrome had set in. He had to find something new and better. Now, he is still looking,
like most, at the next new thing (for him, astronomy and planetary data--more on that in a minute). His saga
is Everyman's. Looking, looking. Wise traders say there is no "Holy Grail. We don't believe them. Just
keep looking. It's there. Someone has found it. And I will buy it from him. (Isn't it wonderful that he would
sell it to me! What a guy!) Or I will find it myself.

We flew to the moon, didn't we. For thousands of years, everyone knew that couldn't be done. Then
someone did it. The parallel stops cold right there. There are a number of limited, different ways to get to
the moon. But all of them are buildups from the fixed, clear laws of physics and chemistry.

Like carpentry, neurosurgery or jet flight. There are only a limited number of ways you can do these things
... because they are in the physical realm. (Same with the profession of Law. It has a fixed, codified
stricture within which its practitioners wield their skills, or lack of them.) But with trading, the only

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physical structure is the exchanges and the pits wherein each participant's unique personality offers his or
her own unique expression. That's what can't be taught.

What's the value, then, of all the stuff beginners (and some veterans also) buy, and go to, and look at? They
offer pieces of patterns which may eventually fit, transformed, into the trader's personality. They are
sources for bits of ideas out of which a trader may create his own unique trading approach to the markets,
an interior part of him that he is comfortable with, and that he makes money with.

Like everything else in the universe, the markets are constantly changing (evolving) and constantly
remaining the same. Adapt or die, as they say. But the adaptation must be a consistent personality match of
yourself with your chosen course of action. You can't buy that. You have to elicit it from within yourself.

As a footnote, planetary data is worth paying some attention to. This thesis may, or may not, fit your
personality. No doubt it does work for some because it's a personality fit for them. Others think it's all
investment quackery. It's not my place to debate that here. However, I offer a few comments.

One senior international portfolio manager I know has gotten excellent results using planetary correlations.
But a big problem from my viewpoint is there has been very little rigorous literature on the subject. There
are some short trading records (all hypothetical that I have seen) but they suffer from the same limitations I
mentioned above--they are valid only for that one trader during a given specific period.

Most of the literature is just promotional ballyhoo without scientific statistical backup. One exception: I
came across a book years ago--now out of print--by Clifford C. Matlock, titled Man and Cosmos. It is an
excellent treatise on the whole subject of stock prices and planetary excursions, rigorously statistical and
elegantly presented.

Don't let the title put you off. The essence of the book is what happens to the stock market when each
planet makes certain aspects. Matlock was a career diplomat with the US State Department and served in
various capitals around the world after graduating from Stanford and Harvard.

He found the time to develop an amazing body of factual research into the subject. The book is
extraordinary. Well worth reading simply to broaden one's horizons even without any idea of attempting to
apply its contents to the business of trading. He gave me several copies some years ago, and I still have a
few left. If you are interested, call me.

I got a mailer the other day announcing a giant six-day biennial conference on these and related matters
(called "Computers and Research / Astro-Technology: The Cutting Edge") coming up in July in Chicago. I
don't plan to attend myself (I still haven't found enough rigor in current applications which I am aware of),
but if you want more information, call or fax me, and I will give it to you. Phone 407-896-4114, Fax 407-
895-6689. Quid novi, hombre!

Unusual Events On My First Three

Trades by A PA Anonymous Farmer

I am a grain farmer and have hedged production on the CBOT for 15-years. Whenever prices would reach a
price that gave me a modest profit, I would call, place a market order, be filled and that was that. Over the
years, hedging futures has helped to average out my profits. I have invariably sold too quick in rallies
(taking losses on the futures) and almost quick enough in falling markets (taking profits on the futures).

Very recently, I have become interested in speculation. I have quickly realized that speculating and hedging
are two very different endeavors. So, I would label myself a neophyte speculator. On April 11, 1996, I
placed my first speculative orders. This has been a somewhat humbling and frustrating experience. I am
writing this on April 17, 1996.

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My first day of live trading proceeded as follows with a Corn trade. I placed an entry limit order and a stop
order. The market traded one tick beyond my entry and then reversed (as I had planned) and then went to
my target. Great, except that I was not filled. I trade with Lind Waldock. They explained that it was a fast
market and the brokers could not be held to fills.

My second day trading Corn proceeded as follows. I again placed an entry limit order and a stop order. At
11:10 CST, Lind Waldock notified me that my entry was filled. I checked the price movements and
realized that the market had moved through my entry and within minutes to the exact tick of my stop and
then reversed, establishing the day's low.

So, I called Lind Waldock to check if my stop was filled. I was told their was no confirmation, but that
confirmations were very slow coming from the pits. I again, frustratedly watched the market move through
my target but could do nothing because I was not sure if I was still in the trade. Finally, at 1:28 CST, after
the markets closed, Lind Waldock called to confirm the stop fill. Seemed as if the brokers waited until the
market closed and then allocate profitable fills to Hillary and unprofitable fills to whoever.

My third day trading Corn proceeded as follows. At 8:38am CST, I placed an entry limit order and a stop
order. At 9:24 CST, six minutes before the open, I checked opening calls and realized the market was going
to open beyond both my entry and stop order. I immediately canceled my orders, thinking that was over
and done. At 12:15 CST, I was notified of confirms on both orders. Luckily, they were both filled
immediately on the open at the same price and I was only out the commission. I complained to my order
desk about the cancels. They replied the grain pits were doing huge volume and it might take as much as an
hour for the runner to get my order to the broker. How do any of you trade?

On top of this, I receive my live quotes from Lind Waldock by phone. During this last week their grain
quotes have been off as much as $1.00/bushel and have consistently been inaccurate this entire week.

I have called Lind-Waldock many times the past week about this. They replied that they knew they had a
problem and were working to fix it. I was told their data for grains comes from S&P Comstock and they
were the fault. Lind-Waldock told me they were trying to get S&P Comstock to fix their data and/or were
looking into switching data vendors.

My final complaint is that this past week, at times, I have had to constantly re-speed dial my order desk for
as long as 5-minutes before getting someone to pick up at Lind-Waldock.

I have dealt in futures for 15-years and with Lind-Waldock about 10-years and never had any of these
problems.

Editor's Note: These odd occurrences are very unusual and only happen on fairly rare occasions. Some of
it may be attributable to the recent great volume and volatility in the grain markets.

Also, it's unusual to have trouble getting thru to the broker and also get inaccurate quotes. Your editor has
rarely heard complaints like this in the past about any of the brokerage firms. In the past we have also heard
compliments made about good service by Lind-Waldock.

CTCN Hasn't Totally Wimped Out

Gary Antonacci

I'm glad to see that Dave Green still will publish readers' critical comments about systems and methods.
Although I'm concerned that in the last issue, Dave twice referred to vendor's making a fuss about this, and
he declined to name who they were. I for one, would like to know directly who they are, rather than have to

471
look through back-issues to figure it out. I know we now live in a litigation's world, but I always thought
one was on safe ground in telling the truth.

I'd like to encourage fellow readers to continue coming forth with their experiences - good and bad - and
hope that Dave will continue printing them. Perhaps a standard of safety for all could be established if
readers would limit their comments more to facts, and then let others draw their own conclusions regarding
merit.

I remember when Club 3000 started in the early 1980's as a forum specifically for members to monitor and
comment on trading systems. Now, alas, that publication won't even leave in the names of vendors when
readers comment on them. What good is publishing information if no one knows who you're talking about?
Much of Club 3000 nowadays is filled with vendors' pontificating about one thing or another in hopes of
impressing someone enough to buy their products. Let's hope Commodity Traders Club News can avoid a
similar fate.

Editor's Note: We don't want to "wimp out." However, we receive threats of lawsuits on a regular basis.
Sometimes these threats come from otherwise respectable and well-known industry firms, sometimes from
trading system vendors or competitors, and sometimes even from our own advertisers.

For example, there is a very well-known large discount brokerage firm Lind-Waldock, they are a very
respectable and well regarded futures broker and industry leader. Their attorney recently said they would
"see me in court" if we published a negative article about them. Our negative article writer and CTCN
member, who lives in France, also sent a copy of his negative letter to the brokerage firm, which prompted
this call from their lawyer.

The broker's attorney called us and in no uncertain terms said they will sue CTCN if the article gets
published. I am sorry to tell you it worked because this attorney was specific and promised a lawsuit
against CTC. Consequently, we were in fact forced (due to the economics involved) not to publish the
negative article.

Perhaps our contributing member may have overblown the scenario of events and the facts, or possibly
misstated (in error) some of the details, and even used some inappropriate language. However, I am sure
much of what he had to say was in fact based on a valid complaint, at least in his view.

Even though CTCN would in all likelihood win a suit of this nature based on First Amendment Rights and
Freedom of Speech issues, it's still something we wish to avoid. It would cost us large legal fees for an
initial defense and legal consultation.

If we had a substantial Legal Defense Fund we would likely have published the letter rather than be
intimidated. Members are invited to send contributions to CTC. Our goal is to achieve a balance of at least
$12,500., which is the potential (minimum) amount needed to defend a lawsuit.

Editor's Note: Some vendors have also joined CTCN in an attempt to sell their products to our members or
write articles as a "vendor in disguise." We try to dissuade this type of activity. You should also be careful
when dealing with a vendor who is suddenly writing articles about his trading prowess or knowledge. Also,
be cautious when dealing with a vendor who is an advertiser and relying on his name recognition or past
fame to get you to buy his product.

As a general observation, I've noticed a strong negative correlation between the amount of hype expended
by a vendor and the value of his or her product. After many years of such observation, I now won't even
read any full page magazine ads or fancy multi-page brochures for high-priced systems or methods.

When you think about it, this negative correlation makes sense, since those with heavy hype are, first and
foremost, promoters rather than traders. As soon as they find anything that looks superficially good, they
want to rush out and market it. The few good items out there are usually offered by those too busy trading
or researching to be caught up in high powered promotional activities.

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Interestingly, I've also found a strong negative correlation between price and value. The few good systems
or methods that I've incorporated (with appropriate modifications and /enhancements) into my trading
arsenal have all been priced on the low side.

Another problem for purchasers is that it is very easy for vendors to play with some data and come up with
something that may look good through curve-fitting, data-mining, etc. There is no way of knowing if a
vendor has done proper out of sample validation.

Therefore, I never look at anything anymore that hasn't been released for at least a few years and built up a
credible real-time type track record. This can be verified by examining the vendors' brokerage statements,
by talking with a number of their customers, and/or by referring to the results since release date in Futures
Truth.

I have found some problems in relying solely on Futures Truth. First, they allow vendors to "tweak" their
systems after their release date by changing parameter values or otherwise modifying their methods. If
systems are changed a number of times since their release, then it may be misleading to characterize their
performance as occurring from any time other than their last modification.

Futures Truth should at least disclose when and to what extent they allow such modifications. Secondly,
bogus systems may make their way into Futures Truth. I purchased the "deluxe version" of the Miracle
System based on its good performance since release date.

Yet what I received from the vendor bore no relation to what was being tracked by Futures Truth.

Editor's Note: Your editor does not know why the above seems to occur so often. Unfortunately, I have
heard this comment or similar comments numerous times. Many people call me and say they recently
purchased a system based mostly (or even solely) on its high ranking with Futures Truth. However, once
they get it and start trading it they allegedly frequently report large losses and (or) large drawdowns, and
overall far worse performance than indicated in the Futures Truth Reports.

Your editor has received many calls of this nature over the past 3-years or so. Unfortunately, it seems like
this scenario occurs most all the time and it's allegedly very rare that anyone achieves or duplicates trading
performance even closely resembling the FT P&L Reports. This seems to be the case involving both real-
time trading and hypothetical paper trading, or even back-tested performance figures

I have personally called and written the people at Futures Truth several times and asked them to please
offer our CTCN readers an explanation on this seemingly strange phenomenon. However, they have chosen
not to offer any reasoning behind this all too common occurrence involving the trading systems they have
ranked highly.

See Editor Comments section of this issue for more on this troubling and serious subject.

The (Miracle System) vendor also refused to talk with me or return any of my phone calls. When I brought
this to the attention of George at Futures Truth, I was told he was aware of this problem.

Yet they continued to report on this system, whatever it was. The point of all this is, like anything else,
buyers beware. This is especially true in an industry such as this that appeals to human greed and seems to
offer an "easy" way to riches. There are no free (or even cheap) lunches. All futures trading does involve
substantial risks.

Big Market Drop Coming?

Don McCullough

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Allow me to play "chicken little" here. You remember, he kept telling people the sky was falling. Are we
now seeing distribution at a major top in the stock and stock market indices? I'm not saying we are for sure
but here's some thoughts along that line.

The last days of Feb 96 were spectacular in the S&P 500 market. By that I mean extremely large, daily
swings of 9 to 12 pts. (Normal would be around 4 pts.) While referring back to my S&P 500 daily chart of
10/87, I noticed daily ranges of a similar magnitude. This was the month and year when the stock market
and stock market indices dropped by record setting amounts.

Another reason I think we could be seeing a major top is the extreme bullishness of the stock market over
the past year or so. Much of this strength is coming from tremendous buying by the mutual funds. Of
course, now we're talking about the average person coming very strongly into the market via these funds.
As many of you know, historically this kind of rush into the market by the general public has often
occurred during the last stage of a bull move; and too, at the very top itself.

The reason this great amount of speculation by the public so often leads to a bear market is this. The "big
boys" find this to be the exact time they can unload huge amounts of stock on the public without driving the
price down on themselves. Then, without the "smart money"--with their large funds, knowledge and
courage to hold the market up by buying the sharp and scary dips--the market just keeps dipping! When
many of the big boys see that the market is in "weak hands" they not only sell out, they also sell short.
Down she goes in an even more meaningful way!

Another cause for downward pressure on the market is when the fund managers begin to protect their stock
profits by hedging in the S&P 500 market. When they hedge, of course, they are selling the S&P market
short. Thus, the S&P drops even harder and that in turn causes the stock market to drop harder. A vicious
cycle thus begins and could cause a very large drop in the market before it's completed.

My most personal concern regarding a strong bear market is this: Are the odds now becoming great that I
could lose a large amount of money daytrading the S&P market if it suddenly starts moving limit down for
several days in a row? Is this the time to day trade the S&P from only the short side? It's for sure, for some
time in the future you will not find me holding a long position in the S&P market overnight. That could be
a real killer! Take heed!

I have an uncle who has a substantial position in the stock market. He told me he was at a meeting where an
"expert" told the audience the market was going to 7000. Maybe so. The market does seem to "climb a wall
of worry," as they say. I think that wall may be getting a bit slippery.

Robert Prechter, the famous Elliot Wave enthusiast, has a book that predicts an imminent and huge market
drop. Who knows, it may make him more money than he's ever made in the markets. I'm not interested in
this book, but some of you readers might want to check it out. If Prechter fails with this prediction, I think
his goose will then be well-cooked for all time.

There are those who say negative talk like this is what causes markets to fall. I don't think so. I recall
"experts" saying that 3000 would be the high for the DJI. I sure haven't seen much falling since they were
saying that. I think markets finally fall in a big way once they've been overbought in a big way. That's
about the time the "strong hands" or "smart money" is saying goodbye to their stocks and selling them to
the highly enthusiastic public.

Euroyen Futures Contract in April 1996 Alice G. Sanders, CTA

Euroyen futures have been trading since 1989. This market has grown into the second largest short-term
interest rate future; the largest being the Eurodollar futures contract traded on the Chicago Mercantile
Exchange.

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A short-term investment vehicle for hedging and trading alike, Euroyen futures may be used to hedge both
deposits and loans by commercial banks. A commercial bank may buy the futures contract as a hedge
against falling short-term interest rates that affect adversely their deposit portfolio.

On the other hand a commercial bank might sell the futures contract to protect against the risk of rising
interest rates affecting their loans portfolio. About 40% of end users of yen-denominated interest rate swaps
are located outside of Japan. About 60% of yen-denominated forward rate agreements are transacted as
well as many of the medium term transactions occur in London.

Trading of TIFFE's Euroyen futures contract on LIFFE in London will provide institutions in Europe and
the United States with a chance to manage yen-denominated interest rate exposure in a time zone that
coincides either wholly or partly with their traditional business hours.

Specifications for Euroyen futures contracts:

Size of contract: 100,000,000 Yen
Price quotation: 100 minus the rate of interest
Minimum price movement: 0.01; tick value 2,500 Yen - Delivery months: March, June, Sept, Dec. in a
three-year cycle.

The above specifications are identical with the TIFFE contracts.

LIFFE Euroyen trading hours: 10:00am to 4:00pm BST London, England

The last trading day for LIFFE Euroyen future is two LIFFE business days prior to the last trading day for
the TIFFE contract (which is the second business day immediately preceding the third Wednesday of the
contract month). Cash settlement will only occur in Tokyo.

The Link Agreement between TIFFE and LIFFE provides numerous strategic advantages and flexibility to
all participants involved. Both TIFFE and LIFFE share 50 common member firms, and 20% of LIFFE
members are Japanese institutions. The structure of the Link and Link Clearing Agreements as well
indicate towards a carefully structured and well balanced establishment to start with.

Contingency report on this article is available, and it is prepared according to specified inquiries. This is not
an offer to buy or sell commodities. Sources used here are believed to be reliable, however no
responsibility is assumed for their accuracy. There is considerable risk in futures trading.

Options & Spreads: The Mental Kitchen & Back Stairs - Greg Donio

Investor psychology is currently a hot topic but an embryonic one, not well-developed enough to spin off
conflicting theories or doctrines. On Wall Street one does not hear of Freud versus Jung or gestaltist versus
behaviorist. What prevails there is more like the pocket psychology of the pilot and the flight instructor
who know the hazards of panic or confused judgment.

This can serve a practical purpose, like the barstool philosophy of one soldier telling another, "Don't let
close calls shake you. As long as the bullet missed, an inch is as good as a mile." Yet saloons often foment
misinformation and psychology may tend toward the intricate and confounding.

I make no claim to being the Sigmund Freud of independent traders, I have received several letters asking
what I consider "the personality traits necessary for successful trading." I hereby make a humble effort to
look behind the facade of speculators and speculation, to scrutinize the psychological kitchen and back
stairs.

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My favorite definition of "neurotic" is concise: Self-defeating. My favorite example a brief and humorous
one: The psychiatrist asks the man on the couch, "What was it you said?" The patient replies, "I said
nobody seems to like me. Now pay attention, you overpaid fat-head!"

Thus a neurotic is someone who routinely plants land mines in his own path or snatches defeat from the
jaws of victory. He wants health but keeps drinking too much. He wants to achieve but abandons projects
shortly after square one. Or he not only errs but persists in doing so.

Rule One: Do not be self-defeating.

How about a humorous example apropos to investment and profit? During a comedy-skit interview, Bill
Dana as Jose Jimenez said that he used to own a ranch. "It was called the Rocking Chair, Circle-V, Twin
Mountain, Bar 20, Double Diamond, Half-Moon, Tumbleweed Ranch."

'Was it a big spread?" the interviewer asked.

"Very big!"

"Did it have a lot of cattle?"

"No, not many survived the branding."

I used to laugh loudly at the preposterous notion of wranglers destroying a bellowing steer with a giant,
red-hot iron, then doing likewise to the whole herd one at a time, with nobody ever saying, "Hey, maybe
this ain't a good idea."

Surely nothing resembling this could ever happen in real life, I thought. How wrong I was! Traders in
futures and options make the same mistakes not just once or twice, but with monotonous regularity. Bring
on the next head of cattle.

Although I had mixed opinions about Bill Gallacher's book Winner Take All, I endorsed his advice, "Never
add money to your trading account . . . Writing a second check to a broker is an admission of defeat." Many
traders do take repeated beatings and respond by writing repeated checks to replenish their brokerage
accounts.

A bad idea, Gallacher says. Good money management, i.e., the limiting of risk, is keystone-essential for
successful trading. Adding capital increases risk instead of limiting it. I would go one step further and say
that the trader who keeps on writing checks creates a "plan" or a 'program" for financial loss instead of
gain!

Here we detour to throw some light. Automatic investment plans have gained popularity in recent years.
The original or prototype-model "automatic investment plan" dates back many decades and was an
accidental discovery. The managers of a trust received simple instructions: Invest the money half in stocks
and half in bonds, then keep the two sides even value-wise.

So when the stocks increased in value, the trust managers sold some of the shares and used the money to
purchase bonds, making the two ends of the portfolio equal again. When the stocks fell, some of the bonds
were sold and the money used to buy shares. For several years the trust generated income as expected via
both interest and dividends.

Then the people made a happy discovery. The total value of the portfolio had increased markedly, even
though it had not been designed for growth. How in heaven's name? The trust managers had bought stocks
low and sold high, again and again and again. Keep it even was motive, growth the side-effect.

The "automatic investment plans" published in book form in recent years do take-offs on this. (For
example, using fluctuating mutual fund shares with fixed-at-a-dollar money-market shares; changing the
proportions from half & half). Remember, though, that the original "unplanned plan" developed
accidentally and can "spawn a mutant" in the hands of traders which methodically destroys capital.

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Let's say a trader has a brokerage account, plus a bank or money-market account, plus employment income.
Let us say that the trading account posts repeated losses. Well, at least that does not affect the cattle in his
other money corrals. At least he is smart enough to limit the risk.

But wait. First he replenishes the depleted brokerage account with money from employment income. Then
from the checking account. Then from both. Some go as far as the pawnshop and a mortgage. Worse than
throwing good money after bad, the trader has created an "unplanned plan" structured and circuited to lose
capital.

Repositories which preserve or increase money are systematically drained. That which destroys or devours
capital is systematically fed, again and again and again. Losses become de facto "signals" to dish in more
cash, a cannibalist counterpart to automatic investment plan "signals" for buying or selling stocks or bonds
or fund shares. The supreme self-defeat.

Numerous other roads lead to self-defeat. Over-trading, for one. More than 10% of risk-capital per venture
is too many cattle under one hazardous branding-iron. I use that for semi-armored spread strategies, less
than 10% for anything riskier. Averaging down or averaging a loss: One log on the wrong-direction raft of
going against the trend instead of with it. Buck not the trend. Don't be a money-losing fat-head!

Rule Two: Cultivate a sense of detail, including a sense of succinctness regarding material information.
Key definitions to follow.

In Germany during the 1920s, young film director Fritz Lang had problems. His first wife caught him in the
arms of another woman and subsequently committed suicide. The police suspected Lang of murdering her;
grilled him at length. On dingy walls of interrogation rooms, he saw visions of prison gates, chaplain and
executioner.

Fritz Lang was released without being charged but the experience left its imprint. He became very alibi-
conscious. He kept written records of phone numbers he called, people with whom he had appointments or
met unexpectedly, items on a menu where he dined. Taking a stroll, he wrote down the tag number of a
parked car, the headline and the news-dealer's gold tooth. Attending a stage play, he made a jotting on the
printed program about the actor who limped or the one whose wig was on wrong.

This carried over as the sense of detail for which Lang's films were noted. Also their moral chaos, with
innocent people being arrested and guilty ones going free. A successful trader in futures or options or other
securities needs a keen sense of detail. Plus an awareness of the markets' moral chaos. The exchanges do
not always reward virtue or industriousness, or make a winner of the good guy in the white hat.

Let us clarify as to which details. Financial vocabulary and definition make a distinction between "material
information" and "all information," the former defined as "that needed to make an informed investment
decision," the latter meaning too much info, mostly superfluous.

A hack novelist spends several pages describing the view from the study; too much data, tedious and
unnecessary. Contrarily, gag-writer Robert Orben penned a joke, "When I went to school, I was an honor
student. Yes, your honor. No, your honor." This dialogue-detail tells us plenty briefly, sparing us a six-page
description of the courtroom. It is succinct.

I never heard that word until my second year of college, and it deserves greater popularity. Related to
"cinch"' and "cincture"--packed, enclosed, fastened--succinct" is the words and phrases equivalent of
"condensed" or "compacted." While "terse" and "concise" emphasize brevity, "succinct" stresses the high
content within that brevity--a lot in a small space.

I go through trading and investment books--and other books--armed with a red pen, underlining key
sentences and phrases, bracketing paragraph portions, sometimes asterisking vital paragraphs, rarely

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blessing a page or passage with a pentacle. Always I seek the sections that tell more than might be expected
from their size, the pivotal lines, the see-the-world-in-a-grain-of-sand details. Caravels tightly-packed.

As a trader and student thereof, can you develop a Fritz Lang sense of detail, including an eye for details
that are succinctly significant? Now for a test of your ability to observe, evaluate and visualize. Italian
Renaissance artist Correggio (1494-1534) was written about in 1877 by John Addington Symonds:

"The unity of his work is derived from the effect of light and atmosphere, the inbreathed soul of tremulous
and throbbing life, which bathes and liquefies the whole. It was enough for him to produce a gleeful
symphony by the play of light and color, by the animation of his figures, and by the intoxicating beauty of
his forms."

"His angels are genie disimprisoned from the chalices of flowers, houris of an erotic Paradise, elemental
sprites of nature wantoning in Eden in her prime. They belong to the generation of the fauns . . .

"Correggio's sensibility to light and color--that quality which makes him unique among painters--was on
par with his feeling for form. Brightness and darkness are woven together on his figures like an impalpable
veil, aerial and transparent, enhancing the palpitations of voluptuous movement which he loved."

"His coloring does not glow or burn; blithesome and delicate, it seems exactly such a beauty-bloom as
sense requires for its satiety. That cord of jocund color which may fitly be combined with the smiles of
daylight, the clear blues found in laughing eyes, the pinks that tinge the cheeks of early youth, and the
warm yet silvery tones of healthy flesh, mingle, as in a pearl-shell, on his pictures."

"Within his own magic circle Correggio reigns supreme; no other artists having blent the witcheries of
coloring, chiaroscuro, and wanton loveliness of form, into a harmony so perfect in its sensuous charm."

If you judge the above quotation a masterwork re. sense of detail and succinctness, give yourself 30 points.
If you think that the book page containing the above bears a red pentacle from my hand, give yourself
another 30 points for understanding the mind of at least one trader--me.

Most importantly, give yourself 40 points if the passage (quoted from Symonds' Renaissance in Italy--The
Fine Arts) caused you to do much visualizing: Silver chalices containing orchids and grape hyacinths,
Pleiades whose flesh-tints bathe in sunshine, backdrop brocades in ruby or mother-of-pearl.

Then sense-of-detail-wise you are able to hear the grace notes in the arabesque, taste the Loire River breeze
in the burgundy, and observe the numbers forming floors of support and ceilings of resistance on the
intangible Charles Dow chart or W.D. Gann chart inside your head. You will spot the significant smallness
of a spear point penetrating as opposed to the smallness of inconsequential items.

In a past article I mentioned Dow Theory and Gann Theory, Elliott Waves, the Darvas Pyramid of Boxes,
Wyckoff Point & Figure and Japanese Candlesticks. All require good sense of detail, whether already
possessed or cultivated for the purpose. None are perfect, but all can help sift and assemble the cinched
pack of material information from the vastness of total information. Use the Edenic beauty-bloom of your
red ball-point.

Rule Three: Get a handle on the convolutions of time, also on the patterns of the past.

Time is a hack writer of formula stories, markedly more prone to repetition than to originality. However,
this does not make it incapable of surprises. You will have a fair grasp on the convolutions of time if you
regard it as often predictable but not always. A capable trader formulates a sound battle plan calculating
what the enemy is likely to do, but to it attaches a worst case scenario.

Psychologically, much depends on people's visions or images of the past, which vary tremendously not just
in finance and investments. This makes "getting a handle on" more difficult. After the 1968 assassinations
of Reverend Martin Luther King, Jr. and Senator Bobby Kennedy, a sociologist was interviewed on TV.

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He said, "Our society has become more violent and this is reflected in our entertainment. The film Bonnie
& Clyde is a good example of this. We've fallen in love with a pair of murderers." Really? As compared to
what? It sounds like that sociologist was using Lassie movies and Andy Hardy movies as a measuring stick.

Had his knowledge of dramaturgy extended farther back in time, he would have known that the classical
Greek dramas and the British Restoration plays did not reflect any increase in murder, incest or other not-
niceties.

Do movies, TV, books or magazines cause violence, immorality, or anti-social behavior? A person's answer
depends largely on his or her image of the past. Those who say yes are usually the right-wing reactionaries
and fundamentalists-people who call themselves "traditionalists" when their knowledge of tradition goes as
far back as Shirley Temple.

They yearn for the "good old days" when movies and radio banned the words "bathroom," "pregnant" and
"diaper"; when several film studios prohibited infant nudity and topless seven year-olds. Shakespeare
devotees know that littering the stage with corpses did not boost the homicide rate in Elizabethan England.

Opera buffs realize that stagings of Verdi's Aida did not cause any young lovers to be buried alive. Art
lovers are aware that the Delacroix nudes--conquered, chained, enslaved-did not compel impressionable
children to go around hanging chains on undressed women.

Admittedly, I have an ethnic battle-ax to grind. As a proud Italian, I have a short fuse for so-called
'traditionalists" who think that Bernini and Botticelli were hit-men for the Capone mob. For mentality and
personality traits, this ilk should trade on the financial firing-line when Rush Limbaugh and Rev. Pat
Robertson start discussing Florentine art and grand opera. Or Fritz Lang and cinema with sub-titles.

Cultivating a sense of detail. Getting a handle on the convolutions of time. Having an image of the past that
possesses complexity and kinship to reality. A rabbinical scholar dissecting the intricacies of Talmud can
do it. As can an archaeology buff scrutinizing a Greek Linear B manuscript or a Brindisi bronze. Or an
analyzer of Dutch and Flemish brush strokes. Or a musicologist knowing something more than Tin Pan
Alley moon & June. Great for labyrinthine chart/calendar swirls.

But the person who "bought it" when Lawrence Welk palmed off ragtime as clean, decent music from
golden yesteryear? (It was the "whore house piano" of the gaslight era, condemned from many an 1890s
pulpit.) Or the person who applauds when Ann Landers denounces women's underwear commercials and
feminine product commercials in the name of "old-time bedrock goodness"? Buy plenty of old-fashioned
savings bonds or expect the worst.

Rule Four: Keep on learning and developing. These are life-long processes.

R&D (research & development) one hears mainly as a corporate departmental phrase. It applies crucially to
the individual as well. The eminent physician sits up late reading medical journal articles, to develop
himself and keep up in his field. He may complain that only half those articles contribute anything of value
to medical science, but sift he must.

World-class opera singers still undergo training sessions with voice coaches. Scholars of all disciplines
from computer science to literature to Egyptology take graduate courses and read prodigiously. With
finance, however, the league record is spotty at best, especially under independent trader insignia.

Every broker and financial advisor can tell horror stories of people who spend years working and saving
money, but do not spend five minutes researching how to invest it wisely. Reading and learning, Research
& Development are even more important for the active trader than for the easy-does-it long-term investor.

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While on in years, the late magician/author Burling Hull wrote in a how-to piece for conjurers, "Please
understand that when I say 'teach' or 'learn,' I say it with no superior attitude. I am learning about magic
every day."

Busy and productive in his mental kitchen and backstairs. In his R&D department, no stagnation and no
self-defeat. Like a Correggio palette recording and telling much via "the-witcheries of coloring."

Recommended Reading: Lawrence G. McMillan's book Options as a Strategic Investment for its several
fine chapters on spread strategy.

Enabling Execution

Don McCullough

In a previous article I said that "having to" can often make all the difference in the world when it comes to
acting as one should. I still think there is much truth to this, but I have decided that wanting to is even
better--as I think the following will prove.

Feeling I have to take signals--that is, I have to force myself to take signals--is negative. This indicates I
fear the signals or am unwilling to trust the probabilities. Or a significant disbelief in my eventual success.

Feeling I want to take signals--no super human effort involved--is positive! This indicates a trust of the
probabilities of the signals and a belief in their ability to make money. Or a strong belief in my eventual
success.

Feelings That Disable Execution:

1. Feeling fear or distrust of signals.

2. Feeling need to be certain before executing.

3. Feeling you'll lose money if you execute.

4. Feeling you'll pass on this signal and take the next, or start trading tomorrow--always tomorrow!

5. Feeling you must force yourself to take the signal.

Feelings That Enable Execution:

1. Feeling trust in the good, well researched, probabilities of your signals.

2. Feeling only good to high probabilities--and not certainties--are required in order for one to execute
willingly.

3. Feeling you'll probably (not certainly) make money if you execute.

4. Feeling this signal is as important as the next--and act!

5. Feeling you want to take the signal rather than you are forced or have to take the signal.

Much of what I've just said boils down to learning to think, and act in terms of probabilities. The problem I,
and I think many people have with this is, it is a different mind-set than we are accustomed to. In our

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everyday existence we become accustomed to figuring out how to do things and then we do them
successfully nearly 100% of the time. In essence, we become very "wedded" to acting with certainty!

I believe one of the most important things an aspiring trader or investor must learn to do is to learn to think
in terms of probabilities. Once learned, (and I mean really learned!) this is what enables us to cut our losses
and to take action without the need for, "for certain" results.

A "cock sure" (certainty) attitude toward market direction, and the consequent riding of losses is caused to
a very significant degree by the average person's gotta be certain attitude or mind-set. With enough market
experience we come to see that only good probabilities exist in the speculative markets and then become
much less likely to be "cock sure" and ride our losses.

The final goal is not only to be able to think in terms of probabilities, but also to act in terms of
probabilities--decisively and without hesitation, especially when it comes to daytrading. I have said you not
only have to know enough, you have to be enough in order to trade successfully. No doubt this being
enough depends very much on one's ability to act in terms of probabilities. To act best is when you can take
your signals in a positive, want to frame of mind.

Feeling you have to, and must ruthlessly force yourself to trade your signals is a very second-rate, stressful
way to trade. I believe the best pros are so sure of their signals they want to take them. Feeling they must
force themselves to trade (most of the time, at least) is a feeling I'm sure they've relegated to the long-ago
past.

Perhaps a person must go through three stages before becoming successful in the markets. The first stage is
one in which we're cocky. We get a few books and find a no fault expert and we're on our way. The second
stage is when we find out it's not so easy and either quit or dig-in for the long run and learn all we really
need to know. (The know you know rather than the think you know stage.) The final stage is when we learn
to overcome our psychologically self-defeating ways, and thus, become able to successfully and willingly
act on our knowledge.

I want to thank Kent Calhoun for his Education of A Trader article in the Feb/Mar CTCN. Here is
definitely a guy to listen to. This article addresses much of what I'm talking about. Kent's statements that all
traders have fear, but winning traders manage their fear while losers are controlled by it--that winners trade
in spite of their fear. Classy stuff, Kent. Hope to hear more from you.

Surely without question the degree of fear experienced by the professional would have to be (most of the
time, at least) much less than that experienced by the average trader.

Although I have said that it's best not to force yourself to trade, I expect the newcomer must. Here I think is
where courage comes in. Courage is not acting without fear, courage is acting in the presence of fear. Or, as
Kent put it, "in spite of fear." Having the courage to take "steps into the unknown" is what makes it
possible for most people to succeed in any field of endeavor. Sometimes it's not a matter of having the
courage--it's a matter of summoning the courage--and even a battle to keep summoning it.

Better Charts and Charting - DMC

I'd like to share what I consider to be good charts and charting methods. It's true that such information
alone won't make you a successful trader, but better charts do make the work of a trader more pleasant and
efficient. After all, charts are "the tools of the trade" and better tools can add to the bottom line. Maybe not
to a large degree, but some. I use the MetaStock program and I'm sure most popular programs will allow
the following suggestions.

I prefer medium gray for the background and black for the bars. In my opinion no other color combination
even comes close for these two things. I use 250 bars on all my charts whether they're 1- minute, 30-minute

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or daily. This number is about maximum, otherwise you have the bars running together and thus lose
clarity. You also lose the ability to see gaps and reversal bars clearly. I expect many professionals use this
number of bars or very close to it--depending on the size of their monitor and their method of trading.
Perhaps the # 250 is a carryover from daily bar charts where this number equals just about exactly the
number of trading days in a year.

I spend about 99% of my time watching the intraday movements of the S&P market. I use between 1 and 5-
minute bars for this market. Believe it or not, a tick chart works well with some markets. For slower
markets like live cattle and the grains you might try 15 and 30-minute bars. Bear in mind what I'm saying
pertains to my method of trading and may not work as well with other methods. I like to use dark blue and
bright red for lines. These colors, plus a couple of others, will glow when they touch the top or bottom of a
black price bar. This helps much in terms of speeding up the drawing of lines--and also the very important
accuracy of those lines.

There are certain things about my charts and charting I simply won't tell. The best of my knowledge
required far too much time and effort for me to give it away. Too, I don't want to take the chance of having
to fight other traders using my methods at my entry and exit numbers. This would surely mean more
slippage and less profit for me. I know many pros feel the same way and for the same reasons. Larry
Williams states in one of his books that the systems he's giving you (in that book) are not his best. Good,
but not his best. This is more common than people realize and something to consider the next time you're
thinking about buying books, systems and seminar tickets.

I really like my MetaStock program and think the TradeStation program is overrated and overpriced. It
appears many people like lots of "bells and whistles" with their software. They feel the more extra features,
indicators, etc., the program betters their chances of becoming a successful trader. I strongly believe it's the
other way around. Keep it simple and do your own thinking--and use MetaStock and save a bundle.

For chart printouts I prefer medium yellow or medium gray paper. Easier on the eyes. However, for a 1-
minute bar chart I use standard, white legal size paper which enables me to get the whole day on one sheet.
I also include the horizontal grid lines which makes seeing the extent of a move and support and resistance
much easier. On the screen I found dark gray to be the best color for grid lines and I use the dotted "style."
This type of grid line gives the chart a less cluttered appearance.

The distractions, misinformation and dysfunctional psychology an aspiring trader has to get through and get
rid of are truly something to behold! Not only with respect to charts but in general. Now I watch only the
S&P and the meats and it's about time for the meats to go. I may soon be looking at only one chart of the
S&P market throughout the whole day. It took me many hours of study to know which chart that will
probably be. That and many other things is for other people to find out like I did. The hard way.

You Have To Pay The Price!

The Final Price by DMC

Several years ago the renowned trader-author (author-trader?) Larry Williams brought the matter of "price
paying" to my attention via one of his books. I had always known you have to work for what you get, but I
thought his way of expressing this was more meaningful.

Everything has a price. I'm not speaking here of the typical things you pay money for like shoes, food or
clothing. What I'm referring to is: paying for your accomplishments. Whether you want to be a college
graduate, doctor, farmer or succeed at anything you have to pay the price. The price is of 3-parts. Time,
effort and determination. You have to be willing to spend the time, exert the effort and be mentally
determined to succeed.

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The final price, the title of this article is referring to and with regards to successful trading is: the price of
being willing to accept the risk and stress of trading and begin trading in a consistent manner. After having
spent thousands of hours studying the markets, this is the final price I now must pay. Famous trader Tony
Saliba once said: "You have to be able to endure the stress of it. Chose to endure the stress."

I've heard it said that: "Knowledge without action is a disease." All the knowledge in the world won't do us
any good unless we act on it. I have made poster printouts in large letters and of all kinds and taped them to
my monitor. There have been many of them and all, in one dramatic way or another, are screaming at me to
get my butt in gear and trade! Today I made my last such printout. There will be no more. This last one
reads: "No more words! Words won't get it done. Only Action!"

I'm not talking about willy-nilly, off-and-on action or trading--I'm talking about consistent trading where I
must be willing and able to take the losses and keep on trading. Now that's the rub, as they say. I finally
decided it wasn't only the next trade I was avoiding, but also all of the other trades I knew that would have
to follow. Have to! It's for sure, the best trading knowledge in the world won't do a trader any good unless
it's acted upon in a largely consistent manner. Hit and miss just won't cut it!

My avoidance of daytrading the S&P market has not resulted in a total loss of time, effort and money. Not
by a long shot! By setting here and watching this market for several months, I have gained additional
valuable knowledge. I have fine-tuned and added to my original signals to a significant degree. Perhaps the
most important thing this "real time studying" and added knowledge has given me is more confidence.

Now, not only do I have one reason for taking a signal, I will often have two or more reasons. I found out a
major truth about signals. Very often the more psychologically difficult the signal is to take, the better or
more profitable it will be. This is one of the main reasons why paying the final price can be so hard. You
need self-trust to the max! It's possible that a really good sense of self-trust can come only later, after some
real success with your trading. Perhaps, initially at least, you need something even more important. That is,
courage and a fighting spirit tempered with reason and high probability signals. Or, positive aggression.

I am going to start trading--consistently. I'm going to "trade through" this damnable stress and risk
avoidance baloney. There used to be a cartoonist who said something like: "I have met the enemy and it is
us." In my case it is me. I will pay the final price. I know there will be many blunders, but I am sure the
quality of my knowledge and the strength of my determination will see me through.

Misc Subjects & "Elliott Wave Is Crap" - Anonymous Swedish Trader

I read your editor's note at the end of the Terry Davis article. I presume you offered a simple apology, and
can think of no reason why either a gentleman or normal polite human being would refuse it, anyone can
make a mistake, especially when he is under stress and not working under normal circumstances, and
anyone not accepting this is simply pathetic.

Especially when you are willing to admit your error, and offer to put it right at the first opportunity (i.e.,
next issue of CTCN). Again, he is not a bloke worth talking to, except that he too writes interesting articles
from time to time. Dave, you have a tough job.

I presume this is the same Terry Davis that wrote a short article about CSI in the 5/95 issue? I dealt with
CSI for two years, and had no problems whatsoever, except that their customer service department was
perhaps a little slow, given that I was always calling from abroad. They were never rude, I had one billing
problem, which was rectified after one simple fax. I note that you have been using them for 13-years,
presumably without serious problem.

They are clearly a good company. Now, of course, they too can make mistakes, and Terry Davis was
perfectly entitled to complain if he received poor treatment. But I re-read the comments from Bob Pelletier,
in the same issue, responding to these complaints. His letter is a masterpiece! I particularly like the line "I

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now find it easier to understand how, on a personal level, our staff may have been less than eager to help."
What a beautifully succinct, and not impolite or vulgar, way to say "this guy is a dick-head."

On a personal level, I think Elliott Wave is the biggest load of crap ever invented, but I appreciate that there
are many who disagree. I read somewhere that Robert Prechter, using Elliott Wave, was forecasting a Dow
below 1,000 when the index stood around 3,500. I wonder, did he short the index futures or keep buying
puts? Neither, I suspect, because he is still going. There was another Elliott Wave guy on CNBC's squawk
box a few weeks ago. Mark Haines pointed out that they had been forecasting a crash since Dow 3,500, and
yet now we were up at 5,500.

His answer? "We were a little premature!" Yeah, right, of course, when the next crash does occur, which
we all know it will, one day, no doubt Mr. Prechter or his sidekick will be there, on CNBC the next day,
saying "told you so." This is also pathetic. I am so happy to have found a successful (albeit mildly)
fundamental trading system, that I can hardly contain myself sometimes.

I digress. If you draw enough lines on a chart, you can prove black is white. If your readers want more stuff
on Elliott Wave, then keep hassling Mr. Davis to let you print his article. Personally, I think our time would
be better spent elsewhere. I should add that I firmly believe that chart-reading is not something that should
be ignored. Clearly, some people consistently read charts correctly, and therefore they are not a waste of
space. But as for Elliott Wave? When something can be so wrong, is it worth considering? (Perhaps we
should "fade" their signals?)

From his articles, Terry Davis appears to be a good and successful trader. However, I have grown to be
suspicious of people who claim to be successful traders. Yet they keep selling different systems, and have
clearly in recent years hopped around from one system to another. (One notable exception to this is Joe
Ross, who apparently changes his styles frequently because he gets bored, which I can believe, but I would
not put Davis in his class).

If Terry Davis' systems all work so well, good luck to him, and to anyone else using them. However, with
the side of his character revealed through your pages, both from Bob Pelletier's letter and your latest
editor's note, I am reminded of the quote "all systems make money, providing you sell enough of them."

"Problem Lies Between My Ears"-

Can A Hypnotherapist Help? - George Moldenhauer

As a 14+ year veteran trader/broker/advisor, I have had my share of ups and downs. Early in my career
most of the problems I had with trading came from lack of experience and the lack of a solid trading plan.
Later, after years of experience and a great deal of work, I became armed with what I feel to be an excellent
trading system. But there were still problems taking the profits that I feel I deserved from the markets.

Once I realized that the true problem lied somewhere between my ears, I took steps to resolve the situation.
Personally, I have had positive experiences with two solutions to that age old problem of discipline and
emotional control.

First, I enrolled in the home study course offered by Van Tharp called The Investment Psychology Guides.
If you are struggling with the inner self and need help, I would recommend this program. It worked for me.

Second, I found the need for individual, specialized help. There are a few things in the Tharp course that
just don't match my personality as a trader. And I firmly believe that you must develop a trading
methodology that matches your personality. If you read Market Wizards (highly recommended to the
serious student of the commodities markets) you'll learn about many success stories that are all different.
Some trade technically, some fundamental. Some short- term, others long-term. Some systematic others
discretionary.

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Once I realized the need for a more focused approach, I started looking for someone who could help me do
just that. And I found that person here in Utah. In late summer I called a Hypnotherapist, Teresa Nelson.
After explaining my situation and how I needed help, she customized a program for me. And what a
difference it has made in my trading and attitude about the markets. While Teresa may be far away from
you, there probably is someone like her in your area. If you have ever had a challenge with discipline in
your trading, I would highly recommend a similar approach. You can get in touch with Teresa at 801-647-
0497.

Super Charts Q and A - Tom Dyste

CTCN member Ron Brooks asks, "When I use the Edit and Type commands to access the Ixxxx.asc,
Fxxxx.asc, and Sxxxx.asc files, the commands do not show anything. In the Dec95/Jan96 issue you
suggested studying these files to learn about EasyLanguage. Can you be more specific about accessing
these files?"

No response, "Oops! The best files to study are Omega's built-in function files, not these others. In my SC
2.0 system the gold mine of EasyLanguage info is in the Bxxxx.asc files located in SuperCharts' bifuncs
subdirectory. Sorry for misdirecting your attention to the other files. These .\bifunc\Bxxxx.asc files mostly
seem to have been written as clear ASCII and carry little or no non-printing character problems. Welles
Wilder's indicators and much other stuff of interest will be found in these. I have printed all of the
Bxxxx.asc files out for my own study and found them very helpful. Hopefully this will assist you with your
SC version 1.03 as well."

About Craig Stevens & Ken Roberts Courses - William Ward II

My, what a country. It's a good feeling to participate in a valuable forum such as this. For James Footer and
Eddie Shaw, I'll comment on their Feb/Mar 96 issue request. Ken Roberts and Craig Stevens are similar in
their approach to making money, in more than one way, take that as you may. Even so, Craig Stevens'
background as a broker lends to a more detailed course as his experience shows through.

However, the principles taught in both courses do work. They do have their similarities, and for the money
it's worth getting a feel for the style of trading each has. Especially at a beginning stage, trying to garner
bits of information in order to develop your own method.

Please, keep in mind you have to be realistic about placing protective stops, considering your account size.
Sometimes in taking a course we can be carried away by hopes of what this new knowledge can do for us.
Only experience of trading real money can teach you the intricate details of a personal one-on-one
encounter with the markets.

The Craig Stevens Option course is detailed and based on workable option theory. You can learn about loss
of time value per day (theta) of an option. It's good to know how much money you may lose each day, if
you're buying. Or how much someone else is losing, if you're selling. Also, whether an option would be
more economical verses a futures contract using delta equivalent cost.

And there are some excellent, detailed option strategies for buying and writing, obviously written by an
author with experience in the matter. As with any education, it must be applied and then move on. You can
fax me at 804-538-9318 and I'll be glad to share more info.

In closing, and agreement with an article in the Feb/Mar 96 issue by Mr. Calhoun, Don't look to the
markets for success. A person is created with all ingredients for success, save one. A need for absolutes,
something to believe in. The markets do not exist to fill any void you may have, yet they may be
instrumental in revealing it.

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Your willingness to the market should be to take it or leave it. You should learn from it, not be a servant of
it, for you can only serve one. And if you're honest with your self, you are serving something or someone,
each day. That's what makes America great, freedom to choose at any given moment.

Back to Basics - Bob McGovern

March is a busy "window of opportunity" month for many commodities. There are 13 "go long" windows,
and 9 "go short" windows. My intention is to paper trade all 22 positions, and at the end of the month, do a
grand tally on the winners and losers. It might be interesting to see how much the funds have skewed
results, due to their mindless and massive infusions and withdrawals of money on the slightest whim in
most futures contacts.

Over the past two years, seasonal open positions and spreads have displayed a disturbing contrariness when
considered in the light of historical patterns. My opinion, unsubstantiated by research of any kind, indicates
Seasonals once worked rather effortlessly in the spreads.

Seasonal trends seem replaced with what looks like random-walk patterns and volatility never before
experienced. It is becoming more and more apparent to me that it might be far wiser to "fade" the historical
patterns of both seasonal open and spread positions. Are Commodity Funds to blame?

I intuitively feel the primary objective of the average commodity fund is to get its ½% annual
administrative fee off the $100 million to $5 billion they manage, with secondary goals of trying to get an
incentive fee for any profit they might garner for their hopeful clients.

The black box mentality of computer-popping in and out of markets might leave something to be desired,
but don't fret boys; ½% of that $500 million per annum is $2.5 million. Not bad for two or three
telemarketers, a gullible clientele, and for status, a Harvard Business School grad who never saw a soybean
or sow's ear.

Or am I way out in left field? Maybe the fact that places like Brazil weren't a factor in beans or OJ ten years
ago has queered the deal. So maybe what I'm saying is to fade the whole shebang. It might work.

All about Stops - Donald Turnbull

Here are some thoughts that might prove useful to neophyte traders like me. They may duplicate many that
you have already published, but I have not had the pleasure of reading.

1. I do not trade the S&P index because the margin requirements are so high it would take too big a
proportion of my account to cover them. I would then have one position with, perhaps a 50% chance of
success (and a 50% chance of failure).

Editor's Note: The S&P 500 margin is indeed very high for overnight position trades. The last time I
checked it was $12,500 at my brokerage firm. This is one of the main reasons the S&P is not recommended
for overnight trades. However, like most brokers, my broker reduces the margin sharply for daytraders,
where he tells me it's only $3,500.

In fact, I have heard it said by some of our members that certain brokers do not require any margin
providing no trades are carried overnight. I am not sure if that's correct information and have not verified it
to be correct, but have heard it said many times.

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For similar reasons, I do not trade Japanese Yen, where one full point is worth $1,250. The difference
between the high and low in one day can be $6,000. This is too rich for my trading style.

Instead I trade low margin trades like pork bellies, live meats and beans, and have a number of trades going
at one time.

Just suppose I have 5 trades going, each with a 50% chance of success (and a 50% chance of failure). The
statistical probability of all five failing is .5 x.5 x .5 x .5 x .5 which in .03125 or only 3%.

Editor's Note: Are Don's figures correct? Is it true that five trades involving 50% odds results in only a 3%
chance of having five straight losers? If so, why does your editor frequently hear about certain systems or
trading advisors having far more than five consecutive losers. Many of those systems are in fact ranked
much better than a 50% success ratio by either the developer or Futures Truth Ltd.

In fact, I have heard of some systems or trading advisors that claim perhaps a 60 or 70% (or even better)
success rate yet sometimes will have say ten, or even 20 (or more) straight losing trades. How is this
possible, if Don's failure possibility is only 3%, or even less than 3% based on profitable trade percentages
considerably higher than 50%?

I recall some years ago I read in one of the major trading publications (I believe it was Barrons Newspaper)
that Jake Bernstein had (if I remember correctly), 23 straight losing trades. I know Jake and he is perhaps
the most respected and most knowledgeable commodity expert there is. Jake has also written 23 books on
trading commodities and is incredibly knowledgeable on trading. Jake is also a psychiatrist (or a
psychologist . . . I always get the two confused) and no doubt has great discipline and trading skill. I am
sure Jake will normally have at least 50% winning trades. So how is it possible someone like Jake could
have over 20 consecutive losers? I am not picking on Jake as many other famous traders and experts have
also had 20 or more straight losing trades over the years.

What is the chance of this happening, if in fact the profitable trade percentage is 50%, or even higher? If
the chance is extremely small, why has your editor heard about this happening numerous times over the
years, involving a vast number of popular systems, methods, and well-known trading advisors or respected
advisory services?

The probability of at least one or more successes is 1-(.5x.5x.5x.5) which is 93.755% . That's a lot better
than the 50% mentioned above.

With tight stops, the losses are limited to an average of $300. With 4 losses, this amounts to $1,200. Profits
are allowed to run and usually average $2,000. This results in small but virtually certain profits.

In actual practice, by limiting my trades to the recommendations of an advisory service, like Steve Myers
on Futures (Summerfield, FL, 1-800-835-0096), probability of success is much higher.

2. I have heard it is bad practice to order a position "at the market." Before placing an order, I phone my
broker's quoteline and get the high, low and last figures. Then I place a limit order at the "last" figure. Is
there a better way of doing it?

Editor's Note: I do not necessarily agree it's a "bad practice" to trade with market orders. In fact, our Real
Success Methodology uses market orders more frequently than limit orders, especially when entering into a
new position. We also use market orders extensively on exits involving targets and stops.

Market orders have several major advantages over limit orders. One major advantage is you occasionally
have difficulty verifying you are actually in a trade or out of a trade due to uncertainty involving a limit
order being filled. On the contrary, with a market order you always know you are filled and in the trade or
out of the trade. Another advantage is a market order will normally have less slippage than a limit order. In
fact, as witnessed in CTC's Real Success Videos, sometimes we actually have positive slippage with market
orders, rather than the usual negative slippage involving limit orders.

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3. When profits accumulate and my account grows above my target figure, I have my broker send me a
check for the difference. That way, I am not tempted to get into larger and larger trades. This may not be
the way to become a millionaire, but it suits my risk tolerance level.

4. Moore Research Center publishes a list of "optimum" stop values, beyond which a commodity rarely
recovers, and within which it often recovers. Their "optimum" stops seem to me to be too high. They are all
in the range of $1,200 to $1,500.

To go along with my philosophy of having a number of trades going at a time, I think that tight stops are
appropriate. This may stop you out of some trades that eventually recover and make a huge profit. But even
in these cases, if you have confidence that the market will eventually rise, and you watch the market
closely, you can get back in again and lose only one round-turn commission. However, if the commodity
doesn't recover, you've saved yourself a lot of money.

Wisdom & Knowledge Has Helped Achieve 11 of 12 Winners Since Last Wrote CTCN
Charles McDaniel

First of all and foremost in my trading life, I must say CTCN has been the most helpful thing to me as far
as man is concerned.

I've been trading for over a year with a small account of $2,500. Since I last wrote, I have made 12 trades
(11 profitable). Taking small $200-300 profits, allowed me to clear $1,800 not counting commissions.
CTCN has been the difference in winning and losing. No doubt about it!

I have experienced some psychological growth and would like to express my thoughts and request a
response from more experienced readers.

I must cast out of me the "feeling" I must make a profit and not lose on the trade. This feeling cost me a lot
of profits by getting out too soon.

I should be satisfied with the profits the markets give me. Once a trade is made, be satisfied with your
decision to enter the trade based on the wisdom given you by god (assuming you ask him for wisdom).
Win-lose-or draw should not enter the mental processes. The decision to enter is what counts.

Once wisdom takes place then it's an automatic win situation. Wisdom should dictate how you play the
trade to get the most out of it - not the fear of losing. The fear must be cast out. Wisdom should dictate the
mechanics of the trade.

The emotions of a previous trade should not influence or govern the present trade. Each trade stands on its
own.

CTCN gives wisdom and knowledge about the mechanics and psychology of the markets. God gives
wisdom about the individual and his psychological makeup to the individual if he asks and keeps on asking
for this wisdom.

3-Steps in the use of stops: 1. control losses; 2. cover commissions and any profits possible without
knowingly getting too close to being taken out of a winning trade; 3. keep raising stops as trade goes your
way to protect profits.

Max Robinson Has A Unique Way To Use Closing Price To Mimic a Moving Average

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Keep up the good work. Anyone that is trying to do something good will be criticized or disliked by
someone. But remember, you are helping many, while only a few are unhappy.

I have the System 2000. It does help identify turning points and congestion areas in the market. But then
one needs an entry method.

The secret of all financial success is money management. How much can you risk on this trade, and still be
financially able to take some losses and still be able to trade when the profitable trade finally comes by.
Study Vol. 4-1 of CTCN, articles are really enlightening (D'Angelo & ??). Can't read name?

I have two Ken Roberts courses. They have some good ideas in them and one of them convinced me to let
go of some old anger.

Every one needs to understand that the constitution may guarantee equality under the law, but we are not
born with the same abilities. Some of us just will never become a winning trader, but we might become a
successful painter.

Larry Williams latest video had lots of information in it.

I have a mathematical way of using the close of today's market to compute an average that is similar to the
9-day and 40-day average.

My method is much easier and quicker to compute than most averages, since you only deal with today's
close. This method picks turning points and acceleration points like any system that I have seen. But like all
of the other systems, one has to apply his own entry and money management plan to it.

The big problem I believe we all have is fear and greed. Most of us are so greedy that we can't stand to be
wrong 5 or 6 times out of every 10 trades. So we keep searching for the Holy Grail. In order to get over the
fear of losing, one has to find a system and run it on old data until you realize that it may work okay! Call
anytime 308-775-3140.

System Testing Observation

Adam White

Here is an interesting observation I made while system testing.

Say you run a system test over 10,000 bars of data, then print out a chart of the system's equity line. Then
repeat the test, but start 100 bars later. Let's say two trades were included in those 100 bars, so they've been
dropped. Now print the second equity line and compare it to the first. You'd get exactly the same equity
line, but 100 bars shorter. Right? Wrong!

When I do this I get a radically different equity line on the second test, i.e., they are not near-mirror images
of each other. My hunch is that a form of the chaotician's "butterfly-effect" has arisen: changing any given
trade's market position (long, short, flat) will effect in a chain reaction all the subsequent trades in complex
and unexpected ways. Here dropping the first two trades could very well change the system's market
position when the third trade is calculated, and so on.

I believe this observation has profound and unfortunate implications for the robustness of system testing.
It's a second and more subtle problem that lies behind the mere curve-fitting/optimization problem.

If dropping a couple of early trades will always effect later trades, then there's no truly "neutral" starting
point with any test data. Where your test data starts determines the final test results just as much as your
system does.

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Editor's Note: Not too many CTCN members are aware of this but I have known about this for some time.
The success or failure of many different mechanical systems is predicated to a surprising and varying
degree on the sequence of events just prior to the first actual trade generated by the system.

The trade setup and timing of the first trade can have a profound effect on the subsequent trading results.
The circumstances and timing of entry into the first trade can sometimes make a huge difference in the
overall trading performance.

You Must Pay Taxes On Unrealized Profits! - Mervin Pearson

You are correct in that the IRS tries to take advantage of the system that they devised. If a trader has a
$100,000 profit on 12/31/95, even though it is not realized, you must pay taxes on that gain even though
you have not closed out your position. If you then let your $100,000 profit go away you will only be able to
take off $3,000 per year. If you never trade again, it will take you 34-years to write it off.

The real bad part comes in because you have to pay taxes on the $100,000 gain for your 1995 tax return,
even though it has not been realized on the trader's books.

Also most traders do not know that All Commodity Trading Income and Loss are to be reported on Form
6781 (Gains and Losses from Section 1256 contracts). This is the actual name of the form. 60% of the gains
and losses are long-

term and 40% of the gains and losses are considered short-term. The numbers flow down on the form and
are transferred to Schedule D.

Delayed Price Quotes Are Available On The Internet - Lanne Terry

Last week I got a flyer 'newspaper' from Knight-Ridder with some ads and articles concerning data.
(Interesting historical stories!) One statement of interest hit my eye... that is, commodity futures and option
quotes are available on the Internet on a 10-minute delayed basis (30 minutes on New York markets). I've
been looking most of the weekend in my net program and am quite frustrated by not finding where this
might be displayed.

I'm very dumb in using a computer and lower than that in the use of the Internet. Do you think some
member of the CTC could assist me in the pursuit of proper direction to find and observe these quotes? I
could barter something for repayment I'm sure (to provide adequate compensation) .... or they could submit
an article to assist more that just me?

Opinion on Cherry Picker and Little Gapper Systems - Ed Young

I am a new member of CTCN and enjoyed reading the CTCN back issues. I was impressed with the
opinions of club members who were trying to help each other avoid costly mistakes in purchasing systems
in their attempt to find the Holy Grail. This letter is to provide some feedback and opinion to those
members who are looking into David Wright's Cherry Picker and Little Gapper systems. I purchased both
of these systems and used them in real-time trading for a number of months with mixed results. I no longer
trade either system for the reasons stated below.

The Cherry Picker system runs in TradeStation on a 1-minute chart. The system is based on an
overbought/oversold indicator of the ticks. It's an interesting concept to work with and may be of some

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value combined with some other systems, but by itself it's just like any other overbought/oversold indicator,
in trending markets, it just doesn't work.

Another major flaw I found in attempting to trade the signals in real-time, is you could not get fills on about
half of the profitable signals because the market moved too fast. Of course, you always got filled on the
signals that lost money. With slippage and commission I could not make a profit even though the signals
theoretically were profitable.

Editor's Note: Earlier, Ed mentioned his system uses a 1-minute chart. In all likelihood one of the main
reasons it was difficult to get good fills on many of the profitable signals is a result of the system using 1-
minute charts.

Some members will differ with me, but in your editor's opinion, one-minute charts are too fast and not
significant enough (most bars with too few ticks) to use effectively in real-time trading.

It's a case of "not being able to see the forest thru the trees." This is one reason CTC's Real Success
Methodology uses 5-minute charts rather than 1-minute charts.

This also comes into play with the system's guarantee, which if I remember correctly from the
advertisement, only guarantees that if the "signals generated' do not result in a profit within 3- months, you
can send in your records for a refund.

First of all, you can't get fills on a lot of the profitable signals and if you don't get good tick data for
whatever reason the signals are not going to be accurate. Your signals may also disagree with the 'official'
signals that Wright keeps to verify your claim that the system is not profitable.

I never tried to go back and get a refund because of my interpretation of the guarantee. It just wasn't worth
my time to put together all the records and then have to argue over it. I just chalked it up as an expensive
lesson.

With regard to the Little Gapper system, you don't even need a computer to trade this currency system;
however, you'd be crazy not to have one with a real-time data feed to figure out a better way to trade it.
Basically, the system trades the Swiss Franc and Japanese Yen in the overnight markets. If you've ever
traded in currencies overnight, you know how difficult fills can be, not to mention lots of lost sleep.

If you're willing to trade the system the way it is, you can sleep at night but you have to sleep with your
losses. I had a month or two where this system made over $10,000 based on the signals: however, in real-
time you could not get the fills that showed up by paper trading it, and therefore you sacrificed profits.

I never duplicated in real-time the results that showed up in the advertisements. With some modifications,
this could be a profitable system and holds some promise. It's definitely not for the faint hearted.

Overall, there are better S&P systems out there to spend your money on than the Cherry Picker. In real-
time, it doesn't even come close to the advertised profits. The Little Gapper system can be adapted to
become profitable, but it will probably never live up to the advertised results.

Editor's Note: If anyone wishes more info from Ed regarding his experiences with these systems you can
get his phone number from CTCN and may call Ed after 4:15 pm EST.

Opinion On Kent Calhoun's 5-VBTP Method - Chuck Milich

This is in response to information request about Kent Calhoun's 5-VBTP Method. Sorry it has taken me so
long to write but making money in the markets these days, even when using Kent Calhoun's materials, can
be very time consuming and difficult.

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About performance information. Since Kent's materials contain information about numerous methods and
computerized back-testing of approaches using those methods, it is difficult to provide performance
information.

For example, if a trader were to take all the 5- VBTP entries on a daily S&P 500 chart, that trader would
probably lose a considerable amount of money. However, if the same trader incorporated the results of
selected approaches and only took 5-VBTP entries that had a high probability of success based on the
computerized back-testing information provided by Kent, the trader would have a good chance of making
money over the same time period.

Kent's manuals contain 2000 or more pages, most of which is tabular listings of computerized back-testing
results using the 5 VBTP entries in different ways and in different time frames.

After analyzing these approaches and their test results, a trader can select one or more approaches that the
trader might feel comfortable with and develop a trading plan based on those approaches.

Each trader who buys Kent's materials will probably develop a trading plan based on a different subset of
approaches included in Kent's materials. This will make each trader's approach unique and thereby make
each trader's performance unique. For this reason it is very difficult for me to provide performance
information on Kent Calhoun's 5-VBTP method.

Additionally, of all the people with whom I have discussed Kent's 5-VBTP approach, I have yet to find one
who uses only Kent's information provided in his manuals. Everyone I've spoken with has combined
elements of Kent's various approaches with elements of other approaches they've learned from other
vendors or other educational sources. Each person uses this combined pool of knowledge to develop their
own unique trading plan.

Developing a successful trading plan is only the first major task a full-time trader needs to complete. Next
comes the development of a money management approach (which can either make or break just about any
trading plan) and developing the psychological mind-set to implement the plan without deviation.

Each of these three major tasks is very difficult and very time consuming. Once a trader lays the foundation
in each of these three areas, he or she is constantly revisiting and revising each area. The markets
continually change and trading those markets is an ongoing learning experience.

The above is just a long-winded way of saying that I can't provide performance information on Kent
Calhoun's 5-VBTP Method. If Kent's materials provided a system of objective rules that would be executed
the same by everyone who purchased them, then performance information would be available. However,
since Kent provides methods and approaches rather than system(s), such performance information is not
available.

I hope that your members get some benefit from the above information. If your members have any specific
questions about Kent's methods, I'd be happy, to respond with the understanding, of course, that I can't
divulge confidential information from Kent's materials.

Opinion On M.T.G. by S.K., Charles Lindsay's Trident and Others

By G.K. An Anonymous Trader

I purchased the M.T.G. (by S.K.) system about a year ago and could not recommend it. There was no
manual per se. I received two sets of charts with handwritten calculations on them and a cassette tape.

The real instructions, however are given by Mr. S.K. via phone in two or three sessions which range from
one-half hour to an hour with further instruction available as needed. There was no track record provided. It

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is not an optimized system. It would be difficult to program and there were no results from back-testing
provided.

S.K. is (allegedly) not a full-time trader nor even a full-time vendor. I have bought a number of video tapes,
books, systems and seminars and while I use very little of what I have been exposed to, I often felt that I
learned something of the intangibles of trading even if I did not use the specific methods. I did not get that
feeling from Mr. S.K. I think because this is a sideline business for him.

The system does not seem to be completely settled in Mr. S.K's mind yet. For instance, the timing
component advertised. I was told what that was, but also told that Mr. S.K. no longer uses it because it
caused him to "miss too many good trades." A number of other components taught via phone were different
from those identified in the tape.

I think most of the advertised descriptions of the system (allegedly) are either misleading or outright
foolish. The "Exact Mathematical Nature of the Markets?" "Based on Newton's 3rd Law of Motion?" I
don't think so. Now, I don't bother to read further when I see things like that advertised.

Regarding the $200-$300 stops, the advertisements lead one to believe that you know in advance where to
place your order with a corresponding stop - that you can forecast within $300. In fact, when the market
reaches a preset point, within $200 - $300, then you place your order.

But the order (for a Buy) is at the high of the range of the day when the preset point was hit with a stop at
the low of the day. Granted, this can be a tight stop, but only for some of the slower markets where just
about any system would give you a tight stop.

The bottom line however, is that I followed the system faithfully for about three months. The analysis took
much longer than advertised. I came up with about three or four trades, all of which lost money. Spend
your money on something else.

I recently entered a trial subscription with the Tradebase Network. This is the product developed by Charles
Lindsay of Trident: A Trading Strategy fame. I dialed in daily for about a month without ever accessing a
trade. At first I was told that there were system problems, then data vendor problems.

One day, it appeared everything worked, however, I could not get a trade list. The next day, I was informed
of a profitable wheat trade from the day before, but still no trades for the day. The next day, I was told that
some of the previous day's trades made money, but some lost. Still no trades for me. After that and since
then, I have been unable to reach the network or Mr. Lindsay (who, as far as I can tell, is the only one who
works there). I am tying to get my deposit back now.

I have found a number of useful products. I highly recommend the Larry Williams books, video course and
newsletter/hotline. A beginner could do a lot worse than to simply follow the Williams hotline for several
years until developing his own system.

The Market Wizard books are on everyone's must read list, including mine. However, I have found Mr.
Schwager's other books just as illuminating, if not quite as inspiring.

I have read Robert Weist's book, You Can't Lose Trading Commodities and have found it worthwhile.
There have been a number of useful articles in CTCN on scale trading and these identify many of its
strengths and weaknesses.

I might add that the ideal times to use this method are rather infrequent and that any trader using the
method exclusively is likely to quit from boredom or try to apply the method under less than ideal
conditions. Used judiciously, I think that scale trading is a useful tool in one's trading arsenal.

What's Wrong with Bob McGovern's Spread Of

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 The Month for December 1995 by PEP

Many professionals have got the NOB (Note-over Bond) spread wrong in the last 3-years. They have made
a terrible mistake based on number analysis and have sorely ignored the fundamentals. These people need
some background in bond investing. They have not thoroughly thought through this trade.

As a refresher, the NOB spread is the purchase of the 10-year US Treasury Note and the simultaneous sale
of the 30-year US Treasury Bond. This can easily be accomplished on the CBOT where this spread is
commonly traded.

Not to pick on Bob, since I am grateful that he contributed to CTCN, but nevertheless, I have seen so many
get this wrong that I am compelled to address his comments.

He says, "historically, the March NOB has never been at current levels." Actually, Bob means in the last
13-years, where in reality bonds and interest rates have traded in the United States for 200-years. Raw
interest rates do not need to be adjusted for inflation since they are what they are ... which is simply the cost
of borrowed money and this cost always immediately factors in inflation. An interest rate of 5% in 1895 is
the same as a 5% rate in 1995.

Bob is looking for a return to a "normal relationship between Notes and Bonds." His normal" expectation is
based on the last 13-years which is not enough time to determine what is normal in this market. In the last
206-years, 65% of the years have had a long-term Treasury Bond yield below 5%. Please read that last line
again. I would call that normal.

He also stated that the cash market, 10-yr. T-Notes "usually trade at a premium to the 30-yr. Bonds." This
is not true if one looks at a longer period of time. His use of "usually" refers to the last 13-years only, again,
not enough time. Furthermore, Bob asks "Why would anyone be interested in buying a longer-term
instrument that paid less interest? Wow! Bob has not done his math and he obviously is not a bond
investor.

The T-Note futures are based on a cash 10-year US Treasury Note with an 8% interest rate or coupon.
(Actually, the CBOT acceptable delivery grades specify US Treasury notes maturing at least 6-½ years, but
not more than 10-years, from the first day of the delivery month).

The Bond futures are based on a cash 30-year US Treasury Bond with an 8% interest rate. (The CBOT
specifies US Treasury bonds, that if callable, are not callable for at least 15-years from the first day of the
delivery month or, if not callable, have a maturity of at least 15-years from the first day of the delivery
month.)

The only difference is the time to maturity. At maturity the bond and the note will each return (or repay)
$1000 to the investor regardless of how long he has held that bond or what he paid for that bond. of course
for every day the investor owns that note or bond, he will earn and be paid interest at the stated coupon rate.

Now here is where the fun begins! Bonds and Notes are priced on Yield To Maturity (YTM) and not on
Current Yield (CY). CY is simply the amount of dollars you will be paid each year while you own that note
or bond. YTM takes into consideration what you pay for that bond or note, what you will be repaid at
maturity, and how long you will earn the CY if held to maturity.

If both instruments are trading at 100 ($1000.00 per bond) then the YTM=CY. The investor would have a
simple choice of 10 or 30-years for the same rate. Now let's assume the note and the bond are both trading
at 80 (80% of Par or $800.00). (I believe bonds in 1980/81 traded below 60). YTM will take into
consideration that the investor will gain 20 points at maturity. The note holder will gain $2 a year (20
points/10-years=2 points per year). The Bond holder will gain only $.66 a year (20 points/30-years=.66
points per year).

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So if both instruments are trading at 80 the CY may be the same, but the YTM is higher for the note. In the
real world, market forces would correct this by bidding up the price of the note to trade at a premium over
the bond price. Thus for discussion sake, the notes might be trading at 85 when the bond is at 80. The
spread would be quoted at + 160 (5 points x 32=160 32nds).

Now let's assume that the notes and bonds are both trading at 120 (near current prices). YTM will in
consideration that the Note holder is going to lose $2 per year up to the maturity of 100 in 10-years. The
bond holder will lose only $.66 a year until maturity in 30-years. So if both instruments were trading at
120, the CY may be the same, but the YTM is higher for the bond.

In the real world, market forces would correct this by bidding up the price of the bond, thus the bond might
be trading at a premium to the notes. As an example, the note might be trading at 114 and the bond might
be at 120 and the spread would be quoted at -186 (-6 x 32=-186). (Near current levels).

At current interest rates if anybody thinks that the notes should trade at a premium to the bonds then they
are being unrealistic. Not only that, if interest rates continue to decline (I believe they will) this spread will
continue to get more negative (bonds an even greater premium to notes). The only way this spread (buy
notes sell bonds) can work, is if interest rates trend higher and bond prices lower.

Except for relatively short periods of time, the interest rates have been on a decline for the last 13-years and
will probably not stop declining until they reach normal levels. I mean normal for the last 200-years, not
13-years.

What affect do you think a balanced budget will have on interest rates? Most likely it will put interest rates
at normal levels. What a thought! The NOB spread will most likely get much more negative and will
continue its 13-year trend.

There will be times that the spread can work. But not based on whether the spread is at -180 or -190 or -222
or whatever. l believe a trader would be much better off analyzing the bond itself and if the trader
determines that bonds are headed lower, the spread can be used as an inexpensive (margin wise) substitute
for the bond itself. But if bonds are rallying, forget it, that spread will never work.

Third Of A Series On The Successful Use of Money Management

To Improve Your Trading Results - Tom D'Angelo

This is the third in a series of articles which describe how to construct a professional and disciplined money
management plan, designed to allow the trade to manage his trading in the same manner as a successful
business. Refer back to my previous articles in Vol. 4-1 and Vol. 3-8 for a detailed discussion of the Profit
Center methodology and calculation of the required money management statistics.

In this article I will discuss the Performance Report. The Performance report is a summary of all the
significant money management statistics for each individual Profit Center. Each Profit Center is a business
and the Performance Report is a management report which reveals your success or failure in managing that
business.

The Trading Plan is the trader's strategy for the next trade based on the information provided by the
Performance Report. The Trade Journal is an "after the fact" critique of the Trading Plan after the trade is
closed out with a profit or loss. I will discuss the Trading Plan and Trade Journal in my next article.

There appears to be lots of interest in the Real Success trading methodology. I have not purchased this
course but I will try to describe a sample Performance Report for Real Success methodology traders.

First, if I was trading the Real Success method, I would set up the following Profit Centers:

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RS(M)- All trades taken from the Real Success Methodology

RSDAY - All Real Success day trades. Overnight Real Success trades can be entered into a Center named
RSONITE

RSSP500 - Real Success trades segregated by the future traded (RSSWISS, RSBEANS etc.)

RS3MIN - All Real Success trades taken off of 3-minute bars RS5MIN - All Real Success trades taken off
of 5-minute bars RS3MINSP500 - All SP500 trades taken off of 3-minute bars (RS3MINSWISS for all
Real Success trades taken off of 3-minute bars for Swiss Franc, etc.)

Substitute 5MIN for 3MIN to segregate trades taken off of 5-minute bars. Example, RS5MINSP50O for all
SP500 trades taken off of 5-minute bars.

Helpful hint - If you are planning to paper trade the Real Success methodology first, simply add a P to the
end of all the Profit Center names. The P signifies a paper trading Profit Center. For example, paper trading
the Real Success method with 5-minute SP500 bars, you would enter the trades into a Center named
RS5MINSP500P. After you have about 20 paper trades in each Center, calculate the statistics I described in
Vol. 4-1 of CTCN and you will have excellent information as to your performance paper trading the Real
Success methodology for each Profit Center.

Results of the paper trades can then be compared with real time results by using the Performance Report.

When you begin real-time trading, create The Profit Centers I have described above (without the P at the
end of the name) and enter the real-time trades into those Centers.

After 20 real-time trades have been entered into a Profit Center, you will have a good data base of trading
information and can complete your first Performance Report.

The following is a brief description of the items contained in the Performance Report.

Profit Center Name - Name of Profit Center analyzed.

Example, RS5MINSP500 for all trades taken from Real Success methodology trading 5-minute SP5OO
bars.

Profit Center Type and Goals - Description of the Profit Center and the financial goals the trader is
attempting to achieve. For Example, Profit Center RS5MINSP500 will contain only SP500 trades taken
from the Real Success methodology based on 5-minute bar charts.

After 100 paper trades, the trader has achieved 60 profitable trades (6O%) and 40 unprofitable trades
(40%). Average Profitable trade was $600, average unprofitable trade was $400 for a ratio of 1.50. The
Profit Factor was calculated to be 1.23. Net profits after 100 hypothetical paper trades are $2000.

Worst drawdown was $1800. Best series of winners was 6 with $1600 in profits. Worst series of losers was
4 with $1550 in losses. The trader will try not to lose more than 3% of capital on any one trade. These
statistics of hypothetical paper trades can then be used as goals to be achieved with real-time trades.

The remainder of the Performance Report lists statistics from real-time trading.

Initial Capital - $30,000. This serves as the funding requirement for the business to cover margin
requirements and trading losses.

Drawdown - Current drawdown in progress=$1050. Largest actual real-time drawdown=$2300

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Series - Worst series of consecutive losers=4 with a loss of $1300 in the series of 4 trades. Best series of
winners=6 with a profit of $1700 in the series of 6 trades.

Current series in effect - 2 consecutive profitable trades with a profit of $600 in the series of 2 trades.

Largest profitable trade - $ 950 on 3/11/96

Largest unprofitable trade - $1020 on 2/ 5/96

Optimum number of contracts to trade=3, based on Ralph Vince's formula.

Trading efficiency - 57% winners and 43% losers.

Average profitable trade=$500. Average unprofitable trade=$300. Ratio of profitable to unprofitable=1.67.

Range of losing trade as % of capital=2.1% to 4.3%

Profitability - Profit Factor=1.14. Profit Center is profitable with profitability trending upwards. I use
graphs to determine the trend of profitability with the Pro-Graphics module of my MANAGER money
management software. I will describe in my next article how I use the trend of profitability to determine
how many contracts to trade.

Current net profit after 60 real-time trades $1100. Current Capital=$31,100 which equals $30,000 Initial
Capital plus $1100 net profit.

Thus, the trader has established a business named RS5MINSP500 which is producing revenues (profitable
trades) and expenses (losing trades + commissions). The Performance Report informs him of his trading
performance in the RS5MINSP500 business as well as enabling him to compare actual real-time results
with goals derived from hypothetical paper trades.

The Performance Report takes the trader out of the dark and into the light. He knows exactly his trading
performance for each of his businesses and can instantly explain to anyone his profitability and efficiency
as a speculator.

Most traders experience psychological problems due to the fact that they attempt to manage a business (i.e.
trade) without any type of organizational structure which can provide them with the information necessary
to execute disciplined, informed and educated trading decisions.

Nearly all traders manage their trading using monthly broker's statements which provide a "macro" view of
their trading. These statements only inform you as to your overall profit or loss for all your trading. This
type of data is totally inadequate for the professional trader who requires more detailed information such as
provided by the Profit Center methodology.

Hopefully, the reader has begun to see why many aspiring traders experience the same psychological
problems....fear, greed, anxiety, inability to "pull the trigger" etc. The average trader operates in a fog. He
has no money management methodology to provide the structure for successfully managing his trading
business. Since he operates in the dark, he inevitably becomes uncertain and anxious. Continually
floundering around in the dark makes the situation worse and worse, like a snowball rolling downhill.

You cannot successfully manage any type of business without first organizing your trading performance
into a meaningful structure which reveals trading strengths which can be exploited and weak areas which
must be eliminated or reduced.

The Performance Report provides the basis for formulating the Trading Plan. The Trading Plan is the
strategy for the next trade based on the trader's trading performance as revealed by the Performance

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Report. I will also explain how the Performance Report is used to formulate the Trading Plan as regards to
how many contracts to trade.

After the Trading Plan has been executed and the trade closed out with a profit or loss, the trader completes
the Trade Journal. The Trade Journal is the "after the fact" critique of the Trading Plan. These three reports
are specifically designed to eliminate the psychological problems which plague most traders and create an
environment conducive to executing rapid, informed and educated trading decisions.

The Trading Plan and Trade Journal will be described in my next article as well as how this type of
methodology promotes psychological stability and significantly reduces stress.

I will also describe how to file all the reports so that the trader will now be operating in a professional,
disciplined and informed trading environment . . . similar to a successful business and structured to
engender confident trading decisions. This type of environment is specifically designed to advance the
trader up the learning curves of the three disciplines necessary to achieve successful long-term successful
speculation: 1. Trading methodology; 2. psychological discipline and; 3. Money management.

Insights for the "Novice" Trader and Other Comments

By Gale & Jo Paxton

Jo and I are new subscribers to CTCN. So far we have found the articles in the back-issues very interesting.
Just how helpful they will be remains to be seen. We were somewhat disappointed in the content of the
Income Tax articles in these back-issues since they did not really answer the questions we have on how we
can write off our trading expenses, etc.

We are quite pleased with the newest issues and find them very informative. Thank you CTCN for
providing this forum and all of the people who take their time to make very valuable contributions to
CTCN subscribers.

First a little background on ourselves, our contribution toward the education of the new or novice traders,
followed by some comments on a few of the articles contained in Vol. 4-1. By the way, we really like the
new format. It has great continuity and allows you to flow right through it with great ease.

A little background. On July 31, 1992, I voluntarily left the aerospace industry after 37-years in the
engineering side of that business. On January 2, 1992, I was transferred to my company's facility in
Huntsville, AL to work on the Space Station program. After 4-months on that program I became extremely
disenchanted with the excessive waste on the program caused by NASA mismanagement and their internal
politics. My efforts to transfer back to Seattle failed so Jo and I made the very difficult decision to quit and
return to Seattle with the hope of applying my skills to a more beneficial and productive career which did
not happen. I was either too old or my computer skills learned while with my previous employer were far
behind the times.

Jo, in our 42 years together, has been a great domestic engineer, mother and has worked when needed and
when she felt she wanted to do more than the domestic engineer scene. Initially, Jo went back to work so
that we didn't have to dip further into our savings to live while we worked on our trading. While Jo worked
to provide our sustaining income, I made a very poor attempt at learning how to trade and traded with
disastrous results.

After working for about a year we both took time off to trade, but still did not have any success so I went
back to work in 3/95 as a temp doing light industrial work at $6/hr. For those of us in the over 55 age
bracket, it us very difficult to get decent paying jobs since most companies want younger people who will
work for lower wages.

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In 6/95, 1 went to work for an auto parts supply company as a parts counterman and am now an assistant
manger which still doesn't pay a living wage. Since 3/95, Jo has been the trader in the family since I have a
very weird work schedule and don't seem to have the time or I'm too tired to do much chart analysis.

How did we get involved in trading Futures? It all started when out of the blue in 3/93, we received an ad
for the Ken Roberts Commodity Futures Course. After we reviewed his material we decided this may be a
way to make a pretty good living from a business that would allow us to work at home, so we sent for the
course.

We weren't and aren't looking to make millions, just a comfortable $40K or $50K a year is very acceptable.
Maybe this is not the right mental approach, maybe if we think millions we can more easily reach our first
target.

The Ken Roberts course material as presented made trading futures appear to be very simple and very
lucrative so, after completing the 90-day course, we opened an account with one of the three brokerage
firms recommended by Roberts. These brokerage firms were supposed to be very supportive of the Ken
Roberts students and offered them the guidance to become good traders. Wrong. In retrospect their
assistance was geared more to their $90 to $100 round-turn fees rather than with providing knowledgeable
trading guidance. More on this later.

During our trading career we have been with four different brokerage firms, two of them twice and we
presently have one small account open. More on selecting a broker later.

Since we started trading it has been mostly downhill financially, but we have never been involved in
anything that is more interesting, fascinating, educational, informative, challenging or more frustrating than
futures trading. However, we continue to feel that one can make a very good living from futures trading
and we are not ready to give up.

For some time we blamed our lack of success on our brokers. Why? Because we felt that we are ignorant
beginners and our brokers had all of the answers, so we traded mostly on their advice and with their
systems.

As we dug deeper and read more books on futures trading, we have finally realized that we have met the
enemy and he is really us, not our brokers.

We did have a managed account and self-directed account with our second broker. After the managed
account lost almost 50% in less than 3-months we felt that our broker wasn't doing any better than we were
in our self-directed account so we closed that managed account and transferred the remaining funds into
our self-directed account. This is the one time we will put some blame on the broker, but the losses,
independent of the managed account are our responsibility.

Based on our experiences during these past 2-one-half plus years and the old saying, "If we knew then what
we know now", we offer the following suggestions to those who are thinking of trading futures and to those
who are new to trading.

1. First of all, if you cannot afford to loose, don't even start trading.

2. Do not spend a lot of money taking trading courses.

3. Before you start trading, read extensively, books written by successful traders, not to try to adopt any of
their trading methods but to become more familiar with the world of futures.

4. Study the technical analysis books by John Murphy which is excellent, Dr. Alexander Elder, Jake
Bernstein, Larry Williams, Mark Douglas (The Disciplined Trader) and George Angell.

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Jack Schwager has two books on technical analysis that we haven't read yet, but plan to when time allows
since they are highly recommended by John Murphy for whom we have great respect. Also, we've read
condensed summaries from Steve Nisan's first book on candlesticks and plan to read both of his books,
again when time permits. Martin Pring on Market Momentum is also excellent.

5. Study some books on fundamentals just to get some insight on how these can affect the markets. We
have found that trying to trade with the fundamentals for those of us that trade at home and not at one of the
exchanges is almost impossible because, by the time we get the fundamental news, the markets have
already reacted to it.

6. Brokers; be aware that there are some real surprises between the services you actually get from the
brokerage firm and what they advertise. Their ads are great and imply a big basket of free services, but
once you get their info package you will find that all of these implied free services are not free.

The brokers also say that part of their services are up to the minute news about the markets which we have
found to minimal or totally lacking. We get some early morning "commodity" market news from CNBC
and Bloomberg News and have found that our brokers don't have a clue with regard to these news item
when we call to discuss a possible trade.

Do not depend on your brokers for advice, they are usually looking at different time-frames than you are
and their advice, based on their time-frame can either get you into trades that are losers or keep you out of
trades that are winners.

Also, if you are not trading with their system or methodology, they may be of no help at all even when
asked for an opinion. Trade from your own time prospective and not theirs. Many brokers have developed
their own systems and more often than not, their system will be in conflict with your own trading strategies.

Because most of us are either consciously or subconsciously affected by the news we see or hear, by the
views or our own broker and by other experts. We feel that traders like us would be much better off not
listening to anyone.

When Jo and I first started trading we listened to everyone because we were new to the game and after all,
these were experienced people and knew a lot more than we did.

Well they may be more experienced, but they are wrong more often than they are right. Breaking this habit
has been very difficult for us, we haven't quite succeeded yet, but we are making progress. Old habits die
hard.

Some of the best advice you will ever here from the "experts" is "Plan Your Trades and Trade Your Plan."

Those of us that live on the West Coast are also at a disadvantage when it comes to getting any information
out of our brokers who are usually located in the Chicago area. The markets close at 2:15 CST which is
12:15 PST. Dependable end of day quotes don't come in until around 5:15pm here if you are with Dial Data
(more later) or CSI.

If you are a west coast trader that gets up before the markets open, you're up by 5:00am PST and you
usually don't finish with your chart analysis until 10:00 or 11:00pm PST, if you are looking at most of the
markets which makes for a very long day.

It has been our experience that most account execs or "brokers" arrive at their desks just about the time the
markets open and leave just after the markets close, so about the only discussion you have with them is to
place orders.

So far we have been with Barons (Irvine, CA one of Ken Roberts recommended companies), COMPAK
Trading (Costa Mesa, CA, twice), First American Discount Corp. (Chicago, twice, our present brokerage

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firm) and Lind-Waldock. Of these companies, 1st American has come the closest to living up to their ads in
our opinion. We are presently evaluating Ira Epstein.

‡ Back-Testing Systems: Unless one has an automated back-testing program, the results usually end up
being subjective rather than objective. As an example, we do not have automated back-test capability so we
usually print out a chart of the commodity we are going to back-test. As a result of having to use a full chart
printout, we have some pre-knowledge of what has already occurred over the period of time covered by the
printout.

While we start at a selected point several days after the charts beginning date and cover everything else to
the right of the date we are presently working with, we still have a subconscious knowledge of the price
activity that has occurred downstream of the specific date on the chart we are working on.

As a result of this subconscious price activity pre-knowledge, we have found it almost impossible to
objectively back-test the systems we have tried. In our opinion, unless you have a charting program that
provides you with automated system back-testing capability you will always end up with subjective results
for a system that will probably result in mostly loosing trades. (more on charting software in a separate
article)

1. Psychology: This probably should have been up at the top of the list because, if you don't have the right
mental attitude or psychological makeup to take your loses in stride you will never be a successful trader.

You will always be putting your energies into blaming your broker for your loses or dwelling on your
loosing trades which causes you to look at the markets from the wrong perspective. As a result you will
keep making the same mistakes over and over.

Of course trading commodity futures can be very scary which also results in the fear of loosing and
activates our fight or flight mechanism which reduces our capacity to think clearly.

It has been pointed out to us by several expert traders in our reading that you look back at your loosing and
winning trades for the purpose of determining what there was in your analysis that caused you to make a
wrong or right trading decision, and take note of what you saw so you don't make the same mistake again
or so you will more readily recognize what made the trade a winner (more on mental attitude in a separate
article).

Read the articles in Vol. 4-1 by Kent Calhoun, Education of A Trader and by J. T. Byatt, "Face Up To It,
No One Twisted Your Arm." They are great articles and offer very much for both the novice and
experienced traders.

2. Paper Trading: paper trading is too subjective and does not encounter the mental and psychological
challenges encountered in real world trading. Therefore you can lull yourself into believing you have
discovered a fantastic system which, when applied to real trades, will end up loosing.

One idea that we offer for determining your mental attitude or psychological make-up toward trading
before you actually open a margin account and start trading for real is to:

1. set up two separate trading bank accounts with the funds you expect to commit to trading. (One account
simulates the "Exchanges" (CBOT, CME, NYMEX, etc.) and the second account is your actual trading or
margin account);

2. paper trade using these funds;

3. when you have a winning trade, transfer your net gain (net gain will be your gross gain minus $100 to
cover brokers fees and slippage) from the "Exchange" account into your margin account;

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4. when you have a loosing trade, donate your gross loss to your margin account plus $100 to your favorite
charitable organization and;

5. to keep track of these accounts, set up two spread sheets, one to record all trading loses and gains and the
other to track your "Exchange" account.

While this method is not exactly the same as "real world" trading, it will probably come the closest to
simulating the real trading world. By donating your loses, your account actually goes down with real out of
pocket money the same way that your real margin account would if you were actually trading.

Putting the money in a recoverable slush fund does not work because you have the same
mental/psychological trading approach that you have when paper trading without out committing actual
funds. It takes the experience of real loses to determine if you have the right mental and psychological
make-up to trade futures.

6. Trading commodity futures can be very exciting and exhilarating. It can get the adrenaline pumping as
you watch the markets move, it makes you feel that you just have to get in and lure you into some very bad
trades. Stay calm, cool and objective or you can loose your shirt very quickly; this is experience speaking.

In wrapping up this rambling dissertation, we want you to know that we still haven't reached the successful
trader's status as yet but, we have no thoughts of giving up.

It takes a long time for some of us to unlearn what was wrong with our thinking and reprogram ourselves to
right thinking and mental attitude. We hope that what we have offered here will benefit all who read the
article and that it will help you in your quest for successful trader status.

Charting SoftwareBy Gale Paxton - This is in response to James Mitchell's request for input on
SuperCharts and MetaStock; Vol. 4-1. When Jo and I first started trading in 1993 we looked into several
different software packages.

We selected SuperCharts on the advice of our then broker who uses TradeStation and ordered it on the 90-
day trial basis. We were very impressed with SuperCharts capabilities for adding your own indicators, buy
and sell signals and its technical tools menu. If memory serves, our version did not have the back-testing
capability that later versions have.

Initially we were thrilled with SuperCharts but ran into some problems with their volume and open interest
capture and its inability to import different formats from other sources as advertised.

We called their technical support line several times in an attempt to correct our problems. First of all, this is
a toll call to Florida which gets very costly, especially when you are put on hold for long periods of time
and second, they were unable to solve the problem with their software. We could have over looked the cost
of the toll calls, but Omega's inability to resolve our problems was unacceptable.

As a result of these problems and since we were still within the 30-day trial period we requested a refund. It
took several weeks, several letters and several phone calls to their marketing department and Omega's
president to finally have them agree to our request for a refund.

We would recommend and use SuperCharts if their technical support had been efficient, knowledgeable
and responsive, and had they not given us the run around on our refund.

With regard to MetaStock, we did not order this on a trial basis so we can't say much about it. We did get
one of their demos at the same time we got the SuperCharts demo and felt that SuperCharts offered more.

There have been several improvements to both SuperCharts and MetaStock since our last review of them,
so it is possible that MetaStock has expanded their capabilities to be more competitive with SuperCharts.

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One thing we have noted is the price difference. In our opinion you probably couldn't go too far wrong with
SuperCharts for the price.

We have been using MegaTech charting software now for over two years. It is not as powerful or complex
as SuperCharts or MetaStock, but it has most of the technical tools needed to do your analysis, and it is less
expensive.

One of the major problems with MegaTech is a price inaccuracy when you are using the cursor to
determine the price at a Fib line or trend crossover, etc. Otherwise it is a good basic program at a very good
price.

Ken Roberts by Gale Paxton - This is in response to James Footer's request for input on the Ken Roberts
course; Vol. 4-1. The Ken Roberts course is how Jo and l were introduced to the world of commodity
futures trading. If memory serves me, it is a two or three part course and Roberts touts it as "The Worlds"
greatest money making machine.

While Course No. 1 gives you a very basic introduction into trading futures, in our opinion it is written in
such a manner as to imply, at best, that you can make a fortune with great ease, and at worst, that you can
make a very comfortable living with great ease.

In fact, the course implied that it was so easy that all you had to do was look for M top and W bottom
patterns which give you trading signals. Yes, he has several warnings and caveats that warn of the
downside to trading futures, but it is poorly stressed and overridden by the course presentation to the point
that one can get sucked in and get started on the wrong foot.

We cannot recommend this course to anyone. We feel that there are better and cheaper ways to learn about
trading futures. Your local library is an excellent source of books by successful and knowledgeable people
who can start you off with a much better perspective of trading without laying out any money on trading
courses and attending costly seminars.

In closing we pose this question. If Roberts courses are so great, why is he spending his time selling the
courses, inspirational tapes, etc. through British American Trading instead of trading the futures markets?

System 2000by Gale Paxton - Response to Julian Bond requesting input on System 2000, Vol. 4-1.
Sometime in 1994, Jo and I were introduced to System 2000 by our then broker (account executive). Since
he was familiar with the system's inventor, Arnie Gronfeld (deceased) through a financial program on TV
in the Los Angeles area, the program was purchased on a cost shared basis.

Apparently the gentleman presently peddling this system bought the copyright from Mr. Gronfeld before
his passing or from his estate.

There is quite a bit of instruction which gives you the basic methodology and concept, however, we feel
than Mr. Gronfeld did not provide all of his complete methodology and signal interpretation in the manual.

Mr. Gronfeld states that the system is so simple that a 10-year old can trade it and be more successful than
an adult, because they take all the signals on blind faith, we have our doubts. I will attempt to give a brief
description of the system.

The system is based on the 3-day and 10-day closing averages. It uses the 3-day closing average to generate
a set of numbers. If you will picture a spreadsheet with columns, one for the daily closing prices, one for
the 3-day closing averages, one for the change between the previous 3-day average and the current 3-day
average and one column that sums the current 3-day and the 2 previous 3-day averages called the net
column.

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The net column will show either positive (red) numbers or negative (black) numbers. Mr. Gronfeld did all
of his calculations and paperwork by hand and used colored pencils to differentiate between the positive
red numbers which are your buy indicators and black for the negative numbers which are your sell
indicators. The buy signal is a change in color from black to red in an up trending market and the sell signal
is a change from a red number to a black number in a down trending market. After receiving a signal, Mr.
Gronfeld always went in market on open the next day, claiming that this usually gives you the best entry
price. In addition to the color changes, when you have three equal or near equal net numbers indicate a
trend change is eminent in the direction of the net number color.

Mr. Gronfeld did not clearly define the maximum percentage difference allowed between these numbers
that would equate to "near equal." In our correspondence (through our broker/partner) about 18-months ago
with the present marketer of the system, he defined near equal as a maximum difference of 15%. Changes
from one color to another, red to black and black to red, are also supposed forewarn of possible short-term
trend changes.

We set the system up on our spreadsheet which also includes the 0, H and L as well as the closing prices.
The H, L and C to determine the projected high and low for the next day based on some formulas used by
old time veteran traders. Since we don't have a way to download the daily closing prices automatically into
the spreadsheet, it takes quite a bit of time to enter all of the market data by hand each night which either
makes for a very long evening or takes away from the time you can spend on analysis.

We have spent considerable time back-testing the system by hand. Initially we were quite impressed with
the results and started making trades based on the system which proved to be disastrous. We had all of
these buy signals in the energies and took them, the markets were in a downtrend at the time. We did have
some minor success with the bond market when it was in a big horizontal channel which is the type of
market that the system seems to be at its best.

When trading the bonds with our then broker, the bonds were in a broad channel and we traded off of the
peaks in the net numbers. If the nets were red we watched for a peak and fall off. We would go long the day
after we had a lower number in the red net.

Since our broker, of course had the advantage of real-time quotes, he would watch for a bottoming pattern
and enter the market based on a 10-minute price bottoming pattern. These trades were usually limited to
one to three days. We used the same approach for short positions in the black nets and were therefore able
to take advantage of the channel swings.

When the bonds started their major downtrend, the system started giving us bad signals or our
interpretations were incorrect, so we lost the gains we had made when they were in the big sideways
channel.

Of course our back-testing, being done by hand rather than with an automated test program probably
resulted in very positive subjective results. Regardless of how careful one tries to be with back-testing in
this manner, objective results cannot be obtained due the affects of the pre-knowledge in subconscious of
what the farther out price patterns are.

Off and on we have abandoned the system and attempted to develop our own, but something keeps drawing
us back to System 2000. We feel that the system has some very good points and that with a deeper
understanding, we will either stumble onto Mr. Gronfeld's nuances that supposedly made the system work
for him or become so frustrated with it that we will scrap it.

One thing that we have discovered when revisiting the system is that quite often, when you get a series of
near equal red nets in a strong downtrend or black nets in a strong uptrend that these are not necessarily
reversal signals but are probably signals to add to an already established position with the trend. We have
also established the fact that the system reacts too slow to give you usable and timely signals in a volatile
market such as Cocoa.

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Jo has been back-testing the system over the past 4-months or so, has been attempting to determine if there
are other technical tools that can be used as filters in conjunction with the system signals that will offer a
high probability of success. She is still testing this approach and we will pass on any successes as they
occur. We are presently using System 2000 signals to alert us to start watching the price activity and our
technical indicators a lot closer for trades.

We hope we have been able to answer most of Julians' questions about System 2000. Is it a boondoggle or a
legitimate system? Aren't most, if not all systems being touted a boondoggle to a greater or lessor degree. I
know that if we had developed a highly successful system, we might be very reluctant to put it on the
market for everyone to use.

With regard to trading systems in general, like most of you out there in CTCN Land we have received
many ads for trading systems and read about trading systems in various magazines. After reading all of this
literature anyone could probably develop and market a "trading system" for a brief period of time.

Just by establishing a few simple ground rules that prove the system and by selecting the proper chart
formations that matches the "system" rules, one could show a "system" with a great hypothetical track
record. With the proper small print caveats in the ads, one could successfully market the system for a time
before people got wise.

Therefore, I have become quite a skeptic when it comes to trading systems. I'm not making any accusations
against anyone, but it does make one wonder sometimes.

The Delta Phenomena by Gale Paxton - This article is in response to Ed Shaw's request for input on The
Delta Phenomena; Vol. 4-1. Just like every trader, Jo and I are still subconsciously looking for "The Holy
Grail For Traders" even though we know it doesn't exist, so about a year ago we succumbed and bought
Wells Wilder's book on The Delta Phenomena.

The Delta Phenomena is not a trading system; it is quasi timing system that predicts short term,
intermediate term, medium term and long term turnaround points based on the cycles of the full moon. We
will describe the intermediate, medium and long term cycles here because the short term is for intraday
trading which we did not work with.

Using the daily price charts for the intermediate term cycles, weekly price charts for the medium term
cycles, and the weekly or monthly price charts for the long term, a series of red, blue, orange and green
lines in that sequential order, 21-trading days apart for the intermediate term, 13-weeks for the medium
term and 52-weeks for the long term. Each full moon period is assigned a color. This information was
provided when we purchased the book. For our purpose here we will begin with a red line as the starting
color.

A number of delta points are established for the four color cycle. In other words the number of delta points
range from 8 to 12 depending on the commodity. The system always has the same number of delta points
between starting points, except when one encounters a single or double inversion between the last delta
point and the first delta point.

This inversion phenomena is explained in the book. Be aware that each Delta Point location has a plus or
minus tolerance and is based on averages which are also explained in the book.

One critical problem we have encountered is with the 21-day cycle. Since your trading month is only 20-
days, it becomes a problem of adding an extra day and where to add it. We assume that Wilder's software
package automatically makes this correction.

These turning points in relation to the red, blue, green and orange lines do not always occur at exactly the
same point in each cycle, so you must also build a table that defines where the turning points occur in
relation to each line. This establishes your points with a plus or minus variable relative to each line. This
table is described in the book also.

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Since we didn't, and don't have the where-with-all to buy his associated software, Jo and I spent many
hours building the necessary charts by hand and ultimately on the computer.

If either one of us were experienced programmers we probably could have come up with one that would
have built our charts and put the lines on for us. However, we would still remain uncertain about their
accuracy because of this 21-day issue. The book also gives you some classic price patterns. i.e., breakouts
from pennants, flags and support/resistance lines to base entry on when expecting a delta point.

It is our belief that The Delta Phenomena has some validity and could prove to be very valuable in terms of
alerting you that you are near a turning point. The book in our opinion, leaves several things unanswered
with regard to establishing your starting and ending sequence of numbers for each commodity as well as a
clear definition of how to identify first and/or last sequence number inversions. This may have been done
purposely to make purchasing the associated software package a necessity.

We have found that unless you want to put out the big bucks for his software program that does all the
work for you, you will spend a lot of valuable time keeping your charts up-to-date by hand and you still
won't be sure that you have the sequence numbers in the right place. This makes it totally useless in our
opinion.

Also, The Delta Phenomena's accuracy varies between commodities which makes one reluctant to use it as
an indicator.

While The Delta Phenomena is very fascinating, and with the book and software it might prove to be a
valuable tool, we would not recommend that anyone spend the bucks that Wilder is asking for it.

Dr. Van Tharp by Gale Paxton - Comments on John Piper's article on Dr. Van Tharp' Vol. 4-1. By and
large we agree with John's article regarding Dr. Tharp. We made the initial investment in his course a few
months ago and Jo has been studying it in what little spare time she has.

My work schedule has essentially taken me out of the trading scene to a great extent but from discussions
with Jo regarding Dr. Tharp's course, it is NLP (Neuro-Linguistic Programming) but geared specifically to
traders.

It appears that, if one has the discipline, one could study NLP with the same goals in mind at a more
reasonable price. His seminars sound wonderful but the price is a little rich for us.

Some of the advantages we see in taking Dr. Tharp's course are: 1. the psychological profile test that is
geared to strictly toward traders; 2. He really makes you think long and hard on the reasons you want to
trade and the reasons you are a looser; 3. He points out ways to determine how you are sabotaging yourself;
4. His tapes and meditations are very useful.

Quote Services by Gale Paxton - Can anyone out there in CTCN Land provide information on reasonably
priced, timely and ACCURATE end-of-day quote services. Jo and I have been using Dial Data for about
two years now and are very disgusted with their inaccuracies. It seems like at least once a week they
transmit some really off the wall prices, particularly in the energy complex. If it wasn't for our broker's
phone quote line we would not be able to even look at our charts in the evening for those commodities.

I have written to them regarding this problem and Jo has called their customer service people several times
to get the problem corrected without success. Since they don't correct their inaccuracies until the next
morning it requires us to make another toll call the next morning to download the corrected data.

We've looked into CSI but it would cost us over twice as much as Dial Data to down load from them for the
number of contracts the we collect. HELP. We are presently checking out Don Twist's recommendation of
Traders Access.

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Also, is there an informal futures trading group(s) in the Seattle, Bellevue, Kent, WA area? If so, contact us
via CTCN.

About Experts and Old Newspaper

Clippings - Don McCullough

I've just finished rereading some clippings I saved from the Investors Business Daily newspaper. As you
will see, some well-known people were very wrong with their forecasting. Sure, we'd all like the experts to
drop success in our laps but reality usually doesn't work that way. For most people big money usually
comes the hard way.

Larry Williams has a full page ad in the 5/2/94 issue of Investor's Business Daily newspaper. He's
advertising a $595.00 per person seminar about how to sell stocks short. He says Wall Street is in the midst
of a blood bath. Check out a chart of the averages and you'll see he was quite wrong. I wonder how well
those who attended that seminar made out?

The Dow Industrials had just recently finished making a steep 400 pt drop. Very good timing for such an
ad, that's for sure! Larry knows a lot about the markets--and, no one "calls-em perfect."

Author-trader Victor Sperandeo says in the 4/27/93 issue of this paper: "The stock market has put in one
huge top." He sees the current decline as the start of a bear market. Over the next few years, the article says,
he expects the Dow to be down 30-40%--to the low 2000's. Once again we have a very wrong forecast by
an expert.

The famous Fidelity Fund manager, Peter Lynch, says in a 6/93 issue of this paper that "it's a mathematical
given that the market in the 1990's will not match the pace of the 1980's." As we now know, the 1990's
have surpassed just about everyone's expectations. Let me add, we may have a huge drop before the 90's
are over. Note, I said may and not will!

In the 2/28/94 issue of this paper author-newsletter writer Stan Weinstein says, "We have a stock market
that is topping out." He further states, "It's only a question of when it will break." Now ain't that the truth!
Anyway, he was half right--sort of. The market did make a steep approx. 400 pt drop and then continued on
up to the present time.

George Soros is one of the speculator giants in the eyes of many investors. An article in this paper dated
4/27/93 states that Soros recently bought a 10% stake in Newmont Mining Corp. for 400 million. Gold did
go up nicely for about 4-months and then dropped as much and faster.

Then it went up about two-thirds of the previous rise and then went sideways for over a year until recently.
Not exactly perfect timing and I expect the run-up was caused primarily because a lot of traders heard
about Soros's interest in gold. Now may be the time to be in gold. Again I say may.

In the 12/22/92 issue of Investors Business Daily there's an article about the leading market-timers. Jim
Schmidt, editor of Timer Magazine, asked some 100 writers of stock market newsletters what they saw
coming for 1992. 60% were bearish and 40% were bullish. The market moved primarily sideways, within
about a 300 pt range, during 1992. Nobody was right, you might say.

Robert Prechter, today's leading advocate of the Elliott Wave Theory was in this group of market-timers.
Prechter was bearish in 1991 and also bearish for 1992. The Dow Industrials went up as much as approx.
800 pts during those 2-years. A significant bull move in anyone's eyes. Rather funny, the article says that
Prechter was forecasting 1991 for the DJI for the year of 1991. The DJI made it to 3100 by the end of 1991.

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The 9/3/93 issue of Investor's Business Daily had an article about Norman Fosback. Fosback is a noted
newsletter editor (can you believe 8 newsletters?) and book author. In this article, and just previous to the
above date, Fosback is telling a seminar audience he's more bearish on the stock market than he's been in
15-years. The DJI went up about 400 pts after this seminar.

Here's a fact that would have surprised just about all newsletter writers of that or any era. I don't have the
exact date of this clipping but it was written sometime in 1992. The article states that the biggest bull
market move, in terms of percentages, was between 1932 and 1934. The gain was 175%. (Have we broken
that record with our current bull market?)

If you would listen to the old-timers like my dad, you'd swear that such a thing could never have happened.
I've heard my dad talk about corn selling for 10¢ a bushel during those years. Some farmers killed their
livestock because the price was so low they weren't worth the effort and expense of taking them to town to
sell. Those were very difficult years for most city folks too. What a world of difference between the
wealthy traders of 1932-34 and my rural ancestors!

There are several lessons to be learned from all of the above. First, try to do your own thinking. Forecasting
is a pretty difficult thing to do--even for the best of the experts. Another is, if you're a long-term investor,
following the trend is probably better than trying to forecast it. Last but not least, it is probably much easier
to forecast newsletter, book and seminar profits than profits from the markets!

A Trader's Choice - Duane B.

Macintosh was a logical selection for this trader. As an A-4 pilot I enjoyed state of the art navigation,
weapons & autopilot systems. Mac systems match the integrated, pilot oriented combat performance of a
US Navy Skyhawk.

By contrast IBM DOS & Windows systems are cumbersome. IBM systems do not provide seamless
integration or ease of use as Mac systems do in simultaneously running several programs. Tests confirm
Windows '95 is no match for comparable Mac systems. See PC Week, PC/Computing & MacUser 12/95
issues.

Why, then, do most trading systems remain exclusively for IBM computers? Have traders remained silent
too long? Have decisions regarding hardware selection been left by default in the hands of computer system
developers?

The best trading systems evolve from a trader's needs. Not from the minds of computer programmers.
Granted, we need the expertise of a professional computer programmer to execute the bits & bytes.
However, effective testing & evaluation must be done by traders. Not technicians. Testing should be
completed prior to sale. Yet traders are compelled to trouble shoot new trading systems pressed into service
before tests are completed or documentation corrected.

The objective here is not to invite every trading system vendor to write Mac programs. Only the best will
make the cut. Mac users are savvy. Not easy targets for fraud or superficial PR. Mac users find or develop
their own robust trading systems. They can set aside a year to evaluate new systems under consideration.

One vendor recently failed the smell test. Slick promotions included a phantom "Engineer" who reportedly
shifted from Mac to P.C. to run Omni Trader. No response was given to confirm his identity. What other
problems have Nirvana clients encountered? If fraud is proven, a judge can award three times damages.

Technical reasons for not porting trading systems to Mac have essentially been overtaken by computer
developments. The main reason vendors favor DOS is their perception of the market. Traders can influence
that perception by assertively identifying their preference. Remember. You are the market.

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Do you make your own decisions regarding hardware & trading systems? You are not alone if those
decisions were dictated years ago by software selection. Now you are entitled to assert your options be
returned. Vendors have limited knowledge regarding a trader's work, methods or strategy. Don't leave key
decisions regarding these & related issues to a vendor. Let him know his days with you are numbered if he
does not meet all your needs, including your hardware & operating system preferences.

Why should you bother? Good question. Several years ago a former IBM sales manager for Alaska
confided that independent research revealed Mac users held a 3/1 advantage over IBM users in
productivity. Maybe only 2/1 now. Is it yours?

Without a strong trader input, vendors will continue to make the unfounded assumption that IBM systems
fulfill traders' requirements. Why should you be strapped to a system designed by technicians for the
multitude? By contrast Mac systems are tailor made for ease of use, computers eliminated, learning curves
flattened. Let your voice be heard. Call or fax your vendor & CTCN today.

Traders may not be effective individually, but as a group we will be heard.

For example: Ralph Cruz is considering porting TradeStation to Mac later this year as reported recently by
an Omega spokeswoman. Why has it taken 8-years for enough traders to speak out? Or did Cruz just have
his head up & locked?

Cruz would be well advised to offer a free upgrade to Macintosh for all Omega clients. If not free, then at
cost. He would be rewarded with keen insight regarding the direction informed traders are headed. Porting
to Mac would expand his client base to include new entry level traders that need help leaping beyond the
computers' barrier.

Flawed assumptions will be costly. Vendors probably make the right choice initially. Their first pitch to
IBM systems is an effort to achieve profits with limited resources. Once there a vendor may need help
recognizing real success is just over the horizon. Time to port a proven trading system to Mac.

Mac traders acknowledge two facts: 1. Success as an IBM system assures a rigorous test by traders was
completed. 2. Porting to Macintosh, a vendor asserts his program is top of the line. Mac users know only
the best make it. Recognition as a top trading program will resonate among traders. The system will
become a bench mark from which other software & support will be measured.

An ideal trading system would run on a portable Mac; link via Internet to market data worldwide; provide
direct links to exchange floors for trade execution; cross deck info to a workstation with ease. When
offered, it will become the system of choice for thousands of traders currently tied to one site.

The first trading system that meets this criteria will have a powerful leg up in the market. If Cruz does not
act swiftly, he will forfeit whatever lead he may enjoy. Others will take the initiative. Roberts-Slade, Inc. is
already there with a proven Mac system. A few data handling & communications improvements would
enable Enhanced Chartist to meet minimal requirements for an ideal trading system. Having passed the
Mac test, Chartist should be ported to IBM systems for those compelled to remain. New systems will
evolve with this concept in mind.

Trading a range of markets, I have migrated from daytrading indexes, currencies & bonds to grain, fiber &
metal markets long- term. Enhanced Chartist, DBC data & Macintosh provide excellent graphics &
portfolio service. Currently tracking all major futures, indexes & options in the background, Chartist
enables focusing on movers with a click. Although dated, Chartist is as comfortable as an old shoe. The
mind is free to concentrate on trade selection & strategy.

Several traders gathered nearby last year to share common interests. Lively discussion centered on
computer systems & trading strategy. The merits of new systems were expressed with enthusiasm. When I
asked how others were doing as traders, the silence was deafening. -- Not one was actively trading! --
Recently? -Not since blown out! Little interest was expressed for six trades I entered that day. Those trades

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went on to capture a 180% return on capital in '95. Meanwhile, my colleagues remain on the sideline.
Preoccupied with systems & computers? Too shell shocked by past losses to reenter? A bit of both?

Am I forfeiting too much by remaining with Macintosh? Perhaps. I think not. Whatever the consequences
they remain acceptable. Confidence remains. The best trading software will emerge as a Mac system. I will
be there.

P.S.: Just received my first CTCN issue with all back-issues.

It is refreshing to learn that others, like the Successful Anonymous Trader, have weathered the gales of
those initial trading years & emerged with winning techniques. We have much in common. Especially the
outlook that winning comes from within. It may help others to learn the odds are not favorable. But if you
look beyond the first three to five years, keep your powder dry and bolster your self confidence &
optimism, you can reasonably expect a favorable return on your investment.

Entry level traders are fortunate to have this forum to hear it like it really is. Keep a healthy skepticism
regarding offers that sound too good to be true. They are. You will sweat more blood & lose more than you
intend before you find the right technique for you. Take that in stride. It is worth it. But do not be mistaken.
It is neither easy in the beginning nor a sure thing. Remember, you will be among the 5 or 10% few that
break through.

Having found modest success in long-term trading, I am inspired by the Successful Anonymous Trader to
resume daytrading the S&P. I look forward to viewing the videos of the methods & applying the strategy of
limited losses. I theorized using a low risk strategy eight years ago. I had neither the discipline nor
experience then to effectively use stops. Successful trading requires both. The test now will be to apply that
skill to fast moving, volatile S&P markets.

My initial experience, like the Successful Anonymous Trader, would not be encouraging for prospective
new traders. I do not encourage friends or colleagues to trade. I would not impose on them the impact the
first few years had on me. It is easy to look back & see those formative years as inevitable.

But no one was out there then, like CTCN is now, with correspondents like the Successful Anonymous
Trader, to tell it like it is. To focus upon a longer term reasonable goal. Winning is possible. Yes, even easy
for those who break through. But most new traders will expend more time, effort & funds than anticipated
before breaking through that barrier.

Several members mentioned problems initiating a trade. Fear of failure? Fear of loosing money? During
eight years trading I have never met a margin call. By limiting risk to 50% of capital I have never exposed
myself to a margin call. One broker sent a margin call but was embarrassed to learn his system was in error.

Relieve yourself of any fear of failure or margin call by simply committing less than a third or half of your
capital at any one time. Do not leave that task to your broker. Keep your own portfolio up to date/minute.
Then, when you have a strong buy/sell signal, you will not be preoccupied with questions regarding risk.
You will have resolved that issue before considering your next trade.

A time consuming or difficult task? No. Make sure your trading software has an integrated portfolio that
constantly updates your capital, active (open) trade balance, margin at risk and total balance.

If your trade system does not provide a reliable, real time portfolio running seamlessly in the background,
then look for a system that does. Until that feature was added to Chartist I refused to consider it. As a
result, a portfolio was added within a year. You are entitled to the same service by your trade system
vendor.

In Defense of Joe Ross & Critical Of Bruce Babcock - Dr. Howard Marks

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I have great concerns about Special Report #10, The Joe Ross Report. I have been contemplating taking a
Joe Ross seminar and thought it would be a good idea to check out the Joe Ross Special Report (Editor's
Note: It was originally written by Bruce Babcock of CTCR and is no longer available thru CTCN).

I was totally shocked by what I read. First, let me explain that I recently took a $5000 seminar. I tried to
daytrade the methods taught and in 2-days lost $6000. I had previously read some of Joe Ross' books, but
never the one on daytrading. So I ordered it and read it.

In the first section of the book he explained all of the problems you can have trading the 5-minute S&P and
how it can cost you big bucks if you do not know how to deal with those problems.

I was angry that I did not learn these things at my $5000 seminar and it made me question whether the
person who gave that seminar actually trades what he taught. I was so impressed by what Joe Ross said that
I even told my wife. "This guy knows what he is talking about. The only way to know the things he talks
about is by actually doing it."

Then I got the Special Report where Bruce Babcock states that Joe Ross doesn't trade and that he made up
all the stories about his trading history. I was shocked! How can people be so dishonest. Then l began to
critically review Mr. Babcock's report. I realized that there is a powerful conflict of interest here.

Mr. Babcock also sells trading systems, some of which I recently purchased and consider worthless). How
can this self-appointed Ralph Nader of the futures industry, review other peoples work and compete with
them for business at the same time - It is very unethical.

Imagine Ralph Nader opposing petroleum powered cars while owning a company that sells electric cars.
It's no different. But there is much more. The crux of what Babcock says is based on the words of a "secret
informant." He will not even tell us the source of his information. Babcock makes a conclusion based on a
rumor from an unaccountable source. This is totally outrageous - I can go on for pages about this Not-So-
Special Report, but I would rather end this with a series of questions for Mr. Babcock.

1. How can you say that Joe Ross' books are over priced when you sold me a trading system for $95 that
basically said buy towards the end of the month and sell at the beginning of the next month? A $150 Ross
book is about 350 pages full of ideas.

2. You state the Ross doesn't hold positions for the long haul. Did you actually read his books? He
repeatedly says that is where the money is.

3. You say that Ross proves himself to be an amateur by selling part of his position at a profit. He gives his
reasons for doing that. He likes the psychological boost he gets from small profits and covering costs. It
gives him encouragement to trade. This sounds like a man that knows himself and what he needs to be
successful. Why did you ignore Ross' explanations?

4. You state that Ross can't know what he is doing because he might spread a position rather than liquidate.
T have read his explanation for this in his books, have you? It seems like a fairly sophisticated technique,
hardly proof of inexperience.

5. You consider the fact that he did not show you his account statement proof that he doesn't trade. That
disturbed me too. So l called his Boston office and spoke to some one there. He explained to me why Joe
Ross will not show his account statements. l consider that information private and will not repeat it here,
but it satisfied me. So, Mr. Babcock, where are your account statements? You sell systems (one that cost
$1000) you say you trade. Don't show me a simulated track record. Show me yours.

Options Are Not Too Difficult As Many Believe - Phil Borsook

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I would like to see more articles regarding the use of options, the software, the strategies and the books.
Most investors believe option strategies are too difficult to comprehend and too risky. That is not true.
Options, when they are available, can be configured from the most simple to the most complex strategy.

Options can be purchased or sold individually or as part of the same strategy. Profits can be attained even
when the duration of the market or the price of the underlying asset is not known. These strategies are
called "Delta Neutral" and many investors use this method of trading to make substantial monies.

Options allow for the maximum use of leverage and therefore are ideal for those who are prepared to take
some additional risk to escalate the profits.

I believe that if properly planned, an entire issue can be dedicated to the use of options, their strategies and
systems.

Trading like a Professional - How Much Can You Expect Financially?

Dr. Claus Hallmann - Germany

Reading a lot of books about trading you will find plenty of methods but you don't know if you are working
for "fun", for "nothing" or for money. Seldom you know how much you can expect, financially, but
sometimes you will get some ideas about the money you can make, if you have the right systems for
success.

Let's look at four traders and their money made by trading

1. A friend of Larry Williams having a $500,000 account made 4.5 Million $ in less than one year (see
book mentioned under No. 5). That means he made 4.5% week after week (on an average).

2. Joe Ross traded successfully one method he presented in his book "Trading is a Business," pg.244. And
he ran a $5,000 account up to $28,000 in 5-months. That means he made 8.2% per week.

3. Larry Williams made in his 1987 Trading Championship Account 9.5% week after week. Although he
turned $10,000 into 1.1 Million $ in one year, there are better examples.

4. If you would play the option game: Mark Weinstein opened a $100,000 account in an option trading
contest and took out of the market $800,000 in just three months (see: J. Schwager: "Market Wizards,"
p.333 and 336). Not only he multiplied his money nine-fold, but he had 100% winning trades. On an
average: 18.4% per week and this without any pyramiding.

5. And again L. Williams: He ran a $2,000 account up to $37,900 in just three months - 25% per week (see:
L. W. "The Definitive Guide to Futures Trading" Vol. 11, p. 121)

Now ask yourself, Do you have the right methods, the right mind set and the right psychological issues to
trade like a professional?

Are you able to take out $500 out of the Bond-market or $1,500 out of the S&P-market? To take out of the
Bond-market 16 to 20 tics in five trading days is not a great goal! You could trade one or two times or five
to ten times per week, having only winning trades like Mark Weinstein or a lot of losing trades like L.
Williams; that's your turn. But after all you should have a profit of around $400 in the Bond-trading per
week or $1,200 in the S&P-market.

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Suppose you have a $4,000 account and you are able to make $400 per week trading Bonds - there are 10%
- you will run your account up to over $47,000 in just 6-months. And after 10-months you will have an
over $260,000 account; so you can take 2-mos. of the year for recreation and holidays. All you have to do
is to take one more contract every time you made another $2,700 to $4,000 (margin in Bonds is $2,700).

A Very Positive Article About PPS Which Is Contrary To Prior Negative PPS Articles - Wade Geary

A couple of years ago I submitted an article inquiring of your readers as to whether I could consistently
make money with a small account (15 to 20K) and whether there were any systems that would enable me to
do this. I was about to take an early retirement and wondered whether I could consistently supplement my
retirement income. Well I didn't get any useful suggestions, but I answered my own question.

I have been using Curtis Arnold's PPS system for the past two years and have averaged over 100% returns
each year with his system. His book is the most interesting, comprehensive book I have ever read on
futures. I probably bought about 30 books over the past 3 years and checked several out of the library.

I use CSI and your Trendx system to download my charts each day. I basically use Curtis's system to find
my own entry chart patterns. I have low drawdowns and I thoroughly enjoy looking at the charts each
night. I spend about 30-minutes each day reviewing charts and placing orders with Lind Waldock.

Before I settled on PPS as my system, I started off with Ken Roberts. His system is a good entree to
trading, but I could not consistently make any money because of his system of setting stops. Also those 123
formations bored me to death. Larry William's system is probably good for a seasoned trader, but I think he
enters too many trades for a novice. I was in about 4 European currencies at the same time under his hotline
and a one-day drop wiped me out. At the time, I didn't have any ideas about money management and really
shouldn't have been using his system. I have never had any desire to daytrade.

I like to fish and travel too much to be tied down each day in my office in front of a computer. Besides it
sounds too much like working. These are just a few of my thoughts that might be helpful to novice traders.
I have been trading futures for about 5-years and stocks for about 10-years. I have been more successful in
the stock market and consider futures as a profitable hobby.

Member Requests

Duane B. writes: "If CTCN has an e-mail address, I would prefer to post future material to you on that
channel. It would enable use of it without having to scan or type in material received.

Recommend commenting on this for all of your subscribers, I believe you will see the entire trading
industry migrate to the Internet and E-mail for communications, services and even trading in the future."

I have a Signal Plus Box which I wish to trade for a Signal Enhanced (black) Box. Contactl George Skelly
via CTCN.

Buzz Ross (contact via CTYCN) would like to acquire a Desk Set of out-dated Fall 1993 Knight-Ridder's
Commodity Perspective - 10-Year Weekly Range Charts.

Arthur Anstiss has info for member requests. I did purchase System 2000 and was never able to make it
work in paper trading, never mind the real thing. I have gotten six or seven Ken Roberts courses and I have
never been able to make them work either in paper or real-time trading.

Member Request answer to Julian Braun from Don Thompson - I bought the System 2000. I wouldn't buy
the thing, since it really is a very short-term momentum indicator was modeled on the computer. My guess

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is the 60's. The only significance is the interpretation of turning points. I don't think it is worth the $400. To
trade it successfully one would have to know which way the trend is. I rate the thing a waste of money.

David Ovadia is a new subscriber and would like assistance in locating reasonably priced and proven good
quality products: 1. real-time commodity futures and options data services; 2. a technical analysis program,
similar to Compu-trac, SNAP, that uses real-time data. Please reply via CTCN.

I'm writing a book on successful at home non-professional traders. If you're not registered in any capacity
with the CFTC, NFA or NASD and you actually make a living trading for your own account and would
like to be considered for inclusion in this new book, I would like to hear from you. Track records will be
verified. Please contact George Moldenhauer (via CTCN).

C. Hooper is looking for software specifically designed to test and trade volatility breakout. Reply via
CTCN.

Wanted: "trading buddy" interested in day trading the S&P. Are there any women traders out there?
Contact Evelyn Mooney via CTCN.

Mike Maldonado writes: "In the last issue, a reader asked for information on George Angell, Fontallis and
Insight Trading. His name was Ron Kuchmek. You may give Ron my phone and fax number. I have done
business with all the above."

Also, I've had a real disturbing experience with a software vendor. He has threatened to sue me and take me
to court, if I submit an article to your newsletter. Does he have any authority to do so?"

Editor's Note: Unfortunately, they may be able to sue but if you are giving your honest opinion, based on
facts, they in all likelihood will lose the suit and will in fact not sue in the first place because of their
potential legal expenses.

Perhaps threats like those are the reasons many articles come to us with the author not wanting their name
used. Sometimes they only want their initials used. For example, this issue has several anonymous articles.
Even just using initials will sometimes cause the author alarm.

For example, one member was disturbed because we used his first name (but not the full first name or last
name) and said he was from Sweden. He claimed people could figure out who he was based just on (part)
of his first name appearing in print and his country!

I am not sure why so many members are so concerned about their identity. However, if this trend toward
anonymity continues it will result in CTCN eventually being less valuable and less believable. Therefore,
please identify yourself!

In addition, I am sorry to say we may eventually give up publishing CTCN if many more of our members
refuse to publicly identify themselves and CTC continues to get threats of lawsuits by vendors and third
parties.

Charles Cochran would like to correspond with any trader or reader who follows Larry Williams' Trading
Headline. Write via CTCN.

John Resen interested in purchasing old stock market tick data. Contact him via CTCN.

Charles Meyer would like to communicate with subscribers to "Formula Research" for the purpose of
exchanging research ideas. Contact via CTCN.

Rick Chehovin is looking for an equity curve analysis program. Reply via CTCN.

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 Editor Comments

In regards to Duane B's. letter, we now have an e-mail address. You are invited to transmit articles via e-
mail. Our e-mail address is ctcn@webtrading.com

Many of you have asked for additional information in this issue on CTC's Real Success Video Trading
Course. To avoid perceptions of a conflict of interest we have avoided as much as possible discussing it or
talking about the methodology in this issue. I can tell you we are almost (but not completely) sold out of the
original release and most all the feedback received on our video tapes has been positive.

However, this bi-monthly issue of CTCN is a record-setting 40-pages long, jam packed with knowledge
and information for you. This is our largest issue ever published.

On another subject, I must inform you the Futures Truth Top-10 rankings (printed below) will in all
likelihood be the last FT listings you will see in CTCN. This has been a very difficult and a painful
decision. We have been agonizing over this matter for a long time.

On one hand we feel like the folks at Futures Truth, namely John Hill and George Pruitt are honest, capable
and try to do a good job and offer a seemingly valuable and unique public service with their comprehensive
computerized rankings of hundred of publicly offered commodity systems. However, the other side of the
coin, and one we must not overlook, is the fact so many of our members have allegedly lost money both
buying and trading the FT top-ranked systems.

Your editor has received numerous phone calls over the past 3-years or so from members who somehow
feel misled because of the FT Reports. They purchased a trading system based on its high FT ranking and
allegedly the system turned out to be quite inferior to its performance figures published by Futures Truth.

One reason for our decision to discontinue re-printing the FT Top-10 rankings is we are getting very weary
and feel quite bad over our members frequently allegedly feeling they wasted their money on a system
purchase due to Futures Truth's Performance Reports published in CTCN. Those performance reports
allegedly are most all the time contrary to what members experience with the system.

We receive many phone calls from our members complaining about the same thing. Namely, they
purchased a trading system based in part, or even totally, on the systems high performance ranking with
Futures Truth Ltd.

They paper trade it or trade it in real-time and claim to get very negative and contrary performance
statistics. In fact, many members say even back-tested results they achieve are far inferior to the trading
performance reported in Futures Truth using the same time period.

As mentioned during an earlier article, several times your editor has requested a public response from FT
and John Hill. However, for unknown reasons John has failed to respond.

There have been a number of member and editor comments and opinions in CTCN over the past 3-years
over this issue. However, the real and concise reasons for this contrary performance mystery remain elusive
to this day.

As a result of the FT P&L Reports seemingly bearing little resemblance to what our members are allegedly
experiencing, we feel it's better if we no longer promote FT by virtue of publishing their Top-10 systems
performance reports.

I would greatly appreciate member feedback on this difficult issue, supportive or perhaps negative, on this
disturbing and upsetting (from a personal standpoint . . . as a friend of the folks at Futures Truth) decision
to discontinue publishing their FT data.

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 If you wish to continue getting the Futures Truth Master Performance Tables you can order a subscription
directly from FT by calling them in North Carolina at 1-704-697-0273.

A special thanks to Gale and Jo Paxton for their amazingly comprehensive, well-done and detailed reviews
of many diverse products and services in this issue. All their time is greatly appreciated and will be useful
to our members.

Issue 33.

A Letter From Futures Truth's John Hill Saying They Do Not Allow
"Tweaking" of Performance "Numbers" by Vendors

"Re; Your recent 'report' (previous issue of Commodity Traders Club News). The number(s) we show in
our report do not permit 'tweaking' by vendors. Not one number in our report has the benefit of hindsight."
"The only numbers we show in our report are after a vendor's most recent modification. We clearly point
this out in our report."

Editor's Note: Is the above statement a contradiction or are we misunderstanding what John Hill is trying
to say? Unfortunately, John went into little detail on this matter. Some traders have said allowing vendors
to make "modifications" is very similar to "tweaking the numbers" by the vendors. We ask John to please
clarify this important issue by submitting a more detailed article about this for our next issue.

"We track the Miracle Trading System in our report and not his latest software version. This is clearly
pointed out in our report. We don't recall any conversion with Mr. Antonacci regarding this matter.
However, he could have called and if he did we reported the above. He has only purchased 2-copies of our
report in the past 2-yrs.

As a reporter, I suggest you correct the inaccuracies and stick to the truth. Reporters generally get into
trouble by not reporting the truth."

Editor's Note: At the time, we had absolutely no reason to doubt what Mr. Antonacci said in his article
was not the truth or his honest opinion. If there is a question or accusations about an article not being the
truth we certainly would attempt to look into the matter. Perhaps we would not even publish the article,
providing those assertions came before the article was published. Of course, we would never knowingly
publish an article which we knew in advance was not the truth.

Futures Truth being critical of CTCN by saying we need to "stick to the truth" after the article was already
published is absurd. Lacking a crystal ball or psychic powers, how in the world would we know the article
in question, or any other article was not the truth beforehand?

In fact, even now we still do not know the facts on this particular issue. John Hill wants CTCN "to correct
the inaccuracies." This is impossible for CTCN to do as we don't know for sure what these inaccuracies are.
Having never been advised in writing about them, and also not being a party to the issue in the first place.

I did call John about another matter involving an apparent error in their last Report and briefly discussed
this issue. However, the conversation was somewhat confusing (in my view) and I do not recall all the
details on these alleged inaccuracies. Therefore, it's up to John Hill to submit an article to CTCN with his
views.

Also, it would be most welcomed if John Hill would also cover his opinion on the reasons so many traders
allegedly experience vastly inferior results compared to Futures Truth's performance figures.

Not only do we not have a large investigation budget and private investigators, we are also lacking any
legal authority to decide on the "truth." As referred to in our InfoGuide, CTCN is not the Police or a Judge.

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We don't have the authority to conduct investigations and we also do not have the funds, time or resources
required to verify the accuracy of submissions and articles.

My Trading Career of 46-yrs with 32-yrs of 8-hrs A Day Market Research - Basic Rules:
Trade With Trend, Use Loss & Profit Taking Methods - James Geftakys

I will retire from trading, but I will continue researching the market. I'm 75-years old and want to take it
easy. I have been trading the market since 1950, when I was in Law School. I never liked working for
anyone else and as of 1967, I became a full-time trader.

I believe one reason I have been successful is that I never tried to be a millionaire. All I tried to do is make
a good living, better than average. When I made enough money to take care of my needs, and I lived well, I
would stop.

It didn't matter if I made the money in 2-months or 6-months. I needed a certain amount of money and that
was it. I lived in California and Hawaii and spent my time between them. Later I lived in southeast Asia for
about 7-years.

In reading your Real Success Bulletin, I noticed many people are having trouble with swings and trends. I
would suggest that they study Donchian (?) with his A's and V's - TOT TOB and the way Gann showed
how to determine a Trend. (I'm not a "Gann fan." I knew him and wasn't impressed) but that's another story.
In any event, I believe this is the simplest way to determine the trend.

Editor's Note: Mr. Geftakys is only the second person I am familiar with who has actually known the
legendary W. D. Gann. Your editor and many CTCN members would be greatly appreciative if James
would submit an article on his personal knowledge about Mr. Gann and his trading methodology.

In particular, we would love to know what it is about this infamous trader you didn't like and were not
impressed by and also what trading techniques he employed which were the most profitable for him. Please
consider writing about this in time for our next issue. Gann is very mystical. In fact, he personally is
perhaps even more mysterious than most traders find his trading techniques to be!

For what it's worth, I use only my own methods developed after 46-years of hard work - 32 of those years,
8-hours a day in original research. For everything I found, I must have discarded at least 7-8,000 ways that
didn't work.

I note you mention mechanical systems. My system is mathematical and mechanical 90% of the time. It is
complicated to learn, but I do not use anything that other people use and in my case, I find Tradestation
useless.

The reason I bought it was to make charts. As over the years I made all my charts by hand. So beginning in
September, I will go back to LA and work with my son to teach him enough so that he can learn and earn
his living from trading.

I know practically all systems in the market and feel they are worthless. To me a system is only good if it
has 90% winners and even then you can lose money (90% valid signals=90% winners).

I do believe the Real Success Methodology has merit. I see things in it that can be improved. I understand
the concept. I plan on doing some work on it and see if I can improve on it. I plan on going to SE Asia
(Singapore and Thailand) for about 2-4 months in September. (Editor's Note: Please share any ideas you
have on how to improve it. We are always on the lookout for enhancement techniques so Real Success
works even better).

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 I believe you have provided a real service to the members and hope they keep the method to themselves.

Actually, the market is basically simple and has not changed in 300-years.

I will give you some basic rules that are 95% plus accurate. 1. Only take a position with a favorable trend.
2. Cut your losses. 3. Assure some profit. It is that simple!

Editor's Note: The above three points are excellent and critical to the successful trading of commodity
futures. However, they are somewhat difficult to implement correctly in a trading methodology as they are
somewhat subjective, making it hard to mechanize a system based on these important points.

Cutting losses is achieved by using a pre-defined stop-loss price. Assuring profits may be achieved with a
pre-determined target price. An excellent way to determine the trend is to use Market Construction
techniques. This may be defined as being in buy mode when a "Higher Swing Low" occurs. Conversely, be
in sell mode upon the occurrence of a "Lower Swing High."

These three critical rules and their correct usage are the basis behind CTC's Real Success Methodology.
These three techniques are vital to the success of Real Success and also to many other trading approaches.

Making 80.9% Over 10-Month Period - William Kent

How many people have I read about who tried various systems and lost money? Too numerous to count.
But why did they lose? The simple answer may be the best one -- the systems didn't work. And why should
they?

I have developed my own techniques and have made 80.9% over 10-months. So what? I could be broke
next year, or the year after. However, so far they work. Wonderful! Should I go public and sell it?
Absolutely not. I think I could make 70% a year. In three years, I'll be making big bucks and of course
more from there on, assuming the methods hold up.

You can imagine what I could be making in five years, of course, paying all the taxes out of other income.
So why would I sell it? If I did, and again, assuming it holds up (and I do) it would cease to work.

How do I know this? In the late 60's, I did a piece for Barron's on specialist trading. Calls came in from
everywhere--banks, funds, money managers of all types. Two years later I was approached to allow the
article's reprinting in a textbook on technical analysis. I agreed only on the condition a caveat appears
above or below it saying that it didn't work. It stopped working within one-month after the article appeared.

The same thing happened with a book I did in 1972 for Doubleday, The Smart Money. In it I described
various techniques for spotting stock winners. You guessed it--by the time the book came out, zippo!

All of this applies only if the method works originally. Since one can assume that some "systems" are
worthless to begin with, so you can see the futility of it all.

Now let us assume that I made some big bucks selling my methods. Well, I'd have to make more money
than I could using it myself. That would require a great leap of faith. Further, I would have to invest
possibly $25,000 and upwards on promotion. And that's with no surety of success. Meanwhile, I have
something that seems to work for me.

And there is, as the reader undoubtedly realizes, the emotional factor. Even if the method continued
working (a large expectation) one has the problem of ego, fear and the like. Narcissism, a syndrome quite
common today, causes the individual to invest entirely too much in his ego with trading -- a deadly factor.

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 Humility would be preferable, but how many intended traders have it? How many people who expect to
outwit floor traders (pit traders) plus bankers with powerful computers and monetary muscle would you
expect to be humble persons?

So what did I do? I developed my own "system." Yes, but only with expending thousands of hours not only
tinkering but also testing it. How many individuals will do that? No, they are looking for a sure-fire method
that some other character is willing to give up. Not much chance to get a good one, is there?

Meanwhile, I plod my lonely way. Perhaps next year or the year after I'll write again. Something like-How
I lost it. We'll see.

Meanwhile I'll finish my book on how I cured my asthma. Do look for it. It will be called "What Your
Doctor Doesn't Know Can Kill You." Oh, I did it with research -- tens of thousands of hours of it. Would
you do the same?

Can Spread Trade Money Be Made By Selling the More Volatile One &

Buying the Other - Cyrus Patel

I am a new subscriber and a neophyte trader.

In my attempts to understand and manage risks, I have for some time now tried trading the Swiss Franc/D-
Mark and the NOB spreads.

After trial and error, I observed that in trading the spreads, one leg of the spread tends to be more volatile
than the other. For example, in the Swiss/D-Mark spread, the Swiss Franc appears to have a greater
volatility. This means if the Swiss is in a downtrend, sell the Swiss and buy the D-Mark; and vice versa if
Swiss is in an uptrend.

Similarly, I observed that bonds are more volatile than notes. If the Bonds are in a downtrend, short the
bonds and go long the notes; if bonds are in an uptrend, vice versa.

Since I am new to this, I would appreciate any comments on this observation from the more experienced
traders among CTCN readers.

Comments About the Last Issue of CTCN - Don McCullough

I just finished reading the April/May issue of CTCN. What really motivated me to write was to tell you that
I truly respect your totally open and honest approach to this newsletter's content. That takes integrity and
courage. I don't believe many people would have been able to take the threats of lawsuits and continue--and
continue strong! -- as you have.

Your comments throughout each issue are quite good. Keep it up. Many subscribers may not appreciate the
advantage of your position. You talk to many knowledgeable people. This does not mean that you therefore
have perfect knowledge, but it does mean your opinion is worthy of attention.

I was surprised when you stated in this issue that you might have to stop publishing this newsletter if you
continue to receive threats of lawsuits. Be assured, anytime I write an article that says negative things about
specific people -- I have the proof to back it up.

Keep up the good work! If there's some way I can help you "stay in print" be sure to contact me.

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In my "Better Charts and Charting" article I stated that I always use 250-bars on a chart. I now go as low as
150-bars depending on the bar "increment" and what is happening in the market. These numbers pertain
only to my way of charting and may not be best with other methods.

With daily bars I usually use 250-bars but often use more. With daily charts I like the complete history of a
particular contract to (initially) be there. Then, I use a macro which quickly takes me to the 250-bar view.

Other macros I find handy are: one which gives me a vertical line positioned over the very last bar on the
chart and with the data box showing. If you hit the tab key while making this macro, the vertical line will
go exactly to the last bar. Another macro gives me a horizontal line with the data box showing. The "data
box" is a MetaStock feature that can show you the date, time, high-low-close, etc., depending on how you
configure it.

Another macro will speed me through my daily charts. I have the price scale showing only on the right side
of the chart. This allows more room for the bars which makes for more clarity. Another thing I do that adds
clarity to my charts is, I omit the opening tick mark on the left side of each individual bar.

I like to write messages on charts. This helps keep me focused on what's important or something new I've
never seen before. If what happens is really important I'll make a printout and be sure to write comments
about this on the chart. I may do this while the market is updating in real-time, so I am sure of recording it
exactly as it happened. This is important since charts can take on an entirely different appearance as the day
progresses. By placing things like numbers, dashes, pound or asterisk marks in front of file names, you can
have the charts in the order you prefer.

Most of the books about daytrading will show 5-minute bar charts. I know you can use 5-minute bars for
daytrading the S&P market, but I also know for sure, it's not the best with my charting approach. The 5-
minute may be O.K. with other markets or methods.

Generally, the slower the market the larger the number needs to be. I know it's possible to successfully use
5, 15 or 30-minute bars with the S&P market. Finding the best bar size for daytrading the various markets
requires a lot of chart study.

I found the editor's comments about at-the-market orders to be correct. No doubt about it. A lot of pros are
often getting "positive slippage" from their at-the-market orders. It's true also that you immediately know
when you're in and out of a market with this type of order. That's often a big problem with limit orders. I
have waited from 18-30 minutes for a fill report from a limit order! Many times the S&P market will make
a $1,000 move and the trader using limit orders will want to take profits, but he doesn't even know for sure
he was filled on his entry order. I have read that the people who use the most complicated types of orders
are usually the inexperienced traders. I expect this is true. Those who nearly always get filled with their
limit orders and always get quick fill reports are probably the larger and much more "better connected"
traders. No doubt we can safely assume that such a favored few truly exist.

Gale and Jo Paxton. The two of you have really been trying things out! I enjoyed your articles in the last
issue. When it comes to succeeding in the markets, I think most of us finally find out the most important
person of all to trust is ourselves. Didn't you just love the Swedish trader's comment that "all systems make
money, providing you sell enough of them?" Similarly a very famous trader once said, "Traders trade.
Newsletter writers write newsletters."

I have found that many book writers, seminar speakers, etc. are mediocre to bad traders (some don't trade)
or use the money from such endeavors to support their trading -- and yes, trading losses. Note, I didn't say
all such people do this. When you really understand the truly astounding profits that can be had from the
markets by a top trader you then more fully understand why most of them are not in any kind of advisory
business. A poor trader who writes enough books, or has a successful newsletter or is a good speaker, can
support his lousy trading for a lifetime!

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Dr. Claus mentioned Mark Weinstein in his article. Mark Weinstein is one of the Market Wizards in Jack
Schwager's book, Market Wizards. Mr. Weinstein is truly remarkable with his 100% winning trades in a 3-
month trading contest. I had read the chapter in the book about Weinstein, but only recently read it and
fully comprehended his ability.

For those of you who don't have this book, I think you should buy it. The chapter dealing with this trader is
worth the price of the book. And, there are many other great chapters and traders in this book. The better
books and book chapters are well worth reading several times. Over time you'll find important truths that
were not apparent before.

I'll end this article by quoting one of the Market Wizards. He said something like: "Most people who want
to succeed as traders aren't committed, they just think they are."

Was A "Cheap Shot" Taken

Against Futures Truth? - John Bowley

This will give my comments on Futures Truth. The only problem I see is the 2-month data delay. It's due to
their insistence on use of final corrected data. I suggested that they use the data we all use and state that
minor changes might occur in the next issue when final data is available.

My experience with George Pruitt has been very good.

Editor's Note: So has CTC's experience been good with George, who has been very helpful in our past
dealings and seems to be an honest and trustworthy individual. He is an excellent employee of Futures
Truth who works under John Hill's direction.

He (George) also helped Gary Smith and Chuck Hughes produce smooth equity runs over 10-yrs. He does
use 5-minute data for daytrading, while others use daily, hourly, 30-minutes, etc., which are less accurate.
Obviously it's best to compare actual and computer results for the same period, not current with past as you
do.

Basically, you (CTCN) took a cheap shot at Futures Truth (in April/May Issue). They are not promoting or
responsible for any system, only comparing all with the same high standards.

Editor's Note: Thanks for your opinion but a "cheap shot" in our previous issue was not intended. We
know they are not responsible for other systems. I was only referring to the many allegations heard about
the (systems rated highly by FT) performance not correlating to what they are reporting to the public.

Things I Wonder About

Don McCullough

The stock market has been going up (with exception of the huge drop in 87') since 1982. This was the year
the S&P futures market began. Is there a connection? Is the S&P futures market controlling the direction of
the stock market rather than the other way around? Are politicians controlling the direction of the stock
market by exerting "pressure" on futures exchange officials? Markets can be, and have, been banned by
politicians. Would a severe drop equal to or greater than the one in 87' cause the banning of the S&P
futures market? Wouldn't exchange officials be likely to do all in their power to prevent this from
happening? And, do you suppose such preventive actions by exchange officials is the main reason we've
had such a tremendous bull move? Should the market drop severely, can they "engineer" a "soft landing" or
even a much smaller drop?

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 Mutual funds. I wonder to what extent the every increasing popularity of mutual funds has enabled the
stock market to continue its phenomenal rise for so long? Perhaps because the public has put much of its
money in the hands of the professionals running these funds, we now have a much smaller percentage of
"weak hands" in the market. Therefore, when a scary dip occurs the funds buy these dips while in earlier
times the public would be selling like mad and this would have caused some typical bear markets to occur -
- like in pre-mutual fund days.

Trading rooms. Banks, insurance companies, brokerage houses and firms like Ralston Purina dealing in
commodity related products have actual trading rooms. Sometimes they are called "trading desks." Most of
us know very little, if anything, about these trading rooms and I would like to know more. These rooms
contain some of the best traders in the world. The professionally trained people in these rooms represent
some of the high caliber traders you and I are competing with. I'm sure it would be best not to compete with
them, but rather trade as they trade.

My understanding is you begin in these rooms as an "assistant trader" and after a certain time you then
become a full-fledged trader. What a terrific advantage these aspiring traders have over the rest of us!
Person-to-person training by a proven top professional trader is something most of us can only dream
about. I'm sure the applicants are very diligently screened before being accepted for an assistant trader
position. How all of this screening and training is done would be very enlightening. I'm sure banks, in
particular, would be the last to willingly divulge such information. They are bound to want to maintain their
safe, secure, conservative image.

I welcome any input regarding the above.

Letter Received from Lind-Waldock addressed to Doug Bowersox & Others

Dear Customer: Record grain market activity is big news -- as you know if you've been following the
coverage in the Wall Street journal.

"Wheat and corn prices have skyrocketed amid concerns about harvests, unexpectedly high overseas
demand and stockpiles near postwar lows."

"The volatility in the grain markets has stretched traders and the CBOT staff to their emotional and
technological capacities."

"The 148-year-old Chicago Board of Trade is proposing sweeping changes in its agricultural trading
operations to make the markets more efficient."

But it was big news at Lind-Waldock before it ever appeared in print.

"As you may have experienced, the crush of volume in these markets has created unacceptable delays in
getting orders in and out of the pit . . . As a result we've had to leave too many of our customers in limbo
about their order and/or fill status."

That's from a letter that I sent to you in mid-April, when you and we were concerned about the market
conditions shaping up in meats, grains, S&P's, and bonds. At that time, I outlined the situation and filled
you in on what steps we were taking to provide the best service possible, given overall market conditions.

Well . . . it's a little over a month later. I'm satisfied that, with the exception of feeder cattle and some
isolated situations that we're still working on, things are much improved in bonds, meats and S&P's. But the
grains remain an area of concern. We're still breaking volume records? The CBOT is still strategizing. (If
they strategize long enough, this market will fade into memory.) And we at Lind-Waldock are still fighting
the fight. It's a fight, I might add, that some other firms in our industry have given up on-at least as

522
evidenced by the resigned, "what can any firm do in markets like these" attitude that I've encountered often
in meetings with management at other FCM's.

It's true that no brokerage firm has a lot of control in a situation like this. But that doesn't mean that we
can't respond quickly and effectively with everything we've got to help our customers trade these markets.
After all, this is history. It's the biggest grain move since 1988. The Chicago Tribune calls the move "a
Trader's Delight." Maybe . . . but not if you're waiting for a fill report!

It's one thing to talk about the exchange infrastructure being taxed. It's another to analyze what's actually
going on in the pit. I asked our floor manager at the CBOT to provide me with the numbers of filling
brokers and locals, by contract month, in each of the grains. The numbers are approximate, but they give
you an idea of why there's a logjam in getting orders in and out of the pit. Example in print.

Take a look at the third option in corn, for example. You have got a situation where about seven brokers are
filling 4,000 to 5,000 orders a day. Bear in mind too, that "other," as in "back month & other," refers to the
fact that these filling brokers are also handling activity for new crop contracts and, often, for spreads. No
wonder we can't do order checks!

Sometimes you can't solve a problem, but you can do your best to work around it, and that's exactly what
we're doing. We're attacking the situation from every angle, from hiring runners to reallocating exchange
seats. Here's a summary:

• We've leased an additional CBOT seat, so we can add a broker in the corn pit. He works
exclusively for Lind-Waldock and is assigned to "float" - helping us out with whatever contract month is
busiest.
• We've added overflow brokers in corn and bean options who handle this activity, as well as
orders requiring special handling.
• We've added two brokers in wheat options who fill our orders exclusively.
• We're reallocating two CBOT seats as of June 1, enabling us to establish exclusive order fill
arrangements with two additional brokers. They'll help with our order flow by filling in where needed
in the grain room.
• We've just installed a headset location in the lead month in corn. We are one of only a handful of
firms with headset capability in this market. (In bonds we're the only firm with two headsets).
• We continue to increase our staff, adding order specialists in the Trade Center and runners and
keypunchers on the floors.
• We're recognizing our employees for the job they've done. Many of our people have been putting
in twelve, even sixteen hour days. So I've just announced that all of our 650 employees get an additional
day off this year (after things slow down!)
• Every firm in the industry (that's doing any business) is overloaded with fill reports. We're reporting fills
slower than we'd like, largely due to the delay in getting filled orders out of the pit. We're doing what we
can to speed up that segment of the reporting process, and we're also working on cutting the time it takes
for us to enter the filled order on the floor and report it to you. It's not the heart of the delay, but every little
bit helps!

In that regard, we have 48 keypunch clerks entering fills on US markets. We've begged and borrowed to get
the floor space necessary for this operation. I've recently approached CBOT management to personally
request additional space on the CBOT floor so we can add more keypunch and call-back locations (though
given the demand for floor space, I'm not too optimistic about getting it).

Our Fill Direct system is the most efficient, automated system of its kind -- yet it's up against the same
problems in reporting fills as the order desk in terms of pit delays. Nonetheless, in a just-completed survey
of Fill Direct users, 86% voted Fill Direct "excellent" or "good," 98% of those responding said they
planned to continue to use the system. If you haven't looked into Fill Direct, I invite you to do so.

• We've increased automated quote capacity by 50%. I mentioned this in my last letter, and it looks as
though we now have more than enough capacity, with room to grow. We're making sure of that.

523
 In fact, if you want to find me and our senior Trade Center managers at 9:30, our peak time for quote
activity, we're all down in the phone switching area making sure all the lines don't stay lit up for automated
quotes. So far, so good!

If you've gotten this far, you must be a grain trader! If I leave you with one thought, it's that you and we are
partners in trading. We don't have a lot of control over the situation (I wish we did), nor does any brokerage
firm. But we're not about to sit back, and we're certainly not about to throw up our hands and blame it on
the "infrastructure."

Instead, we're thinking creatively and acting aggressively to do all we can to make the best of a difficult
situation. After all, who speaks for the individual investor better than Lind-Waldock? It's what we've been
doing for over 30-years -- so it's not surprising that it's what we do best. Sincerely, Barry J. Lind

Internet Source for Quotes - Lanne Terry

The Internet has several places to get quotes. Just use search on you Internet browser and search for
Chicago Board of Trade. CBOT has 10-minute delayed quotes and end-of-day quotes. They also have
charts that you can download, but there is a fee for them.

If you are unable to get them with the browser, here are some addresses you can use.

FUTURES TRADING
"http://www.cbot.com/setlmenu.htm"

Settlement Prices On Option

"http://www.cbot.com/bfasetl.htm"

Close Grain Prices

"http://www.cbot.com/agcommf.htm"

Daily Grain Report

"http://www.cbot.com/agweek.htm"

Grain Weekly Recap

"http://www.cbot.com/last3.htm"

10-Minute Delayed Quote

"http://www.cbot.com/margins.htm"

Margin Requirements
If you have any more questions, I can be e-mailed at TCLINE@GETNET.COM

A Proposal To Set Up An OnLine Users Group Using "MIRC" - Ron Archer

I'm really excited about the potential of a Users Group being able to communicate real-time during the
trading day. Once you're set up we can create a (CTCN) Real Success channel and talk this afternoon.
Instructions:

1. Download MIRC 4.0

A. Connect to Internet

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 B. Go to location: http://www.shareware.com

a. Quick Search: Type MIRC in search form box

b. Select Windows Version from Drop Down Dialog Box

c. Click Search Button

Now, you should have the results of the search displayed.

a. Scroll down the page and "Click On" MIRC 4.0 ZIP Internet Relay Chat Client

Now, you should have a list of sites from which you may download MIRC.

b. Scroll down to United States and Click On any of the sites to download MIRC

c. Save the file to a Temp Directory

C. Disconnect from Internet

‚ Install MIRC 4.0

A. Create a directory MIRC & Unzip the file

B. Create an Icon for MIRC.Exe in Windows 3.1 or a Shortcut for MIRC32 in Win95.

ƒ Setting Up and Using MIRC

A. Connect to the Internet

B. Select MIRC

a. Select FILE | SETUP

b. Complete the Setup Info: Name,

E-mail, etc.

C. IRC Servers

a. ADD

b. DESCRIPTION | us.undernet.org

c. IRC Server | us.undernet.org

d. GROUP | 2

e. PORT | 6667

f. OK

D. Select CONNECT

Now you're connected to the us.undernet.org server

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 E. MIRC CHANNELS FOLDER

a. Enter Name of Channel to

Join | Bullseye

b. Select ADD

c. JOIN

Now, you're talking!

Editor's Note: At first I resisted Ron's idea about setting up a live on-line "chat channel" over the Internet
because I thought it was far too technical for our members to set-up. In addition, I feared only the "techie"
members would successfully set it up and participate. This would limit the on-line channel to techies for the
most part and eliminate our average CTCN members.

Ron contacted me several times about it so I decided to try setting it up. Unfortunately, my fears were
correct. I followed Ron's written instruction to the letter and met with failure and many error messages or
missing or unclear instructions or inputs required. Ron tried to walk me thru it, but again we were
unsuccessful. After many failed attempts to set up, I finally gave up.

Ron has a good idea, but I fear it's far too technical and has too many installation and operating steps for
most CTCN members to use successfully. The downloading, installation and setup procedure is very user
unfriendly and complex. I seriously doubt if many of our members would be able to set it up and use it
successfully. Ron say's I am wrong about that. I ask members to try it and let me know if they were
successful, so we can find out the validity of the idea.

A much easier way to communicate online is by using one-way online (rather than two-way as Ron
proposed) via CTCN's own Internet Web Site, and two-way communication only via e-mail. We are hard at
work getting this set-up for members to use. It should be fully operational within the next 2-months. It will
be extremely easy to use and almost all of us will be able to participate without being a techie type person.

Truth or 56% What? - Kent Calhoun

Congratulations to Dave Green for having the courage to drop Futures Truth's "Top Ten," which belongs on
post offices walls next to the FBI's "Top Ten." Why are two #I "Top Ten," system vendors under current
CFTC indictments? Futures Truth allegedly forgot to use the most important figure available to any
potential system purchaser, the system's TOTAL maximum equity drawdown, before rating the system.
Top Ten vendors are allegedly allowed to re-tweak their system's parameters, after they sustain a
drawdown.

"Truth is stranger than fiction, because it doesn't have to make sense," observed Mark Twain. Truth gets
really strange applied to the business dealings of a company called Futures Truth, hereafter referred to as
Futures What? (I refuse to degrade Truth by using it with this company's name).

When Mr. Hill called me to state he was going to publish results on my 5-Vertical Bar Trading Pattern, he
never asked my permission but told me his intentions. I asked him where he got a copy, since all purchasers
are required to sign a Non-disclosure Document, and he had never bought my manual.

Mr. Hill stated Futures What? does not buy systems, but gets them from friends and clients (who illegally
violate their signed agreement).

526
 Mr. Hill allegedly rates systems, sells the ratings in his newsletter, he allegedly sells special reports on
them, he allegedly discusses the system structure (except for parameters a programmer might get from a
computer), then allegedly sells videos discussing a system's design. Futures What? allegedly had an income
over $200,000 in 1994. The system creator gets nothing from Mr. Hill, not one penny.

Mr. Hill gave me his word of honor, I could examine his results before he mailed them to his clients. On
that promise I invited him to a KCI seminar. Mr. Hill called me to state his testing was completed. I asked
him if he tested both the standard and conservative approaches, and he didn't know the difference, so he
sent John Fisher to the next seminar.

I got a FedEx package with his testing results the day after Mr. Hill had mailed his newsletter. John Fisher,
ex-president of Futures What? wrote a public letter of apology stating he had tested the system in a manner
in which it was never taught or presented at the seminar. The apology was printed in Club 3000. (Mr.
Fisher allegedly quit over ethical problems with Mr. Hill).

I believe Futures What? (again I refuse to dignify a company with the name of Truth when it does not
belong) uses only the drawdown for a 12-month period. So a system that may have actually lost more
money than it ever made during the life of the system can become a #1 "Top Ten," system for a recent
twelve-month performance! (This is like letting Charles Manson out of prison because he was a good boy
and didn't kill anyone last year)!

The first rule of trading is "Don't lose money!" If you do not know how much money a system loses, except
for the last 12-months of Future Truth's top ten rating, then how can a trader adequately make an informed
decision? He cannot! The first consideration of the risk-reward ratio is risk! If a trader does not know at
what price his trade analysis is wrong, he is not entitled to the profits even if his trade makes money! Think
about it!

When Futures What? rated their own $2,000 system in their own top ten, did they have their system
independently tested as they advise the system vendors, like Kent Calhoun, to pay them to do? No! When
Club 3000 issue 93.12 page 4 independent testing reported Futures What? had allegedly overstated their
system's profits by $341,266 did FW bother to have someone else independently test their system? No! By
allegedly skipping the most active crude oil contracts, Futures What? allegedly showed profits of $33,950
opposed to losses of $17,420!

If you think this is the exception, I know over a dozen other improper technical and ethical problems with
the way Futures What! runs their supposedly altruistic operation, but will mention only one in closing. Last
year in Futures Magazine, Mr. Hill stated Futures What? no longer rate their own system in their own "Top
Ten." Mr. Hill tried to explain this as an honest voluntary decision on his part, but again all CTCN
subscribers know Truth is stranger than fiction.

The real truth is my letters in CTCN caused such a public outcry he was forced to drop his system from his
own top ten. I was both threatened by Mr. Hill with lawsuits over those letters and also were banned from
Club 3000 subscriptions and advertising. It took real courage on Dave's part to print those letters, but he did
so for one reason Truth! He placed the CTCN subscribers' interests before his own private interests.

Universal is the name of the Futures What? system mentioned above. It is now owned by Stafford Trading.
Mr. Hill took the opportunity to rate this system in his own top ten and have the list published in Futures
Magazine. Guess who owns Stafford Trading? It couldn't be John Hill's son could it? Guess again! What
does a conflict of interest mean? Obviously three words must be looked up in a dictionary. Does Futures
What? know how to operate one.

Perhaps the owner of Futures What? should rename his company 56% What? so it would match Universal's
percentage of accuracy reported by independent testing in Club 3000. Talk about a company that gives
truth a bad name? Futures What? has facts that appears to be more fiction than truth.

527
 Fourth Of A Series On How Money Management Methodology May

Help You Trade More Successfully - Tom D'Angelo

This is my fourth article intended to provide readers of Commodity Traders Club News with a money
management methodology designed to organize speculation along the lines of a successful business. Refer
to my previous articles in Vol 3-8, Vol 4-1 and Vol 4-2.

In my previous articles, I described the Profit Center concept of trade segregation which enables the trader
to organize his trading in a professional, disciplined and businesslike manner. I also described the statistics
which should be calculated for each Profit Center.

These statistics which reflect the trader's trading efficiency, risk management and profitability are entered
onto the Performance Report. I complete a new Performance Report for each Profit Center on a weekly
basis, usually on the weekends when the markets are closed.

The Performance Report is a summarization of all the key money management statistics for each individual
Profit Center and is similar to a management report used by nearly every successful manager or
entrepreneur. I described the Performance Report in detail in Vol. 4-2.

In this article, I will describe the Trading Plan and Trade Journal. The Trading Plan is the trading strategy
for the next trade based on the statistics provided by the Performance Report.

The Trading Plan is divided into the following sections:

General Comments: A short summary of the trader's profitability and overall performance in the Profit
Center, e.g., Profit Center is profitable. Profit Factor=1.73 and trending upwards. 57% profitable trades and
current profits of $3,600. I am showing consistent success in this Center. Trade aggressively. Trading
Capital currently=$100,000.

Trading Strategy: The general strategy for trading the Profit Center, e.g., Day trades on 5-minute bars based
on the Real Success trading methodology.

Entry Strategy: The strategy for entering the trade, e.g., buy a closing price reversal bar, if 21 bar moving
average is moving up and the high of the entry bar is higher than the highest high of the last 10 bars.

Profit Strategy: The strategy for exiting the trade with a profit, e.g., move stop to break even after prices
advance $200 in my favor, then liquidate when prices provide a $1,000 profit. If the $1,000 profit per
contract is not reached in 21 bars, exit position with market order. If trade is profitable, profits in the Center
will increase $3,000 to $6,600 based on trading 3 contracts.

Stop Loss Strategy: The strategy for entering the initial stop, e.g., Optimum number of contracts (based on
Ralph Vince's formula )=5. Due to past success in this Center, trade aggressively and trade 3 contracts.
Enter stop loss $400 below entry price. Loss of $1,200 (1.2 % of capital) on the 3 contracts if the trade is
unprofitable. Margin required=$ 30,000 ($10,000 per contract ) which=30% of trading capital. Current
profits in the Center are $3,600. If the trade is unprofitable, $1,200 which equals 33% of the $3,600 current
profit in the Profit Center will be lost.

Reward/Risk Ratio=3000/1200=2.50 based on 3 contracts.

Before any trade is initiated, the trader must know: 1. the potential dollar amount of the loss; 2. the % of
capital he will lose and; 3. the % of profits in a profitable Profit Center he will lose if the trade is
unprofitable or the increase in the net loss if the Profit Center is currently unprofitable.

528
 He must also know the % of trading capital required for margin and the capital available for margins on
other trades.

While the Trading Plan appears to take time to formulate, notice the discipline and the thought process it
imposes on the trader. The trader can explain exactly when, where, why and how he has arrived at his
trading decision.

There are no surprises. He knows exactly what will occur if the trade is either profitable or unprofitable.
This businesslike, disciplined approach to trading is the one sure sign of the true professional speculator.

This structured approach significantly reduces the emotional problems of anxiety, fear, greed and
uncertainty which prevent nearly all traders from achieving long-term profitability.

The third and final report is the Trade Journal. The Trade Journal is the "after the fact" critique of the
Trading Plan. Did you do what you said you would do?

The Trade Journal is divided into the following sections:

Entry Strategy Critique: I hesitated when the entry was indicated by a closing price reversal bar. Prices
began to move up rapidly after the entry bar and I delayed placing my buy order. As a result, I was filled 30
points worse than if I did not hesitate.

Profit Strategy Critique: I moved my stop to break even for the 3 contracts as planned after prices advanced
$200 in my favor. However, I exited all 3 contracts with an $800 profit instead of the $1,000 profit per
contract. I became frightened that I would lose the profit on the trade, so I exited the trade prematurely
instead of waiting for my planned profit level. Prices eventually reached my objective, costing me a lost
$200 profit per contract.

Stop Loss Critique: I placed my stop loss at the $400 per contract level when I received confirm on my
entry as planned. The trade was profitable and the stop was not hit.

General Comments: I am still experiencing hesitation on entering the trade. If prices are advancing rapidly
on the entry bar, I tend to freeze and delay entering my order. I must learn to follow my entry plan and
enter the trade immediately after the signal is given.

Likewise, I am not following my profit taking strategy. I exit too fast and take small profits, since I fear
prices will reverse and I will lose the small profits I have. I must wait until my profit objective is hit before
exiting. I am not letting profits run.

My stop loss strategy was executed as planned.

Every long-term successful trader performs this process . . . writing down strategies and critiquing the
execution of the strategies. This is the tried and true methodology for moving up the learning curves on the
three disciplines necessary for achieving long-term profitability: 1. money management; 2. psychological
development and; 3. trading system execution.

The working environment in which the trader functions has a significant impact on the trader's eventual
success or failure. A sloppy, disorganized workplace produces sloppy disorganized thinking and sloppy
trading results. A neatly organized trading environment in which important information is readily available
produces a sense of professionalism and confidence. This in turn instills discipline and reduces
psychological stress. A neat filing system is an indication of the serious, professional speculator.

There are three ways you can file the reports. I have described in these articles: 1. an accordion folder; 2. a
3-ring notebook or; 3. manila folder.

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 Using an accordion folder, make each section in the accordion a separate Profit Center and place each
Profit Center's reports in its own section. If you use a 3-ring binder, separate each Profit Center with
colored paper and index tabs and place each Center's reports in its own section. If you use 8-½" x 11"
manila folders, make each folder a separate Profit Center. Punch 2-holes in the folder and punch 2-holes in
all the reports. Then place each Center's reports in its own folder and hold them together with a 2-prong
metal clasp.

I use a 3-ring binder and always file my reports in the same order. On the weekend, I use the Manager
software I developed to print out the statistical reports for each Profit Center. I throw out the previous
week's reports. I file these reports for each Profit Center in the appropriate section of the 3-ring binder. I
then complete a Performance Report which reflects my trading performance in each Profit Center. I know
exactly what my profitability performance is for each Profit Center.

Next, I staple each Trading Plan with the associated Trade Journal and place them on top of the other
reports. Each Trading Plan has its own Trade Journal. The filing sequence is Performance Report on top,
Trading Plan stapled to each Trade Journal and then all the statistical reports on the bottom.

Thus, each section of my 3-ring binder contains all my reports for each Profit Center filed in this order: 1. a
Performance Report which reveals all the key money management statistics for the Center; 2. each Trading
Plan stapled to each Trade Journal and; 3. all the related statistical reports.

All the information I need to make informed and educated trading decisions for any Profit Center is easily
found in each Profit Center section of the 3-ring binder.

I am now managing my trading in a professional, confident and disciplined manner. I am trading in an

organized businesslike environment, designed to increase my psychological growth, trading skills and
money management discipline.

I have a readily accessible document data base in which I can constructively criticize all my trades and
attempt to eliminate any destructive psychological problems which are producing unnecessary losses. I can
quickly locate Profit Centers where I have achieved success and trade with confidence as well as Centers
where I am producing losses.

The Centers which are producing losses need to be analyzed to determine if the problem is within me and
can be corrected, or is the Center basically unbeatable and should be abandoned. For example, if you set up
each Exchange as a Profit Center (CME, COMEX, CBT, NASDAQ, etc.) you may find that you are
unprofitable trading that Exchange due to slippage and/or bad fills. Some Exchanges may just be
unbeatable and it is best to identify this situation as soon as possible and abandon trading that Exchange.

Adopting the simple and inexpensive money management plan I have described in these four articles will
do more to mold you into a profitable trader than all of the thousands of dollars you will spend on courses,
seminars and trading systems.

Unfortunately, for most traders reading these articles, everything I have described appears to resemble
work and does not appear to be much fun. The real excitement and fun in speculation is trading the
markets, watching prices go up and down and testing or purchasing trading systems. The first question the
trader must ask himself is the same question the average sports bettor must ask in Las Vegas . . . are you in
the game for the excitement and fun or are you seeking long-term profitability? Disciplined, organized,
focused and confident individuals achieve long-term success. Everyone else fails in the long run. It's as
simple as that. No exceptions.

The techniques I have described in these articles are utilized by very successful sports bettors in Las Vegas
who bet anywhere from $5,000 to $30,000 a game. These individuals are very intelligent focused,
disciplined and organized. They are the only ones who achieve long-term success betting on sports. Every
sports bettor who is undisciplined, disorganized and un-businesslike loses in the long run, just like futures
traders.

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 If you would like to receive a free booklet illustrating the reports I utilize, feel free to contact me at 702-
261-9417 or 800-MONEY30.

In my next article, I will go into more depth into drawdown analysis, which is the most important money
management statistic the trader should monitor. I will present some drawdown statistics I have developed
which are excellent "stress indicators" which every trader should monitor very closely. I will also go over
some simple techniques for determining how many contracts to trade.

Charles Lindsay And His TradeBase Network - Dale Johnson

In reference to article by GK, Vol. 4-2, I had a similar bad experience with Lindsay and his Tradebase
Network some months ago. Very sporadic operation, sometimes you could reach it, sometimes not. When
you did reach it there were many bugs in the system's trade listings and signals. Same thing with Lindsay,
sometimes there, sometimes not. After a couple weeks of being unable to reach Lindsay, I gave up on
trying to get any of the $500 deposit back.

Quote services, I've used CSI for the past 10+ years and am satisfied. A monthly fee of $21.99 paid
annually in advance allows you to download up to 100 contracts a day plus 2500 months of historical data.
I don't know of anyone that is cheaper or that has been in the business longer or that has more accurate
data.

E-mail, I still see a lot of aol.com e-mail addresses. With Internet or computer magazine advertising, many
companies provide unlimited time on the Internet for the flat rate of $19.95 a month, why do people pay
America OnLine a monthly subscription fee plus a per minute fee? Seems very expensive to me.

Also, seems everyone disagrees with the way 1256 contracts are taxed, myself included. Does anyone have
any suggestions of an alternative method?

Editor's Note: AOL and other popular services have low monthly rates of only $4.95 to $6.95 a month or
so, for limited use, including some free hours. The Internet Service Providers often charge a start-up fee
and (or) a software cost, which is usually not charged by the large on-line firms. Also, many people do not
use e-mail or the Internet enough to warrant the higher unlimited fees of $20 to $25 per month. Plus, many
also enjoy chat groups, on-line support, and other activities of America OnLine and others.

In addition, AOL seems to have 28,800 baud high speed access lines available throughout the country,
including less populated areas. I have accounts at both AOL and a local Internet provider. The local
provider normally connects at 19,000, 21,000 or 24,000 baud, but AOL is always either connected at
26,400 or 28,800 baud. The local provider cannot explain this as his advertising says he has 28,800 baud
lines.

Some others such as AT&T World Net, Earth-Link, Global Network Navigator, Microsoft Network, etc.,
have no local access in this area of the country (and some other areas of the nation) or slow access lines,
such as 2400 or 9600 baud.

Still another major advantage of AOL is the fact they have something called "Flash Sessions."

This involves the automatic dialing to send both pre-composed (off-line) e-mail and receive all your
incoming e-mail messages all accomplished in several seconds of actual on-line time. After all e-mail is
both sent and received, the computer automatically disconnects and you may then go in and read all your e-
mail while off-line, incurring no charges and not tying up your phone line.

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 These Flash Sessions cost almost nothing as the on-line time is normally a matter of seconds of time at
28,800 baud, depending on how many e-mails are involved.

This nifty cost effective and convenient AOL Flash Session feature is the main reason CTCN is using
America OnLine. However, I admit AOL is used strictly for our e-mail because as Dale suggests, our local
Internet Provider is much more economical for our lengthy Internet sessions, which by the way seem to be
getting longer and longer as time goes by.

First Trade . . . Not - Linda Sumner

As a new trader I've heard all the warnings. 90% loose money, don't over-trade, can't pull the trigger, on
and on. So patiently I study, read, subscribing to charts, investigating software, taking home courses, and
getting this wonderful newsletter.

Trading commodities has been a life long dream. I'm ready to give it a go. My account has been open for
three months. I'm waiting -- want the perfect trade. So careful, finally I see bellies make a 1, 2, 3 top. I'm on
vacation, will wait and watch. Shucks, 5-points are gone -- two weeks later it sets up again -- surely there
will be a 50% retracement from the top! I figure out my stop -- decision time, I watch the clock for the
opening. I make the call, "I've decided to go short one contract of pork bellies on the MidAm" (I'm playing
it safer) . . . Broker: "Bellies, are you sure that's a good idea? I know you're nervous on your first trade."
Me: "It's the only trade that meets my criteria." Broker: "Its been going limit up and down a lot lately. My
boss has a real good soybean spread, I think you would like." I'm shaking my head -- Broker: "Could you
please hold." I hang up the phone . . . maybe tomorrow. I'll watch and wait.

Later I see the afternoon wrap-up -- Bellies -- limit down.

Editor's Note: This type of event happens all too often. I have heard of brokers talking someone out of a
winning trade many times.

I remember a Commodity Traders Club News member who had just bought a $2,000 trading system. The
first trade generated said sell the Swiss Franc. When he called the broker, the broker said "you really don't
want to sell . . . do you . . . all our big traders are buying, not selling!" Needless to say, the market dropped
down sharply after the trader had second thoughts about it and ended up bypassing the trade completely.

This client was more influenced by the broker than his new $2,000 system, even though he knew the broker
likely had never traded for his own account or else was unsuccessful at trading himself.

An Explanation On Futures Truth

Test Result Discrepancies - Randy Stuckey

In the last issue of CTCN there was an article by someone who noted that he did not get the same results
for a particular system as reported in Futures Truth. As a systems developer and vendor, I am aware of
several possible reasons for discrepancies between Futures Truth, other test methods and real life.

One reason for differences between Futures Truth and other test methods is obviously the test methodology
itself. Futures Truth uses their own Excalibur testing software. On the other hand, most people use
SuperCharts, TradeStation or MetaStock to back-test a system.

Since you can only test one data file at a time with these programs, most people use continuous contracts so
they can test long time periods. Unfortunately, this immediately creates a serious and altogether fake
performance for the particular trading system.

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 One of the most serious distortions is the fact that there are no rollover trades when using continuous
contracts. Yet in reality, rollover trades are a fact of life for any position trading system. After all, contracts
do expire. If you're in a trade and the current contract expires soon, you have no choice but to either
prematurely exit the trade or rollover to a more distant contract. You clearly experience slippage and
commissions on these rollover trades.

The system I'm most familiar with is my Catscan system. Over the last 12-years it would have had over
1,600 rollover trades. I took a $75 per trade loss on each rollover trade to account for slippage and
commissions. Clearly it hurt profits and drawdown, but that is the price of more honest testing. Meanwhile,
the continuous contract tester had no rollover trades at all. Futures Truth uses actual contracts for their
testing and includes all rollover trades.

That brings up the next possible discrepancy-the rollover schedule. Let's say that in real life you've chosen
to rollover a particular currency trade on the 5th of the month the contract expires. For most commodities
Futures Truth rolls over on the last day of the month prior to contract expiration. This can create a major
difference in actual vs. test results. While it's relatively rare, due to differences between contract months,
you can actually be long and Futures Truth may be short.

In addition to rollover trades, another possible discrepancy in testing is the inherent differences created by
continuous contracts vs. actual contracts. No continuous contract creation technique is without its flaws.

If you just hook contracts together, you create gaps on the day you switch to the next contract. Many
systems will falsely trade that gap. If you use continuous contracts which were created by back-adjusting
prices to eliminate the gap, then you have a 5 or 6-day period of false prices in the continuous contract.

Another continuous contract problem can occur when a continuous contract goes "below zero" due to back-
adjustment. Many data vendors solve this problem by pushing up all prices by an equal amount. This solves
the below zero problem and still preserves each day's range and the relationship between the various days.
However, if a particular system or indicator uses absolute prices, you have a giant problem. For example,
most oscillator indicators are normalized by dividing by price. If the continuous contract prices have been
pushed up to prevent below zero, you will get a huge difference in the oscillator.

An example: A commodity has a current price of 50. To prevent below zero 50 has been added to each
value in the file. So the continuous contract price for that day is 100. Clearly dividing some oscillator by 50
instead of 100 will generate radically different results.

There is one more common reason for differences in real life vs. Futures Truth. Recently, a Catscan owner
called me and said he got significantly lower profits than Futures Truth on Coffee. We explored his trade
by trade results with Futures Truth trades. There was no significant difference, except for one trade. Futures
Truth had reported a $12,100 profit on the particular trade. The Catscan owner had a $3,945 profit on the
trade. I noticed that he exited the trade 12-days earlier than Futures Truth. When I ran the Catscan system
in TradeStation, I also had a $12,100 profit on that trade. So I asked him how he could possibly have exited
the trade on the date he did when the Catscan stop for that day was well beyond the price range for the day.

Then the truth surfaced. He said that when the trade showed a $4,000 profit he exited at the market "to
protect his profit." Clearly he wasn't really trading the Catscan system. He was trading Catscan with his
own exit rules added to the system. There is nothing necessarily wrong with that. But Futures Truth has no
such choices. Their software rigidly trades the system's rules all the time.

Finally, there was a comment that Futures Truth allows system vendors to "tweak" their system after
release. This is very misleading and not entirely true. The article implied that therefore only the results after
the last tweak were valid. This is incorrect. Futures Truth does allow vendors to change their system.
However, only future test results use the changed system. They do not allow the previous test results to use
the new system changes. This is as it should be.

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 I'm sure there are many more ways that differences can occur. These are just some of the more obvious
ones. A final comment: Even with all these differences, I'm not aware of any company that generates more
accurate or objective system performance results than Futures Truth. As usual I should probably note that
we have no financial arrangement of any kind with Futures Truth. This is not meant to either defend or
criticize Futures Truth. It's just an attempt to explain some of the reasons for differences.

Probabilities - Dave Jordan

Regarding the probability of 5 losses in a row (Vol 4-2), Donald Turnbull's calculation of about 3% is
correct if the trades are not correlated with one another. In practice, however, the trades may be highly
correlated if they are generated by the same system and/or are in related markets. The higher the
correlation's among a set of trades the higher the chances of 5 losses or successes in a row.

I, like RFK, look forward to info from someone who has successfully claimed Trader Status.

Regarding Gale/Jo Paxton, you might try PTI Securities as a broker. They handle commodities and stocks
at reasonable commissions, and they are in their offices until 2:45 or 3:00 PST. For downloading quotes, it
would be great to find accuracy like CSI at a better price. Traders Access has a good price and
comprehensive data. It would be good to get other views on a cost-effective solution to this.

I would recommend Fontanills' Optionetics Newsletter and Wiest's The Scale Trader as useful approaches,
though quite different.

Does anyone have info to share on Don Fishback's Odds or Insider's Options System?

Gambling vs. Trading - Mark Harris

I'd like to comment on Donald Turnbull's article (and your Notes) in Vol. 4-2. Most books on gambling
theory discuss unfair (subfair) games, fair games and super-fair games. The classical fair game is coin
tossing with an unbiased coin or rolling an unbiased die where you win 6 times your bet if your number
comes up (and lose otherwise).

All Casino games are unfair as for example roulette (American Style) where you make an even bet (win or
lose an equal amount) on red or black - there are 18 each red and black, but there are also two GREEN
numbers (zero and double zero). Obviously, any fair game can be reduced to an unfair one by simply
having the house take a small cut out of each payoff pot. A super fair game is one where you have an edge -
- i.e., the guy on the other side of an unfair game is playing in a super fair game.

If you are playing in an unfair game, your best strategy (assuming you must play) is to minimize the
number of times you need to bet. Thus, if you have 10 bucks and need to run it up to, say, 100 bucks, you
bet the 10, if you win you bet the 20 and so on. (Here when - if??) you get to 80 you bet 20 and quit if you
win otherwise you must bet 40 of your remaining 60 and so on). (In texts on gambling this is often called a
"bold" strategy and it is mathematically optimum for any gamble where your odds are 50/50 or worse). Any
other strategy, i.e., subdividing your stake into smaller piles like two piles of 5 bucks, five piles of 2 bucks,
etc., has less chance to win. Conversely, in a super-fair game you want the game to go on as long as
possible - i.e., you are the house and on average you win a little bit on each play.

Risk of ruin when playing a fair game (again, let's say coin tossing) against an infinitely rich opponent (a
casino or the market) depends on your initial stake and your goal. If you have no goal - (you are willing to
keep playing no matter how much you win) then ruin is certain, but of course, it may take a very long time.

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 A lot of texts use "expectation" which is the probability of a win times the amount won minus the
probability of a loss times the amount lost. If the expectation is less than zero, it's best not to play (the game
is unfair).

If the expectation is zero, we're into recreational gambling (coin tossing, office football pools, etc.) and, of
course, an expectation of greater than zero is what we traders hope that our system produces (although
needless to say the guy on the other end of the trade is playing in an unfair game if we're correct )!

If Donald Turnbull has five trades going each with a 50/50 chance of failure or success and the amount he
risks is equal to the gain he'll accept and the five trades are completely un-correlated (i.e., beans falling has
no effect on pork, meat, etc.) then it's true that the diversification cuts his chance of losing in all five to
about 3%. In real life, I suspect that none of these obtain.

A different question is how many losses in a row one is liable to pile up (in a 50/50 game) played
repeatedly. For example, what is the probability that in a series of 100 coin tosses you will encounter a run
of 10 or more heads (or tails) i.e., 10 straight wins, 10 straight losses). Even though the priori odds for 10
heads is 1/2 to the 10th power (i.e., about a thousand to one) there's about a 10% chance of getting 10 heads
in a row sometime during the 100 tosses.

Put differently, you could say that if your win/loss probability is 0.5 and you're going to make 500 trades,
you have a nearly 50% chance of experiencing 10 (or more) losses in a row. If you take a number of
"expert" traders who trade frequently and they maintain 50/50 or even better (like 60/40) odds, it's almost a
sure thing you are going to hear about 10 or so straight losses (and, if they're touting a system, 10 or so
straight wins).

In truth, I don't think a lot of gambling theory applies to commodity trading. In gambling you make a single
decision (bet on black), the wheel spins, you win or lose and that particular gamble is complete - known
results. In trading you always need to make two decisions, i.e., you decide when to put up your bet, and you
decide when you've won or lost enough.

A gamble has a bounded win/loss structure, a trade has a relatively unbounded win/loss structure (don't
ever think that a stop-loss order actually limits your loss, remember those times when a commodity is
pegged at the limit for days in a row).

Vol. 4-2 was one of the best issues I've read to-date. Particular thanks to Gale and Jo Paxton for sharing
their experience and for writing such a succinct (a doff of the hat to Greg Donio for his great explanation of
just what's meant by 'succinct') and informative article. I'm sure all of us receive enough 'pie in the sky' and
'free lunch' literature to get tempted occasionally. CTCN's readers' contributions are great for helping us
keep our feet on the ground and spreading the harsh light of reality on the 'one-size fits all', can't lose
systems and programs whose hype literature fills our mailboxes.

Referring to Duane B.'s contribution about the Mac vs. PC's. I have an old PC so I don't know how it is
with Mac's, but I'm finding that almost none of the newer market software will run on my machine. I have a
486-25 with 8 megs of memory and when I call Nirvana to ask if their current software would run on my
machine, I was told it wouldn't (apparently you pretty much need a fast Pentium processor (or equivalent)
and 16 megs of memory).

Anyhow, it seems doubtful to me that the size and speed of your computer has much correlation with how
successful you are in your trading. I agree 100% with Duane that most software vendors have a very
limited concept of what traders really need, and that's just because something can be programmed doesn't
mean it should be programmed.

Software bugs (and they're ubiquitous it seems) drive me up the wall. In almost no other product will
customers so willingly accept defective merchandise - if you bought a car and when the wheels fall off, the
manufacturer told you they were designing a fix or a work-around (and expect you to pay for it when it's
done) you'd probably go to court, but with software it seems the norm.

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 A final question. Since you adopted the new publishing schedule to coincide with the release of FT data,
will dropping FT allow a more flexible publishing schedule?

Editor's Note: Yes, our publishing schedule can be more flexible. You probably are not aware of the fact
several times Commodity Traders Club News was delayed due to delays by Futures Truth in sending their
reports to us. Sometimes we had to contact them many times before we finally received their rankings.

By the way, if a sufficient number of readers ask us to reinstate the Futures Truth Reports we will attempt
to do that by asking permission again from FT. Please let us know your opinion on this issue.

Who Are The Winners? - Jerry Ross

As a new member reading back-issues, I must say that they get the creative juices flowing.

I believe we are all familiar with the studies that show 95% of commodity traders are losers. If so, then who
are the winners? I have always assumed they were the brokers who take a little commission on each trade.
Recently I have been hearing that the winners are the CTAs who manage accounts--they are 80% winners. I
would like to know more about the winners. Who are they? Are they successful traders such as the
Anonymous Trader? Are they the Commercials, Hedgers or the large Speculators? Are they the
Professional CTAs who manage accounts?

Or are they, as I suspect, the ones who take a little commission--a little off the table with each trade. Maybe
members can shed a little light on this problem which has been bothering me.

Intraday Analysis of S&P Daily Pattern Systems - Don Wilson

Over the past two years, I have devoted many hours to coding S&P daily pattern systems into systems that
can use intraday data. I initially pursued this to determine whether I could successfully use intraday
indicators to filter trades signaled by the daily data. I have had some success with this approach.

Once I had the intraday data systems, I did extensive testing on the historical (pre-release) performance
versus the recent (post-release) performance of the systems. Based on my testing, it appears that once these
systems are released, their performance tends to degrade.

On intraday data, on many occasions the price is pushed just high (or low) enough to trigger the trade and
then reverses to cause a loss. Of course, it could be coincidence -- but it does not appear probable to me.

It could be that once the system is known to large funds and brokers, the floor traders catch on and join in
to push the price just enough to trigger the system, and then enjoy profits during the volatility excess which
results.

Have other members had similar experience with these systems? Any interested in discussing this topic can
call or fax me at 352-683-7597.

Any Real-Time Data Sources In Japan? - Mark Owens

I recently switched my computer over to Japanese Windows 95. I thought I had saved all the data files
needed for Swing Catcher, but after reinstalling Swing Catcher and adding the historical data I received

536
 with the trading system (current as of 7-14-95), I was not able to use the files I had saved to update the
system.

I am a subscriber to your monthly parameter service and have just received the latest disk. I would like to
use the data therein to start again from scratch. Could you tell me how to do this (and update the historical
data)?

I'm interested in your Real Success Video Package. I have been interested in daytrading for some time now
(my work as a translator allows me some flexibility in the hours I work), but I do not know of a vendor that
provides real-time data feeds to Japan. Do you or do any of the readers know of such a vendor?

A Good Book Is Worth Buying

John Bougearel

This is a brief note to let you know that your newsletter is just getting better and better. I'd like to put a plug
in for a book I have recently read. (Name of Book was omitted from this note). I agree with the idea that a
good book that comes highly recommended is worth purchasing and not to be borrowed. Personally, I take
a certain pride in my library collection.

Editor's Note: I agree. The value of knowledge is so great. All traders should own their own library of
trading books, rather than borrowing them from a mail-order type of "library." Book purchase costs are
insignificant compared to all the money you will make or lose trading commodities. Plus, as stated so well
by John, we should all take pride in our book collection.

What's All The Fuss About?

J. L. from Wimauma

O.K. Dave. Let's see what needs editing this time. (Thanks for not changing the message). I didn't make
much money last week, so I guess instead I'll tell others how to trade. Sound familiar? The anonymous
trader says cut the crap out and trading is simple. I say the place to start is at the beginning.

Call it the Basics - I call it the Logic. To the only trader I've shared ideas with in my 14-years (a seasoned
ex-floor-trader), I said the following. "What's the fuss? Prices can only go up or down!" He looked like I hit
him with a 2x4!

I'm convinced that one could go long 10 ticks above, or short 10 ticks below any one single price on stops
in any active contract and the biggest problem (sometimes agonizing) would be when to take profits! Some
problem! Sure, you could get whipsawed a few times, but usually sooner rather than later, you've over-all
netted some money -- maybe a lot of money depending on your profit timer!

Say it another way. How many times have you heard, "Oh, commodities. They're such a gamble!" C'mon!
A gamble is odds against you (Las Vegas style)! The market is 50/50 for starters. Do you suppose you can
find a price chart or two to better your odds? Of course you can! Or you can play Maverick if you like.
Your choice. By the way, if you're not sure what the trend is, show your chart to your 5-year-old. He (or
she) will tell you up or down in 30 seconds.

One more thing. Have you ever considered that there is no such thing as a "bad" trade. There can only be a
trade that's too early! (Yeah, it might be two years too early, but life isn't about everything going your way -
it's about what you do when the "you know what" hits the fan)! I'll be coming back to this "early" idea in
later articles if my "contract" is picked up with CTCN.

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 To wrap this up I say, "Develop your own system!" I have enough trouble following my own rules. How
could I follow somebody else's? And guess what! Your system will be designed around your quote
service(s)! And Leroy Jenke, (issue #10), why don't you, like me, marry a good delayed price service (with
charts) to a discount broker who has a free real-time call-up quote system (such as InfoLine)? Build your
system around that combo and you start by saving $300/mo. for quotes! Gotta go, I have more ideas on the
finest "in home" business ever created!

(Since writing this, things have changed big time. That's why I wrote my later "EUREKA" article). Ah,
such are commodities!

Why Elliott Wave Does Not Work

Kent Calhoun

The interpreters of the complicated Elliott Wave Theory have told us we are in the "5th wave of the 5th
wave." Now they are not so sure whether the 735 top in December 1961 is the completion of the advance.
This was written by Henry G. Davis in June 1962. Does it sound familiar? Now 35-years later, the same
story. Futures Magazine covered EW practitioner Prechter's very bearish "5th of the 5th wave," stock
market Elliott analysis beginning 1995. Result: 1995 was the third strongest Dow bull market in 110 years!

The Elliott Wave normally appeals to pessimists and people with negative attitudes. How else would you
describe the impending doom forecasted in EW book titles which usually reference "The Crash of 1929,"
the "Coming Depression of 1990," "The Reckoning," etc. Prechter's "Final Tidal Wave" conjures up images
of economic disaster flooding the world economy with generations of depression.

The only question never answered in EW books is at what Dow price are they wrong? Traders are not
entitled to profits even when they are right, if they don't know the price their analysis is wrong. Risk must
be considered before rewards!

Elliott Wave is complex and subjective, used differently by different traders. EW tries to give structure to
price chaos, but often breaks down at critical market junctures where Elliott Waves are defined by zigs and
zags with numerical counts usually under 5. When the EW analyst improperly analyzes a market, he merely
explains his mistakes by stating "there was an alternate wave count." This is like Steve Martin who
explained his mistakes exclaiming "Well Excuuuse Me!!" Elliott wave counts are often lagging indicators
of price action, because EW does not have a quantifiable structure 100% always predictive.

January 4, 1990 was Prechter's first Dow buy signal in 14-months. USA TODAY published his buy signal.
The Dow immediately dropped 260 points, more than 10% in 13 days. (The 5 VBTP's sell signal occurred
the same day, and S&P's dropped $17.000 per contract to a 5 VBTP objective of 323.50). The Elliot Wave's
"alternate count" was used to explain Prechter's mistake. Similar incorrect Prechter EW trades for gold and
T-bonds had the same catastrophic results.

In the same January 4, 1990 interview in USA TODAY, Elliott Wave's Dave Allman was asked why the
Elliott Wave had missed the largest bull market increase since World War II, over 30% in one year. Allman
responded by stating that Prechter had not placed enough emphasis on the put-to-call ratio, and the Arms
Index.

"Excuuuse" me? Does this mean the EW can't be used for trading commodities, since there is no Arms
Index for them? When Elliott created his wave from De Broglie's wave principle, which won the Nobel
prize for physics in 1929, there was no Arms Index, or put-to-call ratio! I have not seen his latest Elliott
explanation for 1995's Wrong - way- Prechter result. Maybe Bob should just place a fake arrow on his
head, buy a white suit, and say "Excuuuse me!"

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 Reliable Data Sources - Duane Barnhart

Take heart, Jo. If you can weather this drawdown you are on your way. Your awareness that you are on
your own is a vital, key, essential factor. Sounds like you are nearly there. Believe it. Believe in your own
best analysis. If you're wrong, you'll be ahead by the fact you know it and have no one else to attribute it to.
If right you have the double benefit of knowing you did something right. That bolsters one's self confidence
and esteem as well as one's bottom line.

Losing is not all that bad, so long as it is within your acceptable risk area and you learn from it. I have lots
of losses which will one day provide insight to reap even greater profits.

Like you, I tried trading other trader's advice. When I confided to Larry Williams that I was going to trade
on my own analysis after trying to follow his Hotline, Larry was spontaneous and sincere in encouraging
me to do so. He told me that is how he broke through to winning.

I use a few sources which enable me to look beyond the myopic picture we get as technical traders. If you
have not tried the following, do so on a trial basis only and without any assurance that they will help you.
They have helped me. however, I frequently fade their recommendations.

You will find your own growing self-confidence will provide more profits than adherence to any other
trader. Only you have a unique insight into what works for you.

My sources are as follows: Bill Gary's "Price Perceptions" 800-525-7082 - Commodity Information
Systems, Inc. 800-231-0477, and Frank Taucher's "SuperTraders Almanac"

Editor's Note: We included a flyer in our last issue for you to order SuperTraders Almanac via CTCN.
This offer is still available thru Commodity Traders Club News.

You may hear from Jeff Borowitz, the founder of TrendSetter. I am testing his software and shared with
him your report on unreliable DialData market into. Jeff has a more favorable assessment of their data.

I have conditioned my use of Jeff's software on its compatibility with DBC data for I have a high regard for
their ability to deliver reliable data. I also have five years data in that format. Tracking 491 contracts, I am
not about to change horses for the convenience of another software.

DBC provides a prompt daily update of all Grain contracts soon after those markets close at 1:15 p.m.,
CDT. I usually run an update on all grain trades at 1:20 p.m., CDT, 8:20 a.m. Hawaii time. Occasionally
there's a change later that day.

As I spoke with Jeff, last Friday, I began to think of why you may be having difficulty. Have you run
sufficient checks of your modem or computer to see if the problem is at your end?

A fellow trader here in Hawaii found he was receiving tick data 40 seconds later than a colleague in
California. He traced that glitch to his own modem, replaced it and is now in sync with real-time quotes.

Jeff asserted that DBC was more expensive than DialData, but I question that. I pay $60 + tax for end-of-
day data which includes real-time info on about 42 indexes including INDU, INDS, NYA, UPVOL,
DVOL, PREM & BANK which I track graph for reference and use, but not for trading.

Do you have other traders in your area to compare data with? We had problems with DBC 6 to 8-years ago
until I networked with enough other traders to verify my belief that DBC had a problem. Only then did they
accept that fact and correct it. You may have a similar problem with your local server. Have you checked
with the local source of your signal? If not, be sure to do so and network with other traders for help in
isolating the problem.

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 Commodity Traders Club News has

A High Level of Give & Take - Adam White

I just completed my month-ending marketing statistics (Investors Timing Service newsletter), and once
again Dave Green's CTCN has been on my top list. Both in terms of inquiry requests and the conversion
rate of requests to orders.

I think there are two reasons for this list's quality: as traders these people survive by making decisions and
taking action; and most are free from bureaucratic constraints. And they are a collegial group; the
newsletter fosters a high level of give and take, so the people on the list are familiar and trusting of each
other. This kind of confidence goes a long way.

EUREKA (I've found it)

J. L. from Wimauma

Like E.T., I'm back! I'm the guy who wrote that he didn't want to screw up his life by making $100,000
next year. Well, that still applies, but I really needed to replace the sagging income of a 60-yr. old piano
player. That wasn't going to take much. A 30-50% return on my risk capital would give me a raise! Well,
I'm here to tell you -- EUREKA!

From the beginning . . . Buying a stock is a typical investment. Right? You pay up, you get your piece of
paper. What do you pay for a futures contract? Answer. No more than your drawdown (if one develops).
Your margin deposit is sitting in your T-Bill making 5% (or it should be). It is not at risk (or no more than
your house and wife are at risk) unless you are so undercapitalized that you shouldn't be trading at all.

That deposit is returned to you - win, lose or draw. Stupid me! I thought that's what a deposit was! My
conclusion, I need a 50%+ return on my maximum drawdown - not my margin (or a multiple thereof). But
not so fast. Isn't my actual drawdown over the term of the trade approximately 1/2 of my maximum
drawdown? It certainly isn't the max., except for just a second. Hmmm. That 50% return is a lot more
attainable now and still beats the pants off of any "return on margin" scheme.

After all, isn't my drawdown really my capital "at risk" and isn't any other method of figuring a "return"
meaningless? And if I'm right, why haven't the experts told me this in 15-years or are they still just "drips
under pressure?"

Having established that to my satisfaction, it suddenly hit me! As in life, 95% of what I've learned is
wrong! Haven't the experts shown us that they don't know where the market is going either? A coin-flip
should give you 50-50 odds; they are proud of 40% winners! I didn't get the message when my first and
best broker would say, "Don't ask me what silver is going to do. I don't know what silver is going to do."

Instead I switched to a broker who always knew what silver was going to do. And after I had lost enough
money with him, I decided that I myself could know what silver was going to do! Sound familiar, anyone?
My advice . . . speculation is great fun just so long as you don't do it with your money! (Try the weather or
what your wife might be thinking).

If Larry Williams said he wouldn't divulge his best system, I now know the feeling. What I am doing now
will meet my goals and then some with the biggest risk being that I might stop doing it! If it sounds like
scale trading, I don't have that much patience either, but Robert Wiest's book really put me on the right
road.

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 Indicators, back-testing, work-stations, buying someone else's system, advisories, etc., in the words of the
anonymous trader, are all crap now. Give me bar charts, intraday charting (delayed OK) and my discount
broker. My rules fit on the back of an envelope (like any good system should). Bottom line . . . I don't know
or care if the market is going up or down tomorrow. I make good money either way! (No, it's not options
either). Just one more hint. Any damn fool can see that if you buy anything with intrinsic value cheap
enough and have the money to hold it long enough, you will eventually make a profit! And "long enough"
sure isn't very long in commodities!

I'm really trying to say that 15-years of trying to learn to forecast the twists and turns of the market was a
fool's quest. I now leave all that to the computer buffs and the commodity cowboys (you know, the "instant
gratification crowd"). If it weren't for them, there wouldn't be any corrections to buy! I should know. Lord
knows, I've done my share. I too have been trying to outguess "God!" And thank you God for making all
that unnecessary! The question remains. Would you rather be "right" (sometimes) or do you want to make
money? Be honest now. I just took the "fun" out of my own trading, but doing that has been more fun than
I've had in 15-years! Here's to a million in 6-years! (You know that hogs got slaughtered). Nuff said! Good
trading! Or to be more accurate, Good investing!

Successful Traders "Trade What They See On The Charts" - Bill Donnally

Am wrestling with indecisiveness and fears: trying to decide to retire and trade full-time!

I wonder what percentage of traders are actually successful in today's markets. Apparently, each of us
seems to feel that the "90+%" failure rate statistic will not apply to us! Hopefully we are different from
most of the diverse, whimsical and typically irrational trading public including the majority of the big
commodity funds, whose average trading record has been poor.

I believe that the few successful traders are those who have the courage and independent conviction to
"trade what they see" on the charts, and from their perception of fundamentals. The school of "hard
knocks" has taught this minority to take responsibility for their own actions; they must ultimately rely on
themselves -- we have to find and trade the uniquely compatible approach that works for us as individuals.

I avoid computerized trading system programs sold by self-proclaimed experts. Market

behavior/composition changes. However, I do read books on trading to see what might be of value to
augment my view of the trading universe.

Believe that since the some market characteristics such as behavior of momentum-based oscillators tend to
persist over the short-term, one can exploit these characteristics provided one trades with discretion -- after
all, the word 'speculation' comes from the Latin "specular" meaning to observe; i.e., you must trade the
market patterns you can see in the markets, not what someone else says they see or have concluded by
computer back-testing, etc.

I must credit Joe Ross for the very important teaching: "trade what you see." At first this idea may seem
trivial, but it's the foundation of successful trading/speculation -- most people indeed tend to trade what
somebody else says they should see.

I've been using FutureLink satellite data feed for position trading for a few years now. A plus is that
snapshot quotes are transmitted for most US futures markets every 10-minutes with no added delay (quasi -
real-time). As you might expect, NY markets are delayed 30-minutes.

Understand FutureLink intraday data sample snapshots originate from "FutureSource, " which is a real-time
data service. Unfortunately, my FutureLink software has no capability for downloading these 10-minute
interval snapshot/updates; the software is intended only for updating your charts on an "end-of-day" basis:
i.e., daily Open, High, Low, Close.

541
Daily, Weekly and Monthly Charts with additional data fields for volume and open-interest can be exported
for use by MetaStock, SuperCharts, and other analysis programs (at this point in time, I much prefer
SuperCharts to MetaStock -- reasons for this preference might be discussed in a future article to CTCN).
FutureLink includes FWN (OnLine Futures World News wire) which provides market news stories.

My perception is that practically all significant market moves get under way prior to the respective
FutureLink FWN news release; news stores typically provide a rationale why the market jump/change has
occurred. Perhaps of greater value to position trader is weekly KR-CRB "Blue Sheet" Futures Market
Service (sent by mail).

The recent move by Corn to record highs was clearly and unambiguously indicated/forecasted well in
advance by the "Blue Sheet" with ample supporting data and explanations such as bar charts showing world
grain stocks to usage in percent vs. year, supply deficits, the fact that China shifted from exporter to
importer of corn, ethanol production, domestic feed grain use and the poor shape of the Kansas crop, etc.

I feel you don't have to be an agricultural expert to successfully interpret the "Blue Sheet" -- the
fundamentals are generally clearly covered (of course, acts of nature like crop freezes may not be
anticipated).

However, perhaps you should devise and use your own market timing/entry strategy [not the specific entry
strategy recommended by the Blue Sheet] since market price dynamics in the short-term often seem to
ignore such fundamentals - there's a lot of strategic 'manipulation' of markets by the big players in the
short-term -- e.g., ever notice how daily price will often move down with relatively low volume just before
a big up-move?

A book I consider essential reading for traders is "Winner Take All" by William R. Gallacher (revised 1994
edition by Probus Publishing). This book is a very entertaining "tell it like it is" expose of charlatans and
puts light on popular misconceptions.

One point I got out of this book was that position traders should not ignore fundamentals -- indeed, strong
fundamentals like those reported for corn could very well be the basis for only taking long positions earlier
this year.

Another thing, one might consider using closer protective stops with a willingness to re-enter after being
stopped out - this could mean calls to your broker for quotes during the day, or at least get back in a day or
so when price moves in the original direction again (you are responsible for the criteria of determining what
market action may constitute a trend resumption, etc. -- life is not easy).

Comment about the Commodex Service: Are you familiar with the Commodex System? Intriguing. It is
said that most big commodity fund managers subscribe to this service. It's a very popular 30+year old
mechanical system for position trading of US-exchange futures. The Commodex service sends daily trade
signals by mail, FAX or modem.

On average, this mechanical system has about 30%-35% winners, but reportedly catches all the big moves;
losses on most loosing trades apparently tend to be relatively small. Like most moving average-based
systems, repetitive losses occur when markets are in narrow trading ranges (too often for my comfort
level).

The Commodex system has evidently averaged over 100% profit every year for thirty years - the worst year
was a 30% drawdown and the best year was like 500% or more - don't have all the figures in front of me).
A $250K account is suggested in order to trade roughly all the 90 or so positions, (signals generated for
about 30 different commodities in the 3 or so leading contract months).

Of more interest to ordinary humans, Commodex has also recommend a small portfolio (5 or so
commodities) which has ("historically") yielded on average around 100% profit per year, that is, around

542
$15K to $20K annual profit for the small $15-20K account! -- my opinion is that the account size for the 5
commodities should be much bigger from a money management viewpoint, but so far they haven't bombed
out).

In the brief time that I subscribed to Commodex, it really seemed to work, and substantial profits appear to
be realistically attainable, even though Commodex signals/scores are calculated and transmitted a day late
(exchange open-interest numbers are not available until the next day after a market closes). Often looking
at a chart, the Commodex system seems to signal a trade entry for no apparent reason and then the market
makes a big move. In my view, the system's major weakness seems to be that as much as _ of the open
equity profit is allowed to be lost before a successful trade is closed out -- the system sacrifices most of the
accumulated profits when the market moves against the trade.

On the surface, at least, it would appear that one should attempt to take losses more quickly and be willing
to immediately re-enter, if and when the market resumes the trend (life is not easy)! The idea would be to
use the Commodex service for entry signals and then use your own support/resistance based strategies to
exit trades.

Back in Aug 1992, I subscribed for 3-months to Commodex (special offer). A year or two ago I went
through the stack of about 65 each 8"x14" trade summary sheet mailings (a Commodex summary sheet was
mailed each trading day during the 3-month subscription period). For that 3-month period about 34% of the
trades were winners, and the system made a profit mainly due to big currency wins.

Since then I attempted to program (strictly for my own amusement only) at least a good approximation of
what I understood the Commodex system "rules" were, using SuperCharts "easy language" and most often,
obtained pretty much the same values for the Commodex system "daily" and "trend" indices which are used
as triggers to enter and exit trades.

I believe most of the differences between the Commodex entry and exit points and my program was due to
very small, but often surprisingly significant, differences in volume and open interest that was transmitted
by my data service and whatever exchange data sources that Commodex uses.

Last year I called the Commodex service in New Jersey and was told that for $80 one can order a list of
Commodex trade entries and exits covering a period of one year (unfortunately, this yearly list does not
include Commodex's calculated "daily" and "trend" indices).

I prefer to trade my own ideas, but one can subscribe to a daily Commodex FAX service, Computer modem
transmission, or daily mailings for 3, 6 or 12-months.

It seems contradictory to "common sense" Commodex, a well-known, fully disclosed, system readily
available to everyone, including the big fund managers, can indeed generate greater than 100% profits for
most years consistently for the last 30-years! Performance has been even better during recent 9-years. How
can this be? Seems incredible! If there's an illusion or misconception here, I would like to hear about it.

About Advisors and the Competition - Don McCullough

There may be more poor advice about the markets than on any other subject. Without question, the
advisory business is and has been very Iucrative for many hypsters, mediocre and failed traders. Most of
these people know much more than the general public and I'm sure they think: "Why let all of my
knowledge and efforts go to waste?" Next thing you know they're writing a book or newsletter, or speaking
at a seminar or selling their super-duper system.

Looking back, I'm sure many of us wonder why we didn't, at the start, aggressively question the difference
between advisors, hypsters and genuinely good traders--and which was most likely to have the best
answers. Now, it seems so obvious to me that a tremendous amount of worthless information would have to

543
exist in the market advisory business. The "easy fix" for big money has always and will always be tempting
to the general public. Supply and demand you know!

I think even the best trading knowledge in the world can only be acted on consistently and confidently by
the person who has spent the time and effort needed to become fully convinced of the validity of this
knowledge. (I stress the word fully)! That may require 1000's of hours or years of study. Think about this.
People are usually being offered what amounts to a "black box" and they're expected to trust it and keep
trading it consistently after several losses in a row. That appears to me to be just about impossible. (I'm
saying whether fully explained or not most purchased systems will not instill adequate confidence in the
mind of the purchaser).

Competing against the pros requires more than mere knowledge. Professional traders have the experience
of acting properly with their knowledge in the frightening, loss taking world of real trading in the real
markets. They have proven themselves to themselves. This gives them great, performance enhancing, self-
confidence.

A person may know how to hold the bat and swing at the ball, they may know everything there is to know
about playing baseball -- but they're still a long way from being an experienced, professional ball player. As
one pro trader said about the markets: "This is the major leagues!"

I think it takes years for the typical person to acquire the needed knowledge, and even more years to
acquire the needed psychology. Another huge advantage many pros have over most of us is this: They
learned from top, proven professionals -- person to person! This is a tremendous advantage!

I can easily imagine the better pros laughing at most of the books amateurs and book publisher are raving
about! (I now look at about 120 of my 130 books about the markets and think: "What a waste of money,
time and effort!" Not only a waste from a learning, but also from an "unearning" standpoint).

If you'll study the few books that contain strictly top professional advice (there's about 10 such books I'm
aware of) you'll find that most of these Market Wizards had help from professional traders -- person to
person.

Many of today's top pros who now trade from a screen spent years as floor traders. (Linda Raschke is one
of many). As you know, floor traders are, and have to be very good at executing many times each day.
Successful, consistent execution of a viable methodology is often a significant obstacle to trading success.
The experience, and the quality of the experience, acquired by the better pros gives them a great advantage
over the typical trader!

Most of the better pros have never and will never be writing books, speaking at seminars or selling systems
-- or teaching "students." The typical trader's ignorance and poor psychology, or unwillingness to "pay the
price," is money -- tons of it -- in their pocket!

Large pro traders need lots of people doing the wrong thing at the wrong time. Such people provide the
liquidity needed for the pro (with his huge multi-contract position) to "dump" into and "load-up" from.
Without this liquidity he will not get the best price, entering or exiting. He will instead, drive the price
against himself.

Above all, a professorial trader can take losses and still maintain confidence in themselves and their
signals. The pro has (totally!) accepted losses as a natural part of the trading process. Assuming correct
knowledge, my definition of a pro trader is: When you can take losses calmly and keep on trading -- you're
a trader! That's the professional trading psychology to strive for.

The Holy Grail - Don McCullough

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Its been said, over and over again that there's no Holy Grail when it comes to trading advice or systems. If
by Holy Grail they mean a system that gives 100% correct signals, then I'd agree there is no Holy Grail. If,
however, you'll view the statement in a less exacting manner and settle for 95% plus correct signals, I'd
then be forced to admit that The Holy Grail does indeed exist!

In the great book, Market Wizards by Jack Schwager, you'll find an interview with Mark Weinstein. Mark
tells the author he's had only 3 losing days in the last 2-years out of thousands of trades he's made during
that time. Mark also says he entered a 3-month contest and had 100% winning trades. A mutual friend
confirms Mark is telling the truth about his fantastic winning percentage. Jack states that Mark must have a
winning % around 99%. I think that's close enough to merit a Holy Grail rating, don't you?

Editor's Note: I have known about Mark Weinstein's truly incredible and amazing claims made in the first
book some years ago. Apparently Jack Schwager and others are convinced his almost 100% success rate is
true. However, your editor and some others find his percentage of profitable trade figures extremely hard to
believe.

It's really incredible anyone could only have 3 losing trades out of thousands over 2-years. If these claims
are correct, it seems to me he could put his trading method down in black and white and easily sell it for
hundreds of thousands, if not millions of dollars, per copy. Why wouldn't he do this?

He would become even more famous and make millions of dollars and still be able to trade the method
himself. Since he could charge vast sums of money per copy, it would result in a relatively speaking small
number of actual sales and be very unlikely its performance would degrade due to overuse!

It's very hard to believe a trader could have a system almost 100% profitable and yet be relatively obscure
like Weinstein. We challenge Mark to backup his amazing claims with copies of all his monthly brokerage
account statements covering the 2-year period.

P.S. - Don't be fooled by seminar and trading system people who will only give you daily broker
statements. Occasional daily statements are basically worthless if using them to backup a trading system's
profit claims. There are several vendors out there who will only give you sporadic daily statements or
perhaps an occasional monthly statement . . . non-continuous.

The above mentioned book also contains an interview with Marty Schwartz. Marty, as you may recall from
one of my previous articles, is said to make between $300,000 and $500,000 a month (Yes, per month)
trading the S&P market. A friend of Marty's told him he didn't think anyone could make $40,000 a month
trading options. Marty says he can now do that in a day without any problem. Marty says he's proud of his
futures trading because he took $40,000 and built it up to around $20 million with a maximum drawdown
of only 3 percent.

In 9 out of 10 trading contests Marty entered he made more money than all the other contestants combined!
I have no idea what percentage of Marty's trades are correct, but I don't need to. To me his method --
whatever it is deserves a Holy Grail rating.

Editor's Note: Marty, these alleged claims are incredible and to be perfectly frank with you, very hard to
believe! I also challenge you to submit your own continuous monthly statements to us for verification?

Another outstanding book by the same author contains an interview with Linda Bradford Raschke. The title
of this book is, The New Market Wizards. Linda tells the author that she has about 70% winners. I wouldn't
consider this deserving of a Holy Grail rating but it's plenty good enough. From all the reading I've done
this percentage seems to be about maximum for most professional traders. Some professionals make large
amounts of money with only 40-50% winners. They do this by being able to ride their winners and getting
rid of their losers, fast! Definitely easier said than done.

Market literature contains several myths. To me, there is a Holy Grail and some of the very best
professional traders have found it! Not too many years ago all of the books were saying that it was

545
 impossible to day trade successfully. Now, of course, we know that's total nonsense. I can easily imagine
many professional day traders during that era laughing at authors of such books.

I'll bet they are still laughing about many so-called truths many people now believe to be "Gospel."

Another myth that was quite popular a few years back was that charts, chartists and charting were all a
bunch of baloney. Or, it's all right to give a glance or two at a chart, but the real answers are in the
fundamentals. I can just see nearly all of those fundamentalists saying the markets gotta do this or that and
losing their tail-ends as a result! When you say gotta you ain't flexible and if you ain't flexible you ain't no
trader. The gotta is, you gotta go broke with a rigid mind. One of the Market Wizards calls the
fundamentals the "funnymentals." It's all right to "make sense" of the markets but I think it's best if it's
unconventional common sense.

I believe many people who attempt trading would fit the saying: "They know just enough to get themselves
into trouble." When I hear about people who take 23 losses in a row I can barely believe it. A system that
produces 23 losses in a row does not deserve being called a system. It's a catastrophe! How people can
believe that "hanging in there" with such a system is the right thing to do is beyond me! I don't believe any
truly viable system would have more than 3-4 losses in a row, and that many losses in a row would be very
rare.

One of the most common myths many traders now have is thinking that with a great system testing
program their computers are going to make them millions. Perhaps they should question whether a
computer is capable of finding the best answers to the markets.

Seems that many people are dedicated to making the search for a viable system as complex as possible.
Maybe the search means more to them than profits from the market? My choice is the computer between
my ears, charts, a creative mind and long hours.

Aloha John P. Meehan - Duane Barnhart

Thanks for your insightful article. Read with keen interest and empathy after arriving at similar deductions
during 8-years trading.

Your few copies of Matlock's "Man & Cosmos" are probably off to those more swift of foot, phone or fax.
But if you still have one, I would like to read & pass it on to other traders.

Your article is especially timely. I have been asked by three friends to consider trading their accounts or
teach them how. Your article will help and enable explaining my reservations. Our friendship is far more
valuable than any money they could make or loose.

You may have read my first article posted on page 33 in the last issue. I look forward to reading more
articles from you and RFK. His work will enable bringing my CPA up to speed and on track with how to
handle gains and losses. We are fortunate to have CTCN to exchange valuable information like this.

Your Latin quotes also timely. My wife and daughter are in Athens, Greece on a Latin class expedition
with Punahou School 7 & 8th graders.

All About Probabilities & Percentage of Wins - Donald Turnbull

From your comments about my 3/22/96 letter, it is abundantly clear that the letter was not well composed.
To begin with, I did not suggest that all commodity trades have a 50% probability of success. It depends on
who selects the trades.

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 I chose 50% for my example because Morry Markovitz [Trading With Morry, 201-794-1221) claims that
"over half of his trade recommendations are winners." Any one of his recommendations, then has a 50%+
probability of success.

He also says that the average commodity trader makes profits on one out of every four trades. Thus, any
one trade would have a 25% probability of success.

Morry also says that the top one percent of traders (mostly professionals) make profits on one out of three
trades, for an average rate of 33% successes.

As far as probability is concerned, it is always true of a dichotomous population that the probability of
failure is 1 - the probability of success. This is a simplification of real life, because as we all know, it is
possible for one person to make a profit while another person experiences a loss on the same trade. Thus
the population is not truly dichotomous.

I was unwise to choose the 50% success rate because the failure rate is the same and it's not clear, in a
mathematical formula, which is being used.

The next principle of probability to be understood is that if the probability of one event is "p," then the
probability of one event or another with the same probability is p + p or 2p. The probability of one event
and another of the same probability is p x p, or p squared.

Now, let us reword my example using the 33% success rate. The probability of failure must be 1 - .31=.67.
The probability of two failures is .67 x .67=.449 or 50%. The probability of five failures in five trades is .67
x .67 x .67 x .67 x .67=.135. or 13½%. The probability of four failures is .67 x .67 x .67 x .67=.20 or 20%.

The probability of at least one success, then must be 1 - .2=.8 or 80%. This assumes, of course, that the
person choosing the trades is among the top 1% of traders in the country. However, even among the top 1%
of advisors there is a 13½% chance of having 5 losers in a row. There is also a 2% chance of having 10
losers in a row. (.67)

Suppose there are 250,000 traders in the country. There will be 2,500 of them in the top 1%. Of these
2,500, about 50 will experience 10 losses in a row. This is the luck of the game.

The point of my example was to show, with numbers, that the probability of success is much higher with a
multitude of trades and tight stops, so that the few winners make more money than is lost by the many
losers. However, all you can do is put the odds on your side. There is never a guarantee.

You mention in your comments, that some trading advisors claim a 60% or 70% (or even better) rate of
successes. I would guess that these advisors are whistling Dixie. In March, I had two winners in a row.
Does this mean that I have a 100% success rate? I did in March, but it is the long run that counts.

If The Recommended Trade Wouldn't Work...Why Did It Work! - Bob McGovern

I read with interest the anonymous letter written by "PEP" regarding why the NOB spreads I recommended
in December wouldn't work. "PEP" obviously spent a lot of time working on the letter, and I want to thank
him for the enlightenment.

Since "PEP" explained so well that the NOB wouldn't work, would it be inappropriate to ask him why the
NOB spreads did work. The March NOB narrowed from 220 in January to around 100 in the March and the
June NOB narrowed from 225 in January to 22 at present!

See Spread Scope charts of the March and June NOB for your review:

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 (Note: Charts are in our print newsletter, not here on online)

A "Library" Is A Good Idea - Phil Baker

I like the idea of having a library for members. Members can borrow books, software, systems, etc., so we
can see if it is something we would want to buy.

There should be a time limit of 2 to 4 weeks for borrowing items and returning them.

I think it would help sell vendors' items in the long run, because I would personally never buy a $2,000 to
$5,000 system from an advertisement, but if I borrowed it and liked it, I definitely would order it as soon as
I could.

If needed I would try to help get the library going. I have 10 to 15 books people could borrow. I'm a farmer
and we borrow and use equipment all the time, so we will know what kind of equipment we like and need
to buy for our farm. It definitely helps sell farm equipment.

We need feedback from members about setting this library up.

Market Timing Group - Steve Kelson

This is in response to the letter by "Anonymous GK" which appeared in the last issue of your publication.

Because we strive to provide the best in personalized instruction, we were stunned by apparent
shortcomings in our training with this person. I sincerely hope that you will publish this letter so that
"Anonymous GK" will learn of our most sincere desire to help correct several obvious misunderstandings
in the proper use of our system. GK never notified us of any problems or dissatisfaction with the system. I
will spend whatever time necessary to work with and help produce profitable trades for this person.

This person stated that the system was bought about a year ago and used for 3-months which resulted in
three, maybe four losing trades. During a full 3-month period our system will normally signal at least 20
profitable trading opportunities, monitoring seven to eight markets. This comment alone is what leads me
to believe this trader is not applying our formula correctly. I believe most traders will agree that losing on
only 3 or 4 trades during a 3-month period is hardly justification for severe condemnation of any system.
Coincidentally, I received a call last Friday from a customer who, in the last 3-weeks, tripled his account
using this same system taught to GK.

This customer is a doctor specializing in radiology. Since many people may have a hard time imagining
this, (nobody believes system vendors anymore). I will give his personal phone number to anyone
interested in verifying this. For the record, he found the sell signal in the S&P starting 7/2, long D Marks
7/9 and 7/15, long Beans 7/8 (plus a few others I don't recall).

People in the public eye are misquoted on occasion. One year ago, due to urgent family obligations, I was
forced to spend less time at my office and attend to other business interests for a short period of time. I
recall sharing this with a few customers, but stressed we were always available during regularly scheduled
hours to be available for training. Let me clear up an issue in the letter which included several
misstatements. I am the President of Market Timing Group and spend full-time trading, studying and
researching the markets to develop a technique to forecast market direction. The system has been slightly
enhanced twice and we are continually testing new ideas. The bottom line: We have many users who have
made lots of money using our system.

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 I will give any member of CTCN the following guarantee: If you are fully trained in using our system, we
will unconditionally guarantee ours to be the most accurate system in the world. Since our technique works
in every market including stocks, (and also all time frames) compare the results of ours to any system you
have now. No matter if your system ranks in the top ten in Futures Truth, we assure you, you will have
better results with ours. If you can prove to us you own a system that is more accurate than ours in
forecasting market reversal days, and overall more profitable, we will refund your training fee. Obviously,
a valid comparison over a reasonable period of time must be made, over a variety of markets. Stops of
comparable size should be used. If your system risks $600 to $800 and ours risks $250 to $400, this would
not be a fair comparison.

Why would we offer a comparison guarantee against any system available? First of all, only two or three
other systems could even stand a chance of winning such a bet. Secondly, this offer tells the customer they
have no risk in trying our system, even if you have a great system now. (Besides, we know our competition.
There's very little available that trades as claimed).

Our mission as a company is to provide the finest personalized training in the trading system industry. We
feel obligated to retrain GK at no additional expense. The impression from my notes on anyone resembling
these initials, is that this person only kept two of his four training session appointments, as I have attempted
to reach him from my customer files and notes. At any rate, it is clear he needs more sessions to review the
mechanics. The offer of additional training is extended to all CTCN subscribers. You can reach us at 1-800-
727 7306. I thank you for bringing this matter to my attention.

Judo and Trading - Dan Wu

While scanning through the TV guide for the Olympic games, I noticed one of the events is Judo. An idea
came to me for trading at that moment. Why not have a belt system in trading just like in Judo for traders?
The following is a proposal for this belt system in trading:

Red Belt (Level 1) - You blew out your account and owe $$$. You now work as a full service broker
advising clients on how not to blow out their accounts. If you save enough money and get to trade again,
you would be very happy if you become a break-even trader. The belt color is red because you are in the
RED!

White Belt (Level 0) - At this level, you have both good and bad news. The good news is that you are very
consistent. The bad news is that you lose money consistently. If things don't change soon, you will be
demoted to red belt. You dream of being a millionaire in no time at this level. The belt color is white
because white is a pure color. A color of innocence (an euphemism for you don't know what the heck is
going on). It is the same color as sheep and you act like sheep sometimes. Some characteristics of sheep
are:
lSheep are followers
lSheep can be taken advantage of easily, especially with "wolf in sheep's clothing."

Blue (Level 1) - Congratulations, you now have enough wins and losses to sort of break even most of the
time. You are a break-even trader! The belt color is blue because you keep holding your breath every time
you trade. The reason you hold your breath is because any one of the trades you make can break you, and
you won't be a break-even trader any more.

Black (Level 2) - At this level you are consistently making some money. You don't make enough money to
live on, but you are at least in the positive. Anyway, at this level you are really glad to be able to pay taxes
since that means you are making money. The belt color is black because you are consistently in the black!

Green (Level 3) - You start to make enough money to make a halfway decent living. Now paying taxes
starts to bug you a little, because you would have made a decent living instead of a halfway decent living if
you didn't have to pay taxes. The belt color is Green because it is the color of money!

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Yellow (Level 4) - You start to make a very good living (even after you paid your taxes) trading. Actually
you are unemployed since you quite your job. But you don't care about being unemployed, since you are
making so much money trading at this level that you don't care how much you pay in taxes.

Stock Market Decennial and Election Year Cycles - Robert Miner

A lot has been published this year regarding the so-called Decennial and Election Year cycles. Several
publications have shown composites of each of these cycles which seem to project a stock market top in
1996 or 1997 followed by a decline to 1998 or later. These so-called composite cycles are simply statistical
averages of the percentage price change of up and down closes for their respective years since the turn of
the century.

Traders and investors should be very careful of giving credence to any analysis that relies on averages
without being fully aware of all of the data that generates the average. For the most part, averages have
very little value to traders and investors. A graph of the Decennial composite cycle shows the 7th year of a
decade as a down year. Yet, since the 1890's, five 7th-years have closed up and five have closed down.

In other words, there has been no bias what-so-ever in almost 100 years for a 7th year to be an up or down
year. The decennial composite cycle always shows a 7th year as a down year because those years that
closed down did so by a greater average percent than those that closed up which results in showing the
average close of 7th years as a negative number. Statistics don't lie. But, they can be very misleading when
the whole story is not told.

A comprehensive analysis of election year statistics is very valuable. Since 1952, only one election year has
closed below the close of the prior year. That was in 1960. Even more revealing, and profitable, is that the
Dec. close of each election year since 1952 has been higher than the preceding May close in every year!
The May 1996 close was very near the May 24 high. If we crunch a few other election year numbers we
would find that if 1996 performed by the absolute minimum amount of all election years since 1952, the
May high should be exceeded in the fourth quarter of 1996. Average statistical projections place the 1996
high for the S&P 500 at 730 or higher.

Do you know how many post-election years made new highs and closed higher than the prior election-
year? How many post-election years exceeded the election year low? Take a little time. Check this out for
yourself. You may be surprised.

How does the bull market that began with the 1974 low compare to prior super bull markets like those that
began in Aug. 1896 and July 1932?

Ignore the fundamental and traditional technical analysis drivel that we are all bombarded with and check
the data out yourself. The media and most newsletter advisors generally provide very misleading,
incomplete and poorly researched information. Probably not intentionally. It simply doesn't pay them to do
the necessary work to provide accurate information. They know the public will forget their analysis and
forecasts in a matter of weeks.

In light of the stock market volatility in July and projections for "super-cycle tops no later than July" and
other non-market, non-data driven forecasts and panic reactions to short-term events, traders and investors
may want to consider taking the time to make a rational and comprehensive look at historical, market
activity themselves. I have been lucky. Over a decade ago my most influential teacher of market analysis
and trading, Dr. Gerald Baumring who has since passed away, taught me to not only look at the market
from radical new perspectives, but to prove everything out myself.

When I see graphs of the Decennial and Election Cycle that provide a very misleading picture of the stock
market during these periods, all that I can do is hope that traders examine the data themselves and come to

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their own conclusions. If it is your money on the line, be very careful of the source of your decision-making
information. Check the data out yourself before accepting any conclusions.

I have learned to take nothing for granted and to take the time to check all of the data out for myself. Not
only because I provide an advisory service for traders and investors, but because I have my own money on
the line as well.

Tick Player S&P Simulation Program - Tom Schlobohm

Here is my tick player/S&P simulation (at almost real time).

First, some history. Like many CTCN readers, I'm sure, I was motivated by the anonymous trader to pursue
a day trading endeavor into the S&P's. It went without much reasoning that real-time quotes were a
prohibitively expensive way to learn how to daytrade or at least just experience real-time trading.

With the foregoing as my motivation, I set out to quickly (ha, ha) build a tool that would simply play back
ticks at almost real-time. All I wanted to see were the ticks being painted at either a 3, 5, or 15-minute basis
with Keltner bands and key reversal lows and highs labeled accordingly. I think I succeeded. I even went a
bit farther and stuck in the RSI on top of the price bars and Keltner channels.

The program runs the simulation at just a few percent slower than real-time. The program requires one day
of historical data, preceding the actual day of tick data which gets played back (at almost) real-time. The
two data files which I refer to as "historical" and "tick" data are of standard ASCII format. They are most
readily generated by SuperCharts/TradeStation and Tick Data Inc's. software.

I have enclosed one sample day, 9/6/94, to view the simulation. Of necessity, the preceding day, September
2, is also included in 5-minute format. The data of September 6 must also be played back as 5-minute bars.
This can vary per the user's discretion, but my enclosed historical data file was generated on a 5-minute
basis.

The historical data file is created by the Chart Status tool (in Supercharts and Tradestation) with the Send to
File - option. Of course, the chart window must contain the appropriate one day of historical data of
interest. As you will see, the ASCII file that is generated by Omega's software could also be generated by
anybody who can operate an ASCII-capable file editor and has the intraday data.

The tick data file is created by Tick Data Inc's. TS.EXE program dated 6/8/94. Basically, once the desired
day of the simulation is chosen, the user sends the output to a file (labeled in the program as ASCII) and the
resulting data file is used verbatim.

At the time I was working on this simulation, one problem existed with Tick Data's program. Basically, the
ASCII file output option did not work property (The tick data did not include the exact second of the time
of day of the trade.

The hour and minute of the time of day were there, but not the seconds - useless for what I was after).
When Output was directed to a printer, it worked fine (the printer's output DID include the exact hour,
minute, and second of the day of the trade).

To circumvent the problem, I used a shareware utility, PRN2FILE.COM to redirect my printer's output to
an ASCII file. This works perfectly, but it is a bit confusing to the uninitiated. Hopefully, their bug is now
history and the TS.EXE program's ASCII output option works . . . but I have not confirmed that! Anyway,
a convoluted solution does exist if their software is not fixed.

Sorry for the preceding confusion, but those are the facts as I know them and the resulting constraints that I
worked with to reach my solution.

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 The software is very much a tool and not a commercial quality product. It is meant to train neophyte
cheapie traders, like myself, who want to experience real-time tick data.

There are at least two known bugs that I have not taken the time to fix. The first problem occurs when a
new high or new low is made. The price axis scaling is not working property. The scale is not correct until
the next price bar is painted, so it can start to look kind of weird under those circumstances. Unfortunately,
I cannot remember the second known bug! As I do recall, it was of a less serious nature than the previously
mentioned one.

When the program is run, it prompts the user for: 1. The time frame of the historical data, like 3-minute or
5-minute etc.; 2. the number of bars to display on the screen at any one time; 3. the previous day's historical
data file name and; 4. the simulation day's tick data file name.

The Program then begins by calculating the historical Keltners, key reversals, and RSI. Next, the screen is
graphically Painted and the real-time ticks get played off the PC's timer.

The only interaction the user has with the software is the movement of the numeric keypad arrow keys (left
and right, only). These keys move a green vertical cursor (line) beneath the respective historical price bars.
As tick data becomes price bars, those too may be examined by the cursor.

The data at the bottom of the screen basically yields two lines of data. The line of yellow numbers are the
real-time price bars (time of tick, tick, open, high and low) and the Keltner channels and RSI. The second
line of numbers in white and other colors represent the same (previously mentioned) values as indicated by
the location of the cursor. It's all rather simple.

At present, I have hard wired the RSI to 14 bars and the Keltners to 9 bars with a 2.0 multiplier. Those
could be changed to inputs or hardwired to other values as well.

I think that covers the highlights (lowlights?) of my program. Let me know what you think. Be honest and
critical, but please bear in mind I will not have much time to make significant changes. I think it could be a
useful tool in the hands of some readers, but I just don't know. Please let me know what you think. If you
believe that it merits availability to readers, let's talk and see what arrangements need to be made to see that
it's a win/win situation for all parties involved.

Editor's Note: Tom's letter is published here so we may get feedback on his simulation program. Please
write, fax or e-mail your opinion on the value of this. Thank you.

Member Requests

Louis Cornell at 612-290-0754 will like to have answers to the following questions:
1. Are there ratings available for commodity brokers (concerning level of professionalism, integrity and
other criteria) anywhere in the US? 2. If the answer to question one is negative, then could anybody
recommend a few broker firms in the Twin Cities, MN matching the above mentioned criteria or anywhere
in the USA?

Dave Quiser would like to correspond with any reader who has taken the home study course by "The Craig
Stevens Company." Contact him at 120 N. Vermilion Dr., Cook, MN 55723 or phone 218-666-5242.

Cyrus S. Patel 416-392-4878 - I use SuperCharts for my technical analysis. I would appreciate help from
any trader on how to build continuous futures contracts in SuperCharts.

Jim at 816-795-7543 would like info/feedback from members who has taken Joe Ross courses.

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 A Member asks, how can I get a new binder for my Commodity Traders Club News issues? Editor's
Reply: Send a check or money order for $10 to CTCN. USA only - Canada add $4. No credit card or phone
orders. Our new binder is blue and has our name printed. It's 2" wide and will hold 2-yrs of CTCN. Order
yours today.

Werner Indergand asks: Please tell me if the "CSI/Trendx 37 market custom downloading portfolio" is still
available, including the 18-month continuous disk? At the time when the contracts automatically "rollover"
- how does it work with back-adjusting? Do I have to do this myself by "QuickTrieve"? or does it work out
itself? Is it possible to back-adjust close to close?

Editor's Reply: Yes, the 37 market CSI/TRENDX/CTCN portfolio is still available. It's actually now 100
markets and cost $22.95 mo., prepaid portfolio. I can sign you up for it if you want me to. Yes the 18-mos.
free data is still available from me. The rollover back-adjusting needs special software. Only my Swing
Catcher System has the ability to do it as far as I know. That Rollover Utility is included with the program
Yes close to close can be done also.

Editor Comments

On June 26 we called John Hill at Futures Truth to ask them if in fact the Anticipation System did have a
return of 3,934% over the past 12-months. They checked and advised it was a typo error in their
performance reports.

The actual return was significantly lower than they reported in error in their April/May 1996 issue.
Unfortunately, CTCN published this erroneous data in our last issue. At the time, we did not know it was
an error reported to us by FT. Please call FT direct at 1-704-697-0273 for more details and Anticipation
System's revised data.

A Questionnaire Page is also enclosed with this issue. We would greatly appreciate your completing the
questionnaire, including the comments section, and returning it to us in the enclosed envelope. The results
of the Questionnaire will help us deliver better products and services to help you on the road to successful
commodity futures trading. We will also publish the Questionnaire results in our next issue. Thank you in
advance for your help.

About the Futures Truth controversy. Please note there are several positive and supportive articles, along
with some negative articles about FT. With this fairly balanced coverage you should realize CTCN wants to
cover both the positives and negatives on all issues, including Futures Truth.

Unlike allegations made about a well-known competing commodity traders network type of newsletter, we
are not afraid to give full exposure to both sides of all issues and welcome all contributions, be it positive or
negative.

About CTC's Real Success Video Tape Trader Training Course. We still have some videos left on
successful day trading the S&P 500 market. In addition, our Real Success Tradestation compatible software
is also available without limits on the number of disks available. This unique software is perhaps the most
comprehensive and easiest-to-use Resistance and Support type of software available at any price. Please
refer to the enclosed Real Success Software flyer for additional details on CTC's own software program.

Thanks to everyone who has contributed knowledge to this issue of Commodity Traders Club News.
Without you it would not be possible.

Issue 34.

Miscellaneous Product Comments

Alvin Hilker

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I have thoroughly enjoyed every issue of CTCN. It is the only publication that "shoots from the hip." It's
hard to find information that is honest, direct and to the point.

It is common practice for someone to cry "foul" whenever someone else criticizes their product. I
personally think that if my product does what I say it will do, I would welcome all comments and criticism,
since I would have nothing to fear. It would seem obvious that a lot of the "Gurus" in the commodity
business have a lot to fear, judging by the numerous complaints you have been receiving. I am 100%
behind your honest format and hope that others will back you as I do. Don't change anything!

Regarding your questions on data-feeds: I currently use CSI (per CTC's recommendation). I have a
personal portfolio of 61 futures I collect as end-of-day data. I'm very pleased with their service and await
their new Unfair Advantage software.

The software I currently use is SuperCharts 2.1 and also SuperCharts 3.0. I use the former mostly as I can
write my own systems much like TradeStation. I find it more than adequate considering the cost of
TradeStation.

It was very deceptive of Omega Research to eliminate the programming capability from SuperCharts 3.0. I
would like to hear more from people that use and build their own systems in SuperCharts 2.1 or 2.0.

Editor's Note: Unfortunately, as a result of the changes made by Omega to the SuperCharts Editor, the
newer versions in some ways are less powerful than older versions. This applies to both programming
power and SC's ability to run third party software. In fact, CTC's own Real Success Software is not
compatible with the newer versions of SuperCharts. In addition, according to our programmer, there is no
way to rewrite the code so it works with newer SC versions due to the severe limits imposed by Omega on
their Editor capabilities.

I would like to hear from anyone who has studied Richard Donchian. His systems seem to have weathered
time very successfully.

I purchased an excellent package from Lars Kestner of LINK Financial that tested and compared 30
systems on 29 futures markets over 12-years of continuous contracts. I was very surprised to see the
results. It turned out in this case that Mr. Donchian had some pretty good ideas. I would also like to hear
from anyone who actively trades options and/or uses option software. I'm particularly interested in
information on OpCalc Professional and OptionVue.

I have another question I have not been able to properly answer. What system would readers recommend as
the best to build continuous contracts? Do you use C to O, O to O or C to C? How do you determine the
best day for rollover? Do you use First Notice Day, Last Notice Day or the day that Open Interest drops
below that of the next contract trading? Any help from other traders would be greatly appreciated.

Once again, I want to commend you on this excellent publication. Don't be swayed by "losers" threatening
action on a product that doesn't stand up to its billing. I for one am behind you and your (our) publication.

CTA Licensing

Robert Miner

The CFTC is soliciting comments to its interpretation of who should be required to be licensed as a
Commodity Trading Advisor (CTA).

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A file is available on the Internet that provides their position and where the public may reply. The file to
download is http://www.cftc.gov/tm/aug7ver.htm. I would strongly urge anyone who is interested in
maintaining the Constitutional right to free expression download this file and respond.

In brief, the CFTC's position is that anyone who publishes any information regarding futures trading should
be licensed and controlled by them. This is not limited to those who give specific trading advice, but
includes an author of a book or report that describes futures trading as a possible approach. It would not
only include system developers, but anyone who sold any technical analysis software program.

As I read through this document I kept asking myself, "What American citizen with any respect for our
Constitution could be a part of this?" Download and read the document yourself and see if you are not
equally outraged. If you are, respond. If you are in any way involved in the futures industry such as a
newsletter publisher or contributor, software developer, system developer, trading advisor, etc., this
information is directly and dramatically relevant to you.

If you are a consumer and do not want the information flow regulated by an industry agency, get the file
and respond now.

Comments must be received by October 15, so download the file immediately.

The Answer For Me Is Mutual Funds - Gilbert Lasky

I have been studying/investing/trading the financial markets for 30-years and have a fairly substantial
account. I am, however, a classic "individual retail investor" and as such am subject to the unreliable
vagaries of the information available about individual companies.

Fifteen years ago I decided it was futile to attempt to pick the "best" stocks/bonds out of thousands
available -- and then to stay on top of each change in the management, earnings and other fortunes or
misfortunes of the companies invested in.

I'm a professional man and I don't have time.

The answer for me is mutual funds -- which I have been trading for about 15-years with excellent results.
With the computer programs that have been developed in the last few years, the analysis of fund relative
strength is much easier. And more important, the management of some of the consistent funds is
dependably superb. Their professional analysts not only search out the "best" individual companies, but
they monitor them by staying in personal touch with management.

I as an individual investor would never get the attention from management that an analyst from a mutual
fund gets. The information he/she gets is likely to be accurate, because no public company wants to get a
reputation for being anything but forthright with fund analysts and managers.

Though funds are not short-term trading vehicles, they are superb for intermediate trend position traders.
Further, 50% margin in available and many funds carry no commission costs when traded through certain
discount brokers. You can even short the market with some special funds.

Everyone knows you should trade with the trend. I believe the intermediate trend is much easier to identify
and follow than short-term trends.

I realize that your publication is devoted to commodity trading, but for those of us who use technical
analysis to identify trends and strong funds, the information contained in your publication is interesting and
useful.

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Editor's Note: Our members primarily use futures for speculation purposes, rather than for long-term
investing. However, it is believed our average member has far more money invested in stocks and mutual
funds than in their commodity accounts. Also, as mentioned by Gilbert, many of our articles and trading
techniques are applicable to both commodities and equities.

The same fundamental rules apply to all varieties of securities trading: trade with the trend; manage your
funds properly; cut your losses if you're wrong on the trend.

The amazing thing that I've learned about technical analysis over the years is that the simplest indicators
and systems are the most consistently profitable. For example, a lot of money can be made by simply
trading off a simple trendline set at 45 degrees on a chart. You may enter and exit a little late, but if you
take the signals, you'll make money over time. I enjoy your publication. Keep up the good work.

An All Too Familiar Story

T. Judd

First of all I would like to say that I think this forum is both educational and entertaining. It provides a
much needed service to people trying to struggle through the process of trading successfully. There are
many more pitfalls and gremlins than I ever realized. Whether its help with your psyche or the technical
aspects of trading, it can be found here.

My situation fits a common stereotype. I started with futures options after reading several books. I came to
the conclusion that futures trading was better than stocks because of the inherent value of the particular
future, i.e., so many bushels of corn would likely have some tangible value. In addition, there was a huge
leverage factor.

I chose options since it appeared to me to further limit the risk and augment the leverage. This particular
plan might have worked well if I had been more cautious and less over confident with initial successes. If
something can happen, it will happen at some point. I was armed with OptionView, MetaStock and Signal.
I was done in with a ratio spread. I had sold more options than I owned. Coffee went to a 10-year high.

I then took a break while I read more books. I discovered Scale Trading. This seemed absolutely the way to
go. Again I was very successful initially, racking up more than 40% gains in one year. Let me say at this
point that the correct broker is the key to scale trading.

When prices fall with no significant oscillations and contracts accumulate, anxiety levels begin to rise. This
is the time an experienced sale trading broker is needed. If the broker calls late one evening with panic in
his voice, telling you that he is getting all his clients out now, then he is doing you a disservice. It's hard to
remain rational when you hold 10 contracts and you see on TV that they expect Mad Cow Disease to hit the
US next week. I really thought I was handling it all quite well until that call. I bailed out at the bottom with
a nice loss that will take several years to make up.

Scale Trading is an interesting trading methodology, but goes against some accepted trading tenants. Stop
loss orders are not useful. Also by the nature of this technique, you are buying when the future is in an
established downtrend. Of note however, is that with scale trading the purchase is made theoretically when
the commodity is undervalued. Finally, this type of trading requires a large amount of capital regardless of
what you hear.

Remember, if it can happen, it will happen and you best be ready for it.

I have never been a daytrader. I have another job, thank goodness. End-of-the-day trading may give you
200 days or trading periods a year; whereas daytrading gives you 8-10 times that many possible trading

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periods or more. This could certainly be a factor if you are trying to trade for a living or if your system has
few signals.

My three plus years of futures trading has been exciting and educational. I am still scale trading, but in a
much less aggressive way with a different broker. I am taking another look at stocks.

"Omega Total Lack Of Quality"

Robert Gross

On 7-26-96, I placed an order for TS, with Nilo Sudbrack, making it quite clear that I wanted the order to
arrive no later than 8-2-96, in order to make all my setup, including getting the BMI dish aligned and going
by Sunday evening. I also stated that I wanted the payments for the very expensive software, to be spread
out in 12 monthly payments, not all at once on my AMEX card.

Problems began immediately and continued. First the package didn't arrive as requested on Friday, with
FedEx saying it had not even left the warehouse until Friday morning. BMI however was flawed in their
delivery and quality. TS arrived Monday, only to discover the disks were bad.

I called first thing Tuesday morning, waited much too long on the line, then fooling around with the
technician, who finally decided the disks were bad, and would FedEx a new set. Those arrived next day,
loaded up, only to discover again the block wouldn't acknowledge.

Phone call again early Wednesday, more long waiting on line, fooling around with the e-mail drivers,
before finally being told that the block was bad, and would again require FedEx. I finally got it working on
Friday, August 9, a week lost, including BMI charges wasted because of the lousy quality control.

Next I discovered that with five manuals, none had an index that would list the screen title in simple
language. Time for game playing. I've found it about as easy to just scroll around randomly to find what I
wanted, the logic being lousy.

To top it off, I received my AMEX bill, finding the full $2,100 charged contrary to Sudrack's agreement.
By now I was furious, if I wasn't before.

On 8-28-99, Sudrack is out, and on an earlier call waited 24-hours before he gave me the courtesy of a
return call. I demanded to speak to the accounting manager. Robert Ruiz stumbles on the line thinking it
was someone else he knew, and got my adrenaline going, promising he would give back the AMEX credit
of 11-months worth to be split into 11 remaining monthly charges.

A week later I am still waiting for the credit to appear on my account.

Except that Dave Green, with CTCN has a good program requiring TS, I would tell them to totally stuff it!
I may yet. This has not only cost me a week of window time that was very important to me, but also about
$200 of wasted BMI charges and long distance charges with long waits and crappie ads on my dollar, while
waiting to be instructed how to connect to the proper person.

I mentioned this to Ruiz when I talked with him, was given this switch and bait crap about being "offered"
some data that I don't need for $100 more, as though I was getting some glorious deal that I didn't need.

Mr. Cruz, has really blown it with high prices, low quality and lousy penny pinching attitude toward the
customer. I'm sorry that this is my 3rd product, called a strike-out, and thus will be my last hopefully. You
have the market currently, but your days are probably numbered.

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Additionally, the collusive DialData arrangement is a joke, particularly when there are much cheaper and
equally good if not better vendors out there. I know, as I was with DialData for a while. Greed is quite
obvious. With extreme dissatisfaction, Chow.

Editor's Note: Sometimes it seems just by luck (bad luck) certain individuals have a bad experience. This is
like Murphy's Law as once it starts out bad it seems the problems only pyramid and get progressively
worse.

However, most mutual clients I talk to are satisfied with the support and service received from Omega.
However, occasionally there are serious problems and misunderstandings such as Robert's poor experience.

Also, their products are top-rated and many traders say they are the best programs available, in particular
TradeStation.

Book Review On The Speculative Strategist By Will Slayter

Tom Schlobohm

One of the recent books on the trading scene is The Speculative Strategist by Will Slayter. I bought the
book after reading a brief review of it. This review said the book taught daring entry and exit techniques
together with indicators and systems. Also, there was mention of "pirates."

I found the book to be well-written, in particular the sections dealing with pirates such as Henry Morgan.
Unfortunately, there was not that much that I found new and enlightening regarding the market.

I found the book more geared to beginners than an individual who has some background in technical
analysis. The author describes simple and exponential moving averages, MACD and ROC indicators. But
all of these have been around for quite some time.

In summary, the book is a good read, but not that enlightening.

Sheep In Wolf's Clothing

Michael Nagel

When I read CTCN, I feel like a sheep in wolf's clothing. Unlike most of my fellow subscribers, I do not
trade commodities. Instead I trade stocks. Nevertheless, I derive much benefit from CTCN. For after all,
trading is trading, psychology is psychology. I think CTCN is a terrific publication.

I marvel at the existential trading angst of my fellow subscribers who trade commodities and who thereby
are responsible for the angst that they suffer. Ten years ago I traded commodities. Like the 90% of fellow
commodity lemmings of that time, I traded myself right over the financial cliff. At the bottom of the
financial abyss, ego bruised, I awoke my glamorous dreams of commodities wealth. Here's how it
happened.

After a particularly miserable year of commodities trading, a year that was perfectly commensurate with
my commodity trading "expertise," I chose to stop trading after I read a year-end summary of CTA results
published in Futures Magazine.

I should mention I wasn't naive about commodity training; I read many books on trading and thought
myself to be relatively sophisticated about trading and systems' design.

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The CTA "winners" of that year, that is the very best professional commodity traders of that year, averaged
about a 20% return! That's all. With their professional "expertise," their high levels of capitalization, their
knowledge, experience, the very best of these professionals could only derive a 20% return. Remember that
was one of the better years for CTA's.

Who was I kidding to think that, with my lack of expertise, my little capital, my average knowledge and
relatively little expertise, I could hit a commodities home run -- that I could do better than the very best
CTA's? Armed with the Futures Magazine summary for comparison, I then took out my copy of Investors
Business Daily and looked at the year-end summary of mutual fund performances.

I saw the average mutual fund investor who had next to no trading knowledge had earned returns higher
than the best commodity pros. In fact, some of the funds that I had targeted for investment had gone up by
50% and 60%. It then struck me as an absurdity to trade commodities. To go through all that emotional
hardship to possibly (in the very best of years) earn 20%, when with relative emotional ease, I might earn
50% (or 100% when margined). Of course, I am not so naive as to think it is just that easy, but consider the
point.

Here's how I have come to see it. A trader with a commodity position is like a person who holds a lighted
stick of dynamite; a stock trader holds a loaded gun. Which would you rather hold? Commodities are a
win/lose game insuring loss to one of every two parties; stocks can be a win/win game for both parties. In
which type of transaction would you prefer to be?

Whereas 90% of commodity traders fail, the vast majority of mutual fund traders have profited in this bull
market, and presumably more stock traders profit than commodity traders. Would you prefer to trade with
probabilities that favor your failure or your success?

And, which do you think is less stressful and more profitable to trade, stocks or commodities? Yes the
profit potential of commodity trading is vastly superior to that of stocks, given the differences in margin.
But our brokerage statements don't measure potential, they measure actuality. Not even the very best
professional CTA's realize that potential.

What is your experience with commodity trading, what is your "what's so," rather than your "hope so"
about commodity training. Speaking for myself, I don't need the action, stress and the losses. I need profit.
And so I now profitably trade stocks in real-time with TradeStation 4.0 and DBC Signal.

I offer my genuine admiration to my fellow CTCN subscribers who do trade commodities successfully.
Like an unusually colored black sheep, I know one or two. And I marvel at them when I see them. But, you
know, most of my flock is differently colored.

For those of us who are unsuccessful commodity traders, I would ask you whether it is more important that
you trade commodities or that you trade profitably perhaps in a different market? Are you a better trader
than the very best CTA's? It may be exciting to challenge yourself to become so, but it may also be
profitable to accept your limitations and trade other markets that more favor your success.

While I appreciate that wolves are meat eaters, I hope these few kernels of common sense which are
offered by a sheepish stock trader may be palatable to fellow CTCN subscribers. Meanwhile, I'll just slip
back into my wolf suit and become anonymous again. Profitable trading to all of us!

Editor's Note: The average CTA is more geared to making money with their management fees rather than
a percentage of trading profits. This may explain partially the fact their average returns are low.

In addition, the primary reason so many stock traders and mutual funds have done so well, is the fact they
are almost fully invested in long positions and by great luck the bull market has been intact for many years.
Once the bull market finally ends (if it ever does!) you will see their fortunes reverse.

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It's true the percentage of winners is much higher among equity traders than futures traders. However, if a
futures trader can get counted in the small but elite percentage of commodity traders who are profitable, the
rewards can be immense. The average profitable commodity trader may achieve outstanding returns on
capital (due in part to the inherent great leverage) compared to an equity trader.

Internet Users Warning - Privacy Problem And What To Do About It

J.S. from California

I want to let you know about what I consider a serious privacy problem if you use the Internet.

Your web browser creates a file called "Cookies.Txt" on your hard disk. This file will keep a record of
where you browse, your general interests, and who knows what else in the future. For Macintosh users the
file is called "Magic Cookies." This file can then be read by your web server. This was probably set up this
way to collect marketing data on you so you can receive solicitations from web site vendors. What bothers
me is that this two-way communication has been done without my consent.

To see if your browser creates this file, get to the DOS prompt C:/ and type Dir Cookies.TXT/S and press
enter. This will show you the directory this file is in. Change to that directory and delete this file by typing
Del Cookies.TXT and press enter.

There is a web site www.privnet.com that offers free software called "Fast Forward." This will block these
"Cookie Files." It is not available yet for Windows 3.1, which I use, so I have to keep deleting it as it
created again from time to time.

Comments On Commodex

Neil Strickland

Keep up the good work. I find the frank commentary and opinion very helpful. Some of it is easily
recognizable as dreck, but even that can be informative in a negative way.

In the June/July 96 issue, Bill Donnally asked for comments on Commodex. In reply, I offer my experience
and opinions. Hopefully they will be helpful to anyone, like Bill, who has ideas about retiring on
Commodex.

I have studied 5-years worth of actual trades made by Commodex. These and many more years of trades,
are available from Commodex directly, or from their web site. This is not hypothetical back-test data as is
offered by most vendors. These are paper trades, so that entry and exit prices may not be exact, but over
time this is not a significant factor.

As Bill Donnally noted, Commodex averages approximately 100% return on account capital, and has done
so for over 25-years. Winning trades constitute about one-third of the total.

It all sounds too good to be true! Why would anyone fool around with anything with a lesser, or non-
existent track record? Well, Virginia, there still is no Santa Claus, at least not for most of us.

After trying to trade Commodex three different times, I feel that trying to trade this, or any fully diversified
system, on less than a $100,000 account is doomed to failure. The reason is found in the 30-40%
drawdown. Such a drawdown in a smaller account soon leaves the trader with insufficient funds to remain
fully diversified. The result is increasing risk with a decreasing account dollar cushion.

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We all vary in our psychological and financial tolerance, but I don't sleep well when a $50,000 account
steadily drops $15,000 to $20,000 in two months.

I do not condemn Commodex for these difficulties. These characteristics are typical of long-term, trend
following systems. The lesson is clear, and has been alluded to by other CTCN contributors: Don't try to
trade these systems with small accounts. You might get lucky, but don't bet your retirement money on it.

Editor's Note: Commodex System and several other trading systems, along with some well-known
seasonal trading approaches at first glance appear consistently profitable. However, as Neil points out, their
drawdowns are usually very high and winning trade percentage low. These type of trading approaches also
require immense capital and deep pockets.

Perhaps the primary reason they appear to be profitable overall is they rely on extensive diversification and
many hundreds or thousands of trades per year, with a small but important percentage being highly
profitable on a longer term basis. Usually, a small but significant minority of the trades end-up being highly
profitable, which offset the many losers and the far too heavy drawdowns involved.

These approaches are probably not the type of trading activity most CTC members would be happy with
psychologically or able to handle as far as trading capital or margin is concerned.

Most Successful Traders Follow

Simple Methods - Earl McHugh

I am most impressed with the fact that, if they are being truthful, the most successful traders who write to
CTCN are self-taught and follow simple methods.

James Geftaky's letter most impressed me because he not only indicated a lifetime of success at trading, but
also showed that he actually knows how to live, as well.

I do hope to receive the methods developed.

Editor's Note: In our last issue I also indicated I would be mailing the next Bulletin to all CTCN members,
in addition to the Real Success Video Tape Training Course buyers, who normally are the only recipients
of the Special Bulletins.

Unfortunately, my plans were too generous as it invited a storm of protest from a number of Real Success
Methodology owners. One Real Success client in particular was extremely upset about this matter and
wrote an amazingly long letter of protest covering many hand written yellow legal pages.

The well intentioned protesters' main argument was two-fold: First, the Special Bulletins were included as a
free extra along with their Real Success Tapes. Therefore, CTCN members who did not acquire the $897
video tapes should not get a Bulletin as a freebie.

They also said the trading methodologies and information detailed in the Bulletin should only benefit paid
owners of the Real Success Trader Training Course. Furthermore, some were worried if too many traders
start using these methods it could possibly impact their usage of the same techniques.

Therefore, to be fair to our Real Success clients, I regretfully must withdraw my plans to send the next Real
Success Bulletin at no cost to all CTCN members. Please accept my apologies. You should also watch your
mail during the next 60-days for more details on this and for possible ways you may learn more about the
Real Success trading methodology.

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Finally, it might be useful in my view, to cut down or eliminate the letters relating tales of woe. Telling us
how the market, the brokers, the systems, etc., prevented them from becoming rich. The fact is, I suspect
most of these people do not have the discipline, knowledge or the very special skills that are required to be
successful at trading.

Learning The Art Of War

Raymond Kohn

I have been actively trading for about 15-years. This year my wife and I will be retiring from our
conventional lives and I will begin trading full-time. I thought you might enjoy our story along with a few
modest insights.

It began one evening while channel surfing on the TV. My wife and I accidentally came across an unusual
talk show (which we had never seen before) called "Wall Street Week." This strange mix of personalities
and subjects caught our attention and we watched the show.

We were neophytes at the time and had no concept of what the world of investing was all about. So for us,
it was like peeking into a strange new world for the first time.

After watching the show for several months and listening to the advice coming from the various show
regulars and guests, my wife turned to me and said: "I think some of these guys are boobs, and what gets
me is that they're making a living doing this. We're smart, can we learn this investment stuff and do what
they do?" - - "Why not." And that's how it all began.

I have always been enthusiastic about learning new things and enjoyed reading, so my exciting education
into the world of investing began with my wife's off-hand comment that very evening.

A little background might be appropriate: Originally my wife and I are from the Chicago area. I finished
my education as a product design engineer at the Illinois Institute of Technology (IIT). Spent my early
years as a consultant under a special Research and Demonstration Grant from the US Dept. of Labor, and
Health, Education and Welfare. Once the research work was completed and the Federal Grants expired, I
opened my own Product Design & Development Co. that my wife and I have been operating for the past
26-years.

About 20-years ago we moved our home and business to Texas. We have always enjoyed a solitary life-
style, and eventually moved to a rural part of Texas, (commonly referred to as the "Boonies" by you big-
city folk). Our closest town is several miles away, however, calling it a town is a bit of an exaggeration.
This town is so small that it only had one stop-light. The post office was located in a small rented store-
front, and the only entertainment for the whole place was a video rental store. In other words, this place
was not exactly a thriving metropolis with a multitude of sources for sophisticated investment advice or
personal financial guidance. As far as available community resources, there weren't any. We were on our
own.

When I first got started I didn't even know what a "moving average" was. So, when I first learned about
"moving averages' I thought I had discovered the "Secret of the Universe." Without knowledgeable
guidance or an investment mentor to talk to, I was destined to go down many blind alleys until I eventually
discovered, on my own, the inherent flaws that existed within the never ending stream of information, each
purporting to be the next "Secret of the Universe" du-jour.

My learning curve was steep and long. It included: A two-year course at the Wyckoff Stock Market
Institute; the Hume course for "Successful Investing," and "Advanced Investment Strategies;" Van K.
Tharp Psychological Study Program for Traders; various textbooks from the N.Y. Institute of Finance; and

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an accumulation of over 120 investment books from well-known authors like: Wilder, Williams, Pring,
Eng, Murphy, Magee, Appel, and so on.

Despite all of the reading and research that I have done over the years, I am convinced that it is a never
ending process, and my library, along with my understanding of the investment markets, will continue to
grow as the years pass. (It's just the nature of the game).

In the beginning, I was just too cheap to pop for one of those $3,000 trading seminars. For the same money
I could buy 40 or 50 books and get as many ideas and opinions on a far wider range of subjects, so I always
had a bias towards books, which could be re-read over and over again, as opposed to seminars.

As the years passed and I began to learn more about the "business-end" and "promotional side" of the
"investment seminar business" along with its well-publicized guru's, my initial cheapness was replaced by a
healthy dose of skepticism and eventual disdain. To this day, I have never attended one of those "get rich
trading seminars," and probably never will.

It is sad to say, but a great deal of the investment information available today is of little or no help. The best
that can be said about most of it, is that you eventually will learn more about what doesn't work, rather than
what does work.

Therefore, the best advice that I can give you is to maintain a healthy skepticism when it comes to learning
about new investment ideas. As much as we want to believe that the next new trading system will be "the
one." It's not very likely.

Thomas Edison was asked by a reporter once: How did it feel to have failed over 7,000 times in searching
for a solution to his problems in developing the electric light-bulb. Edison replied: "I haven't failed 7,000
times, I have discovered 7,000 things that don't work.

Therefore, as we each pursue our personal objectives in locating that ideal trading system, it becomes just
as important to know what doesn't work, as it is to know what does work. Going through the process of
discovery and learning "what doesn't work" can give you the needed insight that is necessary in order to
recognize "what does work" when it comes along.

There is a very interesting book titled The Encyclopedia of Technical Market Indicators by Colby and
Meyers. In this book the authors utilized thousands of hours of computer time to evaluate the forecasting
value of over 110 investment indicators. Their purpose was to separate Wall Street myth from reality and
debunk many assumptions regarding the effectiveness of the multitude of technical indicators that are out
there. It's a real eye-opener, and gives you a good head-start into learning about all the indicators that we
have heard so much about (and naturally assumed that they had at least some investment merit) when in
fact, they just don't work.

If I have learned anything over the years, it is that there is no one book, which when completed, will insure
your trading success. It is not unusual to spend $50 to $250 for a single book covering a variety of
investment strategies and only find one small tidbit of information which is genuinely helpful. But, that's
OK. If that one tidbit can save, or make you thousands of dollars, it's well worth it.

One of the most unusual books I have ever read, which over time has become one of my personal favorites
is: The Art of War by Sun Tzu. Sun Tzu was an ancient Chinese warrior/philosopher who lived over 2,000
years ago. The book is filled with surprisingly appropriate philosophical concepts which can be easily
applied to many of life's activities, experiences and inter-relationships. Trading has often been referred to as
a battle between the buyers and the sellers, so the analogous references within the text were not only
appropriate but quite helpful.

The futures and options markets are a "zero-sum game." It is widely known that 90-95% of all those that
play this game will lose. It is only a small handful of large professional traders who tend to consistently

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win. Given the odds, you have to wonder why in the world would any sane person be enticed into playing
such a game. The answer lies within the "Art of War."

The following concepts contained in the "Art of War" are analogous to the trading and investment markets,
and can be easily applied to the major market players, or even the "collective being" represented by the
markets themselves. To begin:

"Those who face the unprepared with preparation are victorious."

"What causes opponents to come of their own accord is the prospect of gain. What discourages opponents
from coming is the prospect of harm."

"Draw them in with the prospect of gain, take them by confusion."

If you've ever been attracted by the quick and easy riches of the stock or commodity markets, only to wind
up being confused by your ever mounting losses to what initially seemed to be a deceptively simple
activity, then you have just witnessed, first hand, what it feels like to be defeated, and on the losing side of
the "Art of War."

A common trait of most traders is the desire to be "in the market" and trading most of the time. Sun Tzu
makes these observations: References to the "Army" and the "Warrior" are analogous to the "Trader," and
the "Battle" is "making the trade."

"The important thing in a military operation is Victory, not Persistence."

"In ancient times those known as good warriors prevailed when it was easy to prevail. So it is the good
warriors that take their stand on ground where they cannot lose. Therefore, a victorious army first wins and
then seeks battle, a defeated army first battles and then seeks victory."

"Those who know when to fight and when not to fight are victorious."

The implications of the above quotations are most interesting. If ancient history and the "Art of War" were
to be our only guide, we would patiently wait for, and carefully select, only the very best opportunities to
trade. We would patiently accept the long periods of time when no trades were made, and judiciously wait
for those few opportunities which come along very infrequently, but which almost guarantee victory and
success.

We have all heard the phrase: "Everyone is a genius in a Bull Market." As if to say it was so easy to make
money in a bull market, what's the big trick? But, when the markets become uncertain and difficult, that's
when only the very best survive, (and sometimes the very best don't even make it). Sun Tzu's
recommendation would appear obvious: "If you are going to trade, wait for the Bull Market, when victory
is guaranteed. And, when times are uncertain, don't trade."

The term "Bull Market" connotate long-term position trading, but the basic concepts are also valid for
intermediate and short-term trading, it is only the time horizon that changes. Therefore, the same
philosophical concepts apply to not only the Secular Bull Markets, but also to the Intermediate-Term
Trends and the Intra-Day Price Swings.

Now, if you don't even know what to look for when hunting for a "Near Sure Thing" trade, then you have
got another problem of not even being prepared to play the game and this takes us back to the original
quotation: "Those who face the unprepared with preparation are victorious."

I have no doubt that my reference above to a "Near Sure Thing" trade is going to raise some eye-brows and
draw a snippy comment or two. As we all know, there really is no such thing as a "sure thing" in the
investment markets, hence the old adage: "More people have been stung by sure things than by bees."

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What I'm referring to when I say a "Near Sure Thing" trade, are those unique times when a combination of
different elements seem to come together to create an usual situation for a given commodity or stock which
results in an almost obvious and predictable future movement.

For example: if the market is over-extended by historic standards, inflation is picking up a bit, and the
Federal Reserve unexpectedly beings to quickly increase interest rates causing the yield curve to invert by a
significant amount, it doesn't take a genius to guess where bonds and stocks are headed. Hence, given the
combination of circumstances in the above example, we have a "Near Sure Thing" trade on the short side.

Periodic shifts in the supply and demand dynamics of a given commodity or a stock can have an enormous
impact on its future performance. Being able to detect these shifts in supply and demand when they first
appear adds further insight into the possibility of making a "Near Sure Thing" trade.

Jim Rogers (Mr. Bow-Tie) is well aware of this concept when he says: "I invest when I see a pile of money
sitting over in the corner, and that's all I have to do is go over and pick it up."

Therefore, honing your investment skills in order to recognize a "Near Sure Thing" trade when it does
come along, and having the courage and confidence to act quickly, can do wonders for your long-term
trading success.

Acquiring the necessary investment skills and finding an investment method that works for you, via the
process of learning and self-discovery, are the basic prerequisites to locating and recognizing that "Near
Sure Thing" trade that works for you.

Before closing, I'd like to add one small insight. It is my feeling that most authors and other trading system
developers are sincere in trying to impart meaningful knowledge to those of us who purchase their books
and systems. However, the unique synergy between a given trading idea and the reader's own personality
and ability to conceptually meld the trading idea into their own frame of reference is a constant stumbling
block for authors and their readers to bridge. And, it is for this reason why two traders can be using the
same trading system, yet one makes money with it, while the other loses money.

Therefore, it really doesn't matter how much merit a new trading idea may have -- if it ultimately doesn't
work for "you" then the idea is of little or no value to you. And above all, keep in mind that you really
aren't looking for that mysterious "holy grail" of trading systems, your simply searching for a trading
system that works for you.

I will close with one final quotation which was made by a crusty old trail-boss named "Curley" (Jack
Palance) in the Movie "City Slickers" and modified for this forum. "The secret of successful trading is just
one thing. And you have to find out what it is."

Red Warnings Flags

Ashif Jumma

What are some of the clues that can raise a red flag when choosing a system, full-service broker, CTA or
even deciding whether a book should be taken seriously.

1. Look for hype. The more the hype, less likely the system is any good or the CTA/broker is any good.
People who trade actively tend to be humble, because the market humbles them repeatedly.

2. In a book, article or newsletter how do you find out if the writer has enough real-world trading
experience? You look for language. The more ornate the language, less likely the writer is a day-to-day

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trader. Also look for what the writer does. Is he a money manager, a trader who trades everyday, even if
they are unsuccessful has more to tell than a college professor who has never traded in his life.

3. Look for words like; amazing discovery, new secrets, etc. - stay away from systems which are advertised
with screaming headlines. Future markets have been around a long time. A day's price action in its purest
form consist of open, close, high and low. They tell you about 70% of what's happening to the market.

Many a time I have been one of the lucky ones selected to receive a wonderful trading system for only
$1,000. A system that made 50 to 100 times that amount ($1,000) by a complete stranger who is looking
after my best interests. Also the price is going up to $1,500 next month. I throw the offer in the garbage
where it belongs. The advertisements do attract a lot of suckers.

This is not to say that there are no good systems, brokers, CTA's, books, etc. being offered. There are quite
a few individuals who have contributed much to the industry. I personally have found that the best way to
learn trading is to study the price bar and supplement it with books. I found that principles of trading,
money management, your mental makeup and trading techniques to be more important than mechanical
systems. I also believe that a lot of hard work is necessary before doing real-time trading. That means
collecting information, reading books and paper trading long before you actually trade.

Slippage, A Real Killer

Jerry Lahann

I, like so many traders am always looking for the ultimate system. As a result I have spent over $15,000
over the last 5-years on systems costing from $50 to $2,950 each.

One thing I find is that most system writers allow from $50 to $100 for slippage and cost per trade when
figuring profits and loss. The question I ask is whether that amount is realistically enough to account for
actual cost and slippage.

Most system writers give a summary of profits and losses over several years. There may be several hundred
trades made over the trading period reported. It would be a good idea if one would figure what you feel is a
better factor for cost and slippage and multiply that figure by the number of trades to get a more realistic
idea of the profit or losses that the system would return. I believe that anything less than $100 per trade for
slippage and cost is unrealistic when using buy stops or sell stops for entries. Maybe even $150 would be
better.

When you are using a relatively short-term system that trades several times a day such as using 5-minute
bars on the S&P, slippage can easily be the difference between a profit of $200 for a day and a $500 or
more loss. Many times entries are just above a previous swing high or below a swing low and it is not
unusual for a run to occur of 60 to 100 points in the S&P 500 through these points. Of course, when that
happens it seems we are always filled at the extreme high or extreme low of the run which can easily
account for $500 added cost if buy stops or sell stops are used. Of course, stop limits could be used, but
then you run the risk of missing a good move.

What is the answer? I don't think there is one. What works best for you is what is best. I do check on
slippage constantly. For example, I find that I have to figure at least $100 per trade slippage and cost when
trading coffee. I check slippage carefully because I monitor several systems over several months before I
use them in real trading.

Shortly I will write about the results I have obtained as I continue to walk forward these systems using real-
time data. I will say I have not found even one system where the results represented over the past several
years by the author are matched by my testing over the last several months.

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Editor's Note: Thanks for your very interesting comments. Very well-researched and said. Your editor and
our members will be very interested in your walk forward testing results. It would be great if we could
publish it in our next issue.

Developing A Money Management Methodology - Fifth of A Series

Tom D'Angelo

This is my fifth article intended to provide readers with a money management methodology designed to
organize speculation along the lines of a successful business. Refer to my previous articles in Vol 3-8, Vol
4-1, 4-2 and 4-3.

In my previous articles, I described the Profit Center concept of trade segregation which enables the trader
to organize his trading in a professional, disciplined and businesslike manner.

In this article, I will describe the proper method in which to analyze drawdown. Refer to Exhibit #1 which
displays 17 hypothetical trades in a Profit Center containing trades taken from a trading system which
utilizes a channel breakout technique. The trader has named this Profit Center TSCHBO.

The drawdown statistic is the most important money management and must be monitored by the trader on
an almost daily basis.

Trading is a mind game, and improper analysis and knowledge of drawdown will eventually turn a trader's
mind into jelly. The trader must be in psychological control of the drawdown situation or else he will
experience extreme emotional problems which will significantly hamper the achievement of long-term
successful speculation.

One of the primary problems facing the trader is improper organization. That is, he is in the business of
trading but he is not organized like a business. Refer to my previous articles on Profit Centers for advice on
how to structure your trading like a successful business.

Utilizing Profit Center type organization, the trader will quickly realize that there are many drawdowns
occurring at the same time. If he trades more than one trading system, future, exchange, etc., and sets up
each of these items as a Profit Center, he will notice that each Center will have its own drawdown situation,
similar to the TSCHBO Center of Exhibit #1.

However, the average trader operates under the shoe-box method of organization. All brokers statements
are thrown into a shoe-box and forgotten. The trader basically knows if he is making or losing money on an
overall or "macro" basis, but he has no idea what is occurring on a "micro" Profit Center basis.

Unfortunately, the subconscious mind is aware that there are many micro situations occurring
simultaneously and due to incompetent organization, the subconscious slowly but surely becomes more
anxious, nervous and uncertain. The subconscious does not have the statistical information required to
eliminate the unknown. Profit Center organization provides the structure which gives the trader the required
information and eliminates fear of the unknown. Profit Centers provide the organizational format which
reveals all the "micro" drawdowns which are occurring.

When asked about drawdown, the professional, successful trader should be able to immediately provide the
questioner with the five critical drawdown statistics for each Profit Center he trades:

1. Largest historical drawdown

2. Current drawdown in progress

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 3. Range of Net income / drawdown (the Stress Factor)

4. Current Net Profit / Largest Historical Drawdown

5. New Equity Highs / Total Trades

These statistics are noted on the Performance Report (described in my last article) for each Profit Center. A
quick glance at the Performance Report will reveal a complete drawdown analysis for that Profit Center.

For daytraders, drawdown stats should be calculated and updated on a daily basis. For other traders, once a
week will be sufficient.

1. Looking at Exhibit #1, we see that the largest historical drawdown was $2,300 and occurred on 11/1/89.

2. Current drawdown in progress on 12/27/89 equals $1,050 (assume today is 12/27/89 and not September
1996).

3. Net Income / Drawdown is what I call the Stress Factor. The lower the ratio, the higher the stress and
vice versa. Looking at 8/1/89, we see that net income was $100 and drawdown was $800. (Beginning
Capital in the Center was $10,000 on the upper left of the report). Dividing 100 by 800 and we get a Stress
Factor Ratio of .13

Ideally, you would like to see the Stress Factor Ratio at least above 2.0. This means that your Net Profit in
the Center is at least 2 times the drawdown. A Ratio 2.0 or greater provides a good financial cushion for
your mental stability, since you know that any drawdown is not large enough to wipe out the profits you
may have accumulated in the Center. Low ratios below 1.0, like in our Exhibit #1, mean high stress. Net
income is not sufficient to cover the inevitable drawdown. There is no financial cushion. Almost any
drawdown will probably put the Center into a net loss position. Profit Centers with high ratios and low
stress are the preferred Centers to trade.

4. Current Net Profit / Largest Drawdown=$1,850 / 2,300=.80. Likewise, this ratio should at least be 2.0 or
more. If the ratio is over 2.0, you can be confident that if the largest historical drawdown repeats itself,
(which it probably will) you will still have a Net Profit in the Profit Center. In Exhibit #1, if the largest
historical drawdown of $2,300 occurs now, it will wipe out our current Net Income of $1,850 and produce
a net loss of $450.

5. New Equity Highs / Total Trades. A new equity high occurs when drawdown=0. This occurred on
1/3/89, 4/5/89, 12/25/89 and 12/27/89. There were 17 total trades in the Center so the Ratio=4/17=23.5%.

The trader should try to attain ratios of at least 50%. The higher the ratio, the steeper the equity curve and
the more times a new equity high is being reached. The higher the ratio, the more profitable the Profit
Center and the less stress and psychological problems.

The above 5 statistics display a complete drawdown fingerprint for the Profit Center. Each Profit Center
will have its own fingerprint. No two Profit Centers will be alike, similar to human fingerprints.

Many people have written CTCN with the hope of trading full-time for a living. If you aspire to such
heights, you must adopt a professional approach towards speculation. You are not competing against the
95% disorganized, amateurish bozos who come and go by the thousands. You are competing against the
5% who succeed. These 5% are very intelligent, organized, and maintain a highly professional businesslike
approach towards speculation.

The professional trader knows exactly all key historical and current money management statistics which are
impacting his speculation business. If I asked you to describe in detail your drawdown situation, and the
best you can come up with is "Duh," then you better go lie on the beach and get out of the markets. You
will eventually get your posterior handed to you on a plate. The individual who can immediately respond

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with a detailed drawdown analysis as described above for each of his Profit Center businesses is the
individual who has the highest probability of achieving long-term successful speculation.

This article, and my previous articles, are meant to provide the foundation for establishing the required
professional approach towards speculation.

Trading is a mind game. Without proper business organization and statistics of prior trading performance,
the conscious and subconscious minds are functioning in the dark. This impossible attempt to function in
the unknown produces the anxiety, uncertainty, fear and greed which eventually destroys 95% of all
traders.

For this reason, the trader must have at his immediate disposal all the critical money management statistics
which reflect his trading performance. These statistics take the trader out of the disorganized confusion of
the unknown and place him into the organized light of knowledge where confident and informed trading
decisions can be made.

For even profitable traders, a drawdown will be occurring over 90% of the time. This situation produces the
appearance that the trader is losing money, even though he actually may be showing a net profit. Since the
average trader is not properly organized and all his "micro" drawdowns are lost in a fog of confusion, the
subconscious and conscious minds become fearful, confused, anxious and uncertain. Basically, the mind
becomes a ship sailing in the fog amongst icebergs without a rudder. it can't see, can't steer and is
surrounded by danger.

However, knowing the complete drawdown fingerprint for each profit Center that you trade significantly
reduces the fear, anxiety and loss of confidence psychological problems which plague most traders. The
trader knows exactly his historical and current drawdown history and what to reasonably expect in the
future. He maintains this information for all the Profit Centers he trades. There are no surprises or
unknowns. He is informed and confident.

Attempting to trade without proper business organization and immediately accessible drawdown and other
key money management statistics will fry your mind on both conscious and unconscious levels and
inevitably drive you out of the trading game with your tail between your legs. It is impossible to
successfully trade in the dark.

Speculation is today's competitive markets is an arena where only the truly professional, disciplined and
organized traders survive.

If you'd like to obtain a free booklet describing the reports I utilize in my own trading, feel free to contact
me at 800-MONEY30 or 702-261-9147.

In my next article, I will discuss some simple techniques in determining how many contracts to trade.

EXHIBIT #1 - In Print Copy

Keeping Perspective

Tom Dunkerley

As I was going through the July monthly statement of a system I trade, I was upset to see it down $4,003
for the month. It's the worst monthly drawdown yet. I realized I needed to look at the "bigger picture"
again. The bigger picture showed the account has since recovered some of that drawdown so far in August.
Even at the low point in July, I still had a 28% return for 1996 on the amount I deposited in this account
(with no additional deposits) and that ain't so bad!

569
 Regarding My Recent Holy Grail Article - Don McCullough

In the last issue, I wrote about the Holy Grail and a couple of people who had seemingly found it. The
editor included some comments of his own. I'm sure he's not alone when it comes to not believing in a
Holy Grail or those who seem to have found it. I can fully appreciate such a view. However, I remain
convinced some of the very top professional traders truly have what amounts to a trading method, and
ability that is worthy of a Holy Grail rating.

I recently read an advertisement in which a well-known person states he believes in a Holy Grail. His name
is Bill Williams and he is a much respected author, speaker, teacher and trader. His latest book, Trading
Chaos, has been well received by many experienced traders.

Bill Williams is interviewed in the book, The Day Trader's Advantage by Howard Abell. To give further
credence to Bill's belief in a Holy Grail, let me share with you some of his very respectable trading abilities
recorded in this book. (Note: I'm saying a Holy Grail rather than The Holy Grail. Perhaps there's more than
one). Do I hear laughter?

He says if the S&P has a daily range of 500 points during a particular day, he's expecting to take 1,500 to
2,500 points of profit on such a day. Rather amazing isn't it? I'm convinced he's telling the truth about this.

In order to do this, Bill has had to become very good at picking most of the tops and bottoms during the
day. Bill further states that he often takes around 80% of the potential profits from a trend while most
traders take only about 20 to 30%. He says this is possible only if you know how to be in the market before
the move is obvious to most people.

Seems to me Bill Williams is a guy that lots of traders should be seeking out. He's a popular seminar
speaker and should not be hard to contact.

As I said earlier, the editor of this newsletter included some of his own statements in my Holy Grail article
in the last issue. I'd like to address his "Editor's Notes."

I don't believe anyone having a system that's extremely accurate would have much incentive to sell it. If
such a person can trade most of the potential of such a system he'd be making so much money he'd have
absolutely no reason to want to market it. It's quite possible such a trader knows of several other top traders
already using his system. Why should he want to cause even more competition at his buy and sell points?
Large multi-contract traders must have a lot of people doing the wrong thing at the wrong time in order for
them to have the liquidity to enter and exit their positions without driving the price against themselves.
There's just no good reason a large successful trader would want to chance ruining this vital liquidity by
selling their system.

Author-trader Stanley Kroll once said: "Those who talk don't know and those who know don't talk." With
regard to top notch trading advice, I think he is absolutely correct. Aspiring traders need to differentiate
between so-so traders selling their so-so advice and the truly top-notch traders.

I don't find it hard at all to understand Mark Weinstein's "obscurity." I've often wondered how many
equally gifted traders totally refused being interviewed by Jack Schwager, the author of the two Market
Wizard books. I'll bet quite a few and you can be sure they'll always want to remain obscure. When you're
making millions in the markets due to the ignorance and poor psychology of the majority of traders -- why
on earth would you ever want to take even the slightest chance of destroying that? Another reason to
remain obscure is to avoid being bugged by every Tom, Dick and Harry (and Suzy) wannabe trader.

Linda Raschke once said she truly believed she could give away all of her secrets and most people would
still not be able to trade successfully. Why? She says, because most people cannot control their emotions or

570
follow a system. Linda has had students she has tried to teach, so there's undoubtedly a lot of truth to what
she has to say in this regard.

Speaking of trading secrets, does anyone recall any of the Market Wizards giving away, in a very complete
and precise way, their very best trading secrets? I don't. Has anyone seen them marketing their systems?
With the exception of Linda Raschke (her two books) I haven't. Do you suppose Linda Raschke told
everything in those books? I doubt that very much. Actually, she said about everything when she said most
people could not trade her system even if she gave it to them.

It's so easy to underestimate the enormous importance of the psychological aspects of trading. This is
especially true with regards to daytrading. You may know enough (and this can take years) but do you have
the time, money and determination to "be enough?" Those lucky enough to sit at a monitor next to a top pro
for months while they learn to be a trader are the competition.

Most of the very best pros will remain obscure and will never be selling their systems or telling the world
about every last detail of their methodology. Top traders trade.

From Kindergarten to Commodities - Evelyn Mooney

Improbable? A retired kindergarten teacher nearing the beginning of her 8th decade - (actually 68-years
old, but count for yourself . . . that is nearing the beginning of the 8th decade) and living in an "Old Folks
Home" (well, actually it's a rather nice retirement community) and spending her days attempting to trade
the S&P 500. Whatever is the world coming to?

How did this happen? About 10-years ago, I started a managed futures account with a California firm. After
almost a year of dismal results and repeated phone calls with my screeching, "I can't believe that I'm paying
you guys to lose my money." I decided to look into this futures trading business and see if I couldn't do
better than the professionals. I chose the S&P because I had some experience in trading stocks and options.

My first S&P trade on 9/30/87, was a position trade and in 2-days I netted a $4,000 profit which I took.
"This is easy." Now note that I was teaching myself and it was now 10/87. There was no one to teach me
that I needed to place judicious stops with each entry (I was using a discount broker).

By the end of 10/87, I was out of pocket exactly $2,000 and at that point, I decided to take a breather from
trading. (And wasn't I lucky not to have lost more during that time?) A real baptism by fire for a new
trader.

By the time I gathered nerve to begin trading again (spring of '88) I had decided to only daytrade the S&P. I
have spent the intervening years studying the movement of that market, identifying certain patterns that
occur with some regularity. I have notebooks full of data for the past 9-years. I am finding that this may not
be an advantage for as a result of extensive study, I tend to over-analyze and thus become paralyzed for
there is always something questionable about any trade.

My trading record is very spotty with my worst year's loss of $5,119. My best year's profit was $5,931,
with small gains and losses sprinkled in between. So, it's really pretty much a wash if you don't consider the
1,000's of hours I've spent on the project. Then, it's a big loss!

My recent subscription to Commodity Trading Club Newsletter has helped me see that others have the
same problem I do of inconsistently trading their signals. It has helped me realize that if they have
overcome bad habits, I too can do better. In the April/May issue, I asked to hear from people who were
interested in having a trading buddy. I have thoroughly enjoyed the calls I have gotten (only two women so
far). These people have given me a psychological lift to know that there are other people out there working
at this trading business, doing it and not letting their losses paralyze them.

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During the past year, I have been working with a very helpful broker who offers his customers free access
to a telephone advisory hotline with 4-daily updates on the S&P. (Lanny Cohen of Capitol Commodity
Services, Inc. in Indianapolis - 800-876-8050). This is an excellent service and it helps ones confidence a
great deal to have confirmation of signals. The hotline is a real plus, especially for free. Give Lanny a call if
you are interested.

So, I am not giving up. This project may be my last hurrah and I'm determined to make it work. I've made a
fortune on paper, and now need to make it work in actuality. I've lost lots more money by not trading than I
ever lost by trading.

Keep the newsletters coming. We all need'em to keep us going.

Miscellaneous Ramblings

Gale Paxton

Jo and I take this opportunity to thank all of those who are sharing with us and to thank Dave for another
great publication. As a result of our (last) contribution, we have received calls from some very caring
CTCN members offering to share with us and give us encouragement and support. Sincerest thanks to all.

Attention to our friends out there in CTCN land that correspond by E-Mail, we have a new address (contact
via CTCN)

Our thanks to RKF (TX) on his articles on Tax Regulations and Trader Status Requirements (Vol 4-2).
They were very well done and gives us a better insight on how we might be able to set ourselves up for
deducting our trading expenses. I guess the most frustrating thing about our tax structure is the way the IRS
gets all of the benefits from those of us who take the risks, but they are unwilling to allow us to write off
the expenses and loses resulting from these risks.

In response to John Meehan's article, "Trading Can't Be Taught Like Professions Can" (Vol 4-2). I agree
that one can't be taught to trade successfully by any books, seminars or gurus, and that, by and large, all
systems purchased are a total waste of money. While the books, seminars, gurus, etc. give the basic
technical and/or fundamental tools to work with, they do not give one the personality traits and intuitive
skills of their teachers. I am assuming of course that all of this teaching material/seminars are by proven
successful traders.

While John didn't come out and say don't waste your time and money on these areas it was implied and I
disagree with John, to a point. I feel it is necessary to acquire some of the basic analytical skills and market
knowledge so that one has a better understanding of chart interpretation and how the markets work. There
are probably six to eight good books that I feel are very worth while. Otherwise, John is totally correct,
successful trading can't be taught, it is something very personal and has to be developed over a period of
time. Thanks to John for a well done article.

Response to "CTCN Hasn't Totally Wimped Out" by Gary Antonacci (Vol 4-2) While Gary's article wasn't
totally negative regarding CTCN's reluctance to print some vendors' names in these negative articles, I feel
that Gary doesn't quite understand the big picture when it comes to the use of our right of free speech either
by verbal expression or written word. We are guaranteed the right of free speech under the Constitution.
But we are not guaranteed freedom from law suits by those we may speak or write about even though the
suit may be frivolous and unjustified.

When submitting articles to CTCN for publication, we must keep in mind that we are liable for our actions.
We must also remain aware that the vendors that we have written about could lose many thousands of
dollars of income from the publication of negative articles. By threatening to sue the writers and/or
publishers of negative articles, even though the information contained therein is true, they will keep most of

572
these negative reports out of print thus assuring continued sales. They have the money to bring these
lawsuits and we don't. Therefore, the $1,000 or so they spend having their attorneys contact those of us who
may write or speak against their products is money well spent. Just the threat of a lawsuit is usually enough
to prevent publication of these negative articles.

As an example of the willingness to bring unjustified lawsuits, I know for a fact that over the past 30-40
years, a large oil company has a habit of bringing suits against the inventors of automotive carburetion
products that greatly enhance the efficiency of the automobile engines and increases gas mileage by 2, 3 or
4 times. These suits are designed to keep these new products off the market, because they would drastically
cut into the oil company's profits. There is nothing in our laws that prevents them from bringing these suits
and dragging them out for 5, 10 or 15-years. The inventors don't have the capital to bring these suits to an
early conclusion in the courts and are prevented from marketing their products until the suit is settled. The
oil company has spent maybe $200,000 or less over this period of time, but they have reaped millions in
income by keeping the products off the market.

Dave has provided us with this forum that allows us to communicate with each other, express our
experiences and give our opinions on the various products that we have tried. By doing so he has put
himself in a vulnerable position with the vendors and advertisers. Therefore, I feel that Dave deserves our
support and his idea of a CTCN legal fund deserves serious consideration by all of us.

I do have a question which may or may not resolve the problem. On CNBC and other financial programs
that we listen to where guest brokers and analysts appear, they have a stated disclaimer as follows: "The
opinions and recommendations are those of our guests and not those of CNBC," is it possible to have a
disclaimer of this type in CTCN whereby the writers of the articles would have to assume responsibility for
what they write as opposed to CTCN being on the legal threat hook? Of course this would require the
writers to stand behind what they write, bite the bullet and fully identify themselves rather than be
anonymous donors. Are we all willing to do this or are we going to "wimp out?"

Response to "Enabling Execution" by Don McCullough (Vol 4-2) Great article Don. I feel you have
addressed one of the major problems when it comes to trade execution that all traders experience,
especially new ones.

A card with these definitions of disabling - enabling execution boldly printed on a card and placed in a
prominent location where one will see it at all times when doing their trade analysis would be a great
reminder to check your mental attitude about a trade before executing or giving up.

Response to Dr. Howard Marks' article on Joe Ross and Bruce Babcock (Vol 4-2) I am in total agreement
with Dr. Marks. People like Bruce Babcock who are also marketing their own trading systems, seminars,
etc. should not review and critique the works of others with whom they are in competition. There is
definitely a conflict of interest and displays a complete lack of integrity on Mr. Babcock's part. Thanks for
an excellent article. It certainly changes our prospective of Bruce Babcock.

Response to Don Thompson on System 2000 (Vol 4-2) Per Arnie Gronfelds' manual, he did not model the
system on a computer, but did it all in long hand. However, it could be modeled on a computer. I agree that
it is an interpretation of turning points, or really it is an interpretation of possible turning points.

Jo and I have found that it gives many false signals, especially in a strongly trending market and many of
these turning points may be signals to add to a position already taken rather than a signal to stop and
reverse. We have also found that you can get started out of sequence which has one taking sell signals
when you should have already been long and maybe tightening your stops based on the sell signals. Of
course the reverse is true for buy signals as well.

It has been our experience that over 50% of the time, System 2000 will give you signals way too early. If
you take these early signals, which by the system's rules would be to enter the market the day following the
signal, you would be stopped out the same day or within a couple of days. It appears that one could use the
buy/sell signals as possible early warnings of a short or long-term trend change or correction in which case

573
you could look to other corroborating indicators before taking a position. The corroboration could be 2 to
5-days after getting the signal. Jo is evaluating this aspect of the system as well.

For over 2-years we have been working with System 2000 (S2K) off and on. I say off and on because as we
have worked with it, we've encountered too many false signals. We feel it is taking too much time from our
analysis schedule and set it aside. However, there is something about the system that keeps drawing us back
because we feel that we are missing something that could make it a very valuable tool. So, we resurrect it
and start looking for some filters that will work with it and give us that high percentage of good trading
signals that we are looking for.

There is one possibility that may have made the system work for Mr. Gronfeld and that is the use of very
large protective stops. We have noticed that quite often after receiving a buy or sell signal the price will
move against you for anywhere from one to 4-days. By using large stops, one can ride through the near
term reversals.

Jo is presently working with the system evaluating different filter combinations in an effort to determine
the accuracy of the buy/sell signals that S2K generates. As part of our "research" I kept wondering if going
to a longer time frame might give more accurate signals, so I built a new spreadsheet with a slightly
different time frame. I got a little careless when I set up the spreadsheet and forgot to change the equation
in the signal column to account for the longer time frame. We didn't discover my error for several days, but
while Jo was evaluating the new data with the uncorrected equation, she was getting some very good
signals.

I made a new spreadsheet with the correct formula. As it turned out, by correcting the equation, the new
data was useless. Scratch another one. It appears possible that my failure to make the correction in the
signal column may turn out to be a pretty good accident.

It is our opinion at this time that System 2000 is not a stand alone system that one can trade without using
very large protective stops. Although Jo has found that by using the stochastic filters one can trade the
System 2000 signals with a $250 stop. We will keep you all apprised of Jo's progress or lack thereof as we
search for these indicators. We agree with Don, the system is not worth $400 in its present configuration.

Future Price Quote Anomalies: In the 3-years we have been trading, we have encountered price variations
between the various sources that we have used for both intraday and end-of-day quotes. The differences
between opening prices doesn't bother us too much, it is the highs, lows and closes that concern us. Our
sources have been DialData which is our present end-of-day service. First American Discount is our
present broker. Lind-Waldock and Ira Epstein were past brokers and CNBC for daily high, low and close
comparison to DialData.

Of course, we expect some differences in intraday current prices between the brokers' quoteline because of
the time delay between dialings, but not the differences we were getting in their open, high and low prices.
It would seem to us that since the prices are suppose to be coming from the exchanges, that there would be
no differences, except in the last price quote. Has anyone else had this same experience and does anyone
have a plausible explanation?

Lose of Account Executive (AE): We have become extremely cautious traders during the past year and
therefore we do not call our AE on a daily basis. Unless we have a trade we are seriously considering or are
already in a trade, it may be several days before we call him/her. Yesterday Jo called to talk to our AE to
get some info on a trade she was considering. The AE that sits next to our AE answered the phone and
informed Jo that our AE was no longer employed by the brokerage firm. We would think that brokerage
firms would be required to inform clients that their AE was leaving the firm and give them an opportunity
to select a new one.

We don't know if any CTCN subscribers have ever had a similar experience, but we suggest that unless you
are trading and talking to your AE on a daily basis you may need to check in with him/her at least once a
week to see if they are still employed by your brokerage house.

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 Trading The Maybe's

Don McCullough

I once read where a professional trader described his line of work as: "I'm in the good bets business." Many
times I have seen a signal and said: "I can't trust it." Heck no, I can't trust it -- or any other individual
signal. That is definitely one of the greatest psychological stumbling blocks to consistently trading your
signals. I'm continually having to remind myself that I too am in the good bets business. The probability
business, the good percentages business or: I've come to prefer calling it -- Trading the Maybe's.

Maybe it's a good signal, maybe it's a bad one. You can never know for sure. Note, I used the word signal
and not signals. There's a world of difference! Living or dying by a single trade or signal is a real killer of
trading performance. I'm sure of my signals (plural) worth, but I can never be sure of the worth of any one
signal. Over many trades I'm confident I'll come out way ahead.

So that's the way you have to think. Not in terms of any one signal or trade, but in terms of the overall
outcome after many signals or trades. In the "everyday world" we deal primarily with certainties and that
can be a hard habit to break. When dealing with the markets there is nothing but good bets, good
probabilities, good percentages or "Maybe's." You absolutely have to learn to think and act in those terms.

Although you won't hear many pro traders or exchange officials talking in these terms, (understandably so)
you really need a professional gambler's mentality to be a good trader. A good professional gambler has
developed the discipline to, as they say, "play the odds." Good bets, good percentages or probabilities --
same thing. More than one professional gambler has taken his gambling mentality and succeeded in the
speculative markets.

I recently read a pro trader describe how difficult it is to become a good daytrader. How hard it is to
become able to see the signal and instantly pickup the phone and place the order. How hard it is to learn
this kind of fearless, unhesitating action. She said it takes "trader's muscles." And, she said it takes a good
deal of time to develop them. Her comments here are some of the best things I've ever read about
daytrading. Trader's muscles! I love the concept.

Learning to trade the "Maybe's" properly and with the proper mind-set is quite a task!

Options & Spreads: The Business Diagram & Jungle Map - Greg Donio

During the American Civil War, a Union general and his retinue scouted a field for signs of enemy activity.
A subordinate officer spotted some Confederates in the distance. The general said, "Don't worry. They
couldn't hit an elephant from that.

No plaque hangs on my wall, but an imaginary one dangles before my eyes occasionally and bears words
by Nicholas Darvas: "There is no such thing as 'can't' in the stock market. A stock can do anything."

Nick Darvas and I (if I may presume to list myself beside one so famous) survived longer financially than
that general did physically, because we read more accurately the schooner barometer and coastal beacons
of risk. No risk means the soldier stays off the battlefield and the mariner remains on dry land. But then, no
gold medal and no cash for cargo.

you can think of risk as a dragon, but you must understand the hidden meanings of that creature. "Dragon"
derives from a Greek word meaning "acting" or "seeing;" a loose but accurate translation would be
"guarding." Thus the dragon in Greek mythology was a reptilian watchdog always guarding something:

575
The temple entrance, the princess, the urn of gold. Wherever you find precious things you will find dragons
of risk. Yet they can be defeated and/or they can work for you.

Risks may be big or small and -- more to the point of this article -- handled foolishly or wisely. You can,
with relevant skill and caution, realistically train a cheetah to chase down game and provide meat for your
table. Or you can put your right arm in the lion's mouth and get nicknamed Lefty. Alas, we are human.
How easily we give ourselves a hundred when marking our own test papers. How easily we assume that our
actions are the "wise" ones and other people's the "foolish."

Thankfully, there is a middle ground risk-wise, a Golden Mean between inflation-corroded money in a
stock and a go-for-broke crap-shoot. The significance of risk for traders rests on two foundation stones:
First, stocks, futures and options are all "ain't nothing guaranteed" types of paper. Second, the ranks of
traders teem with amateur chemists handling explosives.

W. D. Gann said, "Handle speculation like a business, not like a gamble." Yet did you ever hear of a broker
turning down a potential client because the latter's approach was "not business-like enough" or "not expert
enough" or "not scientific-minded enough?" While most are not villainous, brokers find themselves in a
sink-or-swim position of having to sign-up fresh capital, like military recruiters with their glamour and
rewards enlistment pitches have to sign-up quotas of warm bodies.

Interpret "new clients" as "replacements." Various estimates say that 9 out of 10 commodity traders see
their dollars turn into cavalrymen at Little Big Horn. An estimate of less than 90% losers is an exception. In
his book A Fool and His Money, John Rothchild wrote of "recent progress in eliminating the fraud and
abuses suffered by the average speculator in commodities. Personally, it was hard to believe that anybody
lost sleep over the cheating in an industry where 80 to 90% of the participants lost all their money anyway."

Also, over 90% of all out-of-the-money options expire worthless. Personally, did my option-investing
capital perish like Custer amid the Black Hills? Am I the amateur chemist handling explosives, with hard-
sell commission-desperate brokers supplying the nitros and potassium?

Spread strategies using options are not a philosopher's stone or a perpetual motion machine in my basement
laboratory. They are nonetheless the home silversmithing that shines appreciably. Less complex than
calculus and less tomorrow-land than computer stochastics, still they stand out for enabling me to "handle
trading like a business, not a gamble."

A hallmark of the business-not-a-gamble approach is the reducing and limiting of risk. You must take
chances, but you must limit your exposure. The story is told of a preacher delivering a sermon. Suddenly a
nude woman ran into the church and streaked across the altar. The reverend declared, "Anyone who gazes
upon her will be struck blind!"

In the congregation happened to be a successful investor/speculator. He covered one eye with his hand and
said, "I'll risk an eye."

Like a pro he reduced the risk. Limited his exposure or vulnerability. The First Commandment of Risk
Management stands rock-solid: No more than one-tenth of venture-capital per venture. Option spreads are
hazard-reduced, not hazardless. A clothier does not put all money and all inventory into a clothing line that
could go out of style next week. Just a limited amount of capital and inventory. The difference between
business and crap-shoot.

Also, if you do option spreads, half your business is that of a seller or dealer in risks, a legalized
bookmaker. Risk is a dragon that can menace a person or stand guard for him. It is a cheetah that can claw
a hunter or pile up antelope meat at his command. The cautionless dabbler and the too-impatient-to-read-
the-jungle-map type should stay away, but the person with reasonable smartness and effort can have these
fire-eyed quadrupeds in his employ.

576
Another device helpful, but not idiot-proof is time. Ben Franklin wrote, "Do you love life? Then do not
squander time, for that is the stuff that life is made of." However, the lyrics of the 1940s song "Speak Low"
say, "Time is so old and love so brief. Love is pure gold and time a thief." With the type of option strategy
known as time spread or calendar spread, time guards your long-end holdings while it steals and destroys
the short-end IOUs you sold for cash. You keep the cash.

Then you sell more IOUs on which you do not pay. While this happens on the short-end of the spread, the
fattening of your holdings on the long-end is a variable, happening not always but often. I have been able to
make it happen more often than not, ending the game early with more greens in the pot.

As explained in a previous article, I begin by finding an optionable stock that is trending. If upward, then I
position a horizontal spread of call options above the share price. If downward, then a horizontal put spread
below. The strike price of the options should be close enough to the share price for the puts or calls to have
meat on them, but not so close that a slight fluctuation of the stock would place them "in the money."

In my recent venture, I noticed IBM slipping slowly from its 128 and a fraction high of some months ago.
The New York Times financial section declared it a "bargain stock" but I interpreted its moves as rear
guard actions or fire-and-fall-back maneuvers on the charts. Regarding fundamentals, company executives
announced that future earnings may be lackluster for a time.

With share price hovering over 100 in early July 96, I obtained the following option figures from the
discount broker: July 95 (strike price) puts -- bid 9/16 ask 5/8; August 95 puts - bid 2-¼ ask 2-3/8; October
95 puts - bid 3-7/8 ask 4; January (1997) 95 puts - bid 5-½ ask 5-5/8.

Usually, the long and short ends of my horizontal calendar spreads are just a couple of months apart (e.g.,.
sell February/buy April or sell February/buy May) but this time I looked farther into the future because I
wanted to try something special: A calendar spread as a stock substitute. Explanation -- A stockholder
selling covered calls waits until expiration then sells the next month, then the next and so on. Similarly, a
spread strategist can sell a whole line-up of short-end options one batch per month if the long-end options
are well into the future.

So I bought 10 IBM puts -- strike price 95 -- expiring in January 1997 and sold 10 July 95 puts expiring
two weeks from date of sale. Counting commissions, I paid $5,660 for the Januarys and received $652.47
for the Julys. With the opening of a spread position, the buy and the sell orders can be given to the broker
together with each dependent on the other, the price difference between them or "debit" stated by the
investor as part of the order. In this instance, however, it was more straight forward to handle the two ends
separately, buying the Januarys at the ask price then selling the Julys at the market.

Let us detour for a moment and take another look at that earlier paragraph that starts "With share price
hovering." Please note the numbers therein. August 95 puts 2-¼ to 2-3/8. January 95 puts 5-½ to 5-5/8.
From the vantage point of July 1996, January 1997 options are five or six times richer in time value than
Augusts. But do they cost five or six times more?

No, they only cost not much above double. This alone is a sword-against-penknife advantage for the time
spreader. For roots of causality look at the following volume figures from the options page of the Wall
Street Journal 7/19/96: Sun Microsystems August 50 puts: 1095 contracts sold; January (1997) 50 puts: 48
contracts sold. Microsoft August 115 puts: 406 contracts sold; January (1997) 115 puts: 27 contracts sold.
Compaq August 45 puts: 1066 contracts sold; January (1997) 45 puts: 65 contracts sold.

You can see that option contracts nearer in time to expiration do trade on far heavier volume than those
with expirations several months distant. In finance, the busiest bridges are the most expensive, good news
when you receive the tolls. All those bids and buys of near-term contracts inflate the prices. Good news
when you sell them.

In his book The New Options Advantage, David L. Caplan wrote of the one-sixth-the-time-but-half-the-
price type disparity: "This often happens in volatile markets as there is an increased demand for these 'more

577
active' options for speculation and hedging. Often, we find that the deferred month options are 'forgotten'
and trading at volatility levels of 50% or more lower than the active front month contract."

The paltry number of purchases keeps the "forgotten" options at bargain-price levels, rich in time though
they are. This enables the calendar spreader to buy the bargain while selling the over-priced to the anxious
crowd who makes it over-priced. He purchases the far-term forgotten land and does a near-term land office
business.

Anyway, back to my spread strategy with IBM puts. I bought the Januarys and sold the Julys even though
the value of the latter was ravaged by time because these would expire in just a couple of weeks and free
me from the obligation. My eye was on the plump and active August 95s, then trading between $2,250 and
$2,375 for 10 contracts. Crediting what I received for the Julys toward what I paid for the Januarys, my
"debit" or the amount I invested totaled $5,007.53.

My plan, if IBM shares stayed around 100, was to profit from time-decay, selling near-term options and
then, after they expired, selling the following month and later the next. If the stock continued lower, I
would buy back the near-term options, closing out the short-end of the spread, but keeping the richer-in-
time-value options of the long-end.

In anticipation of the latter eventuality, I had positioned a horizontal put spread like a net under a declining
stock. A rising stock would have invited a call spread overhead. Well, IBM did continue downward,
slightly crossing the 95 strike price line. We now arrive at the questions of if and when to buy back and
close out the short-end. Readers of my past writings will note this item as something new in my trader's
toolbox.

In an earlier time, the slightest toe-extension of short-end puts or calls into the money would have signaled
me to buy back and close out. Ideally (if this is not too severe a contortion of that word) a spread strategist
is not only a bookie, but a bookie who never pays off on a bet. He writes and sells IOUs which evaporate
uncollected. Ergo, it is life's-blood essential that he avoid an exercise of what he sold.

IBM ebbed to 94-1/8 or 7/8 of a point into the money on the 95 strike prices of my short-end Julys. Was
exercise inevitable? Quite likely? Tom Curran, head of York Securities in Manhattan, explained to me
months earlier, "Nobody is going to exercise an option he holds if he can get more money simply by selling
the option." In my recent example, the put-holder could gain 7/8 of one point by exercising it, i.e., selling
the stock at 7/8 of one point above the market price. However, that option sold on the exchanges that day
for a fraction over two points. All good sense says do sell, don't exercise.

Another relevancy is that in-the-money options are "as-signed overnight." In other words, exercise orders
are matched up with in-the-money puts and calls after the close of the trading day. The New York Stock
Exchange ends trading at 4:00 p.m. Option transactions continue for an additional 15 to 20 minutes. Then
option-holders who had exercised their puts and calls during the day trigger overnight assignments, turning
many contracts into spent cartridges. So focus on trading day's close.

In my case, IBM shares hit a low for the day of 94-1/8, but ended the trading day at 95 and a fraction; puts
with a 95 strike price were out of the money in time to avoid moonlight match-up. The following day,
however, I phoned the broker for quotes at 3:43 PM, 17 minutes before the close of stock trading. IBM at
94-¾, also its low for the day. Back in forbidden territory! I told the broker, "I want to buy back 10 IBM
July 95 puts at the market to close the position." The stock ended the day at 94-7/8 with 95 strikes
vulnerable to the nocturnal shotgun marriage. Glad my short-end was gone.

Buying back the July puts, inflated by the decline of the stock, cost me $2,000 plus discount commission.
This made my $5,007.53 investment in the long January 95s a de facto just-over $7,000 one. I had no
complaint because IBM's downward trend also beefed up the Januarys. The 10 were worth $7,500 and
climbing. The next business day, just five trading days before expiration, I sold 10 July puts-strike price 90
this time - for $652.47.

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This marked a change in strategy from a horizontal calendar spread (different months, same strike prices) to
a diagonal calendar spread (different months, different strike prices). Imagine a diagonal line descending
from the 95 level to the 90. This is a form of "covered writing" in that the options you own cover or secure
the ones you create and sell. Within the boundaries of covered writing, you can sell call options of the same
strike price as the ones you own or higher. With puts, of the same strike price or lower. Thus I own 95s and
sold 90s.

Shortly afternoon one or two trading days later, IBM fell to 89-¾, placing the July 90s a quarter of a point
into the money. However, the shares climbed in the afternoon and closed a few points higher. No danger of
an exercise. The down fluctuation temporarily swelled the Januarys.

Special attention should go to closing prices for a couple of reasons, overnight assigning being just one.
According to a piece of Investor's Business Daily, a stock that closes at or near its high for the day will
probably go higher early in the next trading day. Conversely, a stock that closes at or near its low will
probably sink lower. The theory holds that various temporary forces that influence a share's behavior have
spent themselves before the market's final hour and especially the closing half-hour. The stock is said to
move with a truer, less-impeded momentum that carries over into the next day. This finding has proven an
excellent guide to tracking IBM's motions these past few days before July expiration.

There is also the theory espoused by several financial writers that the trading day is comprised of two
distinct time-sections. The morning hours tend to be dominated by amateurs, including many working
people who phone buy and sell orders to the broker before going to their jobs. The afternoon hours form the
pro traders' half of the inning and give them solidifying trends to ride.

Although skeptical of all theories, I must admit that the stock market made more sense to me when I
stopped expecting the first and second halves of the trading day to resemble each other. Thus I routinely
watched IBM shares zig in the morning, zag in the afternoon; they forgot their recent past during the final
hour or half-hour and began rehearsal for tomorrow.

I write this during the weekend after the third-Friday/Saturday-of-July option expirations. The July 90 puts
I sold expired worthless. The $652.47 premium I received for them: Pure gravy because time-decay or
time-is-a-thief destroyed the IOUs I sold, burned the bets I booked.

On Friday, IBM stock chipped below 64 during the last hour of trading, with a low of 63-5/8 and a close of
63-¾. The "forgotten options" I bought, the January 95 puts I longed at a cost of $7,042.53, weighed in at
the closing bell at 8-¼ bid 8-¾ ask. Rendered concretely with dollar signs on 10 contracts: $8,250 to
$8,750. Time-wise this comprises my trader's diary 7/9 to 7/19.

What about this coming Monday? The shares closed snake-belly near their low on Friday and so should
continue lower early the next trading day. More panned gold for a put-holder, thanks to what classical Dow
chartists call: lower tops and lower bottoms" and the Ellioteers term "the a-b-c- downslope." Yet let us not
forget Darvas' words: "There is no such thing as 'can't' in the stock market. A stock can do anything." Add
to this my own hair shirt aphorism: "Anything is possible and I could be mistaken."

Monday and thereafter, selling the Januarys at a profit stands as a possibility. More so if a further wane of
the stock boosts their poundage. Or I could hold them and create another diagonal spread by selling 10
August 90 puts which ended the day at 2-¾ ($2,750 minus commission). However, with the stock in the
low 90s, a 90 strike price is too near to in-the-money. A steeper diagonal, perhaps, with August 85 puts?
Tis a 1-3/8 point ($1,375 minus commission) opportunity, with more downward space for the shares to sink
to. Or maybe no short end for now if the stock slides markedly.

Capable decision-making. Essential for taking a scientific approach and handling trading like a business,
not a gamble. The notion of a scientific approach and a business-like approach contains several layers of
meaning. First off, it means expertise. A person can be an expert at insurance, car dealership or
restauranting, but no one would take an "expert" dice-shooter to mean anything but somebody who has lost
a lot over long time periods.

579
A person can be an expert at trading stocks or futures or options, but too often the self-credentialed
"financial wizard" is a thinly-disguised roulette-player who wagers until he runs out of capital. Just as it is
too easy to give yourself a hundred when you mark your own test papers, so it is too easy to assume that
your capital is the "smart money" and somebody else's the "mishandled funds." Also, sadly, trading attracts
impatient incompetents like wholesaling, realty, haberdashery, undertaking and office training school
seldom do. It's a magnet!

The cheetahs and dragons of risk can produce for you the heap of meat and the tureen of gold but they are
not lap-dogs and require an expert handler. You can be an expert but be doubly cautions about judging
yourself one. Money can be made in a basement laboratory, but too many self-proclaimed Edison's end up
broke, their self-evaluations more robust than their performances.

Another vital layer: Being dispassionate, objective, detached. Inevitably, business and gambling and
trading all strain the nerves and fire the emotions sometimes. Nevertheless, the wholesaler assembling a
plan and making a routine phone call provides a better model for the trader than does the horse-player
sweating and pacing at post-time. An emotional roller coaster is unscientific and unbusiness-like.

One final one: Do not invest huge amounts of self-esteem in your projects. The gambler congratulates
himself as the smart boy when he expects to win then brands himself the fool when he loses. Likewise,
many a trader ordains himself the financial genius then declares himself an incompetent and a hopeless
case. "Gee, I didn't think myself stupid, but now I'm not so sure." Engrave this axiom on an imaginary
plaque: "When trading, leave your ego out of it."

EPILOGUE: Then What Happened? - Greg Donio

I write this on Saturday, September 14, 1996. On my desk lies a yellow "Save One Dollar" coupon from the
Empire State Building. On Monday, July 22, IBM touched a low of 91-7/8 then closed at 92-¼. On
Tuesday, low and close both 90-½.

Wednesday, July 24, I first phoned the broker about an hour after the start of trading, to give the stock some
time to show some trend. High for the day 92-5/8, low, 89-1/8, currently 90-½. Hmmm. Twice the
previous week it had hit lows of 89-¾ and then climbed somewhat. A base? A triple bottom?

Esoterica aside, movement appeared blocked on the down side, bad news for a put-holder. A chance of it
rising, more bad news. Nevertheless, in previous days I had rooted for it to sink below 95, then 94, then 93
and a fraction. The 90 looked quite pleasing even with the fraction dangling.

A few minutes later I phoned again. IBM 90-7/8. Then I decided. If it went anywhere at all over 90 and a
fraction I would pull out and count my winnings. Of course, it was already just 1/8 of a point from that
boundary. Again I phoned. 91-¼. "Sell 10 IBM January 95 put options," I told the broker "at the market to
close the position, soon as possible."

Time for a little diversion away from my at-home desk. Within an hour I was in the basement corridor of
the Empire State Building, ready to get in line with tourists heading for the 86th floor outdoor observation
deck. First I reached for one of the public phones in the hallway. I like the freedom that being an
independent trader gives me. My office is in my pockets and my business phone is the nearest touch-tone.

Connecting with the 800 number, I turned over the yellow "Save One Dollar" coupon that the building tour-
guide handed out. The broker stated and I jotted, "Sold 10 IBM puts at 9-¼." Only 14 trading days earlier I
had paid 5-5/8, a plus-side difference after commissions of $3,524.69. Manhattan in the early afternoon
looked silvery from 850 feet up, but the scrap of paper in my pocket felt as dear to me as the photo of the
sunfish to the angler who caught it.

580
But the action continued. The very next day, IBM shot up 10 points, massacring the put options! Most
people only say "Why?" when things go wrong and they are bothered. I ask it when things go well. One
must know what one did right so one can do it again. How did I happen to tote my gold out of the Black
Hills the day before Little Big Horn?

The investment books by Nicholas Darvas that I had read years ago mattered much. He used to advise: As
long as a stock keeps going in the right direction, stay with it. When you see it turn around, grab the money
and run like a thief. So for a holder of put options, the blockage on the downside was a voice singing, "The
Party is Over." The hops upward before the big leap were the same song louder.

Another persuasive item I had in mind was an anecdote from an investment book published earlier this
century. A man bought shares for $10,000 and he watched them climb in value to $17,000. Wonderful, he
thought. He would pay off all his bills, buy a Packard, buy his wife a fur coat, take an ocean voyage, price
some real estate both total and down payment, also.

Then it slipped to $15,000. He decided he would sit firmly until it rebounded. Then $13,000. He could not
bring himself to remove anything from his dream-list. Surely the stock would recover if he showed patience
and endurance. Finally he lost all the paper profit plus a couple of thousand of capital.

An investment advisor told him afterwards, "Once you mentally spent the money, you felt you could not
possibly do with less than $17,000. That did you in." IBM looked wonderful at 90 and a fraction, but when
it moved out of that golden frame, I took that as a signal to conclude rather than to await a come-back. So
many investors and speculators would have said, "I'll take profit when it gets back to that point on the
chart." They should have taken profit earlier when it reached that point then began retreating.

New York University professor of finance George Barrone's advice to short-sellers in the stock market:
"Panic early." Also good advice for profit-takers and other traders. The share-holders in Atlantic City
casinos who panicked early and sold out with a 10 or 15% loss shed far fewer tears than those who
"brazened it out" until those stocks lost more than half their value.

Another entity with me then and with me now is the ghost of W. D. Gann and his utterance, "Go with the
trend." After IBM's run-up I said to myself, "Such a big move is usually followed by a retracement. The
stock will probably give up a hefty part of that gain real soon. Maybe I should position another put spread."

Cynics refer to this attachment-forming as "keeping pets." You feel in your heart that the stock, commodity
or option thereof that gave you a profit before will do it again. This feeling is understandable since to the
successful investor the company name sounds afterwards like a victory song, splendid and spellbinding. An
echo difficult to ignore.

Thus the pet-keeping side of me said, "IBM. Encore!" but there was another side. W. D. Gann spookily
arose off of pages I had read and warned, "Don't buck the trend." Yes, this substantial climb by IBM shares
was or could be part of a new trend upward. First, I noticed that retracement did not happen. The stock
stayed a little over the 100 level.

Then it rose to 105. I wondered, "Is this the ceiling? Is this the time to slip a put spread under it?" Again
harbinger-like the voice cautioned me: Against the trend is poison. Gradually the price ascended to 110,
then 115. Yesterday, Friday the 13th, it closed at 122-1/8. A lucky day for me, who did not sip the
hemlock.

I try for a scientific approach and do not wish to sound like a superstitious daigo, but an occasional ghost in
the attic or on the back stairs can help a financial trader mightily.

Miscellaneous Thoughts

581
 Anthony Fote

I find CTCN to be the most interesting and rewarding piece of work. For me it seems to be a crucible in
that it helps me reveal what is worthwhile (for me) and what is not. There are a lot of useless products that
seem to waste your time and money. I am grateful that I found CTCN and feel that it is of the highest value.

I do not own your Real Success video or software. I'm sure I would learn from them. I am saving for a
computer so that I might then buy a program (TradeStation) that will allow me to backtest and design my
own systems. There is little said about the value or effectiveness, or lack thereof, of TradeStation.

I would like to thank Don McCullough for his articles. It seems like Don has been progressing nicely with
his trading. I enjoy reading his articles. I would like to know what books Don thinks are of value (120 of
130 books in his collection are a waste). I would also like to thank Tom D'Angelo. I now feel like I won't
be swimming in a circle with money management. I have always thought that there was very little written
about money management.

Thanks to everyone who contributes to the newsletter. It is a great and educational resource. It is great that
we can all learn from the experiences that are written about in CTCN. The education is truly appreciated
and would sorely be missed.

The Next Great Depression

Jerry Ross

After reading At the Crest of the Tidal Wave by Robert R. Pretcher Jr., I have some thoughts.

Players creating and being involved in the next depression are:

1. Measure of Wealth

a. Stocks and bonds measured by the last tick on the exchange, which is probably a measure of enthusiasm
for buying or selling

b. Real Estate -- market value (less outstanding mortgage and cost to sell)

c. Personal Property -- market value

d. Cash -- value of dollar as judged by foreign countrie

2. Money Makers

a. Lending Institutions

b. Government debt monetarized -- debt accounted for as an asset

c. Employers

d. Farms & other harvesters of natural resources

3. Money Takers

a. Loans outstanding and interest on loans

582
 b. Taxes

c. Other unavoidable costs

The Great Depression Scenario

1. . Measure of wealth substantially decreased

a. Stocks drop at least 50%

b. Real Estate -- because of change in measuring wealth, no buyers. Banks won't make new loans and few
cash buyers

c. Personal Property -- has little garage - sale value, especially when others are trying to raise cash

d. Cash -- depends on value of dollar, which without gold backing, could be in trouble. We have little basis
for measuring the value of computer bits representing cash, or how well foreign countries will accept them
in case of a real economic slowdown.

2. Money Makers (substantial reduction and the most vulnerable)

a. With measure of wealth down, not likely to make new loans

b. Monetarized debt would cast doubt on the soundness of the government's ability to pay

c. With measure of wealth down and sales down, employers will reduce work force and salaries paid.
Salaries are especially vulnerable since basic needs are now produced overseas and information products
(US strong point) may have little value if times get tough

d. Drought cycle is such that if a depression occurs within the next 5- years, drought may add more misery
to a miserable time reducing our real strength, food production

3. Money Takers (down some, but not as much as wealth measurement and money makers cuts)

a. Lenders foreclose on loans, but can't sell the assets or afford the taxes and other costs of holding. They
won't foreclose on properties where debt is high

b. Taxes and other costs of ownership make owning property too high both for individuals and lenders who
would foreclose on it.

It appears to me that the next great depression, if we do have a depression instead of runaway inflation, will
be created by an imbalance between money makers and money takers, compounded by a great change in
how wealth is measured.

A change in measurement of wealth may be a forerunner of a recession. A depression will not occur unless
the imbalance between money makers and money takers occurs and to an extent where most of the nation is
affected by losing jobs, reduced pay, losing property and other tangibles by foreclosure. These relationships
should be watched. They make more sense to me than Elliott Waves, moon phases, and/or other cycles.

Are Your Odds Of Becoming A Successful Trader 1 in 10?

A Surprising And Encouraging Answer William J. Welsh, J.D., Ph.D.

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It is often said that a new stock or commodities trader has only a one in ten chance of succeeding. Is this
true? If we think about it a bit we can quickly determine that not only is this untrue, it is absurd. To the
contrary, we will see that your chances of success or failure are always 100%!

First, though, let's accept as a fact that research shows that only one in ten traders ever becomes successful.
I am not sure whether this in fact is indeed true or not, but for the purposes of the point of I wish to make,
lets assume it is true. Let us assume that only one in ten traders actually succeeds.

The question, then becomes as follows: "Since it is true that only one trader in ten succeeds, does this mean
that your odds of success are only one in ten -- and that, therefore, the odds are hopelessly against you?"
The answer is no. The fact that only one in ten succeeds does NOT mean this is YOUR chance of success.
Here's why.

A person who concludes that his chances of success are one in ten has committed the logical fallacy of
applying the concept of "odds" improperly. "Odds" -- i.e., probability -- can only logically apply to a future
event that is outside of your control.

An example is the lottery. Since the winning number is outside of anyone's control, the odds of any one
person winning or losing can be determined. Now, if winning and losing in the markets was outside of your
control, then using this approach would make sense. But, in actual fact, winning or losing in the markets is
not only NOT outside of your control, it is TOTALLY and ONLY under your control.

Each and every person who wants to trade has the same odds of becoming successful or failing -- 100%! If
you do the right things to become successful, your chances of succeeding are 100%. If you do the wrong
things, your chances of failure are likewise 100%.

The encouraging truth at the bottom of this line of reasoning is that you and I need not fear the fact (which
we accepted as true) that only one in ten succeed. Instead, we should embrace with confidence another fact
-- that every single person who does the right thing will succeed and will be the successful one of the ten.
And that every single person who does not do the right thing will fail and will be one of the other nine of
the ten.

Of course, the above analysis requires that you take responsibility for yourself and make sure you learn the
right thing to do. This is your responsibility and nothing comes easy.

On the other hand, when you understand the way success and failure works you are freed from the fallacy
that life or trading is luck. And, you are free to set about the task of learning what you need to learn with
the confidence that your goal can and will be reached when you have learned to do the right things and then
do them.

Rather than "proving" your odds of success are one in ten. The old adage that only one in ten succeeds
merely "proves" that most people will not learn what they need to learn to succeed. This may be a sad
commentary about people, or an indicator of how hard it is to learn to trade, or an illustration of the lack of
good trading information. But it has absolutely no control over your chances of success. Only you have the
control and only you determine whether you succeed or fail.

Catastrophe Futures and Options Contracts- Profiting From Bad - Weather David G.

I don't know if this will have any interest to your readers, but l have been looking to see if there is any way
of profiting with these hurricanes coming our way and threatening our coastline.

I get a feed from S&P Comstock, and they include with their feed a Comstock Symbol Directory. I came
across Catastrophe Futures and Options Contracts which are traded on the CBOT. I guess they've been
around since 1993, but I have never heard of them before. From what I understand, they are tied in with the

584
insurance industry. Checking out the CBOT web site, they look like they are being marketed towards
insurance companies as a hedging tool against catastrophes.

They have them tied into all regions of the country (eastern, mid-western, national and western). In
addition, they have options for Florida, Texas and California.

With Hurricane Edouard looking like it may smack the east coast or Florida, the eastern or Florida
contracts looked like a logical choice to look at. However, I haven't found a broker who is knowledgeable
in this area. And from what I understand, the volume on these instruments aren't that high. I usually
demand an open interest of 1,000 before speculating on a contract.

Maybe your readers might be interested in these, or more experienced members of your group have
experience with these contracts. I'd be interested in knowing if these instruments ever become active, and if
they have any seasonal tendencies (i.e., the market rising during hurricane season). Or if they are basically
a dead issue because no one trades them.

Please write in and let us know.

Trading With The Trend

James Wieczorek

Thank you so much for your fine work with CTCN. It is very informative and helpful. It has (once or
twice) revived my attitude to stick with my trading and understand myself better.

I have grown to trust you through CTCN and feel you have your clients' success in mind. I have been
trading for around 3-years and have pretty much held my own (if you consider a loss of about $3,000 in
that time period holding your own). I told myself I would never spend a great deal of money on a trading
system or methodology, but here I am doing it. (please feel honored).

I have been trying to put my plan on paper. The experts say you need to do this, but it's tough, and I really
don't know why. I 'm trading only with the trend now and it's true what they say (make the trend your
friend) and things work out better.

Don McCullough's Article On Bank Traders In Volume 4-3

George Famy

Don, if you want to learn how to trade you can forget about banks and brokerage firms.

There are very few "real" traders in these places. They are mostly all "market makers". Before I explain,
refer to Bill Lipschultz's interview in The New Market Wizards, pages 55 to 58 where he discusses the
same thing.

I worked for many years in banks, brokerage firms and "trading" firms and between me and my friends
we've "traded" everything: OTC stocks, currencies, interest rate swaps, options and structured derivatives.
All these positions require certain particular skills, but nothing like what you and I are trying to do each day
when we trade futures. Except for a few exceptional people like Mr. Lipschultz, most of the people
recruited and trained in the financial world could never make a dime in real trading.

They make money by making markets and trading customer orders. Most of the day is spent trying to
"outsmart" other traders for "quarters" (¼ point). For example, in the OTC stocks where I started, traders

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were constantly putting fictitious bids and offers in "Instinet" (a computer trading terminal where buyers
and sellers post bids and offers anonymously) just to give the appearance of a strong or weak stock only to
be doing the opposite in "the box" which is where market makers show their bid, offer and name.

Although a few talented "old timers" eventually became hedge fund managers, the majority of the guys on
the desks today are just taking the ¼ point bid/offer spread. Ditto for the forex traders who "scalp" all day
and are allowed also to front run customer orders (see Lipschultz interview).

I saved the best for last, derivatives. Here most of the guys, especially in OTC derivatives, are working
with huge bid/offer spreads as they "make markets" for corporate clients. Using options as an example for
the moment, after getting "hit" or "taken" (market maker buys on his bid or sells on his offer) the market
maker does an opposite trade in another option or the underlying instrument to "hedge" the trade, locking in
the small difference in price.

This should more appropriately be called option arbitrage and not trading. One of my friends for a large
American bank (in London) known for its derivatives prowess explained to me how his firm made markets
in long-term warrants. They sold a structured deal with warrants to their clients so complicated that the
embedded price (implied volatility) was difficult to determine by the bank's "sophisticated" clients but that
it was 30%. Meanwhile he covered his "risk" by buying volatility at 15-16% on the stock exchange floor
(Paris) in the equivalent exchange traded index option where I was a floor trader. And this guy was
considered one of the firm's "up and coming stars." Is there anyone in the world who considers this trading?

Don, the only way to learn to trade is as you are now doing or try to work for someone not affiliated with a
bank and who is trading successfully. By all means forget about these MBA's sitting on the desks at the
major banks and brokerage firms on Wall Street! Good luck.

Lawsuits - David G

I spoke to soon ... Please do NOT send me a copy of your newsletter. I already found your web site. I loved
the sample issue. You know, it's a shame that the threat of lawsuits exist out there for publishing other
peoples' opinions. I don't understand how you can be sued if you write someone's opinion in your
newsletter.

I guess the great thing about misc.invest.futures is that the writer does have complete anonymity (sp?). I
could say whatever slanderous things I wanted to about a firm/newsletter/system, and could not be sued,
because I could not be tracked down. But then you get into issues of credibility of the writer. By the way, in
comment, who the heck is even going to sue someone in Sweden? I'm pretty sure, no one is going to return
to the US for a petty lawsuit. What can a country/first name, or initials accomplish?

Anyway, can you just place a disclaimer like CNBC whereas "the opinions of our members do not
necessarily coincide with those of our editors" or better yet, if someone does threaten to sue over an article,
why not just state: "We intended to publish an article concerning "The Vendor" however, "The Vendor"
has threatened to sue us if we decided to do so, therefore we will not (or will not comment at this time) (or
have withdrawn the article).

That way, yes, you can't publish an article concerning them, but at least the readers understand that there
might have been something damning enough that "The Vendor" has threatened to sue.

I mean what could be said in court? "Um, your honor, CTCN said they weren't going to publish a story on
us, because we threatened to sue them if they did." Not likely.

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As far as membership is concerned, I'm trying to decide between your group and another. I'm not really
interested in shelling out money where I can't get an honest comment on a system/newsletter/person etc. . . .
based on traders' experience.

But to the price: Am I to understand that it's $67.00 for the first year if I complete some sort of bio. It's half
off that price ($34.00) if I submit an article to you about trading in general?

Editor's Note: Thanks for your comments and suggestions. Yes, it's $67/year and after the first year, half-
price if you submit an article after the first 12-months of membership.

A Second Opinion On The Market Timing Group System

Adam Levine A Non-Anonymous Trader

In March of this year, I purchased Steve Kelson's Market Timing Group System. Since that time I have
seen 90% of the major buy or sell setups turn into good trades.

My problem has been overcoming my need for control. I've found that I have a tough time believing a
signal and then mindlessly following it, although this is what I should be doing. The scenario goes like this;
A major signal sets up, I should place my order, but don't. Instead, I waited for the move to verify itself,
which invariably it does. I get in on the next signal, although it is not a major signal, and just my luck I get
stopped out. Had I gotten in from the beginning, I would have more than made-up for the relatively small
loss of the later, less significant signal.

In regards to there not being a manual per se, this is true. What you receive is several books of price charts
with examples of past trades. The "manual" is explained over the phone in a few sessions with Mr. Kelson.
I made sure that I had a pencil and paper ready to jot down the rules of the system. Mr. Kelson has no
problem spending the required amount of time needed in order for you to grasp the concepts.

This system does require some time and effort to learn and utilize correctly. But then, I don't know
anything of an quality, trading or otherwise, which doesn't also require these things. I know and have seen
that it works, now I've got to get myself to work.

By the way, I get daily downloads and charting software from TBSP, 10-minute delayed quotes from DTN
Farmdata, weekly paper charts from Commodity Trend Service, and I also previously used Wilder's Delta
Phenomenon charting software and turning points.

Things I Wonder About Written By

Don McCullough - Galen Cawley

Mr. McCullough made several excellent points in his article, but I must take exception to his statement that
the trading rooms of commercial firms "contain some of the best traders in the world." Perhaps they do, but
that is almost incidental to their function. I think that Mr. McCullough grossly over-estimated their generic
trading abilities, for several reasons.

For my money the best traders are those like Richard Dennis, who make it on their own.

First, I disagree with his premise that we as speculators are always in direct competition with commercial
traders. It is not the case that we should "trade as they trade."

Speculators and hedgers occupy different market niches and perform different functions. We provide
liquidity in an attempt to extract a profit from the market; hedgers act to minimize the risk to their

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inventory. They have a business to run, e.g., for a commercial grain firm, price forecasting is only one-third
of the equation: logistics and quality control are almost equally as important. They have to worry about
transportation, processing, storage, customer satisfaction, etc. -- not to mention their competitors.

For a commercial, "profit" means net margin per unit, not return on equity (ROE). Profit can include such
things as operational savings, hedging efficiency, etc. Standard money management performance measures
are foreign to the commercial mentality.

Commercial traders tend to be spreaders, which makes sense given their:

(a) risk-averse nature;

(b) concentration on the "basis" (difference between cash and futures),
(c) the time value inherent in their inventory, and;
(d) their fundamental appreciation of the relative value of substitutes

Conversely, most speculators are flat-price, players. And most commercials I know are poor flat-price
traders.

In short, speculators and commercials have different objectives, time-frames, and utility curves. Read the
first Market Wizards book to see what one "wizard" has to say about the positional advantage of each class
of market player.

I disagree that commercial trading rooms necessarily develop good trading skills per se.

It is important, conceptually, to separate the trader from his or her corporate information network. Many
market-makers in the inter-bank market merely capture the bid-ask spread. Other trading desks (especially
in the currencies) front-run orders. This amounts to legal trading on inside information. Still other
commercial firms are able to capture trading profits through market share and economies of scale.

None of these activities have anything to do with genuine trading ability.

To the extent that commercial traders do indeed develop trading skill, it tends to be fundamental (due to the
nature of their business) rather than technical. They become highly proficient albeit limited specialists. It is
very difficult to transfer those skills. If you take them out of their corporation or industry, they lose their
informational flow, and become like fish out of water.

It is difficult to evaluate the intrinsic trading ability and true performance of commercial traders because
they often lack a capital base against which to judge their returns. (Again, they have valid but different
performance benchmarks). However, some of the better investment banks do employ RAROC systems --
which stands for Risk Adjusted rate of Return On Capital.

Hedging is an extraordinarily tricky business. It is only human to have a selective memory: Any profit
becomes my win, whereas a trading loss is a relegated to a "hedge."

As for Mr. McCullough's contention that "applicants are very diligently screened before being accepted for
an assistant trader position," well, I would recall the observation of Woody Allen that 95% of life is
showing up. That's what apprentices do. (As for MBA's, forget it: having been indoctrinated with the
academic dogma of efficient markets, they give up before they get started).

None of the foregoing is to deny that commercial traders are very good at what they do. They enjoy the
benefits of specific market knowledge, around-the-clock resources, enormous capitalization. and the like.

My point is simply that we as speculators don't have to play their game: we can choose when and where to
trade, only when we have the positional advantage as defined by a proven trading system. When it comes to
developing trading skills, there is no substitute for independent thinking (and adequate capitalization).

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 Skeptical But Hopeful

Bob Perry

O.K. I'm human and was in a bad mood when I wrote the last e-mail. I will admit that I am wrong. I have
dealt with many good, honest individuals over the past years and found most people to be "hopeful of the
future" if not anything else.

It's just that when I fall for clever ads and advertising written by those "Madison Avenue types" I feel very
disappointed and disillusioned. (Are you listening Windsor Books? - among many others).

I used to think trading was a science and traders were all trying to find the "Truth." Thankfully, I have
found through reading CTCN that, unlike scientists who share knowledge through revealing equations,
explaining in detail experimental setups and results, and then offering conclusions based on revealing all
their facts. The traders have incredible egos and try to explain their results without revealing anything and
then try to get guru status or sell this silver of "knowledge" for hundreds or thousands of dollars.

It seems to me, some are not trying to help others make money at all, only trying to fool each other into
thinking that they might have the potential system for sale. I know the majority of people (traders) are good
and honest, but after being bitten a few times, I have come to the conclusion that some vendors are sharks
and I trust few of them. But I also have myself to blame for believing that I can "just follow the signals of
their system" and make a living.

I never made any money until I quit buying others' systems and I developed my own methods. I like Bruce
Kramer, whom I respect and wished would write more often. I now feel that anything I purchase is for
education. I want it fully revealed so I can try it out and see if it suits me.

For example: I kept getting ads for Dave Wright's Cherry Picker System. The advertising results looked
good over real-time. I bought it because it's fully revealed. I tried it out and found (although the
methodology is sound) will not work for me unless I was either down on the floor myself, had a broker
trading it for me, or had some magical way of knowing if my limit orders had been filled and guy on the
other end of the phone didn't mind me calling him every few minutes to see if I had a fill or to move my
stop (believe me, they hate this and will not hesitate to tell you so even though it's not their money on the
line).

Other people trade it quite successfully - I can't. Maybe someday when I'm a more experienced trader I will
go back and try it again. But it did give me insight as to another way to monitor a stochastic oscillator and I
am a better person for it.

I've tried the AST network and although I learned some great new interesting things about intraday market
analysis (of which I'm very grateful and have not seen anywhere else), the trading methodology was
nebulas and non-specific. I found I need specific entry and exit rules, I didn't know that about myself
before.

I've tried others: Larry WIlliams' seminars (lots of TS systems that have made money over the last 10-
years, but they don't work anymore). Kent Calhoun (needs to hire a technical writer to condense his
mounds of data and babbling from (what is it - 5, 6, 7 binders?) into one coherent volume - (too bad you
can't just buy Pat Raffalovich's software and read his user manual. It's all there, except how to trade. I felt
like I was going through some wise professor's lab notes from all his experiments and he decided to publish
it before it was edited.

Again, I was frustrated, but I'm sure others learned and are making good trades. George Angell (to borrow a
quote - "His systems make money if he sells enough of them"). Jeffery Horovitz (funny how great systems
suddenly stop working so well when they go on the market - this taught me that I need to know the

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methodology and not a black box. John Wang at AbleSys (great mathematician and programmer, but not a
trader). He'd benefit by having his ideas and software used by traders that reported back and then
distributed methodology in the form of a quarterly or semi-annual newsletter or maybe on his web page.

Systems USA do not publish results of these systems reflect how they actually did when real people traded
them? I could go on and on about other vendors, seminars, books and tapes. They all have something to
offer.

I still will venture into vendorville if not just for curiosity's sake. I want to learn, but I don't want to deceive
myself into thinking I don't already have the tools and I'm just not putting effort into using them (like 5
vertical bar methodology. I'm just not going to throw anymore money or time into that pot, but Bruce
Kramer uses it everyday and does well). It's just discouraging to discover so many ideas and methods that
don't work. After a year of study and a year of daytrading, that if a vendor told me that sun will come up
tomorrow, I would ask him for his brokerage statements, 3 references and a 30-day working copy of his
software.

I would like to thank CTCN for holding a mirror up to ourselves. I only wish it could name names and
allow people to give more of their honest experiences with systems and services without censor. I often see
people requesting info off-line about systems and people I would like to know about. Yes I would pay an
extra $10-20 per year for a legal defense fund.

I am not trading now. I am taking a year off to analyze myself and my methods. I am working a high
paying job and working on myself at the same time. I realize I like to trade. I'll be back, it's in my blood. I
think it is necessary for people like me to continue to bounce around like a pinball until we connect with
someone or some methodology that not only works, but fits our style and personality. I have thought of
trying to find a CTA that would trade an account for me, but don't know if I want to go down that road.
Let's face it, if there is a good system or method, the weak link is the trader.

It is a great education if you view it as a hill you are climbing and not just a side trip in life. But it sure gets
expensive if it doesn't pay for itself.

By the way Dave, are those (Real Success) daytrading videos still for sale?

Editor's Note: Your remarks are interesting though you appear to be quite negative on vendors and also on
CTCN, saying (CTCN) is more for entertainment. I strongly disagree on that, but that's your opinion which
of course I respect.

By the way, most vendors are honest and try to deliver quality or valuable products to assist traders. The
problem is most traders expect they can buy the Holy Grail for a relatively minor amount of money.

Of course, no one really has (the Trading Holy Grail) for sale, even for millions of dollars per copy.
However, due mostly to "good" and powerful advertising copy, their ads sound like they really will deliver
the Holy Grail. Many of these ads are done by Madison Avenue ad executives or by very clever
individuals.

About availability of our daytrading videos. We only have a couple Real Success daytrading training
packages left. However, we are thinking about producing new tapes based on similar principles. If we do
this, the new tapes will have some minor but important changes made to the methodology, so the trades are
different compared to the original methods.

Also, due to the extensive support and high expenses involved, they may be priced higher than the original
video package, which was only $897. We will let you know about this in about 30-days or so.

Member Requests

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AustinSoft Options Software: If you had a bad experience with this company, let's talk, call Ray York at
619-941-4499.

Seeking traders who have Volumes of Technical Analysis of Stock & Commodities, 1986 through 1992.
Willing to purchase selected past articles, lend books or share information. Call Charles Meyer collect at
409-249-3780.

Anyone having historical tic data on Dow Jones Transport, please call Bill Norwood at 803-768-1338.

A member who wants to be identified as "1stknow" asks if a chat channel has been established for
conferences? No, it has not. This is mostly due to technical difficulties in setting it up. We are still working
on ways to do it Online. Difficulties in setting this up were discussed in our last issue.

Editor Comments

I recently visited the web site of Avid Trading Co. They have many so-called links to other websites,
including a number of competitors.

Their front page says: "We could hardly call ourselves capitalists if we did not believe in competition. But
competition that dissuades traffic from even entering the marketplace is simply not good business. So, you
may notice that some of our "Trading Links" will link you to direct competitors. The Web is a mall, and
each page's links are its corridors. Would you shop in a mall without corridors? Not promoting access to
other websites that are obviously of interest to the user will only serve to slow the growth of the Web as a
whole.

As long as we're talking Web philosophy, let's talk Web content. You will notice that at least two pages of
our web site are updated each trading day. Web users can view inSight inFormation©'s pages anonymously
and for free; no registration or password necessary. Sure, it's part of our marketing, because we think that
the more you see of us, the more likely you are to subscribe to our services. But meanwhile, the challenge
is on to all websites to provide you more reason to log on than just to see an advertisement.

A little competition never hurt anybody, and it can only help you: quality stays up and prices stay down.
We at inSight inFormation© invite comparisons of our service, and we know our prices are fair.

Comment anytime with your suggestions. Please note: Our links do not imply an endorsement of what you
will find when you get there.

The reason I mention this is there is a web site run by Innovative Systems of New York. They have a
number of commodity firms who have their web pages set up on Innovative's site. They allegedly do not
want to promote open access to their web site and do not believe "a little competition never hurts," as
mentioned in the Avid Trading Co. fine web site.

Innovative receives substantial income from setting up commodity clients on their website. At one time
they were extremely anxious to setup CTCN on their site. This was some time ago and before they became
so well-established with two primary players. They have two most important clients, at least from a
marketing standpoint .

Based on their advertising and promotions on the Internet it has been alleged they use these two well-
known clients as their main marketing tool to promote themselves and others. This is similar to a

591
 supermarket which advertises Coke, bread or milk, etc. at a low price to get you to their store in the first
place. This is what allegedly is being done with that web site.

CTCN recently asked Innovative (Mr. Joe Esposito) if we could also join their web site in reference to a
different product (Real Success Methodology Video Tape Training Course) which is not directly related to
CTCN. This was done as we were looking for new and expanded Internet exposure at a different web site.

By the way, CTC currently has a well-established web site which was setup and is maintained by
Investment News Online (Mr. J. Adam Hewison) and we are quite happy here.

Our own web site and our direct web address is: http://www.webtrading.com/

Surprisingly, we were turned-down as a (paid) client of Innovative for no solid or good reason, other than
some false or nebulous reasons. Could it be they were allegedly afraid there two most significant clients
from a marketing standpoint would get upset if anything connected with Commodity Traders Club was also
on the same web site as their web pages?

Unfortunately, Innovative Systems of New York allegedly does not seem to support the idea (as outlined by
Avid Trading Co.) "the Internet should be open to all traffic from entering the marketplace should and
traffic should not be dissuaded." The fact they do want CTCN on their web site speaks for itself.

As evidence Internet traffic should not be dissuaded, Joe Esposito recently told your editor he received two
profitable new clients who heard about him in CTCN several months ago. He still received some business
as a result of the publicity in spite of the fact Joe said that CTCN short blurb about his company Innovative
Systems was negative!

About our planned Online Internet Trader Trading Service. It's very complicated to setup and quite
technical. We are still working on it and hope to have it operational soon. An exact date cannot be given at
this time. We appreciate the many traders who have indicated they want this added service and will
continue working on it. As soon as it's ready I will personally contact you.

Please note our new e-mail address is ctcn@webtrading.com.

Thanks to everyone who has contributed knowledge to this issue of Commodity Traders Club News.
Without you it would not be possible.

Issue 35.

Sheep in Sheep's Clothing

Patrick Smith

We have become accustomed to seeing contributions from the ever growing flock who have discovered that
they can make money trading stocks from the long side during a bull market. As brokers like to say, "It's
easy to confuse a bull market with brains" (or trading ability). It happens in every mature bull market and
this has been a big one. But the tone of the most recent "bull market supertrader's" contribution provoked
me into a response.

I bought my first stock in the early 1960's. Western Equities (later renamed Westech) was at 22. In a few
months it had appreciated to 60. I returned from a vacation in Europe to find that trading had been halted.
The last trade had been at 45. Many months later I sold it on the day trading resumed at 8.

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From that time on, I wanted to be a stock trader. But how to learn? In 1970, I took a job as a retail broker
(customers were individual investors) with a large Wall Street firm.

One of the first things I learned was that you could make a lot of money as a broker, specialist or OTC
market-maker. But for our stock trader customers, commissions, bid offer spreads and fees translated into
steep transaction costs of about 1% in the case of liquid listed stocks and 2% or more in the case of thinly
traded unlisted stocks. Even with discount brokers I could never figure out how to get round-turn
transaction costs much below 1%.

I also learned that while our trading customers did well while the markets were going up, they gave it back
when the markets went down. By the end of the first year of the '73-74 bear market, all of our traders had
either blown out or wouldn't speak to their broker.

I further noticed that we all had customers that had been with the firm for years, but never listened to our
advice. Once every year or two they would call and place buy orders for stocks, but not the ones we
recommended. Sometimes I would call one of these independent investors and recommend a stock or relay
a sell opinion on a stock they owned from one of our "expert" analysts. They would listen politely and
ignore the advice.

One customer actually bought more of a stock our analyst was bearish on. He (the customer) was right.
These "buy and hold" customers were the only ones who made money. They didn't have yachts, but by
avoiding the transaction costs of trading in and out (not to mention capital gains taxes) they were able to
make market returns. Of course, if all of our customers had used the buy and hold strategy we (the brokers)
would have gone broke. So we didn't mention that strategy to other customers.

But, the biggest thing that bothered me about being a stock trader was the bear markets. I knew there would
always be bear markets and that they were hard to predict in advance. I knew that everyone who held
stocks lost money in a bear market, so the only way to avoid one or two years of losses was to be out of
stocks and in cash equivalents.

So even if I was the one out of a hundred who could see one coming and get out of the market, what would
I do while waiting for the bear to run its course? Trading stocks solely from the long side is an incomplete
strategy. If you're to be successful, it's only a temporary job.

In 1977, I became an institutional equity derivatives broker (customers were pension funds, mutual funds &
insurance companies) in Chicago. There I learned how insiders beat stock traders.

Did you ever notice how a stock often goes down 10-20 or even 30% before the release of bad news?
Here's how. When a highly disappointing event looms on the horizon, company management has a
tendency to sell a lot of their stock. Most of us would too. Then they get their friends and relatives out.

Next they repay their favorite analysts (the ones who have recommended their stock over the years) with a
hint of trouble ahead. The analysts get their most important customers out. Their most important customers
are, of course, the largest institutions so this can result in some really big selling. Only now, after the stock
price has discounted the new fundamentals, do we see the news release.

Warren Buffett said, "If you're in a poker game and you don't know who the mark is, you're the mark." A
big poker game run by a casino is an excellent analogy for the stock market. The brokers, specialists and
market-makers are the house. They take a cut from every pot. Players at your table include insiders, their
friends and institutions. They know who the mark is.

So I never could figure out how to overcome the stock markets' negative edge of high transaction costs and
the insiders' advantage, except to try for the market return with a long-term buy and hold strategy. If I
traded in and out, I would use up my 10% historical stock market return edge with a few trades and an
insider donation or two.

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What would I do about the bear markets? The historical return is an average annual return over many
decades, but the market doesn't pay off that way. It's up 30% some years and down 20% others.

Then the S&P futures began to trade. You could round-turn $100,000 worth of 500 stocks for a $25
commission plus a $25 tick or two. One tenth of 1% was all a round-turn would cost and the insider edge
was diversified away. Going short was as easy as going long, so bear market profits were possible. I found
an edge and made some money.

In 1988, I left Wall Street to trade for a living. My partner/wife and I bought SystemWriter (preceded
TradeStation) and went to work. We had to pay our dues, but we now trade eight markets (four currencies,
bonds, notes, Euro's and S&P). Our transaction costs are never more then 1/10th of 1% and are largely
offset by interest received on margin and cash balances.

The only insiders that can "punish" us are the central banks and sometimes they end-up as the marks. We
have a complete strategy that trades both sides of every market. Every year a couple of markets are trending
and some years most are trending. Those are our best years.

My point is that if you can't make it as a futures trader, it is extremely unlikely you will make it as a stock
trader. That is not to say that if you take a long view (more than ten years), buy and hold good stocks or
mutual funds even though they may decline for several years, you won't be able to realize a return
comparable to the market return.

There, I feel better now. But I doubt my thoughts have saved any bull market stock traders from the next
bear market. They always figure they can beat the game with their superior stock selection (after all, their
latest hot stock did out perform the market). Or they figure they will know the difference between a
correction and the start of the next bear market, or maybe this time is different.

An old broker I sat near during the growth stock binge of the early seventies used to say: "If God didn't
want them sheared, he wouldn't have made them sheep."

Writing Systems with TradeStation - Bruce Ballard

In the last few weeks, I have written what I thought were some really good systems. I tested them on
historical data supplied by Omega and they were showing results like 70% winners and very little
drawdown.

My surprise was finding that TradeStation was not evaluating the systems correctly. My mistake was using
daily bar charts for my setup, entry and for stops. Even with a stop of $1,000, TradeStation could not tell if
my stop was hit or not. Price could go $2,000 against me, but if the day ended significantly up,
TradeStation would probably analyze the trade as a winner.

To correctly analyze the results, you have to use a small-time frame for the stops. I think anything over 5-
minutes and you can't be very sure of the results. So the problem comes in of having plenty of daily data,
but little intra-day data. Also it's much harder to write systems using two time frames. I wasted a lot of
time. I hope this will keep someone else from doing the same thing. The systems may still be good, but I
can't be sure.

Comments Regarding the Last Issue - Don McCullough

Appears to me as though you are making a great success of the newsletter. Shall we shed a tear for Bo of
Club 3000? Perhaps not, eh? Continued success.

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T. Judd, be careful with your scale trading. Sooner or later a market will drop to totally unexpected levels
and you will be forced to take a whopping loss. If you have "deep pockets" this may not be a problem for
you.

Theoretically, a person with huge sums of money could buy a market at a low price and as it kept dropping,
keep buying, doubling each previous amount at preselected levels. Once the market finally bottomed-out,
your last position would be so huge you would break-even and start making lots of money with a relatively
small up move.

This kind of scale trading is calledThe Martingale Strategy and is mentioned by Larry Williams in his
book, The Definitive Guide To Futures Trading, Volume II. On the surface this method appears to be
foolproof.

With further thought, you find you might have to wait a year or two for a market to bottom-out. In the
meantime, you might have a nervous breakdown! Too, the market may go primarily sideways for a year or
two while you're holding gigantic paper losses -- wouldn't that be fun? This method would also often
require rolling over into succeeding contracts.

That could entail a lot of commissions once you had lots of contracts. Also, the month you're rolling over
into could be at a considerable discount to the one you're getting out of. You'd also have to space your
purchase levels so as to avoid going over the number of contracts allowed a single individual by the
exchange.

As Larry says, "if you want to try a trading method that will really get your heart to pumping, try the
Martingale!" I wonder if this method is used successfully by some of the big boys, especially those who are
well connected and know when they and their cronies will make a bottom in the market with their huge
buying power. The legal term for this is "collusion." In the case of speculative markets that's when traders
work together to illegally stop or move a market.

Speaking of collusion, what's to keep several large traders from wearing headsets in order to instantly
communicate with each other and buy and sell in a huge manner and cause major, if not minor market
turns? Of course, I would expect them to place their orders in a manner so as not to raise suspicion. Anyone
have any thoughts on this? Have traders been caught doing this?

Earl McHugh - I think you are correct in being most impressed that the most successful traders who write
articles in CTCN seem to be self-taught and follow simple methods. I would add, as a pro once said:
"Simple but not easy." I am totally convinced that getting rid of huge amounts of misinformation or clutter
is a big part of the battle when it comes to trading success.

I believe the better pros have a double lock on their profitable trading chest. One "lock" is the difficulty of
discovering their outstanding signals or knowledge. The other "lock" is the self-confidence or psychology
required to trade these signals in a consistent, and thus profitable manner. Actually, there may be a third
"lock." That is, enough capital and available time to gain the actual trading experience needed to achieve a
really good trader's psychology.

Evelyn Mooney - I can easily identify with your being too paralyzed to trade. Take heart. I read of one
successful pro trader who says he's had this problem and it's very real. Your statement: "I've lost lots more
money by not trading than I ever lost by trading," is also something I can very much appreciate. It sounds
like you really know what to do, but you can't bring yourself to do it consistently. Welcome to the club!

It may well be that once we gain enough self-trust to trade nearly all of our signals, we'll do better than we
ever imagined. I say nearly all because I don't think it's possible for the discretionary trader to see, let alone
take, 100% of the signals 100% of the time.

Some pros have referred to this as "trading full-out" and say this is what you have to be able to do in order
to succeed. This "full-out trading" may well entail a lot of reversing or establishing an opposite position at

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the same time you're exiting your old one. My experience watching the intra-day movements of the S&P
market tells me the better pros are doing this a lot.

Self-trust or self-confidence. Is anything more important in any field of endeavor? Trusting yourself to find
the best answers to successful trading and trusting yourself enough to trade those answers. In very basic
terms, I think that's the solution most people avoid and that's the basic reason most people fail. It takes a
self-confident, independent, individualistic and very determined kind of person to accept this self-trust
solution.

Even with equally good knowledge a relatively inexperienced trader is at a considerable disadvantage to the
very experienced pro -- especially with respect to daytrading. Most of us have a degree of fear the better
pros have not felt for years.

When daytrading the S&P (other markets too) I find I must usually see or anticipate the signal and have the
order placed -- all in one single minute. This kind of required, unhesitating, decisive action does not come
easy to the inexperienced!

I'm talking about at-the-market orders here. Since placing limit or stop orders ahead of the signal should be
psychologically easier to do, that might be the best types of orders for the newcomer to daytrading.
However, the often long wait for the fill report from such orders can make them much less appealing.
Here's where being "well-connected" or having your own broker on the floor would be an advantage.

Greg Donio - You state in your article that there's a theory the morning hours of trading are dominated by
the amateurs and the afternoon hours by the pros. I don't know about all markets, but I feel strongly that the
reverse of this is true with respect to the S&P market. I'm becoming convinced that many of the more
experienced S&P daytraders trade the mornings only. Over many years, I expect they've become very
intolerant of the boredom and long periods of focusing on the intra-day market. Many have probably even
experienced "burn-out."

I'm sure many have chosen to trade only during the very active and liquid mornings which permits the best
fills for their large orders. By doubling up their position size they can make just as much as they did with
their former full-day trading and stay fresher both mentally and physically as a result. This is no small
point: When you feel better you trade better!

In my opinion, morning only daytrading has a lot going for it. I know you can take a I or 2-hour break at
the Chicago and New York lunch times, but I expect morning only trading may be the better way. You will
often miss some great afternoon moves, but I think the more mature trader has learned to put himself and
his overall well-being first. He's learned to be a master of the market and to prevent the reverse of that from
happening.

Anthony Fote - Several issues back I had an article in which I listed my favorite books. That list has
changed somewhat and here's my present favorite book list. The primary thing that separates these books
from the 100 plus others I have, is they all contain advice from proven successful professional traders.
Several of these books have a lot to say regarding the psychological aspects of successful trading.

In time you'll find that the knowledge of good signals is not enough. (DT) means the book is especially
about daytrading.

• Both Market Wizard books by Jack Schwager

• Aerodynamic Trading by Constance Brown (DT)
• The Innergame of Trading by Robert Koppel and Howard Abell
• The Day Trader's Advantage-Howard Abell (DT)
• The Intuitive Trader by Robert Koppel
• The Outer Game of Trading by Robert Koppel and Howard Abell
• The Disciplined Trader by Mark Douglas

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These are now my favorites, but a few other general knowledge books like Jack Schwager's, A Complete
Guide to the Futures Markets, would be a worthwhile addition to every trader's library. Person to person
help from a proven professional is by far the best way to learn about trading the markets.

Even then the approach that "fits" him may not fit you. And a lot of people who have read a lot of books
about the markets have failed with their trading. "If I know enough - I can do it," is true about a lot of
things, but it's impossible to do some things well -- if at all -- merely from books. Actual experience is
often required. With trading, sufficient experience can be more costly in terms of both money and
persistence than most people can afford or are willing to pay. The better pros have the great advantage of
great experience.

Someone once said: "Lovers who love truly never write of their love." What's meant by this is they are too
busy loving and living happily to have time to write about it. I think about the same thing could be said
about the better traders.

George Famy and Galen Cawley - I appreciate your response to my Things I Wonder About article in the
last issue. I respect the real world experience you bring to the subject of professional trading rooms, but I
still contend some of the best traders are in professional trading rooms. Maybe not in most of the banks or
many of the others, but in some. Surely, banks and insurance companies with their great wealth would
attract and be able to afford some of the better traders.

I think it's quite possible that some very good traders trade best with other people's money and may also be
happier in the presence of other good traders as opposed to the aloneness or even loneliness of most
individual traders.

Learning to trade is not my goal with respect to my wondering about professional trading rooms. l was just
curious to know how the better ones selected and trained their beginning traders. MBA's don't mean much
to me, and it's common knowledge that a lot of Ph.D.'s lose their shirts in the markets. I still think it's true
that we need to trade as the better traders trade no matter where they trade from. No doubt, you would be
best served to find the pro that trades in accordance with your personal temperament.

I agree and believe that some of the very best traders are loners. I think many of them chose trading, to a
significant degree, to avoid being subordinate to others. Truly independent and creative thinking, I agree,
can be vital to trading success and no doubt some of these very independently minded loners therefore start
out with a more suitable aptitude for trading. I can see where a "socially conscious" Mr. MBA would have
a tough time (and he's certainly not alone) of shaking off all of the clutter that's accepted as gospel by the
majority.

Have the better independent traders taken away the dominance the professional trading rooms of banks, etc.
once had in the markets? Were these professional trading rooms ever dominant? Years ago, I would tend to
think so.

About "Omega's Total Lack of Quality" by Robert Gross - Peter Somogyi

I am a new member to CTCN and just received my new subscription together with the back-issues, all of
which I read. First, I would like to commend our editor for his organizational and editorial skills and for
publishing a newsletter that freely shares worthwhile information on a wide variety of topics related to
investing and trading.

Second, I want to acknowledge that in each of the back-issues of CTCN, I found at least one article which
was worth the $177.00 I paid for my subscription and back-issues. So for anyone who did not order all the
back-issues with their subscription, I would highly recommend to reconsider.

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As to the article submitted by Robert Gross regarding "Omega's Total Lack of Quality" I would like to
share with my fellow readers my recent experience with Omega Research.

About a week ago I ordered the software "SuperCharts Realtime" from Omega Research asking that they
send it express mail accepting the $30.00 extra fee for fast delivery. The software arrived on time all right,
but inside the box I found some deficiencies. The content was not well packed, articles were loose. The
downloader manual and instructional videotape together with some other promotional material were
missing.

Needless to say I was disappointed and phoned my account rep. right away, but she could not be reached. I
then asked to speak with a supervisor, but because it was nearly the end of the day Florida time, I could
speak only with another rep who took down the details of my complaints.

The next business day my account rep, phoned back apologizing for the mix-up of their shipping
department and offered to replace the order with new software at Omega's expense. Since I already
evaluated the software the previous afternoon and thought that it was not what I really wanted, my account
rep offered instead to send me TradeStation for evaluation free of charge whenever I was ready to evaluate
it.

In addition to sending the TS software without any charge to my credit card, Omega Research had credited
my credit card account fully, including the $30 express shipping charge.

So here is the moral of the story: When you are on the phone it is a good practice to be polite and
courteous, even if you are upset because things did not work the way you expected them to. The person on
the other end of the line is a human being and also deserves a certain amount of respect, especially when it
is often not their fault that an order was not filled the way it should have been. It should be kept in mind
that it is difficult to run a large business organization without a "glitch." After all the people who carry out
our orders may make mistakes (and if you heard about "Murphy's Law" you know that they will make
mistakes) for people have colds, flu, headaches, periods, PMS and whatever else, whether we like it or not.

A person who wants to be a successful trader (or human being for that matter) should plan accordingly.
And that is the secret. Plan well, expect the unexpected, and not unlike a chess player think ahead a few
steps in your planning.

But above all, strive to become fully human. Treat your follows with compassion and respect and you will,
and in most cases, be treated the same way.

For those of you who do not believe in treating others humanly, at least consider your own bottom line.
Examine my experience with Omega Research, they really bend over backwards to accommodate their
customers' requests. And don't forget, to be courteous and polite. In addition, it's the right thing to do and
also makes good economic sense!

Thanks again for your excellent newsletter.

Interpreting the Information Age - Nagaprasad Mummaneni

I'm a subscriber. I received a free copy last year and after reading it, I immediately subscribed. It is
interesting to read the tales of different people making and losing money in the markets. I lost money in
bogus oil, gas and real estate partnerships. This was all before I woke up and smelled the coffee. All of this
was before 1985. I do my own investing now. In July 1996, I registered as a CTA.

In this electronic information age, winners and losers have the same access to the same information. It's all
how fast one gets it and interprets it that makes the difference. This same information is sold commercially

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by different vendors in different forms. It's up to the person to understand it and use it successfully to his
advantage.

In my first profession we used pulmonary artery heart catheters to gather information during various heart
surgery procedures and to treat the patients. I always said any catheter is as good as the person who uses it.
What makes the difference in the treatment is the interpretation of the information given out by the catheter
and not the catheter itself.

A buy signal given out by one mechanical system may be a sell signal given out by another system! I have
tried most of the systems on a trial basis (example: OptionVue, SuperCharts, Opcalc and many other
mechanical systems) without any great results. Maybe my interpretation was wrong! For the mechanical
systems who claim sure profits and no interpretation needed (idiot proof or no brainer) I suggest the
customers ask for a guaranty of the money invested through the system. It is not the amount that is spent to
buy the system, but the amount of money lost trading with the system. If their (mechanical system vendors)
claims are so good they should stand behind what they sell. Systems that help you to devise your own
methodology for testing are desirable (example: TradeStation).

At the present time, I use DTN for real-time information and quotes and Knight-Ridder end-of- the- day
news and quotes.

Books and seminars are wonderful for education. One should read and hear about the experiences of
professional trader teachers and accordingly modify your trading behavior (if you are a consistent loser in
the markets). If the systems are so good, the sellers would be making money in the markets for themselves.

More than anything else, psychology and capitalization plays a big role in the markets. Under capitalization
for the faint hearted may ruin them even if their picks are in the correct direction, because of a temporary
set-back. A disciplined trader will win over other traders in the long run.

After studying the global currency and interest rate markets for 2-years between 1991-93, I have started
trading for my own accounts since 1994 in the currency markets. My excellent results in currency markets
with my bi-directional conservative currency trading program gave me a boost to register as a CTA. Now I
offer guaranteed Principal for 1-year to my customers.

At this time I cannot go into the details of this trading program. This program is simply the reversal of
buying futures and hedging with options. As far as I am concerned, this program is time tested for me with
real money (mine) and works well. This program is good not only for currency and interest markets, but
also for S&P 500, NASDAQ 100 futures markets.

At this time, I trade only currency and interest rate markets for the clients. This program is excellent for the
inter-bank markets in currencies, but requires huge capital because of the size of the contracts that trade in
the inter-bank markets. This program as per the name, does not make you rich overnight, but makes enough
profits 30+% per year. This is for non-trending markets. If the markets are trending, profits could go over
100+% per year.

There is no free lunch in commodities. The letters printed in CTCN are proof that only 10% of the traders
make it in commodity trading and 90% lose. Everyone who trades commodities strive to be one of the top
10% winners.

This is not intended for commercial use by me. I am trying to get the point across to investing customers
and traders about the realities in the industry. To show that I am not bluffing about the guaranteed
Principal, I am enclosing my disclosure document (for your information). Your comments are most
appreciated.

Walk Forward Testing - Ed Forys

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Now, let me see if I understand correctly. You bought a system for X dollars. Then you back-tested it
against a bunch of old data. The results were favorable, so you started trading the system in real-time. You
believed that you had thoroughly tested the system that you had just bought.

You Dummy! What makes you think that the vendor hasn't already used the same data that you have to
curve-fit his system and get the right answers?

Without a true walk forward test using data that the vendor/system/program has never seen, you don't have
a chance of making money. Oh sure, the system might do OK for a while. But sooner or later, it will
undoubtedly start to lose money and at best allow you to trade with only small losses (mainly commission
and slippage). Trading commodities is not exactly a zero sum game, the broker always makes money on a
trade.

It took me a long time to understand and appreciate the value of walk forward testing and I believe it is
mandatory for evaluating any system. There are other things you must also do which I am sure you have
already heard about; but, if you don't do a true walk forward test, the rest is meaningless.

A Note to Bob Perry - Larry Williams

I think Bob's still in a pretty bad mood and took a broad side swipe at guys like myself . . . who have tried
to share some understanding of how the markets work.

Bob said he'd tried lots of stuff and "Larry Williams seminars (lots of TS systems that have made money
over the last 10 years, but they don't work anymore."

I'll be the first to admit that not everything I have learned, traded and taught has held up as well in the
future as the past . . after all, the future is pretty fickle. I take no umbrage at shots at me or my work.

But to say, "they don't work anymore" forced me to check out how some of them have done. I started with
the original "Mother" of all volatility breakouts, sold in 1986, and ran it with the exact same parameters and
markets as taught back then. Guess what, it netted $63,525 in the S&P's this year, $15,968 in the Bonds.

I then ran my OOPS! system for the S&P and again we saw profits, this time $7,800 over the last 3-years
with no losing trades. OOPS! was first made public about 10-years ago. I then ran one called 6X6 for the
S&P . . . it did not fare as well this year, but is ahead $6,450 as of 10/7/96.

My point to Bob is some of this stuff has held up, has been profitable and has made money. Other stuff
hasn't or I have made some alterations . . . all systems . . . just like all traders . . . run hot and cold. You bet,
my system development has not panned out sometimes. But to make a blanket statement suggesting none of
them worked in the future simply does not square up with actual performance

My Experiences as a Floor Trader

Jim Molinaro

After reading CTCN for a few months, I thought it was time to contribute.

Started trading in 1982, as a Floor Trader, and have been trading ever since. Made the transition from floor
trader, to off floor several years ago. It was quite a journey needless to say.

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I would like to relate a story that occurred about my second or third year as a floor trader. It's a theme that I
see repeated over and over again and would like to reiterate the importance of planning and simplicity.

During those early years, my entire life was consumed by trading and success. It seems there was not a
moment during the day or night that I was thinking about or working on trading. Of course, my thinking
and working was all wrong and disorganized at this time in my trading career.

Everyday I would arrive at least one hour prior to opening, and review all the numbers, news and other
irrelevant BS . After the close I would do the same thing. Things just weren't working out like I had
planned. The money wasn't flowing in.

There was a young trader named Tommy who would stroll into the pit at no set time, just whenever he got
there. He would trade ten and twenty lots for a few hours a day. He was making several thousand dollars a
week.

I was in total amazement of this guy. How could he be so successful? It seemed he hardly worked at it,
where in contrast I was consumed by trading. One day I asked Tommy how he traded so successfully. He
told me all he did was buy breaks, and sell rally's at the support and resistance numbers. If prices broke
through those levels, he would immediately take his one or two tic loss and reverse his position, if the order
flow was sufficient. He traded like this on normal trading days. On trend days he would go with the market
action.

Many months later during one of my soul searching periods, I realized why he was so successful. He had a
very simple, but effective trading plan. He took small loses and let his profits run. He knew where he was
going to enter, put his stop, reverse, and take his profits. He had a great mental attitude, very positive
upbeat type of person, extremely relaxed and nonchalant. Intuitively he had mastered what I call the 3-M's.
Which is Mental, Management, Strategy and Method.

Later, I found out from a fellow trader that Tommy had been on the floor a year or two earlier and "Busted
Out. " Evidently he paid his dues and learned from his mistakes, persistence paid off!

Review on Ruth Barrons Roosevelt's Power Trading - Richard Storck

Thanks much for all of the work that you put into CTCN. It's a great help to all of us.

Like most of you, I trade. I am not yet trading like I plan to. That is trading for a living, but each day I am
trying to get a little closer. Part of getting there is learning to separate the information from the facts. Then
separate the few important facts from the many trivial ones.

What I have found thus far, is that there is not just a lot of information out there, but a lot of hype and far
too little good information. What I have been getting from CTCN for the last year is a lot of very honest
and excellent information, and it has helped me, so it's time I tried to do my share.

First, over the last few issues there has been discussion about setting up a library. My feeling is that I would
much prefer some in-depth book, course, and seminar reviews from those of you who have participated.
This would help the rest of us know where the good information is and whether it's worth paying for and
putting into our own library.

With that said, here is my "review" on Ruth Barrons Roosevelt's Power Trading for Power Profits. She ran
an intro. offer for $477 in Stocks and Commodities and I took the offer.

What I received was:

1. a set of 6 Deep Focus tapes on Power Trading for Power Profits;
2. a set of 3 tapes - Inside Secrets of Winning Power Traders;

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 3. a single tape - Anatomy of Losing Trading;
4. a 1-hour phone interview with her;
5.a follow-up - Deep Focus tape with individual instructions based on our conversation; and
6. several of her Insiders' Wall Street Audio Newsletter tapes.

In the Deep Focus tapes (you use these while in a deeply relaxed state) she uses relaxation, NLP (Neuro-
Linguistics Programming), and hypnosis techniques to help get you on the right track for Power Trading.
The tapes work very well and helped me accomplish some things that I had not been able to accomplish
myself.

Though I know both NLP and hypnosis, it's always tough operating on yourself. Yes, they will work for
anyone who uses them. You do not need any prior experience with these types of methodologies. She
explains them and they are very easy to do by just following the tapes/instructions. Another valuable
aspect, is that you can reuse the tapes any time you need positive reinforcement.

The "Secrets" tapes are straight audio tapes (you can use these in the car) that cover a wide variety of
excellent trading controls, techniques and methods in a very effective and understandable format.

The Anatomy tape is also excellent; it clarifies some of the methods we use to deceive ourselves into doing
the wrong things at the wrong time.

A month after I received the tapes, I called for the interview and she answered on the first ring. We spoke
for an hour, and she drew some things out of me that I found surprising and very beneficial. She is very
knowledgeable about trading, and of course, the psychology of trading. She speaks clearly so you
understand what she says, and listens very intently (yes, that is very hard to do).

At the end of our conversation, she gave some specific advice on what I needed to work on. I received the
deep focus follow-up tape a week later, and it was tailored to those particular items she identified that I
needed to work on.

The Newsletter tapes that I have received have been quite helpful covering two subjects on each one. First,
a specific subject/item of interest on one side, and on the other an interview with an active trader/CTA
covering what they are doing and what is working for them. Good stuff all of it.

Personal recommendation - Worth getting, and worth more then what I paid and I will continue to use it.
Now the hard part, you want to know if it helped my trading? Well, I am a painfully honest person and the
answer is I don't know yet. Yes, Murphy jumped in the middle of my best laid plans. I stopped trading
when I got the course, to rework my trading plan with what I was learning. But just after the phone
interview things drastically changed at work (the place that feeds my living and trading habits).

I'm now on a special project that is eating all my time, and I won't be back to trading until some time after
the first of the year. I'll let you know how it works out then.

Much thanks to Dave (CTCN), and to each of you who have written, as I am learning from all of you. So
for now the above is just my opinion, and I hope it helps you in some way.

"Risk of Ruin" Calculations - Tom Dyste

I have seen numerous articles mention risk of ruin, and several rules of thumb, such as don't risk over X%
on any one trade. But no one has cited what I consider the best implementation of this mathematical
calculation.

Ralph Vince, in his book about math formulae for portfolio management, provides a calculation that is
simple enough to be practical for normal traders. I started out looking for answers in the gaming literature. I

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soon hit a dead-end, because in futures trading the size of "wins" does not equal size of "losses" which
among other things, makes calculation of risk of ruin a severely complicated math problem. Vince's
approximation brings a useful calculation within reach of anyone wining to work for an answer.

Ruin is defined as the loss, from a starting amount of capital (investment), a user-chosen fraction
(MaxRisk) of the starting capital. Basically, you calculate the odds you will go broke (ruin) before you get
enough profits stacked up to statistically out run the chances of ruin. There are other ways to use this
formula for capital allocation and risk management. But a basic task is to know what level of risk your
back-tested system, named, say, "Holy-Grail 87b," has of losing the nest-egg your wife will let you risk
trading it.

I found a book by Balsara (book title has been forgotten) which cited Vince's formula in enough detail to
test and study it in Excel. I have reason to believe the formula is sufficiently accurate to be useful. Balsara's
book is best found in large university libraries, or in Agricultural College libraries. I found it in the
Oklahoma State University Library. I have never sought to locate Vince's book.

The attached Excel sheets show first the formula at work, then the cell contents showing the exact
implementation that produces the results. Cells F7-F11 (trading is a crap shoot) are where your inputs are
entered. I just got a sales flyer on Dillon's Trading system, so I took the total winnings ($576,428) and
divided that by number of winners (86) to get the average win (cell F7, $6,701). A similar process gave the
average loss (cell F8), and the 69 break-even trades noted in the sales flyer are ignored for this example.

The Investment is supposed to be your total account size, and MaxRisk is the fraction of Investment you
are willing to risk on this system before stopping trading. For simplicity, I enter 1.0 into MaxRisk (F10),
and then whatever amount of money I enter into Investment (F9) is all considered at risk.

The only other mandatory input is the probability of any trade being a winner. Most system testing tools
give you a "percent wins," which you convert to a probability (e.g., a number from 0 to 1) and enter into
cell F11. In this case, I used the number of winners (89 trades) divided by winners+losers (89 + 49) from
the system sales flyer. If you are not a systematic trader then your percent wins, average win, and average
loss will vary with the phase of the moon, hormone levels, time since last traffic ticket, and intensity of
your civilian job's distractions from your trading. Until you trade long enough to get a track record, this
formula won't be useful.

All other cells are calculated values, or fixed text for readability.

For Dillon's system in the junk mail flyer, the risk of losing $10,000 from a standing start calculates to
3.70%. Personally, I trade at 2% risk levels because I have had enough "ruin" to last me quite a few years
already.

The more risk of ruin you accept, the higher your return on capital and the sooner you will lose your
capital. To make this 2% calculation, I just plug in different Investment (F9) numbers until the risk of ruin
(G14) comes out close to 2%, and allocate that capital to trade that system. You can use Excel's "Solver" or
"Table" capabilities to munch this formula through more cases, but I find this basic spreadsheet is all I
really use.

Risk of ruin is extremely non-linear based on changes in any input value. Ralph Vince has done a great
service to traders by concocting this "fair approximation" for our use. If more of us used it wisely, the
average time traders take to reach ruin would no doubt be extended, saving brokers and telemarketers hours
of work drumming up new victims.

A final example of how I use this formula is to calculate the amount of money that gives me a 50% chance
of ruin. It will be a much smaller amount. For our sales flyer example, it is $2,100. This means I could
trade the system with only a 50% chance of losing that amount from my starting capital.

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This letter does not offer any opinion of the advisability of buying or trading Dillon's Trading system. Since
the flyer placed the system's results in many of our mailboxes, it was chosen to demonstrate a real-world
application of the formula.

I trust some will find this formula helpful in their trading.

Requirements Of My Personal Trading System - WTG - Toronto

Have been trading for some 20-years with lots of ups and downs. I have found what works for me is to
develop my own trading system that is unique to me. Requirements of my system are:

1. I am very comfortable with it;

2. I have a lot of confidence in it and;
3. Over 90% accuracy.

These three above items are absolutely required essentials for me.

I have back-tested my system over the last 4-years in all commodities and over the last 20 years in one
commodity by itself as a final check. Have found trading in the 70's and 80's to be different from today's
trading. Thus feel it necessary to backtest in these various periods.

Is An Educational Training Course Giving Advice? - Cal Boicourt

I'm amazed to hear that the CFTC is "apparently" saying that you are giving trading advice.

What you have done is show me how you daytrade the S&P futures index. You have not given me any
specific trades to take, nor any advice about the condition of the market. I believe it is absolutely proper for
you to share a methodology that you use, as long as there is no specific investment advice or no specific
entries or exits given.

I don't consider getting your educational information any different from reading a book on how to daytrade
the S&P.

I appreciate what you do and wish you the best.

What Happened To Swing Catcher System - Rodney Gibson

I hated to hear that about Swing Catcher. You have a very good program. Is there anything about the
program that caused you to stop selling it, or are you working on new products.

I do need to start Autosig files for 97. If I create some new files will Swing Catcher write the information to
the file?

Editor's Note: We are no longer supporting or selling Swing Catcher and have no SuperCharts version
available. The CSI/Trendx Portfolio should work fine with CSI's new Advantage.

Asking for Advice - David

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Have you checked-out web-site/URL: (http://www.trading.com)?

What do you think? Any help there, for your going more 'international'?

What do you think, too, of gold, silver, platinum, and palladium, here?

Editor's Note: I looked at the site trading.com. Very interesting. . . thanks!

Sorry, I can't give advise on the metals. The CFTC may be alleging that I have been giving "trading advice"
without being registered with them. Until this matter is settled, I can't give any form of advice.

Feedback On Real Success - Method Donnie

I thought I would drop you a note to let you know how pleased I am with the Real Success Method. I am
presently paper trading the method and have been averaging $150 to $200 per day until 7-16-96. On that
day I made paper profits of $12,425. I am very excited about this method and am looking forward to
trading it real-time. Thanks again for all your help.

Message From Happy Subscriber

Jeff Salisbury

I've been subscribing to your excellent newsletter for over a year now. Listening to other neophyte (and
more experienced traders) is really helpful as I claw my way up the learning curve. Maybe I'll write
something for the club. I've been daytrading T-bonds and am finally starting to get the hang of it and show
a profit.

Well, gotta go. Good luck in your endeavors and thanks!

More Real Success Methodology Feedback - Bob Stephanak

Thanks for putting together the Real Success Methodology tapes and manuals as well as the newsletter
which I recently received. I have learned much from the tapes and the first issue of the newsletter was, in
my opinion, very informative. It definitely exceeded my expectations.

So far, I have not traded the methodology in real-time, but I expect to do so in the next few months. I
recently purchased TradeStation 4.0 and am becoming familiar with using it. I do not as yet have a real-
time quote feed, but I am able to practice analyzing the market through the tick data which is available
from Omega Research.

You might want to mention that Omega Research clients are able to download tick data via the Internet
which can be used for TradeStation. This data is free to Omega Research clients (it can only be used,
however, with TradeStation). I find this data to be very valuable in learning the methodology as long as you
realize that it has its limitations compared to real-time data.

These limitations are:

1. there is no pressure to "think on your feet" and make decisions within a very short time span and;

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2. no matter how hard you try to not look ahead at the remainder of the day's price action, I think that it
does subconsciously affect your trading decisions if you have seen the day's price action, even briefly, or
know what the range for the day was.

One suggestion for coverage in the newsletter. I would like to know more about how the Keltner reversal
bars influence your trading decisions. You don't seem to talk much about them on the tapes but, since they
are included in the software, you obviously place some importance on them. Any additional guidance on
possible interpretations of these bars would be appreciated.

An Insiders View On Why "Discount" Daytraders Don't Stand a Chance -

Advantage Trading Group

There are many reasons why daytraders lose money. The following are a few the industry would prefer you
didn't know.

By R.S., President of Advantage Trading Group, a discount firm catering to daytraders.

When I tell prospective clients that I can do at least 60% better trading their system through our firm than
they can do trading the same system through one of the 'big three' discounters, they usually don't believe
me. Then I explain some of the reasons why I feel it is impossible to make money for any length of time
Daytrading through a typical retail firm.

The following are what I have found to be the biggest reasons for a Daytrader to fail, that 99% of all the
Daytraders I have ever spoken to did not know.

1. The Handshake: Most traders realize that calling direct to the pit is essential to their success. I won't
waste time expounding on the reasons for this. It's what happens once you get the clerk on the phone that's
imperative. Most firms require the client to state their name, their account number, their password and then
their order. Provided the clerk understands all of this and does not make the client repeat anything, then the
order will go into the pit. This says nothing of the time required to pull up the client's account in the
computer and make sure there is enough money in the account to be allowed to place the trade.

The handshake can be, and is much faster with our firm. Each client is "pre-approved" to call the pit.
Therefore, the only identifying statement necessary is a three digit office code (this lets the clerk know
which firm the client trades through). The trader states the following: "699 Buy two Dec. S&P's at 750."
The clerk then repeats the order and if it is correct Arb's it into the floor broker.

This may amount to a difference of 10-20 seconds per order which at first may seem a little trivial, but once
you add up all the time wasted it's amazing. Let's figure an average of 2.5 trades per day, and look at the
difference. Two and a half trades per day is a total of five orders placed per day (buys and sells). If the time
saved is only 10 seconds per order, that adds up to 50 seconds saved per day. With 21 trading days in the
average month, that adds up to 1050 seconds or 17.5-minutes per month, and a total of 12,600 seconds or
210-minutes per year. Think about how much movement that equates to in the S&P. Needless to say, this
makes a tremendous difference.

2. Market Orders: Free Lunch For Floor Traders: Does your broker answer the phone with a Real-Time bid
or offer? When you call direct to the pit, the clerk who picks up the phone should be giving you the current
bid or offer. The reason for this is to let you know where the trader can execute your order. Example: "S&P
35-45" A trader looking to buy can reply: "699 buy me 2 Dec. at 45" and expect to be filled. However, if at
that same instant the client replied "buy me 2 Dec. Market" the best that client can expect to be filled at is
50. Most retail traders do not realize that Market orders always give up one-tick. This is why people pay
hundreds of thousands of dollars for exchange memberships.

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Once again, lets look at the big picture here. If a client executes two market orders per day in the S&P,
that's $50 per day he is contributing to the "lunch fund." Over the course of a year that's $12,600 most retail
traders don't even know their losing.

3. Day trade Margins: Margins are set by the exchanges, not the brokers, and there is no such thing as
daytrade margin. Margins are calculated at the end-of-the-day, which means a $5,000 account can do 100
round-turns during the course of the day, and as long as he is flat, there will be no margin call.

"Discount" brokers set daytrade margins for two reasons. The first is obvious: to protect the firm from
deficits. It's the second reason which isn't so obvious, Float. As most of you realize, firms get paid interest
on the unused portion of customer funds. This of course translates into large profits. By requiring larger
account sizes for daytraders, the firms make more money on the "Float."

4. Commissions: Everyone pays commissions and no one likes it, but the days of the $18-$25 daytrade
commission are over. When I talk to a prospective customer who is paying what I consider high
commissions, the first thing I do is break out the calculator and show them the difference between our
$12.50 rate and their current "discount" broker. The average rate I run across is around $20 for daytraders.
This $7.50 difference per trade translates into $4,725 in commission savings per year for a trader who
averages 2.5 trades per day.

5. "Bucket" Accounts: One of the least known facts about "Discount" brokers is that they set up what I call
"Bucket Accounts" for their floor traders. This is an account that may start with $50,000 or so that the
trader has given to him by the firm, and he gets to split all profits generated. I personally know of brokers at
two of the largest "Discount" firms who have these accounts.

When I tell someone this, I like to say that "being on the floor is like having a license to steal, the last thing
the firms should do is give them an account to put it in." Slippage is a part of the business, but I find it hard
to believe that some of it isn't slipping into these "bucket" accounts.

Editor's Web Site Update Bulletin dated 7-23-97: CTCN at one time recommended Advantage Trading
Group to our clients and many of them opened accounts there. However, ATG did a couple very serious
things. Things like allegedly revealing confidential information on our account and P&L information
(which as an interesting aside was false or exaggerated information) in violation of both our signed Non-
Disclosure Agreement and common industry ethics. This confidential information was allegedly given to
third parties who had no interest or involvement in any way with our trading activities, including a private
trader Mr. Joe Bristor and to the Editor of Club 3000 News, Mr. Bo Thunman, an unfriendly rival of
CTCN's.

In addition, Advantage Trading Group also reneged on an oral contract they had with Commodity Traders
Club News. We did lots of work on ATG's behalf over a nine-month period and were not paid for all our
efforts. The last time we talked to ATG on 7-7-97 Mr. R.S. said there is "no way he will pay" and hung-up
the phone. As to why the contract reneging occurred, we really don't know, as Mr. R.S. gave no reason for
the non-payment. He did offer us some excuses, stalling tactics, and arbitrary changing of the contracted
rules after the game had started and was well under way, during the nine-months the staff of CTCN worked
hard for him. What does this say about him and his firm?

We are now surveying CTCN readers to see how many opened trading accounts at ATG from Oct. 1996
thru July 1997. Please let us know if you did. Thank you for your help.

Gann's Rules For Successful Trading In The Futures Market

Michael Riley, publisher of the Gann-Elliott Cycle Report offers the following rules for trading in the
futures market that W. D. Gann used to become a successful trader.

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1. Amount Of Capital To Use: Divide your capital into (10) equal parts and never risk more than 1/10 of
it on any trade, (try 5%). In today's market, you should work with at least $10,000, preferably $25,000, in
risk capital and not risk more than 10% on any idea. If you try to work with less capital or don't have
enough risk capital, I believe you should not trade commodities. This capital should not exceed 10% of
your net worth.

2. Use Stop Loss Orders: Always protect a trade with stop loss orders to limit your losses. In today's
market, use a (3) to (1) risk-reward ratio, risking no more than 10% of your risk capital, (try 5%); risk $500
to make $1,500, or do not make the trade.

3. Never Overtrade: This is violating your capital rules. Put only 10% of your capital at risk; never put
more on any one idea.

4. Never Let A Profit Become A Loss: After you have a profit of $500 or more, move your stop loss up to
break even so there will be no loss.

5. Don't Buck The Trend: Never buy or sell if you are not sure of the trend as indicated by your charts
and rules. If you can't determine the trend to be either up or down stay out of the market.

6. When In Doubt, Get Out: Conversely, never get in until you're sure by using your trading rules.

7. Trade Only Active Markets: Keep out of slow, dead ones.

8. Distribute Risk Equally: Follow only (3) to (5) markets, trade in two or three different commodities.
Trade a mixture of metals, grains, meats, currencies and interest rate futures. Small Traders try grains,
meats, metals and foods. Large Traders can use any of the markets.

9. Use Market Orders To Exit A Trade: Trade at the market when you liquidate a position. Limit orders
to enter a trade, but market orders are the best to liquidate.

10. Don't Close Out Your Trades Without A Good Reason: Follow up with stop loss orders to protect
your profits. Let your stops for losses take your position out of the market. Short-term Traders liquidate at
Double Tops, Double Bottoms, and Triple Tops, Triple Bottoms, unless the market is moving extremely
fast, hold at Triple Tops and Bottoms.

11. Accumulate A Surplus: After you have made a series of successful trades, put some money into a
surplus account for a buffer.

12. Never Buy Or Sell Just To Get A Scalping Profit. Trade with the trend for the long pull. The more
you enter trades, the more risk you take.

13. Never Average A Loss: This is one of the worst mistakes a trader can

make. For example, Gold bought at $400 per oz. falls to $450. Don't buy more to average your price at
$475. It could fall to $450 again leaving you twice the loss.

14. Never Get Out Of The Market Because You Have Lost Patience: Nor should you get into the
market because you are anxious from waiting. For example, if you are holding Gold long for (2)-(3) weeks
and it goes nowhere, as long as the trend is up, and you are not stopped out, stay in.

15. Never Cancel A Stop Loss Order: Once it has been placed at the time of the trade, leave it. This is the
kind of discipline needed to make money.

16. Be Just As Willing To Sell Short As You Are To Buy Long: Your objective is to stay with the trend
and to make money. If the trend slows down, sell on rallies to buy back at a lower price.

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17. Never Buy Just Because The Price Of A Commodity Is Low Or Sell Short Just Because The Price
Is High.

18. Be Careful About Pyramiding At The Wrong Time: Wait until the commodity is very active and has
crossed resistance levels before buying more and until it has broken out of the zone of distribution before
selling more. Adding to your positions can be very profitable at the right time. Select commodities with a
strong trend up when buying and with definite downtrend to sell short.

19. Never Hedge: If you are long one commodity and it starts to go down, don't sell another commodity
short to hedge it. Get out of the market. Take your loss and wait for another opportunity.

20. Never Change Your Position In The Market Without A Good Reason: When you make a trade,
make it with good reason according to some definite rule. Then do not get out unless there is a definite
indication of change in trend.

21. Avoid Increasing Your Trading After A Long Period Of Profitable Trades: You should keep a
disciplined, planned trading program based on 5%-10% risk.

22. Don't Guess When The Market Has Topped: For long-term Trades (one month or more), let the
market prove it is at its top. The same holds true for bottoms. By following definite rules, you can do this
with accuracy. We give you how many times a top or bottom should be tested before breaking out.

23. Don't Follow Another Man's Advice Unless You Know That His Trading Systems Work.

24. Reduce Trading After The First Loss - Never increase! Risk 5% on the next trade.

25. Avoid Buying or Selling Late: These are double mistakes.

When you decide to make a trade, be sure that YOU are not violating any of the (25) rules. These are vital
to your success. It is important to have enough money to trade these markets for many years to come.
Proper use of risk capital will keep you in there. When you close a trade with a loss, go over these rules and
see which ones you have violated. Then, do not make the same mistake again. Experience and investigation
will convince you of the value of these rules. Observation and study will lead you to a correct and practical
theory for successful trading in the futures market.

Editor's Note (Bull & Bear): Michael Riley will send CTCN readers a FREE trial to the Gann-Elliott
Cycle Report, weekly trading newsletter. Riley has over 28 years of experience in trading the commodity
markets. Call 1-800-948-9317 or write Michael Riley, Gann-Elliott Cycle Report, Rt. 2, Box 71-Z2,
Denison, TX 75020.

Comments Regarding Article "Omega Total Lack Of Quality" by Robert Gross in Aug/Sep CTCN - Jeffrey
Leas

I felt obligated to write in rebuttal to the article by Robert Gross and his escapades with BMI and Omega
TradeStation.

If one were to take the information in that article at face value without analyzing some of the circumstances
behind the events, I think one would be led to believe that both of these vendors were the most unethical,
profit driven sleazeballs in the industry. First a few observations about the article:

1. Mr. Gross apparently greatly underestimated the amount of time required to order, receive and install the
hardware and software from the chosen vendors.

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2. He also underestimated the complexities of coordinating the installation and integration of hardware and
software from multiple vendors.

3. Mr. Gross apparently had neither the time nor the interest required to understand even the simplest
startup procedures.

4. There also appeared to be something lacking in his ability and patience in working with others to resolve
the problems.

Like Mr. Gross, I also recently endeavored to purchase and integrate the following: a Fujitsu Monte Carlo
laptop PC with Win95, added an extra 16Meg of memory (from a 3rd party), added a Xircom 28.8 k
PCMCIA modem, subscribed to AT&T WorldNet for Internet access, installed TS 4.0, installed DBC
(PCMCIA FM receiver), installed FM antennae with signal boosters both at home and at work, installed the
Real Success trading system in TS and finally installed MS Excel and wrote or modified a half dozen
spreadsheets to assist with the trading and money management.

I wanted to emphasize that this entire exercise was not without its problems and it was not done within the
space of a week. It took a day off from my real job and two phone calls to Omega. Three phone calls to
DBC and one call to Fujitsu before it all came together. Although the actual integration took a day. I was
prepared for the process to take longer. The technical support staffs of all parties involved were excellent.
There was no finger pointing and everyone was very helpful with suggestions and maintained a very
professional demeanor.

I have spent the last two weeks "paper trading in real-time" -- i.e., doing everything but make the phone
calls to my broker. Most of the problems that I have encountered have been of my own doing.

Some observations and words of advice gained from my own experiences and observing those of Mr.
Gross:

1. Be conservative in your time estimates - triple or quadruple them and be happy if it takes less time.

2. Recognize that you are not a particular vendor's only customer with problem at that time; like us, they
have finite resources.

3. Read the instructions and documentation carefully before you install something.

4. Take advantage of the system's On-line help features.

5. Treat everyone you deal with, whether on the phone or in person, with the respect they deserve.

In conclusion, although it has cost me about $8,000 (exclusive of the trading margin) and two months of
my time for several hours a day, I now have a trading system that performs well for daytrading and that I
have confidence in.

With this out of the way, I look forward to facing and conquering the more difficult aspects of trading!
With CTCN and Real Success, DBC and TS 4.0, "It doesn't get much better than this!"

Out-Of-Range Settlement Prices - Our Answer To An Overlooked Problem

Bob Pelletier - President of CSI

The process of building a trading system involves not only proposing a credible method for measuring
market movement, but also accurately interpreting historical market information. Your successful simulated

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trading technique may not operate as expected in the markets if your data resources do not accurately
express the market's behavior.

A basic flaw of many analysis systems which has been perpetuated by most data vendors is the assumption
that the settlement price of a commodity is equivalent to the market's final closing price. In reality, the
settlement price may represent a price outside the high-low range. Data vendors reluctantly adopted the
compromise at the urging of the software vendors who wanted to keep matters as simple as possible.

CSI, fortunately always kept the data in their data warehouse in exchange released form, but at the urging
of the analytical purist and with the flexibility offered by Unfair Advantage, we have been asked to unwrap
the exchange released data set and provide the data in a way that is not subject to industry norm
compromises.

Unlike security closing prices, the settlement price in the futures arena is the price exchanges use to
compute daily gains and losses for open positions. Each day, following the final bell, an exchange
settlement committee meets to establish the settlement price. They focus on the time and price of the last
trade, the last bid and ask, and pricing information on more active nearby delivery months.

Very often, the last consummated price is used for the settlement. However, if trading is not continuous and
the last trade for a given contract is not time-wise correlated with nearer and more heavily traded delivery
months, more discretion is introduced. The resulting judgment can be a settlement that lies outside the
high-low range. It can be a value where no trading occurred which can lead to confusion among traders and
analysts as to how the true high, low and settlement should be represented.

CSI, in our QuickTrieve update service, and all of the eight competitive data vendors we surveyed handle
the dilemma this way: If the settlement price is above the high, the high is adjusted upward to match the
settlement. If the settlement is below the low, the low is adjusted downward to match the settlement. The
result is an open-high-low-settlement data set that may include a range of prices where no trading occurred.

This is a convention adopted in the 1970's to accommodate analysis programs of the day. Then, as now,
most charting programs required that the close be within the trading range. This convention was accepted
as the industry norm.

Even sophisticated analysts could easily overlook the fact that the high, low and settlement information
downloaded from your favorite data vendor may not fully reveal the market's past statistical experience.
Traders should be aware that in the commodity markets, the given high and low may reflect adjustments
made to accommodate decades -- old charting techniques.

We took a look at New York Mercantile energy markets to see how often the settlement price occurred
outside the high-low trading range. Our analysis showed that at NYMEX, about half the time contracts
more than three calendar months from their delivery month were affected. The price distance from the high
or low of the day can easily become quite significant.

These more distant delivery months can represent about 10% or more of the total contract volume recorded.
This suggests that at least 5% of the time a trader following these markets will be examining adjusted
statistics. It should be noted that out-of-range settlements are more common at NYMEX and mercantile
markets than at most other markets, but it can happen in all futures markets wherever the settlement
mechanism is used.

If your system requires entering or exiting the market at the closing price and you used the settlement price
as a proxy, then your results may be flawed. Similarly, if your system buys or sells at some projected price
within the high-low range, you may be focusing upon a price that lies outside the actual trading range.

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Simulated profit calculations could include transactions where no trading could have occurred. A failure to
understand these points could cast doubt on your efforts to explore market behavior in search of workable
trading procedure.

Fortunately, CSI appears to be one firm who has saved the true high, low and settlement price for every
contract in our data base and our new Windows based Unfair Advantage software can chart the unusual
price bars they produce and deliver data in your favorite format in the same way. An interesting
observation on competitive data services, and where CSI deviates from the norm, is that every one of the
eight who would take our call reported they could not recover the raw data to reveal the true high-low
trading range in this way. Neither they nor their suppliers had saved the original information.

I could have supplied you with some charts to illustrate the startling differences between the way the
exchange provides the data and the way data vendors have been supplying it. But I didn't know if you were
set up to handle that in your CTCN News. With the click of a mouse, users of Unfair Advantage® can
express data in "Chart A, Chart B or Chart C" form, as shown below depending upon the conditions and
objectives of their research.

Editor's Note: The charts are published in our printed version of CTCN but not this on-line version you
are reading

Case 'A's improved method of reporting high, low and settlement prices represents a real breakthrough in
accurately interpreting historical market information. This type of charting eliminates the common flaw of
assuming that the settlement price of a commodity is equivalent to the market's final closing price. It also
avoids the common practice of corrupting the high-low range to accommodate an out-of range settlement.

Your successful simulated trading technique, operating on data resources which more accurately express
the market's behavior will likely perform better in actual trading. If it moves only 1% of the losses into the
win column, this could be a 2% total profit advantage and could be very helpful to every trader/analyst.

Case 'B' represents the current norm (possibly adjusted highs or lows) - Note that the voids in chart A were
filled by extending the high-low bar to accommodate the outer settlement prices whenever the settlement
was positioned outside the high -low range.

Case 'C' represents the adjusted settlements - The settlement may be adjusted to match the closest point in
the high-low range where trading could have actually occurred.

To graphically demonstrate Case A exchange released data with data compromised as in Case B and Case
C, I could have supplied you with some charts. I believe your readers may be able to use their imagination
for this one. Or if they have a copy of Unfair Advantage(R) they can see the difference on their own. Take
a look at NYMEX Crude Oil. You could use a January '97 or a February '97 contract for all three cases, but
focus on a period earlier than October 1996.

Taking positions this distant from expiration would be a typical scenario followed by a speculator who is
sufficiently risk adverse to track the market sometime before and away from first notice days in hopes of
avoiding the receipt of a troublesome delivery notice. In addition, it would give such a trader sufficient
time for his short-term trading algorithm to develop into a profitable posture before facing eventual contract
termination or roll-forward.

If you go through an exercise of reviewing past data you will observe frequent evidence of trading voids in
Case 'A' charts where the settlement regularly appears above or below the day's trading range. Each
example of a void is an invitation to misrepresent the true high or low for the day by expanding the range
(changing the high or the low) to include the settlement price or changing the settlement to approximate the
closest possible close. Case 'B' and 'C' show two examples of how a data firm might arbitrarily compromise
the day's trading action.

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As I mentioned above, Unfair Advantage may be directed to display any one of the 'A, B, or C' possibilities
with a single mouse click because the data in that system is represented in all three ways. Incidentally,
Unfair Advantage comes with a 500 megabyte commodity data base that represents every market that our
extensive green fact sheets identify from the first day of trading (back to the 1940's). The entire data base
sits on customer PCs in no more space than is used by your WordPerfect or any typical word processor
software.

UA also has extensive back adjusted, forward adjusted, Perpetual Contrac®, Gann contracts nearest future
contracts, and open interest weighted contracts for every one of 436 commodities traded in 34 countries on
50 worldwide exchanges for only $26 or $39 (depending upon coverage) per month plus a nominal license
fee. All popular formats are supported.

Trading Systems by RB from MO

Some of your contributors have developed trading systems which they refuse to reveal. Quite often they
have a disdain for the popular technical analysis tools and systems. After what happened to Welles Wilder
when his Delta club system was revealed by some switch. It is the better part of discretion to simply keep
quiet about a unique successful system.

A successful system becomes the standard against which other technical analysis is compared and
evaluated and usually found wanting. Moreover, if everyone used the same system it would soon become
compromised and useless. It is for this reason that I have not bought into any systems myself. Nor do I have
any fancy software/computer setup. I use DTNstant as a quote service which is adequate for my needs.

Some 10-years ago I took an interest in futures trading, bought books, took chart services. Then about 6-
years ago I discovered a unique leading indicator and from that point on have found no need to use standard
technical analysis.

There are only two other sources whose work I find of any value at this time. It has convinced me that if W.
D. Gann was as successful as touted, then he did not reveal his real secret, but concealed it artfully with a
time consuming and arbitrary system.

The ongoing discussion of whether one system or the other is good/no good is a lost cause. I feel, because
each successful trader must develop his own system - a principle spoken to be the best books on trading.
How can anyone system be considered as fitting everyone's trading style or requirement? The best one can
hope for is to have access to a smorgasbord of ideas out there and dish up a system to his personal liking.
There are few short cuts to paying your dues. If a system is so proprietary that it cannot be revealed, then it
doesn't have anything to contribute to one's own development as a trader. Such black box packages are for
those that prefer to run on autopilot and suffer the consequences.

Anyone who complains about system packages not doing what they expected is like someone who
complains about having bought a college degree without taking the course and then wondering why he isn't
competent.

If package trading systems are not worth the money and intrinsically cannot deliver success, why bother
with them especially if someone is so proud of his that he wants to defend it with a lawsuit. Let him keep it
to himself. Large corporations do not package their secrets for sale. They guard their secrets. They patent
their ideas, then they can license them with the protection of law. System vendors should do the same if
they want similar protection. Have you noticed how hard it is for some traders to keep a secret?

When a trader finally develops a system that works, he begins to recognize the valid trading elements of
others that coincide with his methods or reinforce his methods. And when a trader develops a successful
system, why would he reveal it? I would not expect him to except that he might reveal some elements
which are common knowledge, but overlooked by most.

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I'm sure there is more than one Holy Grail waiting to be discovered and at least one of them will look as
follows:
Ö it will be able to pick tops and bottoms (or pivots)
Ö it will give a signal which determines both the time and price at which to enter/exit
Ö it will signal a runaway move
Ö it will signal its own failure mode such that the market can be exited before or at break even Ö it will
signal when to stay out of a stalled market
Ö it will identify by comparison, that technical analysis which doesn't work
Ö finally, it should be quick and easy to determine (either graphically or mathematically or both) in all
markets and time frames.

Any systems which have success in some of these points are worthy of attention.

How to Avoid Paying Heavy Referral Fees to Your Software Developer

Bob Pelletier

Data seems to be more affordable these days, but many traders who do not engage CSI pay nearly double
the going rate for the data they need to fuel their trading algorithm.

Popular trading and market study software is typically equipped by mainstream developers with either a
"preferred" data vendor disk included in the study software package or an attribution link to the preferred
data vendor from your main computer screen. By clicking on the computer screen attribution or installing
that data vendor disk, you will be taken directly to the preferred data vendor's computer doorstep where you
can supply your credit card and instantly sigh up.

When clicking that icon, the likelihood is high that you will unknowingly open the floodgates to begin a
flow of money (your money) in the form of monthly kickbacks to the very study software provider you just
paid for his system. How much? Perhaps half of the data fees you are obliged to pay the data firm go right
back to the study software provider. And this free annuity to the study software provider will go on for as
many years as you remain a customer of the data vendor.

Fortunately, there is an alternative to indirectly paying those heavy fees to the study software provider you
thought you had paid in full. You can simply engage data firm that pays minimal royalties or none at all
and pocket the difference. CSI's Unfair Advantage® software might be a viable alternative to obtain not
only low cost data resources, but uncompromised data as well.

If you suspect your software developer has been profiting from your data fee payments, please don't accuse
him of any wrongdoing. I'm sure he will truthfully state his position which can be as innocent as a
marketing program to recover advertising costs. The fact is, you can find firms who are not burdened by
such arrangements and reduce your overall market trading expenses.

And finally, should anyone want more Information on what we are doing here at CSI, contact us via CTCN.

Loving to Lose - Don McCullough

In many of my articles I have spelled day trading as one word. i.e., daytrading. I believe two, separate
words is correct.

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What's one to think about a guy who first says he believes in a Holy Grail and now he's saying you should
love to lose? We all begin our efforts towards trading success with one primary thing on our minds --
winning! What I intend to prove in this article is how losing, or more precisely, losing properly should be
the foremost thing on any aspiring trader's mind. I'll prove that many of the better traders learn to love their
losing trades in a very important and meaningful sense.

You read it time and time again in the better books about proper trading psychology --"Successful trading
is all about knowing how to lose." Or, "Trading is all about taking losses." Bill Williams, author of Trading
Chaos, said old-timers used to tell him, "You have to love your losses," and Bill said this never made much
sense to him. Actually, since I believe Bill is successful with his trading, I think he's had to make more
sense of it than he realizes --- perhaps I should say, consciously realizes. I'm sure the same thing holds true
for many other successful traders.

I believe that losing trades and learning to lose properly is the primary thing that makes successful trading
possible. (And, the primary thing that causes the defeat of most traders). For one thing, if you're not willing
to be in there for the losing signals, you'll also more often than not, fail to be in there for the winning
signals or trades. A functional trader's psychology must accept losing as a totally necessary and vital part
of the trading process. Losing makes winning possible!

Still, it's not enough to accept the fact that losing makes winning possible -- and ain't that a wild concept!
You have to learn to be able to take those losers and not let them dissuade you from continuing to
consistently take your high probability signals. (All of what I'm saying here assumes genuine, high
probability signals).

You have to learn to take your losses calmly and keep on trading your signals. I can tell you from hard won
personal experience -- this is no easy task! (This is one of the main reasons day trading is so hard. The day
trader has to take many more losses than the long-term trader. Not only must he take more losses, but he
must take them much more frequently. The next signal may be only minutes from the last loss. Your
psychological recuperative powers had better be turned on high).

Another vital aspect of knowing how to lose is you must never give in to the temptation to ride your losses,
which amounts to saying to yourself: "It'll come back." That type of thinking has ruined many traders. In
other words, you must have the discipline to always cut your losses or keep them small. This is the main
thing that will allow you to stay in the game long enough to become successful. (Another thing that will
help keep you in the game is "go slow" or trade very sparingly in the early years).

Successful trading can be stated very simply.

1. You must have genuinely good, high probability signals. Certainties don't exist.

2. You must have or acquire the ability to trade these signals consistently without letting losses prevent you
from doing so.

3. You must always keep your losses small.

I think I have proven how vitally important losing in a proper way is to successful trading. You may never
learn to love your individual losing trades, but you just might come to love losing in the sense that losers,
and how you handle them psychologically, are the very stepping stones to the winners and eventual trading
success.

Patrick Arbor, chairman of the Chicago Board of Trade said: "It's very important that you know how to
take your losses and come right back."

A pro trader once said: "You've got to turn your head around 180 degree in order to be a successful trader."
I'm sure loving to lose, or at least, losing makes winning possible was part of what he had in mind when he

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made that statement. (Incidentally, buying and selling when most people are doing the opposite would also
seem to meet the 180 degree requirement).

Sequel To Negative Omega Article - Robert Gross

In regards to Ensign, the beta program can be downloaded at:

www.srv.net/~ensign/dbc.html

If you have any problem, as they have recently changed their web page, just go to the basic page for further
info on the Ensign for Windows program. I feel it will beat the socks off the TS., particularly for the $.

I suggest you talk to the BMI Tech support for their comments relative to the overhand of the data input.
Two of their guys gave me the same story of delay.

As for Omega, here is my sequel for publication: As I had meant my letter of discontent published in the
last issue, concerning Omega Research, and the purchase of TS, I should give the readers the final outcome
of the whole situation.

After writing the letter, I further discovered that TS had a program overhead delay of approximately 10-14"
as compared to my broker's screen on more than one occasion, which helped to explain the "negative
slippage" that I was getting on fills.

I checked with BMI, and was told that it might be my computer configuration, as well as it might be part of
the TS delaying data while it checked it before admission to the database. They suggested that I increase
my RAM to 32 and activate Smartdrv, which Windows 95 doesn't use, as starter. I did that over the
weekend and again checked with my broker screen, finding my delay now to be 7-12."

They also had strongly suggested that I download from the Internet the Ensign for Windows beta program
(www.srv.net/~ensign) which I did. Here I was very pleased with the program, but particularly that my
screen now lagged my broker by only 1-2." At one point I noted 6" delay, but learned that the delay varies
from the satellite depending on market activity and associated "pit" factors. But mostly, in several checks
with two different brokers, my lag is 1-3", a big difference from TS.

Now what to do with a $2,100 program that I don't like. I called Omega, and after some negotiation, they
agreed to take it back, deducting only the 1-month usage cost, that I offered to pay, just to get away.
Several days later Robert Ruiz left a message on my voice mail, that they now intended to refund all of my
costs including shipping fees, and that they were very sorry that I was so unhappy. I am relieved, to say the
least.

Even though Ensign, as a beta program, has a few bugs, which I am sending them info on, (isn't that what a
beta tester is supposed to be willing to do)? I find their tech support extremely helpful, patient and
considerate of my helping find the problems, along with many other beta users. I think it will be a real
winner for much less money (monthly lease for < $25) and thus is what I would call a great deal.

I hope this will be of help to others of you. The only problem now is how to get the Real Success
programmed into Ensign. Dave (CTCN) intends to look into it, I believe.

I also want to say thank you to several of you who have also written published letters giving me helpful
ideas. I purchased Joe Ross' Trading the Ross Hook ($185) and found it very helpful. Even though I hadn't
thought of myself as contributing much, I now realize how important the idea is. Think hard and write. It
just might be the thing a few of us need.

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 Trading Success - Jeff Salisbury

Hey ho, we're back On-line. You may quote me.

Had a good and very lucky day in the bonds Thursday; I got in $240 off the bottom of the day's range and
made $1,140. I had an order to sell me out at -04, but there was such a rush to the upside that I got filled at
the high of the day (first time that's ever happened to me. l couldn't believe it).

I had an IB (I think) named Bill Hickman @LFG call me last month looking for business. He was a floor
trader in bonds when they first started and he sure impressed me. We had opened on a gap up day the day
he called. He said that when that happens and when the market trades back down through the previous day's
high it usually bottoms out 10 ticks in. Well it did that day . . . to the tick!

He called me again a couple days prior to the low made on 10/16 @109-26. 1 asked if he thought the bonds
would hold their current uptrend. He said yes, if the earlier support at 109-26 held, we should probably see
113 or 114. Well it held. I was short that day. Got out at 109-30. Wished I'd reversed and went long. Oh
well, if wishes were horses. That's one for the "woulda, coulda, shoulda" department.

As for last Thursday's trade, I WCS ("woulda, coulda, shoulda") been trading two contracts instead of one,
but I'd just had two big hits in a row and was being cautious.

Anyway, all this is by way of saying I talked with Bill about maybe writing an article or series of articles
for us about his experiences trading bonds (my favorite market) and some of the techniques he used. He
seemed interested. I told him I'd send him a back-issue of the newsletter. So, we'll see. I hope this meets
with your approval.

Letter Written To Omega

William Raworth

Part of my problems may stem from both the fact that my 4.02 version is very new (in fact, a FutureSource
expert told me that I was a "Beta tester;" if so, TS hasn't told me) and there may be some real problems
with meshing TS with FS. The few faxes that TS has bothered to answer don't even mention this as a
possible excuse, however. For about 3-months I've struggled with your TradeStation 4.02, Build 12, using
Future Source data. As an active daytrader, my patience has found its bounds, and all are labeled
"TradeStation."

Let me share with you some major defects and outright mysteries I've encountered in my struggles. (These
have to do with only variable charts and data windows; if I were to detail other faults -- such as daily "TS"
crashes, I'd be writing until doomsday).

1. Each morning I have to set "Days Back" to usually 4. If I'm lucky this will stay so set for as long as 10-
minutes, when TS will decide, without any warning to me, that this figure should be 2 (which really means
1-day plus about 10-minutes). When this happens, some indicators previously plotted either disappear or
change drastically, and trendlines vanish or are re-drawn.

Editor's Note: My TradeStation 4.01 also has this problem. Each day, and sometimes during the day, my
"Days Back" also defaults to (usually) 4-days. This requires constantly manually changing the days back
setting to allow for more days of intra-day data to be charted and analyzed. This is a simple operation, but
it's annoying to do all the time.

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Normally, I prefer to have about 30-days of intraday data for better market analysis. In fact, some
indicators built into our Real Success software require several weeks of intraday data to display properly on
the TS screen.

Omega's tech support has walked me thru it and said it will now default to the number of days I selected
and will automatically now save this new days back selection. However, it does not save it and always
defaults back to 4-days or so. I may be wrong but it seems I recall it sometimes will go to 2 or 3-days for
some odd reason.

Are other CTCN members also having this problem or is it only Mr. Raworth and I? Omega's tech support
seems unaware of this problem, so perhaps it's an uncommon problem or maybe I am doing something
wrong.

Please note I do not recall having the problems alluded to below by Mr. Raworth. Also, my TradeStation
has never "crashed" in about 10-months of more or less continuous daily operation. In fact, the only
"glitches" I have observed involve the "day back" setting and the "time of day" sometimes being wrong.
For example, the time corresponding to a 5-minute bar may sometimes say 1:20 PM, but its really 11:20
AM. It seems the first time digit occasionally is missing from my screen chart.

These two fairly minor glitches are the only problems I have ever experienced with my TS. Perhaps I am
lucky, or have a "good" TS software program, or a "good" computer configuration. Alternatively, maybe I
am not using all my TradeStation features and power (I try to keep my trading simple) as heavily as others
do and therefore not seeing the problems others have referred to in CTCN.

2. If I'm quick enough, I can click on my data showing in the chart window and go to View Data Windows
and get to read a few of the figures of my RSPU6 data before it suddenly morphs into YXU6 Data
Window. Just about when I've decided to multiply the values by 1.9 to approximate S&P values, the Data
Window changes again to CZ6, which I usually find of no use at the time.

3. Because of the problem in 2. above, I hit on the idea of printing the page, hoping thus to "lock" my Data
Window on to RSPU6. My first production was done on an ink-cartridge-depleting black background (even
though your black background charts will printout cleverly with black lines on a white background).
Further, the red data figures (which are what I wanted to study most of all) do not show well (as in "not at
all") on the black background.

4. Next -- with the patient help of a Future Source expert (who, unlike you Omega people responding to
faxes, will actually talk live to me -- and about a TradeStation problem), I laboriously changed the black
background of your Data Window to white. The trouble with this is that the price figures show as a
painfully pale green on white, which I'm unable to change to a more visible color (even though I can click
easily from color to color on the chart window on which the Data Window is superimposed).

5. Still speaking of the Data Window, it refuses to show the closing prices for any bar. (Inexplicably, on
tick charts -- just where I need it the least -- the Data Window will proudly display O, H, L and C for each
price. Of course, all 4 of these prices are necessarily the same, although I look for a surprise here any day
now).

6. Something very odd happens in the first minute or two of every active variable chart bar. Using a 5-
minute bar on the S&P yesterday, I noticed the "11:20" bar showed an open of 66440, quickly rose to a
high of 66450 and then fell off. (I looked at the tick chart, and this seems correct). A minute or so later I
look at this same bar and it then tells me the open is really 40 points lower at 66400, and the high is only
66430. This same insanity is repeated throughout the day.

Another war story: I was unable to take a look at my screen until about 10-minutes after the YX open
today. My 5-minute bar chart showed me the high to be 35430, and I calculated a day-trade order based on
this. Imagine my surprise (and concurrent loss of an extra $300) when I discovered later that the high
immediately after the open was 60 points higher at 35490. I found that your tick chart also had it right, but

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your bar chart was still proclaiming 35430 a half-hour later. A final note about today's action: While
flipping from my bond chart to the YXU6 chart, your program decided to change the latter to just plain old
YXY. Luckily I caught on to this clever trick soon when I noticed my highs and lows were ending in such
digits as "3" and "7."

Unless you can offer immediate relief in the areas mentioned above, just count me out of your laudably-
ambitious, but as you can tell from my experience unworkable and downright dangerous TradeStation
program.

Don't charge my credit card with another installment until you've cleared it with me that this impossible set
of quirks has been cleared up.

Don't bother to work on stopping the daily crashes; they kind of keep me alert. But couldn't you figure a
way to program an audible alert for crashes before you release Version 4.03? It's hard to enjoy my mid-
morning coffee break for worry of an unknown crash and a therefore undetected penetration of a high or
low alert I've set.

And this time, how about splurging a buck or two on an LD call? I don't think you can fax your way around
this.

The "Conservative" Approach

G. C. Campbell

Just finished the most recent Issue of CTCN and enjoyed it as usual. It is always refreshing to see how
many of the contributions by subscribers that relate to my own trading experiences. Both good and bad. I'm
sure that most of us who love "Trading" and survived our early mistakes, have not all traveled the some
path.

But I'll bet we all (or nearly all) learned the same lessons, as they have been pointed out so clearly many
times before. I'm sure like many, I didn't relate to these truths until I had a "lump" of my own. Experience
really has a way of getting ones attention.

I decided back in 1990, that I was going to learn to trade commodities. I had a shipmate that I sailed with in
the Merchant Marine that got me interested and guided me to books and information that began my
education. For the next four sailing years, I divided my time between part-time trading and sailing as an
officer in the merchant service. During that time I spent a considerable amount of money on books, data
services and trading programs. For the most part, I consider this money well spent and necessary for my
education. This is not to say that all the books were worth while, or the trading programs keys to success.
They were not, but they did aid the learning process.

In January 1995, having had my fill of endless months at sea, I embarked upon my now profession as a
full-time trader. Let me add, this was not a decision that was lightly made. Having to turn your back on a
well paid profession to start your own business has more than its share of anxious late night episodes.

In just a few months, I will have completed my second year as a full-time trader and can safely say that I
made the right decision. My time in my own and I really enjoy what I'm doing. So from my perspective and
experience, what I call the "conservative approach," is to just take your time. Take the time to evaluate your
trades, winners as well as those that fail. Go SLOOOOOW! Don't trade, just to be in the market.

I will use ATM orders only to add to a position or to exit in a hurry. I always try to enter and exit a position
at a price and rarely use "stops" when initialing a new position. If I think stops are in order, then I probably
shouldn't be making the trade, or I should be trading the options instead of the futures. So again, its the go
slow approach.

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In the past six years, I weeded my trading tools down to three things. First, I use FutureLink as my data
source. Its an excellent service and quite reasonable and very reliable. The Futures World News that it
provides is important to me. I started strictly as a technical trader, but as I progressed in my trading, the
fundamentals now play an ever increasing role in my decision making process. FutureLink is a very good
source for this information.

Second, I use a program called "Candle Power 5" from North Systems. This program will provide graphical
display of twenty different oscillators. Either individually or ten-at-a-time, along with a lot of very useful
candlestick charting features. This in a modestly priced program that works very well for me. I can export
the data from FutureLink to this program so there are no added data costs. Third, I use the gray matter
between the ears to evaluate the first two items . It's as simple as that. I have tried several mechanical
trading systems (some quite costly) and find I'm just not comfortable with them. I suppose it's a matter of
trust. In the end, we all find a method that works for each of us, that gives us confidence in our trading
style and the ability to steadily improve the win/loss ratio.

One last thought. I use two deferent brokers. One a deep discount house for simple straight forward market
orders (about $15.00 round turn). And one for what are usually more complicated trades, involving spreads,
straddles, strangles, etc. (about $35.00 round turn). I always deal with the same person which helps order
clarity. It costs a little more, but I speak from experience in that one snafu can be very costly.

So that is my "conservative approach." I still go slow with both time and money, and often repeat the
aphorism about Bulls, Bears & Pigs.

Market Forces - Mervin Pearson

To put some wit in commodity trading, I have some phases that I have used over the years describing
certain market forces.

1. When the wind blows even the turkeys will fly.

2. An option that goes to "0" is called a rotter.

3. If you don't have your line in the water (order) you can't catch fish.

4. Never place a new order without a stop.

5. The floor traders are like hunters -- they gun for your Stops on their stop hunt.

6. If you try to go bottom fishing you will probably get a snag.

7. The trouble with Elliott Wave is that you never know what wave you are in until you get swept out to
sea.

8. Most OEX option expiration weeks tend to be positive for the stock market.

Commodity Boot Camp - JGW

I just returned from a week In Chicago at William Greenspan's Commodity Boot Camp (312-930-1777),
and want to share my experience. The Boot Camp has three options: a two-day seminar in trading theory,
followed by; ‚ a three-day, real-time, off-floor trading experience, followed by; ƒ a five-day, on-floor
trading experience. I enrolled for the first five days, and will return at a later date for the second five days.

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Bill is a member of the Merc and a successful pit trader. He has been a speaker at several conferences and
has written articles about his methods for Stocks and Commodities Magazine. In the first part of the course,
Bill discusses his basic methods, and is joined by two other (local) traders who describe related methods. In
the second half of the first week, Bill supervises and reviews the trades actually made by the students.

I have been position trading commodities for over 5-years. I got into the habit of faxing orders to my broker
(who accepts contingent orders) each morning and then heading off to work. When I'd get home, I'd
download daily data (Telescan), check my positions and plan the next day (SuperCharts). I was OK
successful. This year, I left my full-time job and started learning to daytrade the S&P (John Stenberg, (call
CTCN for number), more in another article). So far, I've been very satisfied with the methods I'm using, but
not very satisfied with my execution.

Since Greenspan's motto is, "'You will learn how to trade," I headed off to his Commodity Boot Camp.

Bill trades as both a pit trader and an upstairs trader, and freely admits his pit style won't work off the floor.
But much of the methodology is the same, and he's happy to fully divulge what he does in both places.
Fundamentally (no pun intended) he's a pivot breakout trader with firm money management skills. And
(gasp) he doesn't use indicators -- he relies on price, and its relationship to other prices.

His associate, Carolyn Boroden, supervised our trades for three days, and demonstrated how she uses
Fibonacci time and price. (Her intraday projections were stunningly accurate - ahead of time!) And during
slow periods, Warren peppered the discussion with various trading topics, like why traders cut their profits
short and let their losers run, and why option analysis is replacing present value calculations when making
financial decisions.

Our class day traded several markets, including the S&P, Bonds, D-Mark, C-Dollar, corn and coffee. And
we practiced several strategies. We weren't paper trading, we were using real money from the Boot Camp
account, so we placed real orders and got real fills. Collectively, we broke even the first day (with a tiny
profit), but were very profitable on the second and third days. My own trading was well above my average.

Coincidentally, a former student of his from Atlanta dropped by to say hello while he was in town. He's
been using Bill's methodology for 5-years (without modification) and he's successful beyond his
expectations. He encouraged us to follow the system. The rules are very simple -- the hard part is the
discipline of:

1. taking each signal and;

2. using good money management.

So what did I got out of it? A lot.

I got to watch a successful trader in action, to see what s/he does before the market opens, as a trade sets
up, how it gets managed and how it exits.

I listened to order placement, and learned that even exchange members have the same problems with order
execution that I do!

I traded (successfully) without a screenful of indicators!

I had a seasoned professional watch over my shoulder as I managed a trade.

"Why are you taking this trade?" "Where are you putting your protective stop?" "Shouldn't you move your
stop to break-even?" "What's the market doing now? Should you move your stop? Should you take
profits?"

And this one really bugged me. "Now, where's your next trade?

621
I experienced entering a trade as the setup occurred, instead of watching it pass by as I usually do. I
experienced money-management in real-time instead of passively reading about it. And I experienced
taking profits, not letting a winner turn into a loser and exiting a bad trade quickly.

The bottom line is what Bill repeated to me several times: "In order to learn how to trade, you have to
Make Trades!" There's no other way. Part of the reason the group didn't do so well the first day (and why I
don't take trades In general) was 'analysis paralysis.' (On the second day, he threw us into a bond trade, told
us to manage it, and walked away!) Once I started employing a single method on a single market I was
much better able to answer, "Where's the next trade?"

Will the Boot Camp make a difference in my trading? I dunno, check with me in 3-months. But I expect it
will. All I need to do is keep doing what I was doing while I was there, and I know I can do that!

Welles Wilder's Delta Method

Richard Wells

If anyone is interested in Welles Wilder's Delta method, there is an Internet mailing list devoted to this.
Updates on the upcoming daily and weekly Delta points are given, the Delta solutions are available, and
there is even a software program written for Wave Wise spreadsheet available. Contact Ganntrader to get
on the list. One caveat: Since Delta is copyrighted, you have to own Wilder's book to get on the list.

Incidentally, Ganntrader has developed a method for locating turning points that is very simple and elegant.
I think another writer contributed a review on this in the past.

Disciplined Money Management Methodology - Tom D'Angelo

This is my sixth article intended to provide readers with a coherent, disciplined money management
methodology, designed along the lines of a successful business. Refer to my previous articles in Vol 3-8,
Vol 4-1, Vol 4-2, Vol 4-3 and Vol 4-4. In this article, I will discuss three techniques for determining how
many contracts to trade.

To begin with, we must know our minimum and maximum number. Our minimum number is obviously
one, but what is the maximum? And if we know the maximum, do we trade the maximum or some number
between one and the maximum?

Before we begin to talk about minimum and maximum, we must first be properly organized. Using the
Profit Center concept of money management I described in previous articles, set up a Profit Center for each
trading system that you use. For example, if you are using the Real Success trading system for the S&P500,
set up a Profit Center named RSSP500 and enter all your S&P500 trades taken from the Real Success
system into this Profit Center. After you have about 30 trades in the Center, you will have a large enough
sample size to perform the necessary calculations.

The first method is "hi-tech." Purchase Ralph Vince's book entitled "Portfolio Money Management
Formulas." Ralph provides a complicated formula for determining the optimum number of contracts to
trade. If you trade the optimum number, you will maximize equity growth at the expense of large
drawdowns and a roller coaster equity graph. Perform Ralph's calculations on the RSSP500 Profit Center
and you will know the maximum number to trade. Ralph's formula is not perfect but it is a good
approximation.

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The second method is used by many professional sports and blackjack bettors here in Las Vegas. Basically,
you risk. a percentage of capital based on a formula developed by a man named Kelly who worked for the
phone company in the 1950's. The Kelly percentage is the optimum percentage of capital to risk.

The formula is: Kelly %=A - (1-A) / B

B=Average Winning Trade / Average Losing Trade
If A=58.8%
If average winning trade=700
If average losing trade=614
Then Kelly % would=22.6 %

As an example, assume the Kelly is 6% for the RSSP500 Profit Center. If you had $100,000 in capital, you
would risk 6% of $100,000 which=$6,000. If your trading system calls for a $1,000 stop, the maximum
number of contracts to trade would be 6 (6000 / 1000=6 ). A Kelly % less than 0 indicates that the Profit
Center is unprofitable and that you are playing a negative expectation game, similar to casino games in Las
Vegas.

The Kelly % suffers from a major drawback in that it assumes all profits and losses are equal which
obviously is not the case. However, it serves as at good approximation.

The third method utilizes drawdown. I used a variation this technique myself and a few readers of CTCN
who contacted me on the phone also use it.

First calculate the largest historical drawdown in the RSSP500 Profit Center. For example, assume that
your largest historical drawdown after 30 trades is $2,000. Then multiply that amount by a drawdown
multiplier which can be any number greater than 0. Suppose you choose 2 as the multiplier. Multiply the
drawdown by 2 which equals 4,000. (2,000 x 2=4,000) . Then add the margin requirement for the future.
Assume the margin for S&P500=10,000. Then we will obtain 4,000 + 10,000=14,000. Now divide this
number into our trading capital and that is the number of contracts to trade. If we had $28,000 in capital, we
would trade 20 contracts (280,000 / 14,000=20).

The larger the drawdown multiplier, the less contracts and less aggressive we will trade. The lower the
drawdown multiplier, the more contracts and more aggressive we will trader. The drawdown multiplier
technique is very simple to understand and the trader is able to control his aggressiveness or
conservativeness by choosing the appropriate drawdown multiplier.

The drawdown technique suffers from the fact that it does not take profitability into account, only
drawdown. Therefore, you must make sure that the Profit Center is profitable before using the drawdown
multiplier method. If the Profit Center is unprofitable, you are playing a negative expectation game and no
money management system or betting scheme can turn a negative expectation game into a positive
expectation game.

Ralph Vince's method may only be used by future traders. The Kelly % and drawdown multiplier methods
may be used by futures, stocks, funds and options traders.

Now that we have some approximation of the maximum number to trade, how many do we trade?
Personally, I use another "low tech" method. I graph the Profit Factor for the Profit Center under analysis
and visually judge the trend. The Profit Factor formula is :

(% profitable x average profit) / (% unprofitable x avg. loss)

If % profitable=58.8%%, % unprofitable=41.2 % and average profit=700 and average loss,=614 then;
PF=(588 x 700) / (.412 x 614)=411/251=1.63
A Profit Factor greater than 1.0 indicates a profitable Profit Center.

If the graph of the Profit Factor for the RSSP500 Profit Center is slopping upwards, I would trade more
aggressively, gravitating towards the maximum number to trade. If I am using Ralph Vince's formula and

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the optimum to trade is 4 contracts, I would trade 3 contracts. If the Profit Factor is sloping downwards, I
would trade more conservatively and maybe trade 2 contracts.

Using this technique, you are assured that you are: playing a positive expectation game and; ‚ playing
more aggressively in games where you have shown that not only have you been profitable but also that
your profitability is sloping upwards. This is the only way you can be profitable in speculation . . . play
positive expectation games and try to try to get into the long run.

Las Vegas casinos have being doing this for 50-years.

For mathematically and computer oriented traders, these three techniques may not be what they are looking
for since there is some subjectivity involved. However, many traders have pointed out that trading is only
part science and another part art. I feel that the three techniques I have discussed provide just the right mix
of science and art whereby the trader can adjust his trading size based on his own risk/reward psychological
makeup.

Remember, these techniques are totally dependent on proper segregation of trading results into a business
like structure which I have discussed in previous articles. Without a disciplined money management
methodology, most traders will eventually fail in the long run, regardless of how many thousand dollar
trading systems you buy.

Next issue, I will discuss a very simple technique for multiplying equity growth which has been used with
great success by many professional sports bettors here in Las Vegas.

For a free booklet describing the reports I use in my own trading and a book I have just written on money
management, please feel free to call (call CTCN for his number).

Stop-Loss For The Emotions

Veda Mallory Ball

It has occurred to me that there are many parallels between the strategies we traders apply to the business of
trading and the strategies we can apply to the area of emotions in trading, and that we can apply something
of what we have learned about the first to the area of the second.

Any trader who has been trading for a while has almost certainly had the experience of having to deal with
extremes of emotion. Until of course, he or she learns not only how to manage the trades but how to
manage the emotions as well.

One of the first lessons we learn as we develop our trading skills is to limit financial loss, which we do with
the use of stop-loss orders. Cut losses short and let profits run. However, it seems to me that we don't
typically apply the same reasoning to our emotions. If we take a large loss we might berate ourselves for
our mistake or get angry at the markets or the floor-traders.

You might feel despair about making the system work, etc., and as a result often go through periods of
extreme "emotional drawdown" that we then have to recover from. It would be very useful to be able to cut
emotional losses short too! So what I am suggesting here is that emotion, just like one's trading account,
may perhaps also be thought of as "capital." Hence it would seem that we need to also learn the skills in
preventing and repairing emotional drawdown along with the other trading skills we need to acquire.

As we all know, upwards of 90% of traders lose and eventually quit. I am wondering if they quit not just
because they have taken too big a loss financially, but also because they have taken too big a hit
emotionally - they may have run out of money but they have also run out of hope or confidence. In other
words, emotional capital.

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It seems to me that if a trader loses his financial capital but retains his emotional capital, sooner or later he
will get more money together and begin trading again.

Editorial Control - JGW

I'm a new subscriber and am delighted with the newsletter. I'm impressed with your editorial control the
discipline you've imposed on your contributors. Reading the back-issues has been very instructional for me.

Free E-mail Service - Ken Lumley

"JUNO" offers an E-mail only service for FREE! They run ads around the borders of your screen and the
advertisers pay the freight. You can E-mail any address (send and receive) www, Prodigy, A0L, etc. They
have local or 800# access. It's a good deal for those of us that want/need an E-mail service and don't want
to have to pay a monthly bill or have to access the www.

Also, another option, I believe that anyone with an AT&T credit card can sign on to the www thru AT&T
for 5-hours a month--no charge-not a "demo/trial" deal but monthly access. I don't have the phone # but I'm
sure AT&T has a 800#.

Daytrading The S&P On TradeStation Richard Reynders

A picture is worth a thousand words. So without too much explanation, I present the members for their
consideration and or comment four indicators which confirm each other on the turns.

Radar 2 is a momentum indicator showing divergence for change of trend. But within the trend the
corrections can be traded for considerable profit. The MFI shows minus compared to the preceding bar.
This is a 25-tick bar chart, so the key is usually a smaller range bar and candlesticks give a visual indication
of the immediate trend. For info on Radar 2 contact Jan Aarps who is listed in Omega's Solution Providers
Publication.

The Money Tree - Maxie Robinson

Traders really need the service that you are providing, because it is so hard to find someone to discuss
trading experiences with.

It's really enlightening to read where someone else is having a problem. But it is especially good to read
where someone is succeeding. Larry Williams' video says that the mark of successful trader is that he
believes that he can win.

I received lots of good information from Larry's tapes, The Money Tree.

OPTIONS & SPREADS: Trumpets, Lobsters, Champagne - Greg Donio,

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Logan Pearsall Smith (1865-1946) was a Philadelphia Quaker whose love of everything English beckoned
him to cross the ocean. He became a British subject, an Oxford scholar and a London man-about-town.
Receiving one or another party invitation, Smith sometimes attended and sometimes sent his imagination.
He wrote:

"When I see motors gliding up at night to great houses in the fashionable squares, I journey in them: I
ascend the stairways of those palaces; and ushered with eclat into drawing rooms of splendor, I sun myself
in the painted smiles of the Mayfair Jezebels, and in that world of rouge and diamonds, glitter like a star.

"There I quaff the elixir and sweet essence of mundane triumph, eating truffles to the sound of trumpets
and feasting at sunrise on lobster-salad and champagne.

"But it's all dust, it's all emptiness and ashes. Ah! far away from there I retire into the desert to contend
triumphantly with Demons; to overcome in holy combats unspeakable Temptations, and purify, by
prodigious purges, my heart of base desire."

Yes, occasionally Pearsall Smith's deep-rooted Quaker austerity would resurge, connecting opulence with
sin and transforming him into a fancied ascetic on the desert. The Mayfair referred to was and is the
fashionable, carriage-trade section of west London. You may have heard the velvet fog voice of Mel Torme
sing, "Autumn in New York--transforms the slums into Mayfair."

Enraptured though Smith was by those "great houses in the fashionable squares," he ignored the fact that
they could contain character-building and exchequer-strengthening qualities, qualities that a successful
financial trader or a would-be success should not ignore. Here we raise the curtain on the key question of
this piece: What is "good for" or "helpful to" or "appropriate for" an ace financial trader?

Think twice before you call anything "not important" or "not relevant." During World War I, General
"Blackjack" Pershing was a stickler for discipline, even on seemingly minor matters not related to combat.
He said, "The soldier who lets his shoes get dirty might let the firing mechanism of his rifle get dirty. The
soldier who forgets to salute an officer might forget to obey him when ordered to go over the top."

Traders in stocks or futures or options need discipline and a clean firing mechanism; something akin to a
good shooting eye; mapping and strategy skills at battalion headquarters in the field. Also, just as there is
"conduct unbecoming an officer" there can be "conduct unbecoming a class-act trader."

In British naval terminology, the phrase "ship of the line" originated in 1706 and referred to a warship large
enough to have a place in the line of battle. In the splinter-their-topsails-and-grab-their-gold realm of
speculation, the "real pro" should and must be a "ship of the line" with heavy weaponry mentality-wise and
ability-wise. Anything less gets smashed instantly and even the mightiest take their chances.

The jeweled clock in the captain's cabin may hold a significance other than time and more than sentiment.
The naval officer who uses a Grub Street grog shop timepiece might also use junky maneuvers or gunnery
technique. Far from "all emptiness and ashes," those "drawing rooms of splendor" that Pearsall Smith wrote
about may well serve as a model. Keep a bit of the crystal and tapestry inside your soul. Also some Bank of
England fiscal conservatism will not hurt. Several desiderata apply:

1. Try for class.

Who is not aware of the aura of distinction that surrounds the tycoon or the mogul? Phoning your broker
certainly sounds classier than phoning your bookie. However, you err if you leave it at that and do not
develop the idea further. Webster defines a "class act" as "something of outstanding quality or prestige."

Webster's numerous definitions of "class" run for 12 lines. Let us focus on one portion: "social rank.
especially high social rank; high quality; ELEGANCE." The dictionary listing for "elegance" turned out to
be a verbal jewelry store: "derived from the Latin 'eligere'--to elect, eligible, to select. Noun. Urbanity;
tasteful richness of design or ornamentation (the sumptuous elegance of the furnishings); dignified

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gracefulness or restrained beauty of style--polish (the essay is marked by lucidity, wit and elegance);
scientific precision, neatness and simplicity (the elegance of a mathematical proof)."

Synonym group: "choice, choicer, choicest. Adjectives. Selected with care; well-chosen; of high quality;
worthy of being chosen. Syn. for 'elegant'." Check your own dictionary for "urbanity," "suave," "debonair."
The speculator who incorporates essences from the preceding paragraph into his or her life and thinking
and market schemata will acquire several more quail toward a full buffet, figuratively or literally.

You need not belong to a polo team or a yacht club. The Cartier gold-plated fountain pen for $800? The
Rolex YachtMaster wristwatch for $19,000? Any investor who cannot find better things to do with the
money deserves to buy Florida swampland. Involved are both the invisible and the visible, both the
attitudinal and the tangible.

Horse racing is called "The Sport of Kings" but we all know that the kings are far outnumbered by the
empty-pocketed horse-players who sit up nights thinking of ways to fool the pawnbrokers. This is conduct
unbecoming a class-act trader. Also recall the adage, "The reason you never see any horse manure on the
race track is that all the horses' asses are at the betting windows."

In a previous article on option spreads, I stated that the strategist is in effect a horse-owner at the long end
of the spread and a bookmaker at the short end. I did NOT liken him to a blow-the-bankroll, adrenaline-
junkie horse-player. The first two each take a risk in that no guarantee exists beforehand of the
thoroughbred or the betting parlor proving profitable. Yet they cannot rightly be compared to the gambling
degenerate who has wagered for years with nothing in the bank to show for it. The W. D. Gann maxim still
stands: "Handle speculation like a business, not like a gamble."

Risk? Sure, but the businessman's risk, not the crapshooter's. The calculated risk. The limited-exposure
risk. A tad of horse-betting may be all right as one of the trappings of Logan Pearsall Smith-type
Anglophilia. Unless you tie your cravat like Lord Asquith at the derby, think twice about playing the
ponies. If your love of things English is that pronounced, then you should also possess a sterling silver ewer
and tureen, a Lord Macaulay or Thomas Carlyle hardbound first edition, and an antique chess set dating
back to the Tudors or the Stuarts. Elegance!

2. Be tuned in to the psychology of "what makes it interesting."

Again the hot-blooded gambler provides a good example of what the class-act trader should avoid. How
about a side bet on the football game to "make it interesting?" A card game is "no fun" unless money
changes hands. In the throes of speculation fever, a trader in stocks or futures or options possesses a similar
temperament. A business-like approach requires a certain detachment. It is fine to enjoy being the financial
explorer or detective and great to make money at what you enjoy. The game is afoot, Watson! But . . . . too
often, however, entertainment-value edges profitability off the road. The horse-player tingles at the sound
of the bugle and the starting bell. Thrill upon thrill and, alas, empty pocket upon empty pocket. He would
have done far better over the years by banking all that wagering money, but then no electricity through his
nervous system. A speculator can likewise let electrical thrills eclipse profits. The successful trader may be
compared to the distiller who makes money off of intoxicants but cannot be drunk while handling the
complex equipment.

Investor psychology figures crucially, and within that, the psychology of what is interesting and why. That
often confounds people. During my high school days, a fellow student mentioned to me that Mrs. Hagen,
the math teacher, planned to take graduate courses that summer. Then he said, "How much can anybody
love math?"

When diabetic neuropathy disabled my father, his brother, Dr. Dominic A. Donio, M.D. brought him some
books and periodicals on the Civil War, a passion of doc's. My mother said to me, "How much can you
love the Civil War?" People have asked the same question about everything from astronomy to model
airplanes to Babylonian/Sumerian archaeology to avant-garde cinema to antique cars, full-size or shelf-
miniature to the life of Disraeli to bird-watching to rococo paintings to mood & atmosphere photography to

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haunted Scottish castles to music from allegro on the Vivaldi violin to blues on the New Orleans
saxophone.

It is no loss for you as either a person or trader if the depth of your fascination for and knowledge of
various things puzzles the bored and directionless people, i.e., most people. If financial trading can prove
both profitable and entertaining, fine, but if you must do without one, do without the latter. Too many
traders and practically all gamblers have found the latter while doing without the former. The Renaissance
man or woman--the person with a variety of interests and acuities--has the advantage. You need not float
cash to "make it interesting." Ponder this. Expert on Italian Renaissance art Bernard Berenson wrote in his
book The Venetian Painters of the Renaissance:

"In Venice there had long been a love of objects for their sensuous beauty. At an early date the Venetians
had perfected an art in which there is scarcely any intellectual content whatever, and in which color, jewel-
like or opaline, is almost everything. Venetian glass was at the same time an outcome of the Venetians' love
of sensuous beauty and a continual stimulant to it. Pope Paul II, for example, who was a Venetian, took
such a delight in the color and glow of jewels, that he was always looking at them and always handling
them.

"When painting, accordingly, had reached the point where it was no longer dependent upon the Church, nor
even expected to be decorative, but when it was used purely for pleasure, the day could not be far distant
when people would expect painting to give them the same enjoyment they received from jewels and glass.
In Bassano's works this taste found full satisfaction. Most of his pictures seem at first as dazzling, than as
cooling and soothing, as the best kind of stained glass; while the coloring of details, particularly of those
under high lights, is jewel-like, as clear and deep and satisfying as rubies and emeralds."

Contrast this. Turn-of-the-century steel magnate John W. Gates of American Steel & Wire Co. would be
riding with a friend in a passenger train in the rain. They would bet each other a thousand dollars over
which raindrop would reach the bottom of the window first. Under other circumstances, Gates and a
horseplaying buddy would wet two cubes of sugar and bet each other a thousand on which cube a fly would
land on first. Tacky curbstone wagering on a big budget. A pitiable way to make life interesting.

Had he been an art-lover, admission to a Venetian gallery or the Ducal Palace would have cost a few lire.
Class need not be expensive, nor does an unlimited bank account always generate class or elegance. Gates
could have bought an art collection but instead gravitated toward saloon bets near the brass cuspidor. A
piano-roll object lesson. For better than government (bond, CD) profit, financial risk stands essential. But
it is lousy entertainment fit for a drudge. Have other ways to "make life interesting" if you value your
bankroll or your life.

3. Be the researcher and the learner.

At a writers' conference, author Gerald Green (Last Angry Man, Holocaust) lectured on the value of
research, of sifting informational materials well and knowing Your subject-matter thoroughly before you
write. To his surprise, the audience was visibly hostile toward him. Green had overlooked the tendency of
writers' conferences to attract daydreaming incompetents. They envisioned fame and wealth as successful
authors but he talked homework and sweat.

They the would-be mountain-climbers who never leave the house, he the real scaler of the Alps. How dare
he open the door and let the chill in! Struggling would-be actors wait on tables and drive cabs during their
quest for the Oscar or the Tony. However, you cannot expect self-proclaimed John Steinbecks or Margaret
Mitchells to inconvenience themselves by doing research or to endure anything difficult. No wonder
publishers are perennially deluged with smelly manuscripts. Sadly, this resembles the performance of many
would-be millionaire traders.

At least 98% of humanity would rather eat barbed wire than dig for information. All homo sapiens like to
think themselves knowledgeable--human ego being what it is--but only the tiniest percentage hunts down

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knowledge. The financial arena, like the publishing arena, is murderous to those who are long on hopes and
short on the knowledge, the knack, the know-how.

The comic strip "B.C." stated the proverb, "Never get on a roller-coaster that leaves full and comes back
half-empty." That could be a description of trading, writing, acting, gambling, considering how many quest
forth and how few come back with anything. Also, some fields are worse than others in their coaxing.
Major movie studios used to take out ads in newspapers nationwide, ads urging young people NOT to come
to Hollywood in search of stardom.

Did you ever see an ad from a futures exchange or an options exchange, a race track or a casino, saying
"Most of You Will Take a Pounding?" Of course, film studios made no profits from turn-downs or
actor/actress over quantity. Those other places need loser dollars as much as winner dollars, perhaps more
so since a winner is a minus on their ledgers, taking money out of the circuitry. To survive in such a milieu
a speculator must be a man-of-war ship-of-the-line with an ample powder hold of knowledge and research
data. Turn studying into a class act.

Financial and investment knowledge from the 1800's may be more applicable today than supposed. Data
from today's financial news is sometimes relevant and sometimes not. Tons of informational rock hold only
small specks of valuable radium. The amount of information needed is more than tiny but may be less than
you think. Thus we arrive at the next rule.

4. Remember that you need not be an Einstein.

A fair number of physicists and engineers have taken up futures and options and have brought along
calculus as the mathematical "hieroglyphics of the pharaohs." Do not feel intimidated by either the
sheepskins or the abstruse symbolism. Stanley Yabroff, New York University professor of finance and
manager of Gerald Commodities in Manhattan, said in a lecture, "You do not need calculus to trade
successfully. All you need is the arithmetic you learned in fourth grade--add and subtract, multiply and
divide."

I learned the fundamentals of calculus wall enough to receive a B in an NYU finance course that was heavy
with it. In my trading, however, I found it to be excess baggage. My cousin Michael, a medical resident
starting to invest in stocks, recently asked me on what basis I choose stocks for purposes of option spreads.
I explained, "First, I look for stocks whose near-term options have meat on them, not nearly all devoured
time-decay."

Since I specialize in horizontal calendar spreads or time spreads, I told him, I then look to see if the stock's
far-term or farther-off-in-the-future options are lean or bargain-priced compared to the near-term ones, with
the amount of time as a measuring factor. The time of our talk being early November, I pointed to Cisco
Systems shares (stock symbol CSCO; option symbol CYQ) as an example. The December 55 put contract
traded at about 2 while the stock was at 60.

The April contracts contained five times more time value than the December's. So did the CSCO/CYQ
April 55 puts trade at 10, i.e., five time the 2? No, at 4-½. A bargain. Meaty near-term, lean far-term,
enabling a spread strategist to sell the overpriced and buy the underpriced. I pointed out similar factors in
the options of Microsoft (MSFT; MSQ), Netscape (NSCP; NQT), Compac (CPQ; CPQ) and IBM. Techno
is beefy for now.

"Whether I use puts or calls depends on which way the underlying stock has been trending in recent months
or weeks. A horizontal spread of calls above a rising stock, of puts below a descending one. If the stock
crosses the "striking price" line and places the options 'in the money' buy back the near-term while the far-
term gathers poundage. Fundamentals also help me to determine whether to choose puts or calls."

The most important fundamental in my calculations, though not the only one, is the PE or price-earnings
ratio--the price of the share compared to the annual earnings per share. "You see, Mike? Cisco has a PE of
44, Microsoft 38, Netscape over 100. The average PE for exchange-listed stocks is about 18 so these shares

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appear inflated or overpriced. Compaq is 20 and IBM is only 13 which may sound good for call-buyers
except that both those stocks appear to have hit a concrete ceiling in terms of upward progress lately." IBM
soon climbed some, breaking 130.

Quarterly earnings reports must be termed a key fundamental because the day they come out they tend to
shake a stock in one direction or another, temporarily or otherwise. A good earnings report in July launched
IBM on what eventually became a 35-point-plus upward climb. A solid PE to start with helped much. Alas,
the effect of the October quarterly report proved transitory. Netscape's October quarterly report scored a
penny over analysts' expectations (.09 for the quarter instead of .08) so the shares climbed a few points then
faltered, the PE still worse than 100. I currently have a put spread under it.

When preparing to take a spread position in either puts or calls, I find out from the broker WHEN the
stock's quarterly earnings report comes out. Maybe I shall tolerate it amid my spread and maybe not. It adds
to the risk. I use a discount broker who is theoretically an order-taker and not an information-getter but he
can still obtain key fundamentals and news on a stock on his computer screen, i.e.; "First Boston upgrades
Jones Consolidated stock from a hold to a buy."

So the company-underpinnings fundamentals that I use I could jot on half the back of an envelope. Yet they
blend well with charting and trend-following. At a certain stage of development, the successful trader
attains the knack of doing research well. At a more advanced stage he learns what research not to do and
what data to omit or ignore. The footnotes in the annual report and the elevator conversation with the
executive no longer seem like earth-shaking discoveries.

The legendary Nicholas Darvas habitually skipped the articles and columns in Barrons and turned directly
to the Big Board listings. He declared, "It is too easy to be influenced by factors that don't mean anything."
I read all of Barrons but I agree that one must ignore many quantities of data as useless or misleading, and
the data comes from everywhere. One need not be an Einstein to trade successfully because so much of the
intricate stuff should be overlooked anyway. Also you do not need the mathematical sigma and epsilon to
tell you which options have meat hanging off of them.

However, this does not lessen the importance of research, that place on the map where so many money-
losers step into quicksand. Jesse Livermore wrote, "The average American is from Missouri everywhere
and at all times except when he goes to the brokers' offices and looks at the tape, whether it is stocks or
commodities. The one game of all games that really requires study before making a play is the one he goes
into without his usual highly intelligent preliminary and precautionary doubts. He will risk half his fortune
in the stock market with less reflection than he devotes to the selection of a medium-priced automobile."

5. Remember the dictum of Don Vito Corleone: "Keep your friends close but your enemies closer."

The enemies of Mario Puzo's fictional Godfather were rival gangsters plotting against him. The enemies of
the financial trader are the things that can go wrong. Study them and know them well, their details, quirks
and capabilities. Frequently compose worst-case scenarios and figure that occasionally the worst will
happen. Although I have quoted it before, that statement of Nicholas Darvas bears repeating: "There is no
such thing as 'can't' in the stock market. A stock can do anything."

Minimize the risk. Limit your exposure. Panic early and do not let a small loss become a big one. Do not
wind up having to pray, "God, please make the market turn around. I promise I'll never do it again."
Anticipate beforehand what the market can do and what you will do if it does. Be able to say afterward,
"That really exploded on the launching pad. I'm glad I sunk only a small portion of my capital into it." Even
better, be able to say, I'm glad I pulled out early when the reversal started, lost a few pounds of flesh
instead of the whole side of beef."

I write this over a period of several days. A couple of pages back I said I had a put spread under Netscape.
While other traders use mental stop-losses, I have evolved in my head tendency to form graded stop-losses.
As Netscape shares hovered in the mid-40s price range, my put spread stretched horizontally at 40, with 10

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November contracts at the short end and 10 Januarys at the long end. Time decayed the short November
puts to just under half a point. My money in the "gap" was a trifle ahead.

I could have bought back 10 Novembers for less than $500 to close out the short end, then created a new
short end by selling 10 Decembers with the same striking price of 40 for slightly under $2,000. Nearly a
$1,500 gain with a couple of phone calls, one to buy back November's, one to sell December's covered as
were the November's by the January's. Tempting, but I wanted nothing to do with puts unless the
underlying stock was descending and nothing to do with calls unless it was climbing. Otherwise the far-
term long end of the spread could shrivel into a skeleton.

Ergo, the graded mental stop-loss. I figured the stock price in the 46 & a fraction/47 & a fraction area to be
okay but fence straddling, 44/45 good, 42/43 great, and with put options the lower the share price the better
of course. On the upper end, 48 or higher even fractionally was forbidden territory. Well, on the first
Tuesday in November--election day--Netscape rose to 48-_ bid/48-¼-ask late in the trading day. I pulled
out of both the short and long positions (the former first as required since it is covered by the latter) for a
tallied 20% loss.

With a businessman's detachment I accepted the minus. Then I voted--the president, the man in congress,
the two women in the state legislature; occasionally I had written to the latter three and others in
government. The vote, the letters, jury service if practicable, participation in the community--all are herein
recommended as good ideas for the class-act trader.

The next day, Netscape rose to a Wednesday high of 50-½, more than two additional points of bad news for
put-holders. As I write this on Thursday evening, it showed a high today of 53-_ and a close of 53-_, up 3-
_. During this month of Thanksgiving, I feel thankful that I ventured only a limited amount of capital and
that I "panicked early" instead of "sitting tight and awaiting a turn-around." And I give thanks that I kept
my enemy close, knew him well, knew what he can do. My graded mental stop-loss mapped out good
territory, the great and ecstatic zones, and in the other direction the forbidden territory. Toes across that
boundary stopped a bad deal early. Time for turkey and gravy.

6. Be careful what you call superstition.

Netscape's fundamentals (a poor FE and a piddling quarterly increase) pointed downward but the
Technicals of the immediate past pointed upward. Most people know of the tendency of investment
fundamentalists to dismiss technical charting as a palm-reading diagram. Yet it is scientific thanks to its
basis in evidence and observation.

For Jones to reach Tenth Avenue from First, he has to cross Third and Fourth. Having crossed them, there
is no guarantee that he will reach Tenth. Nevertheless, for people who do reach Tenth, it is hard-as-iron
essential that they cross the intervening space first. A stock that climbs some distance might not reach the
top of the chart, but those that do reach the top must climb some intermediate distances first. Thus those
intermediate segments--the chartist's "higher tops and higher bottoms"--provide a workable signal if not a
perfect one. Due to the imperfection, stop-losses or bail-outs can be necessary.

The fundamentals of a thoroughbred are the facts about him before he runs the race--bloodlines, track
record, trainers opinion. Technical charting is the early furlongs of the race. If the good-fundamentals horse
makes a weak showing there he probably will not win the race. If a lesser-bloodlines stallion or a dark
horse zooms, take notice. Financial trading allows you to place bets or switch bets while the ponies run. Do
not bet everything because anything can happen and any horse can stumble. But let what is happening
before your eyes count for something.

Forever more, the fundamentalist and the technical chartist will denounce each other as either the sham-
wizard or the theoretician out of touch with hard reality. Remember that you need not be an Einstein to
blend the two.

7. Cultivate a suitable amount of patience.

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I said a suitable amount, not an endless amount. Just as you demand profits from your investments, you
should also demand them within a reasonable length of time. You are not a fruit tree planter who will wait a
couple of decades for those richly-laden boughs. Slow-growth stocks and 10-year bonds may have a place
in your portfolio, but a trader is almost by definition someone who expects the action and the profits to
occur faster.

However, trying too much for lightning speed is the mark of a gambling degenerate. Why do you suppose
"The Sport of Kings" became a wagerer's sport? A horse race is quick. Little time lapses between placing
the bet and the results. It is the sport that comes closest in rapidity to a roll of the dice or a turn of the
roulette wheel or a hand of poker. If you handle the trading of stocks or futures or options like a business
instead of like a gamble, you should not have to wait eons for a profit but neither should you be panting and
anxious.

Each form of trading has its own tempo and time-frame. I have found with option spreads that if the
underlying stock moves more than slightly, action can occur within less than a week. If the shares tend
toward inertness, time-decay on the short end of at least a calendar spread is at least a two to three-week
phenomenon. With options, thinking in monthly cycles practically "comes with the territory," as with, after
expiration, selling the following month.

With scientific, business-like financial trading, as with the curing of hams or the birth of calves or the
brewing of beer, you adjust yourself to the time that the processes require, not the other way around. The
patience required in breeding three-year olds for a derby and the short patience of horse gamblers stands as
an immense contrast fixed in concrete. If you want to be like the owner of Whirlaway instead of like the
sucker phoning his bookie, then be sure you resemble the one and not the other in scientific-mindedness,
business sense and patience.

8. Be skeptical of what passes for "tradition" or "science" or "class."

In my April/May 1996 article in CTCN, I hatcheted the right-wing reactionaries for the simple reason that
they have as much business calling themselves 'traditionalists" as a gypsy fortuneteller has calling herself a
"scientific" palm-reader. The same is true of their pretensions toward what is "classy" or "scientific."
Consider, for example, their anti-rook & roll witch-hunt hysteria. You will not hear talk like that at the
opera house during intermissions of The Sicilian Vespers." Well over their heads, that level of culture
fosters a certain tolerance and broad-mindedness.

Webster defines a "reactionary" as "one who advocates a return to certain customs or values of the past."
The dictionary does not mention that reactionaryism is a short-range spyglass whose focus disintegrates
beyond the barber shop quartet or the Model A or Laurel & Hardy or the Good Old Summertime sheet
music at the dime store. A three-masted, iron-cannon trader requires heavier lading than this in his or her
class-act cargo hold. "The solider who accepts dime novels about white-hat cowboys as "old-style
literature" might accept barrelhouse rumors or huckstered land as a financial battle-plan."

While president, Ronald Reagan remarked that he "had doubts about the theory of evolution." At another
time during his term, he said he "liked it better when actors kept their clothes on." Who was Reagan
wooing when he made these statements? The archaeologists and paleontologists? The lovers of Dutch &
Flemish paintings or Greco-Roman sculpture? Obviously he was courting the right-wing reactionaries and
the fundamentalists, the lovers of "time-honored tradition" who saw every movie that Doris Day or Pat
Boone ever made.

Anyone whose notion of tradition or elegance plunges deeper may be suspect. William F. Buckley, Jr.'s
magazine The National Review (Sept. 16, 1996) carries a page 18 warning against "divisive multi-
culturalism, and all the other symptoms of moral decay."

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Rush Limbaugh made similar statements on TV. There are those who can appreciate why the city of
Florence came to be called "the second Athens" and why Dresden with its art treasures has been termed
"the German Florence."

But watch it. The Greek-American or Italian-American or German-American who embraces his heritage
and advocates ethnic diversity in the US stands accused of "divisive multi-culturalism, and all the other
symptoms of moral decay." Supposedly, the "ideal American" is the backwater Bible-thumper whose
heritage includes Norman Rockwell homogeneity and covered bridges, candy kisses music, the white-hat
cowboy who always won, and no bare navels on the film screen.

Venetian painters of the 1500's showed fine detailing that Richard Muther called "the delicate shades of red
hair and the soft gleam of powdered skin." Yet did anyone ever hear William F. Buckley mention Titian or
Tintoretto, or for that matter Rachmaninoff or Balanchine, to his "old time religion" fans or his tobacco-
growing fans or his blue-collar fans? He knows enough not to talk over their heads.

Bill Buckley's smattering of Anglophilia tend more toward Prince Albert on the tobacco can than toward
Thomas Gainsborough or Christopher Wren. Even worse than robbing Peter to pay Paul is robbing
Benjamin Britten to pay the Moral Majority. Anglo-American traders who want ship-fittings of elegant
English brass are advised to skip The National Review and go straight to the writings of Sir Joshua
Reynolds, John Ruskin, Samuel Johnson, Thomas Middleton and Joseph Addison. Macaulay and Carlyle
have already been mentioned.

How exquisitely authors' inks and ale blended at the Mermaid Tavern in London's Cheapside district. How
adeptly the Venetian artist captured the sapphire and turquoise of the lagoons in his pigments. My
fascination with word origins brought me to the discovery that "exquisite" derives from Latin and originally
meant "to quest after" or "to search out." "Adept" sprang from late Latin and referred to the alchemist who
discovered how to transmute base metals into gold. They thought he existed.

Questing and searching, adeptness and gold--all fit into the financial trader's mission or strategy. Slice off a
part of the class and elegance from Mayfair's "world of rouge and diamonds." Trumpets and lobsters and
champagne can sit pleasantly on both the digestive system and the soul.

Recommended Readings: McMillan on Options by Lawrence G. McMillan and Options - A Personal

Seminar by Scott Fullman both deal with spread strategies in greater depth than most books on puts and
calls.

How Old Millionaires Think of Commodities - Martin Hilby

Spreads give you a false sense of security and double your commission costs. You take the bull road, you
take the bear road and I'll take the float. When you follow a tip you lose money. When you ignore a tip you
should have listened.

Stop points that you observe turn out to be false signals. The ones you ignore turn into large losses. Solid
fundamentals are often built upon sand. The moving average that you trade usually turns out to be too short
or too long. Whipped by the whipsaws.

Governmental actions are designed and timed to hurt your position. Small profits beg to be taken. Big
losses just grow and grow and grow. There are so many dumb rich traders and so few smart rich traders.
Bad trades never get well - they just get sicker and sicker. Every time you decide to trade a crop report it is
a bomb.

"Original research:" the first time someone steals an idea. If only charts would make as many chartists as
chartists make charts. Sleep well when caught in a wild close -- tomorrow's opening will be worse.

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Runners move fast with an order you should not have entered and slow, slow, slow with an order that
would have made you rich had it reached the pit in time. The market always "fast ticks" for someone else .

"Unable," "fast tick" mean that "those profits ain't for you, boy." The market must love "unables" -- it
makes so many of them. Luck: right for the wrong reason.

Big swingers all seem to end-up swinging by their financial necks. Margin calls come fast while returns of
excess margin come by slow boat. Diversification's is a trap: crises coincide and bunch-up in excess of your
ability to handle them.

Formula on how to miss a good trade: over trade in another market. Pride of utterance builds even more
bias into ones market opinions than does a position. Sure formula for failure: trade by committee. Try to
know all markets and end-up knowing none. Commissions: The bigger you are the less you pay. The
smaller you are the more you pay.

Words that could be done without:

ü On paper their system . . .
ü I just knew it was going to do that
ü I felt that was a stinking idea, why didn't I ü I don't mind taking losses
ü I knew that, didn't I tell you?
ü Oh that's what I thought before the market opened. I'm sorry I didn't get to you on time
ü But I had to tell my big customers first
ü I don't speculate - I just use good business judgment
ü Why would I hedge if the market is going to go up?
ü I didn't know you expected me to watch that position
ü My cousin knows a man who has a system that . . .
ü A man my cousin knows practically never takes a loss.
Words that are never heard:
ü That was a lousy idea I gave you. I'll return the commissions
ü If you could eat paper trades you wouldn't see so many of them in a prospectus
ü Why so good on paper and so poor in reality?
ü Do you know any shorts with homes on Park Avenue?
ü The cure for high prices is high prices. The cure for low prices is low prices.
ü Be not the last by whom the bag is held - (Ben Franklin)

Markets look high half way up; markets look low half way down. Right for the wrong reason. Bottoms
come in all shapes and forms - wide, V, double, triple - don't get caught sitting on yours. You must plan
that big profits come only from big risks and big losses can come from small profit opportunities.

An expert is one who lucked into a good move and wants to tell you, who missed it, all about how he
thought it thru and traded it brilliantly, the dope!

Transferring Brokerage Account

Peter North

My long-standing Account Executive (Broker) recently changed companies. He wanted me to change with
him, but I did not care to do so based on what he had told me about not leaving the other company. I was
afraid that he would soon leave the new company.

After looking over several brochures and talking to several companies, I made a decision on who to
establish my account with. I have been trading since 1968, and had been with the former company since
1982. It was a tough decision, for I had very good relationships with both the company and the broker. My
main reason for making the change was that my former Broker was also after my Investment Account, and

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had actually talked me into transferring it from the company that I had been with since 1963. One of my
questions to him was "how long do you intend staying with your company?" His answer was "Until I retire
in about 10 years:" This was one week before he informed me that he was leaving.

The new company that I selected had sent me proper forms for transferring the account. It seemed logical to
just transfer the entire account from the former brokerage company to the new brokerage company. I
submitted proper transfer forms, notified the former company to make the transfer upon receiving proper
transfer documents from the new company, and left on a short vacation; assuming that all would be
transferred upon my return. At my age (66) I should have known better, (never assume anything) because
when I returned, I called the new company and was informed that they had sent the papers by fax, and were
told that there were no funds in my account.

I called the former company, and after being shuttled around, finally talked to the broker to whom they had
"assigned" my account, who informed me that they had received my letter the day after they received the
fax from the new company, and had mailed them a check for the entire account balance. I asked him why
they had told the new company that there were no funds in the account, and he said that because all of the
funds were in my "money fund" at the time, therefore there were no funds in my commodity account. The
former company had always made transfers at their discretion from my commodity account to my money
fund. There was one account number, but they used different suffixes for the two accounts (unknown to
me).

To get to the point, I called the new company and told them that "the check is in the mail," and after six
calendar days it finally arrived. This was a large sum of money, and I was ready to call the old company
and ask them to stop payment and issue another check. The real problem is that panic had almost set in. All
sorts of negative thoughts ran through my mind. All of the people with whom I was dealing were strangers
to me. I had not received the new account number, as it had not been established until the funds arrived.
The broker from the former company was disgusted with the whole affair, and seemed to care less. Some of
his comments were "you should know better than to mail anything to Chicago:" "we were not sure where to
send the check;" " no, you cannot talk to the person who actually mailed the check;" "I am not sure if the
check was mailed from here or from our home office;" "I cannot tell you if the transfer clerk had proper
transfer papers or not." (maybe he was trying to comfort me)

In the end, it all worked out OK, but I will never transfer another account. Instead, I will close the old
account and open the new one. My advice to other traders would be to do the same.

Change in CTCN Format - Rich

I have read the sample issue you send and it was interesting and informative. However, to me your
subscription price is way out of my budget. I assume that your service is hard copy and not just on the net,
but for me and surely many others. If you were on the net and downloadable and it would be much cheaper
to produce. I would be willing to subscribe at a rate of say $15-$20 per year. Please don't discount me as
just some cheapskate without considering how much your volume might increase, and how low your
overhead would be with such a service. I am sure you could reach a much broader audience which could
result in a better bottom line in the long run.

Editor's Note: I don't think you are a cheapskate, but if you think $67 per year for all this knowledge is too
much money, you should NOT even consider trading futures. In futures, you can lose or make $67 in a
matter of seconds!

We may eventually put CTCN Online, but for now no definite plans. However, it will certainly be more
than the $15-$20 per year you suggest.

Miscellaneous Comments on S&P Educational Trader Training Course - Thomas Mylotte

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Thank you for the free copy of CTCN. I did indeed enjoy it, and may subscribe.

I know that you are interested in comments on your "Real Success" method, and I do have some to offer.

I must ask myself how serious could many of the people who purchased your video package be, if they
refuse to purchase your software? One good trade would easily pay for this software.

How can someone claim to want to trade profitably and yet be too cheap to pay $297 for the very important
software that goes with the video package?

Now Dave, the thing that made me somewhat upset was that you spent five videos showing these
"cheapskates" how to use the method with "Bollinger Bands." You allotted just two video tapes to using
"your" software with the method. Needless to say I feel the allotment of video time should have been just
the opposite.

With the "cheapskates" without software getting two videos on use with "Bollinger Bands" and the
software purchasers getting five videos on using the software properly! It seems the people who did not
purchase the software made out better than those who did.

I don't feel you need to purchase better video equipment. I could see the screen just fine. I feel the so-called
"sync" problems were not a problem at all. I do however agree with Hsu-Feng-Shueh in Real Success
Bulletin #1. The only time I could really see what you were doing was when you blew up the price action. I
could not clearly see the swing highs and lows, except when you blew up the price action. I would agree
that any future videos should have the price action just before and during the trade blown up.

I surely enjoyed the video tapes, and I can clearly now identify swing highs or lows. However, I don't know
if I will be able to make use of the method to make a living. I fully realize that part of the method is
subjective, but it is a little too subjective for me to attempt to trade at this point. I for example would have
only made a fraction of the trades you made on the video tapes. Most new "Real Success" traders, I believe
would want to wait for a confirmation bar to fully form, and then wait for the price to trade two ticks above
or below before trading. This much I am capable of understanding.

However, I could not follow you on other trades when you deviated somewhat on your entry signals?
Please don't misunderstand me, I am not being critical here. Frankly, I am very impressed with your
knowledge, expertise and ability. I am only saying most new "Real Success" traders probably would not
have made many of these trades. I agree with Frank Chin on his comments in Bulletin #1 about these entry
signals.

I would still like to make use of this method to trade profitably. In this vain, I would love you to make
available a "Real Success" subsystem with a "concrete" entry signal. A hook, swing-bar, reversal bar, back
in the direction of the trend, after a retracement.

You mentioned this possibility in Bulletin #1. This would be very helpful as long as the entry was
somewhat "concrete."

I understand trend, swings, pivots, price targets, etc. The subjective entries are what is confusing me. The
anonymous trader himself said that one could make a full-time living simply just trading "Vanilla Ross
hooks" in strong trends.

I for one would be pleased to make half the money as the methodology may be capable of. I would like to
keep it as simple as possible until I am able to grasp the entire methodology and become more adept at
reading the market - like yourself.

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How do you feel about simply waiting until a "very clear" trend is in place, then only trading when one gets
one of the more "high probability" entry signals? Even a novice can determine a strong trend! This may
only allow 3 to 6 trades per week. However, I surely would not care because I am trading to make money
only, not to keep myself from getting bored. This may be a good route for the novice until they develop
more skill and confidence. What do you think?

I surely would love to receive more training and help. However, I do not use the Internet. I also have no
desire to use the Internet. I believe the most useful thing you could do, would be to make more videos
available. Nothing elaborate or too time consuming. If you would simply just let the video camera run
during your daily trading, and make a little commentary just before, during and after trades.

I don't care about high quality production values. I just want more examples of this being traded properly.

I have watched the videos repeatedly and read the manual. I still cannot figure out what a "reversal bar back
in the direction of the trend is." A highlighted example would be very useful. I am not sure what a "reversal
bar" is at all. You have clearly defined "swing highs and lows," but I still cannot identify these "Reversal
Bars?"

In the Real Success Bulletin #1, someone asked what a "Ross Hook" was. You said a "hook" was identified
by yourself as either a "pivot" or "swing low or high," which I am familiar with. You also described it as a
"reversal bar." If you would check the Real Success course manual and look at the second to last chart
drawn by the anonymous trader in the back of the manual. You can see he points out a couple of "hook
trades" which clearly do not fall into the "reversal bar" or "pivot/swing" category? Also, you describe a
"reversal bar" on page 10 of Bulletin #1. The anonymous trader shows "reversal bars" in some of his charts
which do not fall into your definition? This is confusing me? Who is correct here?

I know the S&P 500 margin. However, I would like to know what size account you personally recommend
for one-lot trading of the S&P 500 (daytrading).

I understand pivots. However, I keep reading the term "two pivots back" on the 5-minute S&P chart. Does
this mean I should wait for two "clear" pivots up or down to be certain of the trend, then take the "third"
pivot as may entry signal? Please explain. "Two pivots back on the 5-minute S&P chart."

You mentioned on Page 26 of the Real Success method sales brochure that you would reveal helpful books
to study to improve one's trading psychology. You stated that you would reveal the titles in the manual. I
believe the anonymous trader recommended some books, and perhaps you have some suggestions in this
area. I feel reading these books would benefit me, what are the recommended books?

Please consider me interested in Tom Schlobohm's "tick player" S&P 500 training software. I am
interested. It would be most useful if the program was already loaded with at least a month's worth of daily
ticks from the S&P 500 market. If one needed to subscribe for practice, it would sort of be defeating the
purpose of saving money. I do not feel the data must be from the previous day to get practice.

Thank you again Dave, for making this training available. I hope I am able to fully understand this
methodology soon. I feel that I am slowly starting to comprehend more of the concepts. I may just try to
concentrate on the simplest "high probability" signals for now. I will keep studying the manual and tapes.

Editors Note: These issues and questions will be discussed in detail and at length in our next educational
video tape training course available in a few months.

Several articles in this issue refer to our Real Success Educational Training Course. We planned to put
these articles in our Special Bulletin, but the bulletin has been delayed until the question of our giving
trading advice in the bulletin is resolved. Once the issue of whether or not we are giving trading advice in
the bulletin is clarified we will be able to resume publishing the bulletin.

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 Bad Fills - Donnie

Protested a fill today, called in a stop order at 10:50 eastern, to sell one S&P at 743.95. It was filled at
743.30 placed order to buy one at 743.50 filled at 743.65. The manager told me that because I was filled
within 3-minutes on first order there was nothing they could do about the fill. Does this sound right to you?

Brokers - Donnie

First of all, I would like to thank you for all your help. I just talked to my account rep. he said that the
offsetting orders had to be placed because I've been trading at the discount desk and that the offsetting
orders are a Lind-Waldock requirement through that desk.

I have been paying $25 per trade. He recommended the Lind-Plus desk which is $35 per trade, but no
offsetting orders are required on market orders, and the broker holds the Stop orders if they are within 3 or
4 ticks from the market price and goes directly to the floor instead of entering the order into the computer,
so basically they will save me 1 to 2-minutes on the order fill price. They also flash fill any market orders. I
think I'll give them a try. $10 more per trade won't cost me near as much as my bad fills have cost me
recently.

Wild Quotes - Trader

I had a wild quote. I think it was 6.90 rather than 690.00. It happened just a few minutes after I had made a
new trade and really screwed me up bad. In fact, I lost money because of my chart being a straight line and
not knowing what the chart patterns looked like during the trade.

It took me a long long time before I finally received instructions from TS on how to delete the bad tick
from my chart. I had to call two different people at TS and it took hours to correct it. Finally, I was told
how to edit the data and delete the bad tick. Unfortunately, I do not recall how it was done. If I refresh my
memory on it I will let you know, but for now I would suggest calling TS again.

Member Requests

Marc Mitchell wants to "Sell TradeStation 3.5, best offer takes. Contact via CTCN.

Randy Lum would like information regarding Lou Mendelsohn and his unusual software for neural nets.
Reply via CTCN.

Maury M. Breecher - I want information about whether I can use info gleaned from this group to do
"paper" trades for at least 6-months before trying it with real money. Also, I would to know what members
think of an offer by Ken Roberts for his "Most Powerful Money Manual & Course" which is supposedly a
system for making money on commodity trading. It sells for $200 and contains a money-back guarantee if
one does paper trades for 3-months and is unsuccessful. Finally, a bit of background. I am a medical writer
researching infectious diseases and find that medical scientists have tracked and predicted diseased based
on weather models, i.e., after extremely hot year next likely to be extremely wet. Seems like this would
have ramifications for commodity traders, right?

Jeremy Zeidner - Do you have any information about daytrading using quotes from quote.com? They claim
to have real-time quotes for futures prices. Are they indeed in real-time or are they delayed and is so can
they be used effectively to day trade with. Please reply via CTCN and any other information you have
about using the web to day trade.

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Chris is looking for a comprehensive Online broker who can cover stocks, futures and options. Contact via
CTCN.

Please contact Lawrence Cole (via CTCN) if you have information on a data feed that can be transmitted
thru the Internet using ISDN line.

Editor Comments & Announcements

The CFTC is currently investigating a surprising number of commodity product vendors, including
software developers, money managers, trading system vendors, newsletters, etc. For example, Oster
Communications (FutureSource) the publisher of Futures Magazine was recently investigated and heavily
penalized. This prosecution and subsequent penalty of $700,000. (according to the CFTC's Internet Web
Site) was pertaining to allegations made about a trading system software program they were involved in
promoting and selling.

The CFTC said in a fairly recent ruling that basically anyone dispensing commodity futures information
must be registered with the NFA, etc., even if no specific trading advice is given!

Many well-known industry companies and individuals are being or have been investigated.

We have duplicated a number of additional Real Success Daytrading Educational Video Tapes in excess of
the original number of planned packages.

We are able to offer more packages than originally planned because the method was (and is) non-
mechanical. This means few traders were taking the same identical trades based on the signal setups. In
addition, even if some traders did take the same signal, the trades still frequently varied as the target price
is somewhat subjective, within a range of target levels, based on perceived volatility and entry price, which
is also variable to a degree.

Also, we are now recommending S&P daytrading stop-loss levels be changed from the original 60-point
stops to 85-points. This seems to work better now than in the past, likely due to the increased volatility in
the S&P 500 market. Unfortunately, the original "Real Success Revealed Secrets" method did incur a
drawdown over the past couple months. It seems the original stop-loss level was a little small what with the
greater volatility

If interested in obtaining a copy of the original educational trading package, please contact us for a
disclosure statement, contract and our accompanying detailed brochure.

By the way, existing (and new) Real Success owners (April 1996 edition) will be sent a free no-cost
package of updated video tapes (with enhanced methodology) as soon as our new tapes are ready. We are
working on them now and they should be available by February or March (but may be delayed for various
reasons until the summer).

Please note our new e-mail address is ctcn@webtrading.com. It's requested you contact us via e-mail
whenever possible, rather than mail, phone or fax. E-mail is almost instantaneous, efficient, easy and
basically costs nothing (except for Online time, which expense you will likely have anyway even if you
don't use it for e-mail).

Also, even though our name is "webtrading" we do not offer any actual on-line trading or real-time trading
advice at this time. We selected this name as we did once plan to offer these activities. However, we now
realize there are major technical problems in setting it up and also regulatory concerns at this time in
regards to it being legal and properly authorized by the government.

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 Therefore, those World Wide Web trading plans are on hold until these major concerns are satisfied. In the
meantime, we will keep and use the name "webtrading" as part of our new e-mail address. We also have
registered this name with the InterNic (Internet) several months ago.

Several members have written us or called requesting another contribution by John Bingham.
Unfortunately, John has now decided he wants privacy and has decided he does not want to disclose his
trading methodology at this time. Fortunately, several other successful traders have agreed to write articles
about their methodology in future issues.

By the way, probably the best low-cost way to learn how to trade successfully with "low-risk" is to read or
re-read the series of articles written by the "Successful Anonymous Trader", which over a number of issues
earlier in CTCN. In addition, a number of other CTCN members have written articles over the last 3-1/2 yrs
about their trading success and methods.

Notice: This may be our last issue which includes classified ads printed on the same pages and booklet as
the newsletter itself. In fact, we have been planning this for some time and is the reason there are few ads in
this issue. We did not actively solicit or promote new ads for this issue.

We believe it's better to not mix advertisements with our articles. In addition, since we also sell back-issues
of CTCN it's possible some old advertisers no longer offer the product/service they once advertised or
perhaps the description and price has changed.

Therefore, starting with the next issue, we plan to segregate advertisements but allow them if they are
offered as separate flyer inserts enclosed within our mailing envelope.

We anticipate advertisers will accept our new policy as we do like receiving advertiser revenues, because it
helps cover our costs (postage in particular). This helps defray our expenses and keep your membership
costs low. In addition, our advertisers frequently offer beneficial products or services to assist you with
your trading.

Thanks to everyone who has contributed knowledge to this issue of Commodity Traders Club News.
Without you it would not be possible.

Issue 36.

Money Management Techniques For More Profitable Trading - 7th of a Series by Tom D'Angelo

This is my seventh article intended to provide readers with a coherent, disciplined money management
methodology, designed along the lines of a successful business. Refer to my previous articles in Vol 4-5,
Vol 4-4, Vol 4-3, Vol 4-2, Vol 4-1 and Vol 3-8.

In this article, I will discuss a money management concept originally developed by sports bettors here in
Las Vegas which can also be utilized by traders.

This technique is comprised of the following seven concepts:

1. Proper organization of trading results into a business like structure

2. Determination of a highly profitable business organization
3. Determination of profitability's trend
4. Establishment of a new business organization
5. Determination of optimal amount of contracts to trade for the new business organization
6. Allocation of a percentage of total trading capital to the new business organization
7. Determination of profit or loss levels which signals termination of trading for the new business
organization.

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The proper organization of trading results into Profit Centers has been described in my previous articles. In
this case, we would like to have all our trading systems established as Profit Centers. For example, for
those who day trade the S&P500 using Real Success (trading methodology), establish a Profit Center
named RSSP500 and enter all trading results taken from the Real Success method into that Profit Center.

Then establish Profit Centers for other trading systems which you use. For example, if you also day trade
the S&P500 using a breakout system you designed yourself, then enter the results of those trades into a
Profit Center named SP500BO. We now have our trading systems segregated into different "business"
organizations.

The next step is to identify highly profitable "business" organizations. A good measure of profitability is
the Profit Factor which is: (% profitable trades x average profitable trade / % unprofitable trades x average
unprofitable trade)

For example: % profitable=40%

% unprofitable=60%
Average profitable trade=500
Average unprofitable trade=200
Profit Factor=(.40 x 500 / .60 x 200)=(200/120)=1.67

A Profit Factor greater than 1.0 indicates a profitable Profit Center. A Profit Factor less than 1.0 indicates
an unprofitable Profit Center.

Perform the Profit Factor calculation for all your Profit Centers. Wait until you have about 30 trades in the
Profit Center so that you have a good sample size.

Now select the 3 or 4 Profit Centers which show the highest Profit Factor. If your Profit Centers are trading
systems, you will be selecting trading systems which you have been most profitable trading.

The next step is to graph the Profit Factor calculation for each of the most profitable Profit Centers. Select
the Profit Center which shows the Profit Factor statistic trending upwards (lower left to upper right on your
graph). This Profit Center is not only profitable, but becoming more profitable. This is a Profit Center in
which you have shown a high skill level in trading and is producing profits at an increasing rate. In other
words, this Profit Center is a positive expectation game, a game where you have the edge based on past
performance. We will now attempt to exploit this perceived edge.

The fourth step is to establish a new Profit Center business organization in which we will assume an
aggressive trading posture. For example, if you have selected the RSSP500 as you most profitable Center,
we will create a new Profit Center named RSSP500AG. The AG suffix on the name indicates that we will
trade this new Profit Center in an aggressive manner.

The fifth step is to determine the optimal number of contracts to trade for maximum equity growth. I
personally use Ralph Vince's optimal number of contracts calculation. Although the calculation has its
flaws, it's a close enough approximation.

wanting to use a systematic approach to trading.

This optimal number to trade will maximize equity growth at the expense of very volatile swings in the
equity curve along with large drawdowns. The optimal contracts calculation also provides the minimum
percentage drawdown we can expect if we trade the optimum number of contracts. Knowing this
drawdown percentage is very important from a psychological point of view, since we must mentally
prepare ourselves for the inevitable volatile equity swings.

The sixth step is to allocate a percentage of total trading capital to the new business organization. For
example, assume we have $100,000 in total trading capital. We decide to allocate 20% of total trading
capital, or $20,000 to the new business organization Profit Center named RSSP500AG.

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Thus, we have created a new business which has been funded with $20,000 to cover margin and trading
losses. We have determined that the RSSP500 Profit Center has an optimal number of contracts to trade of
4 contracts based on 30 trades in the RSSP500 Profit Center. We will now take an aggressive trading
posture and trade 4 contracts for the RSSP500AG Profit Center. We will enter all our S&P500 day trades
using the Real Success trading system into the newly created RSSP500AG Profit Center.

The seventh and last step is to determine when, and if, to cease trading the new RSSP500AG Profit Center.
If we are able to continue our prior trading success, we will easily be able to multiply our initial trading
capital of $20,000 by a factor of 3 or 4 times to $60,000 or $80,000. If we are not able to continue our
success, we will lose most of the $20,000 Initial Capital. Thus, we are risking $20,000 to win $60,000 or $
80,000. We are thus getting 3 to 1 or 4 to 1 "odds" on our money by playing a game in which we have
shown to be not only profitable, but also upward trending in profitability. If we lose the $20,000, we will
still have $80,000 in trading capital remaining and we will still be in the game.

The trader should establish profit and loss levels which will signal an end to trading the new RSSP500AG
Profit Center. For example, if the RSSP500AG Profit Center incurs trading losses and Initial Capital
decreases from $20,000 to $5,000, he may decide to cease trading and close out the RSSP500AG Profit
Center. On the other hand, if he continues trading in a profitable manner, and Initial Capital increases from
$20,000 to $60,000, he may also decide to stop trading and close out the RSSP500AG Center, satisfied
with the $40,000 profit. The decision of when to cease trading is arbitrary and is best left up to each
individual trader to work out for himself.

This technique is similar to betting on a heavy favorite in a horse race, and instead of having to bet $5 to
win $3 on the favorite, the track is actually giving us 3 to 1 or 4 to 1 odds on the horse. This is like betting
on Secretariat to win a race and instead of having to bet $5 to win $1, we will win $3 for every $1 we will
bet on Secretariat to win.

This technique is used by many professional sports bettors here in Las Vegas. They will follow numerous
handicapping systems and when 2 or 3 systems show a high degree of profitability after 20 or so bets, they
will allocate a percentage of total betting capital to these profitable systems and bet extremely aggressively
using the Kelly percentage calculation. I have seen initial betting capital increase 5 or 6 times in 3 or 4
months using this technique.

The basic idea is to play a game in which you have shown prior profitability and then play that game in an
aggressive manner, risking about 20% of your total bankroll. Play only games where you have shown prior
success. Play only games where you have shown a prior positive expectation. You cannot change a
negative expectation game to a positive expectation game by the way you bet. Play to your strengths. Play
your game, not someone else's. Only play games where you have a perceived edge or advantage.

There is no guarantee that we can continue our prior profitability and unfortunately, our game will cease to
be positive. We can only make decisions based on prior performance and hope future trading performance
will reflect prior success. If our prior trading performance indicates profitability, then that's the game I am
going to play. Also notice the tremendous psychological benefits afforded by this technique.

Every time you see a trading signal, you will know that this signal has been extremely profitable in the past.
This instills great confidence in the trader, significantly reducing the anxiety and fear which accompanies
every trade. It's sort of like a baseball player facing a pitcher which he has hit well in the past. When he
steps up to the plate, he knows that he has hit well off this pitcher before and this generates great
confidence in his ability to get a hit or home run.

As a final comment, I still notice that some CTCN subscribers are still trading system addicts based on the
articles in CTCN I have read. If you read Market Wizards 1 and 2 by Jack Schwager, you will notice that
all the traders profiled achieved tremendous trading success. This was done by daytrading, long-term
trading, fundamental trading, technical trading, intuition trading, trading futures, stocks or options. In other

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words, you can be successful trading any time frame, using any trading technique and using any type of
trading instrument.

The trading system is not the controlling factor in determining your long-term success. If the trading system
was the controlling factor, then all the traders in Market Wizards would be using the same trading system . .
. but they don't. In fact, the trading system you eventually adopt will mostly be irrelevant in determining
your eventual long-term success in speculation.

As I have tried to explain in my prior articles, you must evolve into a profitable trader by advancing up the
trading curves of the three disciplines necessary for success which are: 1. Money Management; 2.
Psychological Discipline and; 3. Trading Methodology.

You must master all three disciplines, not just one or two. You must adopt a professional, business like
approach to trading in order to provide you with the information necessary to move up the learning curves
in these three disciplines. This is the point I have been trying to communicate in my previous articles.
Businesslike organization which provides the information necessary to evolve you into a successful trader
is the Holy Grail to successful trading. (Yes, there is a Holy Grail and now you all know what is. Your
search is over).

For a free booklet on the reports I use in my own trading and information on a book I have just finished on
money management, feel free to call 800-MONEY30 or 702-261-9417.

The Trading Systems Toolkit (A Book Review) - Raymond F. Kohn

Many years ago (1989) I attended a seminar in Houston, which was held at a downtown hotel. The seminar
leader was Mr. Joe Krutsinger. He was demonstrating Omega Research's new "SystemWriter Plus"
program.

(I'm sure you're all familiar with "SystemWriter" and "TradeStation" offered by Omega Research, and the
trading system testing capabilities that these programs offer).

Joe did a marvelous job demonstrating the program. But equally important, he shared some of his personal
experiences and trading insights. To this day, I remember many of those shared thoughts and ideas.

He began by telling the audience some early personal experiences, (which he subsequently re-told in his
1994 book: The Trading Systems Toolkit). He talked of taking a client's $2,000 commodity account to
$96,000 in 11-weeks. However, swift market changes resulted in a fast drawdown and the client netted
$34,000 on his $2,000 initial investment. The client accepted a check for $34,000, and then proceeded to
badmouth Joe, to anyone who would listen, saying that Joe had lost him over $60,000 in the commodity
markets. The client thought Joe had done a bad job in "only" increasing his account by 1,600 percent
instead of the higher gain that was achieved prior to the drawdown.

In another personal story while working as a successful retail commodity broker with a substantial
customer list, his trading techniques and personal talents enabled him to provide his customers with 42
consecutive winning trades. And then, he had his first losing trade of just ten ticks ($312.50 in the bond
market). With that first losing trade he lost 25% of his client base. This one minor loss was followed by
eight consecutive winning trades and then another loss of $562.50. With that second loss, he lost another
25% of his customer base. With just two modest trading losses, he lost 50% of his customer base. They
obviously and unrealistically expected the never ending stream of winning trades to continue forever.

As I listened to his stories during that seminar, you could almost sense the unspoken frustration toward
these unanimously ungrateful clients. They had benefited and profited from his rare talents, and then
deserted him when he had the inevitable, albeit modest, losing trade. I don't know if it's just a part of human
nature, but Joe's clients are a perfect example.

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It has always amazed me how so many people can be such (A-Holes so often). It is my feeling that these
early experiences had a significant impact on him. He left the retail side of the business and traded his own
account exclusively. At that seminar (which was many years ago when a dollar was worth a lot more) he
indicated that his personal trading profits exceeded $400,000 for the most recent year. A further tribute to
his successful trading style.

With his focus on commodities and trading systems, "SystemWriter" was a great research tool that he
wanted to share with other would-be traders who were just getting started. As a result of his exceptional
demonstration of "SystemWriter Plus," I bought the program, and have loved it ever since. (I still use the
program to this day, periodically testing new trading ideas).

In 1994, Joe wrote " The Trading Systems Toolkit," "(How to Build, Test and Apply Money-Making Stock
and Futures Trading Systems)", published by Probus Publishing, Chicago Illinois, 246 pages. Based on
what I knew of him, and that one-day seminar when I had the pleasure of meeting him, I knew his book
would be great, and I had to have it. I bought it in '94 when it came out and have read it many times over
the years. Each time I re-read the book, I pick up new insights that have always been helpful to my trading.

The book assumes that you have access to SystemWriter, TradeStation, or at least an equivalent back-
testing program with which to test various trading system ideas. But even without these programming tools,
the book is filled with many trading insights and a good dose of reality that is extraordinarily helpful to
anyone using, or wanting to use a systematic approach to trading.

The book begins with a basic frame of reference and defines its purpose. The book is meant for those who
wish to develop a systematic approach to trading, and not for those who wish to embrace a discretionary
trading style. The purpose of the book is to give the reader a well-defined methodology for developing or
evaluating trading systems.

I am reminded of that philosophical anecdote which goes something like this: "If you give a man food, you
have fed him for the day. If you teach him how to fish, you have fed him for the rest of his life." This book
teaches you how to fish.

Many of the examples he uses, in showing you how to develop or evaluate trading systems are based on
commodities. However, he makes reference to the fact that the same principles apply to equities equally as
well, and gives periodic examples. Also, the data time frames mentioned range from intra-day to long-term
monthly data.

For those readers who still believe that they can achieve 100% to 1,000% return in commodity trading year
after year, he gives you a strong dose of reality. Such as: 90% of all future traders lose money and
eventually quit trading; 80-90% of traders will jump from one system to another looking for that "perfect"
system, usually taking three loses in a row before jumping ship; and finally, that most good trading systems
win only 40-50% of the time, generating an annual return of at least 25-30% per year.

The book is designed to be a basic primer in developing trading systems, and evaluating existing systems
which you may want to use. It takes you through the basics of system design, development, testing and
evaluation.

This book is not intended to be a collection of trading systems for you to use as is. (Even though many of
the trading system examples and systems he gives you are great systems and could very well be used as is).
Joe's educational examples of trading systems are ones he actually developed and successfully used in the
past. He provides these proven systems as an initial foundation for you to begin building your own trading
systems which you would uniquely tailor to your personality and trading expectations.

He is very frank and forthright in saying that he has personally developed better trading systems than those
offered in his book, but will not reveal them until he has eventually replaced them with even better trading
systems.

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He systematically deals with the key elements required of every trading system. It begins with an "initial
mission statement," whereby the reader is encouraged to come to terms with selecting an appropriate
trading style, time frame, risk tolerance, deciding on the most appropriate markets to trade, the inclusion of
any personal trading biases, and to personally evaluate your own ability to handle the inevitable losses and
drawdowns.

To quote Joe: "When you pick a system you must decide what is right for you. Determine your
temperament and preferences, your capital, your time restraints. Be sure to weigh each benefit against its
cost. Most important, always assume there is a disadvantage to every benefit because there is."

And then, beginning with the three essential building blocks required of any successful trading system:
1. market entry;
2. exiting with a profit; and
3. exiting with a loss.
He begins building successful trading systems, while simultaneously dealing with the problems of: Setting
stop loss points - Over optimization - System complexity - Trading discipline - Money management
techniques - Taking the time to 'think' - and most importantly Simplicity.

Below is a list of the chapter headings from the Table of Contents. It will give you an idea of the kinds of
topics which are covered in the book.

1. Do Trading Systems Work?

2. Trading System Basics: Market Entry, Exit with Profit, Exit with Loss

3. How to Build and Test a System

4. Selecting the Right System for You

5. System Ingredients

6. Sophisticated and Unusual Systems

7. Questions and Answers

8. Implementing a Trading System

9. $48,000 Worth of Trading Systems? (Note: Includes 16 Actual Trading Systems)

10. The Future of Trading Systems

There are plenty of charts and graphs throughout the book. Each of the trading system examples is
accompanied by the "SystemWriter" analysis printout. And, most importantly he shows you how to
evaluate the pros and cons of each trading system you develop on your own, or are considering using.

Joe has a refreshing candid style of writing whereby the reader is effectively retaught how to think about
successful trading systems. He sparks your imagination to begin thinking of simple, yet viable trading
systems which you might never have thought of before, but has the potential of making very good profits.

On a personal note: In this day and age we are all bombarded with sales advertisements, offering us the
"previously undiscovered trading secrets of the universe, which will only be revealed to a few choice
individuals" (typically sent to you via mass bulk-mailing). Or, on the other hand, we are bombarded by
self-styled arrogant gurus, who profess to not want to be bothered by the petty clamoring of the little people
who hang on to their every word, while they themselves clamor for the lime-light.

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Contrary to the hype that is typically offered to us, Joe Krutsinger's book is a treasure trove of valuable
trading insights and immediately usable information. It is worth many times its modest purchase price. And
equally, if not more important, I am impressed with Joe's sincerity and integrity. He is a man of high
principles and personal honor. Which in this business, is often not easy to come by.

Once you read this book, you will never look at another "trading system for sale" in the same way again.

Great Publication - Mike Murphy

Thanks for the information on CSI. Maybe now I will get off my dead? and start trading! I'm really
enjoying CTCN. There's quite a difference between your publication and Club 3000. Keep up the good
work.

Profits Run Dry - John Piper

It has been a while since I have made a contribution and I would be interested in other traders' experiences
with the ratio of profits to=losses.

I suspect that many others like me endeavor to catch big moves with little risk. This has the inexorable
result of increasing the number of losses. It is particularly frustrating because I seem to catch a good
number of trades that move well into profit, say=A3750+ per contract, only to see it all virtually eliminated,
as I endeavor to let profits run.

This month I would be well up, if only I had taken some of these profits, up perhaps 5% in 2-weeks. But
last year it became obvious that all the money I made was from the few really good trades, i.e.,=A33000 +
per contract. So those are what I want to catch. I am sure some of your readers have been through this
"phase" and would welcome the benefit of their experience.

While writing, I must compliment you on the last issue. In particular I would be interested in quoting the
contributions from RB from MO and Don McCullough in my newsletter. If this is OK, I will give
subscription details of CTCN and urge my subscribers to subscribe to CTCN.

Editor's Note: Yes, it's OK to re-publish those two excellent contributions. However, everyone should be
cautioned it's only permissible to reprint or quote materials appearing in Commodity Traders Club News
providing you first obtain written permission from us and also give complete credit to CTCN, including our
address and phone number.

OPTIONS & SPREADS: The Fine-Tuned Science of Buying a Dollar for 40 cents - by Greg Donio

A visitor to a small town noticed some activity on a street corner. Some loiterers outside a saloon were
having some fun with the village idiot. A barfly held some money in each hand and said, "which would you
like? The nice, shiny 50-cent piece or the dirty old dollar bill?"

The village idiot replied, "The shiny 50-cent piece." Everybody laughed as the loiterer handed him the coin.
Another barfly stepped forth. Same question. Same answer. More laughter as the alleged, dunce got another
half-dollar.

After watching this four times, the out-of-towner could stand it no longer. He walked up to the village idiot
and said, "Don't you know that the dollar bill is worth twice as much as the 50-cent pieces?" "I know that."

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"Then why do you keep picking the coin?" "Because when I pick the dollar bill, they stop playing the
game."

That street corner-sharp-in-disguise knew two things: (a) economics, and (b) psychology. Someone once
said, "Mention economics and everybody is bored. Mention money and their eyes light up." Many a trader
and gambler and man on the street are interested in money but not in economics, with the result that he has
no money.

The easiest thing in the world: Inventing a game in which you always win. The hardest thing in the world:
Getting other people to play it. You can create a form of wagering in which you always win, but you will
make no money at it because you will be the only one at the gaming table. Both psychology and economics
require that the other people who play must at least think that they have a chance of winning.

The seedy gambler sets out to "break the bank" and claims to have a system that "can't lose." Remember
that a thousand dollars has to double only 10 times to become a million, another 10 times to become a
billion, another 10 to become a trillion. If such a system existed, if there were a sure and quick and easy
way to double again and again, what would happen? Mr. Gimme-Some-Chips with the rent past due would
soon have all the money in the world, or at the very least, would bankrupt casino after casino and track
after track.

Alas, this is an economic point, something not readily grasped by people whose fingers itch for money.
There also exists a psychological point toward which many traders and gamblers have a mental blind spot.
They think of the exchange or the track or the other participants as "my source of income" at least
potentially. It simply does not occur to them, "Maybe I'm their source of income." Albert Pacelli in his
book The Speculator's Edge quoted Warren Buffet: "If you're in a poker game for 30-minutes and you don't
know who the patsy is, then you're the patsy."

In finance, so easily the hunter becomes the hunted and the cannibal notices that the main course on the
menu resembles himself. Yet what a psychological aversion we all have to labeling ourselves "the patsy" or
"the catch of the day."

The stock, futures & options exchanges, the casino & race track--the eye of the economist sees that there is
not nearly enough money in all these places to make every participant a multi-millionaire. The total amount
of capital ventured by everyone collectively may seem vast, but it is small compared to everyone's dreams
of wealth totaled. The unwanted but inevitable outcome: Multitudes of disappointed people. Such a setup
mass-produces also-rans, though nobody wants to be one.

Yet the eye of the economist also sees opportunities. After the races, thousands of discarded pari-mutuel
tickets litter the grandstands. Torn by people who had wanted to stuff their pockets but who became
"somebody else's source of income" without intending to be. Occasionally a hanger-around rummages
through the tickets, hoping to find a winning one thrown away by mistake. The scotch & soda philosopher
gazes at the litter and ponders all that money lost and gone. The economist/opportunist (not a bad
combination) contemplates a way to be on the receiving end of those disappearing dollars.

A good receiving end? No easy find. In recent years, holders of casino stocks and race track stocks have
had little to sing about while awaiting a repeat of Resorts International. Other forms of gambling beckon,
but dice and roulette in your basement could make you an "income source" for a bail-bondsman. Selling
junk bonds or IPO shares for a chain of empty restaurants requires an office with high overhead. Also, piles
of negotiable paper sit unsold because many potential investors "stopped playing the game."

I have found that with option spreads, people do not stop playing the game: Daily action shunts put & call
contracts on most optionable stocks. Except for a desk at home, my office is in my pockets. Bookmaking
out of my hat could not be more compact or more mobile, and it is legal. I once closed out a spread position
for a profit on my dentist's phone before going under the drill. Having overheard, he questioned me about
investments while stuffing cotton in my mouth. I have since stopped giving dentist chair seminars.

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Without a broker's license, I have sold more securities than some licensed brokers. While one broker I
know hands out his card to people on a commuter train, my buyers purchase automatically via the options
exchanges. I have never met them, which may be for the best because, alas, I have sold them so much
worthless paper and pocketed their money. Like race track tickets, the items I sell could become worth
something but usually do not.

Imagine that the month is February and you pay $5,000 for a deed which bears an expiration date--the third
Friday of the upcoming June. You do not know what is under that topsoil; maybe oil or gold, maybe
pebbles. In the months ahead, the deed may come to be worth more or less in resale value thin you paid for
it, but after the expiration date it becomes penny scrap-paper. Also, bearing a definite expiration date, it
tends to lose value steadily as time passes.

Let us imagine, however, that the very day you spend the $5,000, acquiring that deed entitles you to print
another deed bearing a March expiration date and to sell it for $3,000. You can either put that $3,000 in
your pocket or you can credit it toward your purchase of the June deed and then pay only $2,000 out of
your own capital. The deed you sold expires on the third Friday of March, entitling you to print and sell
another deed bearing an April expiration date for maybe more, maybe less cash than the March. Maybe
more, maybe less because fluctuations affect both Junes and Aprils. April expires, sell May.

But take another look at that buy-the-June/sell-the-March deal. If you simply bought the June, it would
eventually have to become worth more than $5,000 for you to make a profit. If, however, you also sold the
March, you are ahead if the June is worth anything more than $2,000 after the March expires. Thus a
"spread" is called that because your actual investment is the amount between the buy figure ($5,000) and
the sell figure ($3,000), the aforementioned two grand.

The procedure is not risk-free because the June could drop in value to below $2,000 or even to zero. Yet
funding an investment with 60% other people's money and only 40% your own is one hell of a head start,
not even counting what you sell after March expires. Thus with spread strategies, put & call options are the
race track tickets which, once you buy a batch, entitle you to print and sell more batches. The ones you
bought could lose the race, but you can re-sell them before the final furlong, i.e., before the expiration date.
The others you sell are bookmakers' revenues.

Value-oriented investment legend Benjamin Graham once said, "When you can buy a dollar for 40 cents,
you don't have to worry about what the stock market is doing." The "dollars for 40 cents" were depressed
stocks in solid companies, shares selling at market prices substantially below their estimated "true value."
Something similar could be remarked about option spreads: The 10-dollar horse-racing ticket for four
dollars. The 10-dollar ticket allowing you to now sell several two-dollar ones. If the ticket wins, fine. If not,
well, you are part bookie working mostly with other people's money, and with the mathematical odds far
more in your favor.

The phrase "money management" when applied to traders or speculators amounts to a euphemism for "risk
management." Of course "money" sounds sweeter to the ear than "risk" just as a "market correction"
sounds nicer than a "crash" and a "fiscal pause" better than a "depression." Cold comfort in bankruptcy
court. Those pathetic booklets on how to win at gambling does contain at least one good piece of advice:
No more than 5% of total in-pocket capital per dice-roll. Then, no matter how venomous the snake eyes,
they cannot poison more than one 20th of one's bankroll.

One 10th of the capital per venture recurs as a viable loss limit or risk management limit for traders in
margined stocks, futures, options; and better a still smaller slice of the bankroll than a larger. A good added
ingredient is a certain mindset or mental approach which I utilize. One of the best books I ever read was
Dale Carnegie's How to Stop Worrying and Start Living. I regret not recommending it in earlier writings
because every trader should have a copy.

An early chapter in the book contains a three-part method for handling worry situations which applies
excellently to finance and speculation.
1. Ask yourself, "What is the worst that could possibly?"

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 2. Prepare yourself to accept that a "worst."
3. Try to improve on or find ways to improve on the worst.

I do not want to be one of those trader/writers who tell about their wins, but never their losses. Gains from
option spreads are the mother-lode of my income but a "failed expedition" will serve to illustrate the above.
In November of 1996, common stock in Citicorp, the New York bank, hovered around 100 per share and
slightly above, and seemed to be rising. I opened a "horizontal calendar" spread position in call options
with a strike price of 110.

I bought 10 calls with a January 1997 expiration date for $4,190 including commission and simultaneously
sold 10 calls with a December expiration for $2,324.92 including commission. The money from the sell
was credited toward the buy, so that I had to "put up" only $1,865.08 of my own capital. A good
mathematical rule: Let other people's money pay for more than half of what you buy, and the farther above
the halfway mark the better.

Anyway, the underlying Citicorp stock lingered lethargically then ebbed a bit instead of rising further. On
the third Friday and early Saturday of December, the "short-end" or obligation end of my spread
disappeared when the December 110 calls reached expiration. Alas, the "long-end" January 110s were
badly shrinking due to the stock's wane and the passage of time. To prevent further attrition, I sold the
Januarys the following Monday for $714.97 including commissions--a net loss of $1,150.11.

A minus, yes, but an instructive one. Dale Carnegie's question "What is the worst that could possibly
happen?" is an excellent one to ask before a financial venture. Stocks rarely drop to zero, but with "wasting
assets" (expiration date securities) such as futures and options, and with margined shares, one can lose the
entire amount ventured.

I could have lost the whole $1,865 invested in the spread but I salvaged $714.97--some "improvement on
the worst" at least. Yet the larger amounts involved should not be ignored. Whoever paid $2,324.92 for the
December calls lost it all. More significantly, anyone who paid $4,190 for January options as I did and sold
when I did--but without spreading -- lost $3,470.03!

So why did I lose less than a third of that amount? Thanks to spreads and their magic ingredient (fanfare!)
other folks' cash, I had bought a $4.19 horse-racing ticket for $1.86. That had to mean a smaller lose.
Cashing in before the end of the expiration date race also helped.

Thus spread strategy contains helpful gadgetry for calculating the worst, improving upon the worst,
counter-acting the worst. It boosts the likelihood of other people being your source of income instead of the
other way around. You can stop playing the game at intervals, but the street corner loiterers keep shelling
out the silver. It requires a bookmaker's knowledge of economics and a bookie's willingness to let
economics work for you as it works against the gambler.

As mentioned earlier in this article, the psychology of trading carries no less importance than the
economics of it. Would you expect "psychological insight" from a bubble gum comic? Bazooka Joe sees a
tall, broad-shouldered, white-bearded man walking down the street. "Sam, you look so different!" Joe
erupts. "I hardly recognize you! You're taller. You've gained weight. You're bald. You've grown a beard.
Sam, I can hardly tell it's you!" The puzzled passer-by responds, "What are you talking about? My name's
not Sam." "You've even changed your name!"

Such is the all-to-human tendency to believe what we want to believe. Despite available evidence. Even
despite additional evidence ("My name's not Sam") piling up in front of us. Usually this is pretty harmless.
The members of the Flat Earth Society do not sail off the edge and are not bankrupted by their beliefs.
Sometimes the world is too unpunishing. Dr. Jonas Salk was Jewish, yet no one was ever denied Salk polio
vaccine because he called somebody a "God-damn Jew."

Not so the financial markets. They habitually break the legs of the "I'm never wrong" types. There is a
beautifully severe justice when a Ku Klux Klansman decides to take up trading in stocks or futures or

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options, accompanied by his chronic tendency to believe what he wants to believe. He finds himself tied to
the plantation whipping post, financially-speaking, his back bare to the lash.

Unfortunately, the markets can also be merciless to nice people and will lop off pounds of flesh for
innocent "Sam, I can hardly tell it's you!" kinds of errors. Citicorp stock has to rise heroically through the
110 mark. It cannot do otherwise! It will turn those December and January 110 call options into gold
mines. If the shares tarry or wane as if to say, "My name's not Sam," that's just a trick to fool the ignorant,
of course.

For the record, Citicorp's January 110s followed the Decembers in expiring worthless. The stock climbed
subsequently. I was the buy & sell spread-strategy walking wounded-while the option-buyers or "long
player" ended up as stretcher cases or graves details. The "Offer a dirty $1 bill on a street corner" types and
the "That's Sam in disguise" types, both-over-pleased with their own calculations, beliefs, ways of thinking,
got hit the hardest. Being a bookmaker is no iron-clad insurance policy against loss, but compared to the
horseplayers it adds up to better economics and better psychology.

Within the realm of investor psychology, one pinnacle that looms large is intuition. Is it or is not, people
ask, a valid financial tool? A broad term, intuition can be summed up in the statement, "I don't know how I
know. I just know." This is as opposed to scientific or empirical thinking, for which there must be known
and visible evidence. Like folk medicine, intuition comes in various types, some valid, some not.

Going to a theater to see a movie, I arrived a bit early and lingered in the lobby for a few minutes. A large,
ornate staircase ascended from the lobby to the rest rooms and the balcony. A standing sign on the stair
landing said the balcony was closed.

A young black couple entered the theater, he and she both about age 20. After handing over their tickets,
they stopped at the refreshment stand, then began to ascend the stairs. An usher standing nearby said,
"Excuse me. The balcony's closed." "Okay," the woman replied, Both descended. Then the gal asked, "How
did you know we weren't going to the rest rooms?" The usher shrugged. "Just a hunch."

I had the same hunch. Not until a minute later did I realize what prompted it. Both carried refreshments.
People generally avoid taking food to the bathroom. At it's most on-target, intuition at the conscious level is
evidence at the unconscious level. Other varieties tend toward voodoo dream book nonsense.

What is said at every coffee table conversation? "I was thinking about my cousin Sidney, whom I hadn't
seen in months. Right that minute, he showed up at my front door. It's ESP." No mention of 1,000 people
thought of who did not surprisingly show up. TV and print announce some housewife's pre-monition that
dramatically came true, no mention of hundreds of other prophecies that did not. When Jeanne Dixon
passed away recently, nobody spoke of her predictions that World War Three would break out in 1958 or
that Richard Nixon would be the Republican presidential candidate in 1964 with running-mate-Walter
Reuther.

All right, so you will not venture a large chunk of capital based on what a palm-reader said at a party. But
you might make a trade in stocks or options based on some financial data, an elevator conversation, and an
"intuitive impression" that shares in Podunk, Inc. will rise. One should ask: Is that really an "intuitive
impression" or a desire disguised as intuition? Desires abound in the market, and they appear both masked
and unmasked. Is that a crystal ball inside you or a wishing well?

When you find yourself saying, "I don't know how I know. I just know," look below the surface mentally
and subconsciously. You might find a voice singing "Wishing Will Make It So" or you might find solid
evidence. You may have noticed a stock gradually rising over the weeks (a call spread opportunity) or
gradually declining (a put spread opportunity) and stored the data mentally at an unconscious level.
Remember, always, that gamblers "playing hunches" go broke with monotonous regularity, as do their
counterparts on the exchanges. Intuition well-used can be accurate, but it makes a warning label of the
ancient Greek maxim, "Know Thyself."

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Art historian Richard Muther, Ph.D. did not intend his two volumes The History of Painting as a
psychology dissertation. Yet his illuminations on the human psyche are awakening. In Volume 1, Muther
wrote about Italian Renaissance artist Alessandro Botticelli, who created his finest paintings under the aegis
of Florentine banker-prince Lorenzo de Medici (I1 Magnifico or The Magnificent). Excerpts follow:

"A new type of the Madonna, independently created by Botticelli, enters the domain of art. A curly-haired
angel offer her grapes and ears of wheat, the symbol of the sacrifice . . . and the angels press forward
bedecked with wreaths of roses, bearing vases, candles and lily stalks.

"He only needs to apply the brush, and we are transported into a wide and lofty cathedral where the odor of
incense mounts to heaven and a thousand great white candles flicker. We see solemn processions with
flower-decked baldachins marching across the floor strewn with roses, and hear the silvery voices of
children singing the praises of the Infinite One." (Pages 175-6)

"Everybody knows that from these entrancing paintings is wafted a perfume of youth, purity and grace,
identifying Botticelli himself with the springtime . . . In his Pallas the head of the goddess, with its soft full
outlines and long wavy hair, is of such radiant beauty . . . that one thinks of the transcendental sweetness of
Leonardo da Vinci."

In The Birth of Venus, Botticelli "develops the sentiment from the landscape, the wide and endless ocean,
upon whose quietly rippling waves the Cyprian goddess is wafted like a fair dreamland picture. The ringing
of bells, the song of voices, and the rustling of garments is in the air; a longing, dreamy feeling pervades
the entire earth." (page 179)

"A midsummer night's dream has taken form in his Primavera, with its nymph-like graceful beings which
seem like an anticipation of Bocklin. Botticelli was the first to see the elves dance. Slender dryads who
housed in a thicket of the wood beside bubbling springs, have come to take part in the dance of spring.

"It is wonderful how in these paintings also he uses flowers to enhance the effect. Clive branches encircle
Pallas and crown her head, and in The Birth of Venus, the mantle of the hour is decked with flowers of
spring, and the wind god strews roses in the air. In the Primavera oranges and myrtles shimmer; golden
fruits and white blossoms gleam from the dark foliage.

"Like the Sleeping Beauty of the fable, Primavera is envelope with wild roses; flowers of the meadow
encompass her neck; blue cornflowers and white primroses are entwined in her fair hair . . . Botticelli
appears as a perfectly charming mannerist in his treatment of draperies, these transparent veils and
fluttering bands. None before him used such fine gauze draperies, clinging tightly to the limbs and clearly
revealing the flower-like forms." (page 180)

Did you think that painting was strictly a visual art form? The sound of bells chiming, voices singing,
waves splashing, garments rustling. The scent of perfumes and incense, flowers and blossoms. The taste of
oranges and golden fruit. The feeling of sylvan breezes and ocean breezes, spring sunshine and leafy
coolness, wispy fabric clinging to voluptuous limbs.

Some would say, "The paints are real but the rest is merely your imagination." Imagination, yes, but
"merely?" Your imagination is a far-from-faint pipe organ to play upon. As for the key word here, Webster
defines Evoke as " 1. to bring to mind or recollection; 2. to recreate imaginatively." Under synonyms for
Educe, the dictionary says, "Evoke implies a strong stimulus that arouses an emotion or an interest or
recalls an image or a memory." Even that power-definition understates it since we have seen from
Florentine art that "evoking" can kindle all five senses as "a longing, dreamy feeling pervades the entire
earth."

Intuition gone rampant and awry will see a vein of gold where only dirt exists, "evoking" a vision of wealth
which reality will replace with a bankruptcy judge. Knowledgeable and fine-tuned, intuition often evokes
quite accurately the topography of the unseen land beyond the hills, where ores and nuggets are not
unlikely.

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No one can always be right, but as a trader's knack and intelligence improve, his intuition and evocations
probably will also. He will smell the blue cornflowers that the Italian Renaissance goddess of spring wears
in her hair, but he will not see Fort Knox in huckstered shares or the Hope Diamond in hearsay over
double-bourbon.

Recommended Readings: Options as a Strategic Investment by Lawrence G. McMillan; Option Strategies

by Courtney D. Smith.

Find Ways to Avoid Deviating From Your Research - David Wong from Macau

I have been reading CTCN for a long time and enjoy a lot of ideas from the contributors. They are very
generous to share their idea to other people. Recently I have a small own idea from my small experience.

Normally I use my volatility breakout method to trade Hong Kong Hang Seng Index futures. Before I trade,
I make a backtest research for 5-years daily data. This is a daytrade method. You enter during the day and
exit on day's close. As Hong Kong Futures Exchange do not accept all kinds of limit orders, I have to watch
the quote machine very carefully each day. Before entry, I watch out for the entry point. After entry, I
watch out for the exit point.

Now, the point is: Where should I exit with profit or with lost?

As my research (back-test research) is based on closing price, my exit should be on the close.
Unfortunately, the Exchange does not accept MOC orders and the brokerage firm does not accept orders
after the last 5-minutes. In this case, theoretically, I have to place my order before the last 5-minutes.

At first I always quit 20 or even 30-minutes before close if I have a paper profit or small loss. I found that I
often miss more profits or opportunities to turn my losses to profits. Now, I always exit about the last 5-
minutes. Now, I find my results are very close to my research and sometimes enjoy turning a paper loss to a
profit.

I would like to give some small advice to the beginner. You should follow your research exactly (if you are
trading it).

Option Combinations Can Limit Losses - David Sligar

I have enjoyed CTCN for about 3-years. It's a wonderful publication, and a good way for us to share our
various experiences and discoveries. I would like to relate a trading experience I had in January '96 for its
interest and for its potential usefulness.

In November 1995, I put on a Call Back- Spread in crude oil. Many readers will be familiar with this option
combination, but for those who might be newer, it consists of selling calls and buying a greater number of
less expensive calls, often for a modest debit or even a credit. This trade makes money if the price falls
enough.

On November 29, I sold 2 Feb. 17.00 calls and bought 3 Feb. 17.50 calls at .05 debit (plus 5 round-turn
commissions). The price of crude oil on that day was about $18 a barrel. My cost was about $160.00, with
a risk of that amount plus $1,000. If the price of crude oil had been $17.50 at option expiration, my loss
would have been $1160. At a price of $18.50, I would be close to break-even, and above, say $18.70, I
would be making money.

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It happened that November 29, was a perfect time to go long crude oil. Oil went up steadily through
December, and on January 6, it peaked at over 20.25. My position, had the price held at that level, would
have netted over $1,500 profit at option expiration. The price of crude oil, however, was volatile.

I was on vacation at the time, and I remember being on the phone for price quotes all too frequently during
that week. What I had not done, and did not do during that vacation week was to plan my exit from the
trade. Notice that mistake! I remember wanting to close the position, but I knew it would be impossible to
close all five options simultaneously (using market orders) without losing a good part of my profit. I hoped
that the price of oil would hold.

The week of Jan. 9, I returned home, was back at work, and had traveled to yet another state in connection
with my job. Monday evening, I noticed that oil had slipped, but the chart did not show any break in the
upward trend, and I slept soundly that night, knowing I still had plenty of profit left. Tuesday, oil had fallen
another 25¢, a break to the downside, but I still did not want to close my options at market.

The next day was a busy one for me at work. Mid-morning I called for quotes, and was chagrined to learn
that oil was in crash mode. My profits, slowly accumulated over five-weeks, were gone, and I was in
danger of moving into loss territory! The little gray cells, as Hercule Poirot says, began to work!

Sometime that night, as I stared at the profit/loss graph of the position, I realized there was another way
out. All I had to do was to sell one February contract, and I would be flat to the upside, and could still make
money if oil fell below 17.50. On January 12 at 4:50 a.m., I called my broker's night desk and sold one Feb.
crude oil at the market. I was filled at 18.65. Unfortunately, oil never went below 17.50 during that period,
but I was out of the position without losing money. I will never forget that particular exit!

When we trade option combinations, there are often ways to offset the position using (more liquid) futures,
thereby easily locking in profits and/or limiting losses. I hope my experience "under fire" will help
someone else avoid one of those sleepless nights.

To Avoid Losses, Do Not Violate

Sound Trading Rules - T. B. Slattery

As a new member, I have surely benefited from all the information and give/take discussions in CTCN. I've
finally finished the back-issues and my first new one.

Thought I would recap my prior attempt to trade futures 5-years ago and the pitfalls I encountered, which a
novice trader can fall into.

The story begins with completion of the Ken Roberts paper trading course in 1991. In retrospect, that
course is only good (as any paper trading one) in getting familiar with the mechanics of trading. The factors
of emotion, fear, greed are missing and per many of your writers. These are the most important.

I then set up a small ($6,000) account with a new research group of a well-known commodities trading
brokerage. This group was starting to do its own trading and I must have been one of their earliest
customers. I dealt directly with the manager, who was always accessible. Sometimes we would talk for half
an hour on various strategies, technical indicators, specific fundamentals affecting and planned trades, etc. I
mentioned this accessibility to a canny friend and he remarked "maybe you are his only customer!" That
remark didn't sink in until later!

Anyway, we started trading one or two contracts at a time, based upon the groups recommendations (not
quite a discretionary account, but close to it).

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I had subscribed to the weekly chart service provided by Commodity Trend Service and generally
concurred with their recommendations. When I did have reservations, the manager's erudite reasoning
eased them. This trading began in 9-92 and by 5-93, it had one up-month out of the 10 and about 3
successful trades out of 14 or 15. Commissions ate up about 1/4 of the account which I closed out at $280
(those land telephone discussions were not cheap).

Reviewing this experience in retrospect, I found that I had violated almost every point covered so
eloquently by some of your members:
ü No money management plan
ü No control of risk
ü Too much reliance on "experts" opinions'
ü Too ready to use them as an excuse for my failure to get more involved
ü No trading plan
ü Little follow-up on why so many traders failed
ü Little emotion or fear on my part because I considered the action a little abstractly, although it was my
money.

So much for the past, compared with some of your writers, it was a small price to pay. Now I plan to
develop my own trading/money management plan based on considerable accumulated, but not properly
used stock options knowledge. I believe this can be transferred to the futures market.

I'm not sure I want to use a computer. I note that many of your writers seem so mesmerized by the
programs, that they often lose sight of the fact that the computer is just a means (efficient one perhaps) to
an end, not the end itself. Would appreciate a reader's rebuttal to this point.

Note to T. Judd - August/Sept 96 issue - How did you get out on that ratio spread? What can one learn from
your experience?

Opinion TS 4.0 is Not Much Better Than 3.5 & Not More User Friendly

Sam Fuqua

Thank you for your efforts for providing CTCN. I always look forward to reading it.

I have been using TradeStation for 1-½ years. My computer skills are weak, so I just use the basic pre-
programmed indicators. If someone has the ability or desire to learn how to backtest and program (Omega)
Easy Language, TradeStation may be worth the cost.

3.5 TradeStation users - If planning on upgrading to 4.0. The only advantage that I find useful is win beep
in 4.0. As far as 4.0 being anymore user friendly, it's not.

After upgrading you will have to learn how to reuse about 40% of the basic functions. Before upgrading to
4.0 be sure to use the 3.5 portfolio copy out function. This will keep you from possibly loosing your 3.5
data. Before using 4.0 convert data, be sure to set up your portfolio allowing adequate days of storage for
intra-day data.

I was down-loading Signal intraday 3.5 IF data from Omega Research. The data needed to be cleaned up
but was usable, and the price was right "free." I am now using BMI data which is clean. It's a hassle to try
to use IF data in 4.0 and Omega has made it so you cannot run 3.5 and 4.0 on the same hard drive. I don't
know if you can run 3.5 on a different drive. Possibly if you want to fool around with the 3.5 password.

I have read Ted Tesser's book, the trader's tax survival guide, which sounds good. I am having trouble
locating a tax preparer who is will to use Ted's book as a guideline. If there are any CTCN subscribers that

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knows of a tax preparer in the Portland, Oregon area that can use Tesser's philosophy in preparing my
taxes, I would appreciate you contacting me. I can be reached via CTCN.

Opinion Larger Stops Is Poor Approach & Opinion Clearest Signals Occur When Average True Range
Picks Up & More Losses When Average Range is Smallest - TS Formula - Tom Cruckshank

I see where you have raised the initial risk for the Real Success method from 60 to 85 points because of
recent volatility. I feel that this is a poor approach to this problem; even in dull markets you can have
sporadic bursts of volatility which can slay a fixed risk amount.

Robert Miner preaches that one should have a technical point that invalidates a trade. I agree with this
sentiment. However, when daytrading the S&P market from a 5-minute time frame, this often makes the
risk amount unacceptable.

Robert or Ray Barros, among others, would say that you must let the trade go. Although this is sound
advice, often the best trades slip away and I have opted for a variable risk amount which usually puts my
risk point at or near the technical point which would invalidate the trade. The times where the stop is not
near the technical point is where you are entering after a large spike.

With the large burst in volatility lately, I have had to rethink my risk parameters. I realized that having a set
initial risk amount is impractical in wild ranging markets. In fact, after studying the problem I realize that
my new approach is superior in all markets and allows me to reduce my initial risk in quiet markets.

What I did was set a 5-minute chart with as many days of solid data as I had collected. (Note, don't use a
"new" contract like March but a mature one like the just expired Dec.). I then applied a 250 period
AveTrueRange indicator to this chart. (The 250 represents about a year's worth of "trading days" for the 5-
minute. I figured this would be adequate to cover most volatility situations I might encounter).

I then found the highest and lowest readings that I could find on the indicator for the entire period. I
subtracted the lower from the higher and divided that number by 4. (1.323(H) - .623(L)=.7/4=.175) I now
added this .175 back to .623 and then again twice more to get the 25, 50 and 75% levels of this volatility
range. They are: (rounded) .8, .97, and 1.15.

Next I created a simple Show-Me study that plots a point when "X" period AveTrueRge is below /between/
above these levels. I feel that a 10-period ATR is about right for "X." Now I had to rethink my initial risk
amount to reflect the higher volatility. I flat out had to risk more (or pass on the trade) when the market is
in high range situations or I would get stopped out of most trades. Conversely, I found that I was able to
reduce my risk when the market is puttering along.

I am still assessing the risk amounts (for my style and pain threshold) but it looks like 60 points for low
vol., 75 for above .8, 90 for above .97, and 105 for above 1.15. It seems a logical risk point would be
slightly larger than these amounts to exceed the average range calculation. It seems to me that this would
work for any issue and any time frame if adjustments were made to reflect the issue traded. It really seems
to work well on my initial observations.

It is interesting to see the volatility wax and wane during the trading day. I have found that the clearest
signals seem to occur when the average range picks up. It also appears that perhaps more losing trades
occur when the range is smallest. Of course, this is when you will be risking the least. It will bear careful
watching to form a statistical base from which to make assumptions. Perhaps it will prove to be that I
should not trade during periods of low volatility or when it is highest.

I have included the TradeStation formula here. Just remember that the inputs will work for the 5-minute
S&P only. To adapt to another time frame or issue just follow the above procedure.

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Set the plots to different colored points of a medium size. Display the study in a sub-graph and scrunch it
down to the bottom of the chart window. You will have a line that changes color as the 10-bar average true
range changes for the historical parameters. It takes very little chart space and doesn't clutter up the price
action. The "names" can be changed to reflect your personal risk amounts.

Input: Length(10),P1(.8),P2(.975),P3(l.15);
If AvgTrueRange(Length) < P1 then begin
Plot1(0,"$300");end;
If AvgTrueRange(Length) >=P1 and
AvgTrueRange(Length)< P2 then begin
Plot2(0,"$375");end;
If AvgTrueRange(Length) >=P2 and
AvgTrueRange(Length) < P3 then
beginPlot3(0,"$450");end;
If AvgTrueRange(Length) >=P3 then
beginPlot4(0,"$525");end;

Methodology Showdown

Trading Contest - Greg Meadors

The 3-year Methodology Showdown trading contest provided a unique opportunity for professional
advisors and system vendors to demonstrate their ability to convert trading advice into real-time trades via
Auditrack, a professional simulated brokerage firm.

Originating with 21 contestants only a few were able to both maintain profitability, and actively trade the
contest for the 3-year period. This reveals that while some may give good Market timing advice, most
advisors and system vendors are unable to trade profitably.

Our methodology was called Harmonics which represents a holistic approach incorporating computer trend
modeling, conventional technical analysis, cyclical analysis and astro-harmonic methods.

Regarding astro-harmonic indicators, it was the writing of the late W. D. Gann and his "Law of Vibration"
that inspired me to spend several years doing original research to determine if there were any correlations
between astronomical cycles/events and Stockmarket cycles/events. Our research did discover various
correlations that were beyond chance expectations. Therefore, since astronomical events are pre-destined,
one can then forecast Market movements in advance, obviously a priceless methodology.

Regardless of the methods used, the most important element in any trading methodology is money
management and the preservation of capital. Thus, all our trades had stop-loss orders, and also used other
trading techniques to capture profits and minimize losses. We teach all of our Market timing and trading
methods in our Home Study Market Timing Course.

After we took a substantial lead in the contest in February 1995, many traders lost the initial $50,000 start-
up capital or resigned during 1995. The number of active contestants continued to diminish until there were
only 4 active traders during 1996. The contest became very close though during the last few months, with
the final standings not known until the last day of trading on December 31, 1996. For more information and
many links to other interesting web sites (write c/o CTCN)

Editor's Note: Greg wanted to list the address of his web page in his article above. However, we do not
want to promote them in any way due to their alleged un-democratic, free speech and free enterprise
violating behavior. They allegedly do not want to promote open access to their site and the world wide
web.

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As so well stated by Avid Trading Co. and published in CTCN Vol 4, No. 4: "Competition that dissuades
traffic from even entering the marketplace is simply not good business. The Web is a mall, and each page's
links are its corridors. Would you shop at a mall without corridors?"

Greg's site is not a "free standing" WWW web site such as ours, but it's part of a large commercial web site
which has various commodity products, services and vendors on it. The vendors on this site pay a fee to the
web site provider to place their sites on the commercial site.

This particular web site service provider in the past refused to allow CTCN to go on their site and allegedly
fabricated an excuse for not wanting us on the site. This is allegedly because someone does not want any
competition coming from us, the main competitor of their featured commodity web site and one of their
featured vendors, and who may in fact be the sites main showcase.

If you would like to explore other futures sites and get lots of free and interesting information you are
invited to visit a commercial site which hosts CTCN, ino.com. You may access our site direct via world
wide web at www.commoditytraders.com or via ino.com site at the address www.ino.com.

Methodology Showdown Trading Contest 1/1/94 - 1/1/97 in print copy

An Invitation To Vendors To Join Class Action Against CFTC Represented by Institute For Justice, Re
First Amendment Rights - Frank Taucher

It is clear that the CFTC is broadly attacking small financial publishers' right to freely express their opinion
as a matter of POLICY and NOT due to specific, unlawful acts.

I know the personal stories of some of the brightest minds in the business and haven't seen anyone defeat,
or even slow down, the CFTC's onward march. Few legal experts do not believe that our activities are not
Constitutionally protected or that we will not prevail.

The problems seem to be one of organization and the simple will to stand up and say, "This is wrong!"

If we leave the matter up to "someone else" and the wrong person represents us or the right person
represents us but does a poor job of articulating the issues, precedent might be established against all of us.

To prevent this situation, we must become lawfully certified AS A CLASS and attack CFTC's oppression
AS A CLASS.

If we do not, we will EACH experience that day when the THREAT of "the knock" becomes reality.

Our cherished liberties are too precious for us to stand idly by and allow them to be sheared like lamb's
wool.

It is amidst this urgency that I am proud to bring you astonishingly good news! I have been informed that
the Board of Directors for the Institute for Justice has reviewed our situation and has voted to provide us
with legal representation.

I now need your commitment and for you to join as plaintiff in sustaining the provisions of the First
Amendment of the United States Constitution to those who might wish to commercially express "pork
belly" opinions. I realize how difficult this commitment is for a few of you.

Placing your business and career on the line is the equivalent of leading the charge at the height of the
battle.

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The risk is not if you try and fail, however. The risk is that, if your peers try and fail for lack of your
support, you will be left alone to face the onslaught of the reactionary force.

It is, literally, now or never.

I have personally selected a wide group of publishers with diverse activities so that our case might establish
the broadest of precedents - book publishers, newsletter publishers, consumer interest publishers, trading
system publishers, software publishers, and so on. You represent an important part of this group.

If you share my concern regarding the importance of our battle, I ask you to be prepared to receive papers
from the Institute describing who they are and the objectives of our case.

You will also need to be prepared to provide them with copies of your product and information regarding
your publishing activities along with the name and address of two purchasers / subscribers who wish to
continue to receive your product free of government censorship.

Our case will further attempt to extend protection to our activities on the Internet.

There are few actions in life in which we can participate as individuals that might help assure not only our
own personal liberties and those of our loved ones, but might also help preserve the principles upon which
this country was founded.

In closing, if you are still wavering, I ask you to consider the following: You may someday have your
grandson on your knee. What type of future do you plan to hand over to him? When duty called for you to
assure his liberties and future, what will you tell him you did?

Will you beam proudly of your brave choice and share with him his proud legacy of courage, or will you
cower then as you will for the rest of your life if you do not step forward now?

I need your commitment now and hope to hear from you immediately. Please indicate to me that you are
"in". The address to which the Institute should forward their packet and agreement, and the name and
address of two customers who are willing to stand by you and assert their right to continue to receive your
publication without government interference. If you have any comments or questions, I am at your
disposal. 8210 East 71st Street #190, Tulsa, OK 74133 - 918-493-3384 fax - 918-493-1132
nbn@busprod.com

Editor's Note: Although we agree in principle with Frank Taucher, nevertheless we have decided to fully
cooperate with the CFTC rather than get Commodity Traders Club involved in costly and time consuming
litigation involving the U.S. Government.

Trading Futures is a Tough Business - J.W. in Torrance, CA

I know. I've been doing it on and off for 30-years with varied success (meaning I lost most of the time).
Why I even started down that road can be traced to my first commodity transaction. That first trade was not
a futures contract at all. In fact, it was the 3 to 1 leveraged purchase of actual silver through a Swiss bank. It
was a perfect, low risk trade, because the Federal Government was supporting the price of silver at the
time. My purchase, as luck had it, occurred two weeks before the Treasury threw in the towel. Wow! You
should have seen the price of silver soar after the feds gave up control of the price of silver.

Imagine getting up at 3:00am to call in my order to buy and sell using secret codes. Very exciting. After
awhile, I thought it was easy and it was time for the futures market. I was very fortunate to meet a
commodity broker who pointed out that the chart now was beginning to develop signs of topping (head and
shoulders, a triangle. I don't remember, exactly). I sold out.

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Fortunately (maybe unfortunately), it was a very successful trade and I was smitten ever since. But after
that, it was down hill all the way. I traded and lost, gave up, only to return several years later to repeat the
cycle. The cycles were repeated often. My wife despises the thought of future trading. Any trading I do
now is in the closet --- and I'm not about to come out yet.

Why does anyone ever get into this racket? Is it because we expect to get very rich while we show how
smart we are by beating the market? Everyone has their own story.

I bought the Real Success S&P daytrading tapes from Dave. They are great, very useful, but not for me.
Too early in the a.m. in my part of country to become dedicated to sit in front of the computer. I prefer to
lead a normal life; I want my breakfast, coffee, and a 5-mile run first. I can never make the market opening
with this schedule. (The tapes and manual will be up for sale if Dave allows - It's OK). I do know that the
principles are sound and the instruction is great.

Editor's Note: It's not mandatory for you to start trading at or near the opening. In fact, it's probably best to
let the market settle down after the opening and establish an early trend. During your editor's real-time
trading experiences with this method it seems many of the "best" trades during the day occurred between
9:00 AM and 11:00 AM and 1:00 PM and 2:30 PM, Chicago times. Even if 7:00 AM (California time) is
still too early you could trade either later in the morning (before 9:00 AM CA. time, or the afternoon hours.
One of the "secrets" to this daytrading method is to not overtrade and only trade certain signals(not every
single signal setup) using some judgement (as the method is not 100% mechanical), and only providing the
setups come during a convenient low stress time frame.

I'm not about to tell you how to trade. It is a tough road to follow. Though I have decided that daytrading is
not for me, I'm not out of the market entirety. But I do not call my own shots.

I invested some hard cash in some proprietary programs (three, to be exact. Programs well regarded by
Futures Truth). I have a broker who follows the signals of all three and takes the trades called for by each
program. I'm very happy with the results. Please note that we are not into everything on the board, just a
select portfolio with each program calling the shots on the contracts it does best in. After one year of
trading one contract per signal the account is up 100%. The biggest drawdown was in mid-year with a 15%
decline, but the account recuperated very quickly to new equity highs.

This year I am increasing the number of contracts based on my broker's money management expertise as
well as on Romery & Lehman's software. If there is any interest, I'll give you a report next year.

A Quotation on Which to Ponder

Trevor Byatt from Australia

"Crunchiness brings wealth. Wealth leads to sogginess. Sogginess brings poverty. Poverty creates
crunchiness. From this immutable cycle we know that to hang on to wealth, you must keep things crunchy.

Crunchy systems are those in which small changes have big effects - leaving those affected by them in no
doubt whether they are up or down, rich or broke, winning or losing, dead or alive.

A crunchy policy is not necessarily right, only more certain than a soggy one to deliver the results it
deserves. Run your country, or your company, or your life as you think fit. But whatever you decide, Keep
Things Crunchy."

Nico Colchester, deceased. Late Deputy Editor of 'The Economist'

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 Using Neutral Option Positions to Trade Without Having to Predict

Market Direction - David Caplan

Most traders had found 1996 a difficult year to predict the direction of the Treasury Bond market. After
pushing through the 120 level in January and matching its best levels in 20 years, bonds quickly slid to 105
over the next few months on fears of potential Fed tightening. When these rumors proved unfounded,
bonds began their recovery, and it was then straight up for bonds in September, October and November.
However, in December, bonds gave up much of those gains, after rumors of Japanese liquidation of bonds
and reports that showed more potential for inflation than expected were released.

After successfully challenging the long-term support at 112, bonds first rallied 2 full points from their mid-
month lows, but then dropped 1 full point when stronger than expected reports hit the market on the last
day of 1996. The fundamental picture was as muddled as the technical pattern, with analysts equally
divided and providing good reasons for moves on both sides of the market.

(FutureSource chart here in print version)

Although we recognized that option premium was high for bond options, we did not have a clear view of
market direction. We initiated an option strategy called the Neutral Option Position, that could be
successful in a 'choppy' trading range market without predicting market direction of selling the June bond
104 and 118 call. This position had an 80% probability of profit (futures being between the range of 104-
118 at option expiration).

The Neutral Option Position is a trading strategy that provides the trader with many benefits over a long or
short futures or options position. While option purchases and futures trades are only successful if the
market moves in the direction predicted (without the trader being "stopped out" first); a Neutral Option
Position can be successful in a non-trending or choppy market (studies have shown that markets are in a
non-trending or sideways pattern over two-thirds of the time); or if market moves slowly lower or higher.

In addition to allowing the trader to be successful without having to predict the direction of the market, the
Neutral Option Position incorporates the advantages of probability, and option 'time decay.'

The out-of-the-money put and call we are selling contains only "time value." The "time value premium"
decays every day for both the puts and calls, and this decay accelerates as the options approach expiration.

This may be best looked at by considering ourselves as "bookies." We are, in effect taking bets from traders
on both sides of the market who are attempting to pick the direction of the underlying futures market.

Some feel that the market is going to go up, while others are betting that the market will head lower. The
traders who feel that the market is going to go up can purchase calls, while those negative on the market
purchase puts. We become "bookies" by taking their bets on both sides of the market ("laying off our bets"
by staying evenly balanced). However, we have several advantages that are not available to the house
("bookie") even in Las Vegas.

For example, if a "bookie" takes bets on a prize fight and "balances" his book properly, half the people
betting will win and half will lose. He must pay off half these bets. The "bookie" derives his profit by
establishing odds for the two fighters. (Assuming that the fighters are evenly matched, the "bookie" may
quote 6 to 5 odds "pick 'em." This means that you can pick either fighter and receive a five-dollar profit for
each six dollars you bet). Therefore, if a "bookie" can obtain bets of $600,000 on each participant in the
fight for a total bet of $1,200,000 no matter which fighter wins he is obligated to pay off $1,100,000 for a
profit of $100,000. However, the Neutral OptionPosition can allow us to do even better by allowing us to
"win" on both sides of the "bet" (if the market stays within our predicted or "adjusted" trading range).

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For example, with treasury bonds trading near 112, we have taken the view that the market is going to
remain within a range between 104-118, and sell the 104 put and the 118 call. These options are sold to
other traders who are "betting" on their prediction of market direction -- that the market is going below 104
(puts) or above 118 (calls). We are making no prediction other than it will remain in this wide trading
range.

Even if the market moves out of this range, the position can still be successful. This is because every day
both options lose some of their time value. This continued loss of time value on both sides provides
significant protection. Further, "adjustment" techniques are available, allowing us to "rebalance" this
position when necessary. (However, always remember, that when selling options there is unlimited risk of
loss; therefore, you should use strict money management principles).

The benefits of the Neutral Option Position include:

1. Not having to predict market direction.
2. Being able to collect premium from both sides of the transaction - from both the buyer of puts and buyer
of calls.
3. Being able to take advantage of the "overvalued" time value of out-of-the-money options (although the
amount of option premium changes from time to time, traders continue to buy options, thinking they can
"beat the market.")
4. We can use "special circumstances" to our advantage based on favorable market conditions (high option
premium), and we have 40 different markets to choose from.
5. Finally, we have the ability to both adjust our positions and increase our position size. This is the reason
that most casinos have limits on the amount of money you can bet, because it has been mathematically
shown that with an unlimited amount of money, the odds of beating the "house" becomes significantly
greater.

The author of this article, David L. Caplan is president of Opportunities i n Options in Oxnard, CA.
Opportunities in Options specializes in option trading and research. A pioneer in innovative option trading
strategies, Mr. Caplan is the author of several best-selling books and newsletters including The Options
Advantage, The Option Secret, and Trade Like A Bookie. For information on his services or a free sample
of his "Bookie" newsletter, call 800-456-9699. There is risk of loss in all trading. Past performance is no
guarantee of future results.

Prove It! - Steven Astley

Years ago, having tired of reading all the marketing rhetoric, promising astronomical financial gains and a
relaxed life-style, while my trading results were a disaster, I decided to start over and "prove" the validity
of each and every step in trading. The first question I asked was: "how much money does the Market make
available per week?"

I built a spreadsheet of all commodities (and optionable indices-e.g.: OEX, XAU, XOI) that I trade/follow.
I simply take the commodity's weekly high and subtract the weekly low from it and multiply that quantity
times its dollar value. Obviously, this calculated amount is the absolute maximum gross dollar amount
available for that commodity during that particular week. I then total, at the bottom, the column for the
week and under that I get a weekly average. The second column is an average of each commodities (row)
values. NB: do not expect to get identical results, it depends on the timing of contract rollovers, etc.

What this confirmed was that there was, indeed, money to be made and lost in the markets. And the
markets, directly told me so, not some over-inflated guru or software vendor. The market, period! Also, I
know which markets are most volatile, and those are the ones I trade, if and when my proven methodology
gives me a signal.

Finally, don't expect to make the specific dollar amounts shown, that's unimportant (they are absolute
maximums). But, paraphrasing the legendary Bernard Baruch: "be happy with a percentage of the move."

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Success is: consistently implementing your proven trading strategy! But you've got to take the time and
make the effort yourself, to prove it!

"Rules of Thumb" and Thought Processes of a Trader - Robert W Suit

I began trading futures in November '95 after 17-years experience trading in the stock market with mixed
emotions. I knew that futures trading would be difficult, but hoped that my stock market experience would
shorten my learning curve. Perhaps it did, perhaps not.

I began with the idea that I was going to make mistakes, and that I had just to make note of all mistakes and
not repeat them, and all would be well. Easier to say than do, of course. My first trades were in stock
indexes and bonds, since this was more familiar territory for me. I will list and discuss some "rules of
thumb" that I developed in the first six months of trading. Most of the concepts are not unique, and some
may even be wrong, but I am just trying to illustrate some thought processes that a new futures trader goes
through, not making any claims. The order is generally chronological.

1. Don't fight the TRIN. Several S&P positions taken in direct opposition to strong TRIN readings the other
way proved unwise.

2. Use fairly tight stops on T-Bond trades, about $500 or less. I got nailed twice breaking this rule. Very
painful!

3. Set adjustable trailing stops as soon as you have a decent profit on a position. Don't let a profit become a
loss? I've broken this a couple of times. Very conducive to self-flagellation!

4. Give a position time to work - don't bail out too soon, i.e., be disciplined.

5. If a position requires prayer, get out!

6. After entering a short position with a market order, if you want to place an OCO order with two prices,
figure it out and call back. This avoids mistakes which are easy to make on short positions.

7. If you are in a position you wouldn't initiate right now, consider getting out.

8. FYFH! Above all, follow your plan! If you don't follow a reasonable plan, it is amazing how many ways
you can find to lose!

This list pretty well represents where I was after 6-months. I'll cover the second 6-months later, and
probably raise the level of sophistication. It's a tough game!

"One Guys Trading Experience"

Jack from Portland

I told you in previous e-mail that I would give you additional info on my experience with my S&P
daytrading method. This is being written mainly to see if you have any suggestions (probably through the
bulletin) for me to trade better. I don't care if you describe my comments as "one guy's experiences trading"
in your newsletter, but I think I would rather not have my name mentioned. Are there any other traders in
the Portland, Oregon area who purchased daytrading method? If there are, would there be any way to find
out through you if they would like to communicate with me or get together with me and discuss the
program?

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Editor's Note: We can't give out members names and phone numbers without their consent. However,
traders in Jack's area may contact him via CTCN.

Daytrading using my method since August '96, I have made over 60 trades. I believe the only way to learn
a program is to trade it. Paper trading doesn't work for me at least until I have learned something about the
market I am attempting to trade. I tried to stick to the method. After each trade was completed and I was
out, I reviewed the trade to see if I was following the method. I made some bad trades by sometimes getting
in too early or too late, or not making sure there was a real trend developing (I think that is more important
in these choppier markets).

My greatest problem is getting decent fills. After you see a signal, it seems to take too long to get in, with
the process involved with placing an order with the broker, even with so-called flash fills. I perceive that on
average the markets are more choppy and volatile lately. I am down over $5,000 so far. My other problem
is stops.

One day the market reversed on me, I didn't get out until the market took about $2,000 away from me.
Though I have been trading about 6-years, (I even had a couple of winning years). I have never day traded
before and made bad mistakes in getting out because I was not used to markets moving so fast. Besides it is
my tendency to hope the market will spring back in my direction (like so many traders do - not good).

After the market hits your stop, it's easy to let it go a little longer to see if it will bounce back. Sometimes it
does and goes your way, but I have found in most cases it is better to get out at the stop immediately and
wait for the next signal. I believe that many traders, especially beginners, should enter the stop order with
the broker at the time they enter the trade.

Doing this takes a lot of pressure off me, because if the price hits my stop, I know I am out and I can go on
from there to the next setup and potential trade. This has helped me to be more objective about the trade. If
I had done this from the beginning while trading my daytrading method, I would have taken less losses. I
realize that a person learning a method like this has to pay-up (tuition). I expected to make mistakes.

Another pressure that a novice trader such as myself feels is the overhead cost, especially when trading
results are so poor. With the purchase of the methodology, TradeStation and BMI for a year we have a total
of $6,700 for 12-months (not including the computer). Losses on top of that begin to gnaw at you and put
you under more pressure and fear.

I know that if I ever feel confident that I am learning the method so that I can win more than lose, I will feel
a lot better and this pressure will start to go to the background. I definitely intend to stick with it and follow
it every day. I am fortunate in that I can be in front of my monitor for the entire session almost all the time.
I don't understand how anyone can make this method work if they aren't in front of the monitor, learning
every day.

Besides looking at educational video tapes often, what am I going to do to improve?

Per SAT, I purchased the book, The Disciplined Trader by Douglas. The book has helped me understand
about discipline.

I have not traded for a month. I have seen some beautiful moves in the market. I wish I could be more
confident when I see a trade setup. So many setups look good, but they turn out to be losers because of the
choppy markets or whatever. (It was apparently determined that an 85-point stop works better, but now
with slippage the loss approaches $500).

Thanks for your helpful attitude. I hope this is not too trite and rambling. Upon reviewing what I have
written here, it seems I am just reiterating the ever present problems of traders who haven't figured out how
to win on a consistent basis.

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Editor's Note: We ask other CTCN members to offer Jack suggestions (via publication in our next issue)
on ways to improve his daytrading. There are no doubt many successful traders who may offer help to Jack
and others. In addition, there are a number of trading tips in this issue to help Jack and others.

'Ya Gotta Know When to Hold 'Em"

J. L. - Wimauma

"Know when to fold 'em; know when to walk away, know when to run; Ya never count your money, while
you're sittin' at the table; there'll be plenty time for countin', when the dealin's done." Thank You Kenny
Rogers ("The Gambler"), (Can you tell I used to be in show-biz?)

Well I was until around May Day of last year '96. In Vol. 4-3, I crowed about breaking thru that "wall" we
all create for ourselves. How does actual trading profits from May thru Dec '96 of 160% annualized return
on my account balances sound? Yeah, that's even after - you guessed it - I screwed around with my
"strategy" in Dec and as usual, am still paying the price. Why can't most of us stand success? But it hasn't
stopped my "crowing" (in case you haven't noticed).

If you're like me, you don't have the smarts of a Tom D'Angelo or the moxie of a Larry Williams. You too
need an almost "idiot-proof" system. (I'm still looking for the "no-brainer" method). Woe is me! Guess I'll
have to struggle along with my measly 100% a year!

I've got to say it again. 160% return on what? Neither on my account balances nor on some irrelevant
margin deposit amount (or multiple thereof) could be correct. The only accurate number would have to be
the average drawdown during the trades (if any developed at all). And since I only risked a small portion of
my accounts as most of us do, isn't my actual return on capital at risk more like 1000-2000%?

Well anyhow, I did it. I mortgaged the ranch (literally). January just ended, and it looks like with that fresh
capital, I've done about $12,000 and have a drawdown of $14,000. (I told you I messed up December. That
drawdown should be about $5,000). I'll tell you it's a little different doing 8's and 10's instead of 1 and 2-
lots! Not complaining tho. We all need some room for improvement! (Without giving too much away, the
above numbers mean that I have pocketed 87% on my "investment" in one month. Everybody laugh
together now).

I'd like to close with the four steps to a successful conclusion which I adapted from a TV show on angels,
would you believe?

1. Plan (research)
2. Execute (place the darn trade correctly)
3. LET IT HAPPEN (that's the hardest one), and
4. Say thank you (after you've taken the darned profit).

Well so much for the wonderful world of commodities! What other profession can save you so much
money in laxatives? And speaking of laxatives, isn't it nice to go to the bathroom when you want to - not
when the boss says it's O.K.? Good investing to you!

Opportunities in Options Announces

"$25,000 Beat the Bookie Challenge"

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Opportunities in Options (OIO), a full service futures and options brokerage company today announced the
"$25,000 Beat The Bookie Challenge." This is the first time a trading challenge with a cash award and the
opportunity to become a professional trader has been offered in the futures industry.

David L. Caplan, president of OIO, renowned trader, and creator/author of the "Trade Like A Bookie"
trading methodology, is challenging contestants to beat "The Bookie" by using his option strategies. "The
Bookie" will establish a $25,000 trading account to compete with contestants own $25,000 accounts.

A first place prize of $25,000 cash and the opportunity to become a trader with OIO will he awarded to the
trader who has the most profitable account and beats the "Bookie" account. The most profitable trader, but
is not lucky enough to beat the bookie will be awarded $10,000 and the opportunity to managed CTA
trading account. Opportunities in Options will assist the winner in registering as a Commodity Trading
Advisor. The second and third place winners will be awarded cash prizes and the opportunity to become a
Commodity Trading Advisor.

Contestants must register for "The $25,000 Beat the Bookie Challenge" by March 31, 1997. Trading can
begin anytime after February 1, 1997. The "Bookie Challenge" will end December 31, 1997. Individuals
interested in registering and/or receiving further details regarding official challenge rules can call O.I.O. at
800-456-9699.

Opportunities in Options was founded by David Caplan in 1984 and currently has over 100 employees in
Oxnard, Calif., Denver, Chicago and Oregon. In addition to futures brokerage, OIO also has a publications
division, The Options College educational program, seminar division and options trading software
development programs.

Daytrading the S&P Is A Matter of Identifying Trends & Trading Retracements

Chuck Milich

I get a lot out of CTCN and wish I had information to contribute from time to time, but being a struggling
S&P daytrader makes my experience very narrow. Try as I might, I'm not able to think of a topic to write
about that anyone else might find useful.

S&P daytrading is just a matter of watching price movement all day, identifying trend, and entering on
retracements. I notice in CTCN that you regularly ask for contributions. In the next few weeks I'll put more
effort into identifying a topic and see if I can't compose something that would be a useful addition to your
publication.

Asking For A Recommendation of Advantage Trading Group

Chuck Milich & Others

In the Oct/Nov/Dec issue, I noticed an article about the Advantage Trading Group. The author of the article
describes the type of floor broker I would like to use but have never found.

Also, if you're aware of any members who have experience with Advantage Trading Group's S&P pit order
service, I would be interested in learning about it via CTCN.

I really appreciate the good work your doing with CTCN. The last issue's article about the Risk of Ruin was
very helpful.

Editor's Note: The contribution made by Mr. R.S. of Advantage Trading in our last issue was very well
done and informative. As a result it drew a very large response from our members who are looking for a

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broker with great service, fast direct floor access, no "hand-shaking" type of delays when placing an order,
and of-course low rates, etc.

Several months ago your editor traded an account with Advantage Trading Group. At the time, our overall
experience with ATG as far as trade executions go was good. However, we did not keep detailed records on
the speed of their fills, the fairness of the fill price, and how often their floor broker asked for our account
information (Note: This occured a number of times, thus delaying our orders, even though we thought (and
were told) this would never, or rarely happen), and several other important items needed to properly
evaluate a broker.

To enable us to gather important statistics about Advantage we plan to transfer managed funds to them by
March 10th and commence trading there, while keeping accurate records on the many significant issues
outlined earlier. Therefore, we ask you not to call about Advantage, or ask for our formal recommendation
until we have sufficient time to completely evaluate them with actual concise numbers to rely on and give
to you.

We also did not trade with ATG as long as planned because we incurred an unexpected but reasonable
drawdown and temporarily stopped trading to limit losses and reevaluate or redefine our technical analysis
trading methodology.

Editor's Subsequent Web Site Note July 1997: When we commenced trading again at Advanatage we
were well satisfied with our overall trading results but ended up closing our account (7/97) due to a "falling
out" with Mr. R.S..

Editor's Subsequent Note dated 7-19-97: Unfortunately, due to later developments we are no longer able
to recommend Advantage Trading Group to our members. If you opened an account at ATG because of
CTCN, or an article in CTCN between October 1996 and July 1997 we would greatly appreciate you letting
us know. Also, you may contact us for information on our new commodity broker.

Editor's Subsequent Web Site Update Bulletin: "We had serious problems in our dealings with
Advantage Trading Group and Mr. R.S., Pres. & CEO of ATG. As of 7-19-97, CTCN is planning to file
complaints against Advantage Trading with various organizations. After we closed our account we were
told by a Real Success client that Mr. R.S. allegedly disclosed confidential account and P&L information to
both the editor of Club 3000 News, who is unfortunately an unfriendly rival of ours, and himself. Not only
was our trading and account information allegedly given, some incorrect or exagerated information was
also allegedly revealed.

If these allegations are correct, it not only violates our specially prepared Non- Disclosure Agreement we
had Mr. R.S. sign when we opened the account but it also violates common brokerage firm ethics and we
are sure will be frowned upon by the NFA - CFTC.

In addition, on July 7, 1997 Advantage Trading Group reneged on a much discussed and clearly understood
contract we had with them. They refused to pay us as they agreed to, after we did a lot of work on their
behalf over a period of nine-months. What does their reneging on their oral contract to pay us say about
them? Our contract with Advantage Trading Group was far from a moneymaking proposition in the first
place. Payments under our agreement were only intended as a way to cover CTCN's considerable hard
work, time and expenses. The payment agreement was definately not for profit.

Commodity Option Vertical Spreads As A Risk Management Tool

Don A. Singletary

Ever sell out of a trade too early because it ran against you only to have the market turn the instant you
sell? Or maybe your stops are getting hit a little too often? These are all too familiar to many traders. If this

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happens to you, one of the reasons could be that your trades are not matching your risk tolerance. At a
certain point, and everybody's is different, it's like a buzzer goes off inside you. This happens when you
have reached your emotional risk tolerance limit. Very few investors can successfully manage a trade that
is out of their comfort zone.

One solution is to select trades that will allow you a much broader comfort range, at least until you get
more experience with the markets. Vertical option spreads offer a very wide selection of risks and margin
requirements that can be tailored to fit almost any risk tolerance and account size. There are basically two
types of vertical spreads - the credit spread and the debit spread. Both involve selling one option and
buying another at the same time in the same month, but at a different strike price - one above the other or
"vertical."

The debit spread is so-called because you sell one option and buy another resulting in a net debit or cost to
your account. This strategy can reduce the cost of buying an in-the-money option. Here's an example:
Suppose it's the middle of November and the January OJ futures are at 118.70. Take a look at these option
prices: (chart in print copy)

If you are bullish on the January OJ there are several ways to enter an option trade and each has its own
degree of risk and financial requirements. You could buy an in-the-money Jan 115 call at 5.00, costing
$750 or you could purchase a riskier out-of-the-money call like the 120 for 2.50 or $425. However, by
using an options spread, you can buy the 115 call and sell the 120 call. Pay $750 for the 115, and receive
$425 for the 120 call. The net debit or investment is the difference of $325; the "spread" is 250 points.

You order the trade by saying,"l want to buy the OJ Jan 115 call and sell the Jan 120 call on a spread of 250
points." Be perfectly clear about what you are doing. All brokers are not completely familiar with these
types of trades and the margins they require. Also be sure you know exactly when your options expire.

Using this type of debit spread does several things. It makes the 115 call affordable to the trader; it
decreases the risk of the trade and the maximum loss is limited.

Another even less risky play is the credit spread; sell the Jan 115 put for 150 points and buy the Jan 110 put
for 50 points, a net credit of 100 points, or $150. Your account is credited the $150 per spread and if the
options expire worthless you keep the money. That's a change! You make money when the options expire
with no value! The risk on this credit spread is a maximum of $750 minus the credit of $150, or $600. You
may put in a stop loss at about 50 points and decide to risk only $75 plus commissions per spread.

Risk vs. reward is again about a 1:2 ratio. The unique thing about the credit spread is that you can win if the
commodity goes up or even if it stays the same - assuming you always pick out of the money options. This
type of trade limits the gain but also reduces risk substantially.

There is one other notable advantage of using these option vertical-spread strategies. You will be somewhat
insulated from loss due to time decay of the option prices. Whichever strategy you use, you will always be
long one option and short the other. Since the time-decay of the two will erode at approximately the same
rate, the spread has the effect of cancelling out time decay loss! If you have ever bought an option and
watched time decay eat away your investment, you will appreciate this feature.

The combinations of spreads and the wide menu of options can allow you to tailor a trade that suits your
budget and risk tolerance. You will better manage a trade that stays in your comfort zone every time! The
vertical spread can easily allow you to do just that. It is a little confusing at first, but worth the effort. Get a
pad and pencil and practice. It won't take long before you begin to see the many possibilities which option
spreads offer. After all, the more tools you have in your trading kit, the better craftsman you will become.

Copyright©1994 D.A. Singletary (and jointly copyrighted by Commodity Traders Club News by virtue of
its publication herein). About the author - Don A. Singletary is currently full-time trader and risk
management consultant, and was a registered representative for a NYSE firm for many years; and has

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served in the Economic Development Division of the Florida Department of Commerce. His new book
Option Wizardry will be published in 1997 by Windsor Books.

Offense Taken by "Cheapskates" Remarks - Larry Schniepp

I took the "cheapskates" remarks by Thomas Mylotte in the Oct/Nov/Dec 1996 issue as pointed directly at
me because I was one who chose not to purchase the Real Success Software along with the Real Success
Video. I hope he is more careful when addressing such remarks in face-to-face situations. It is very clear
that Mr. Mylotte simply doesn't know what he is talking about and I don't like being called a cheapskate
because of it.

The fact is that the software is useable only when running with TradeStation. You made that abundantly
clear, Dave.

Editor's Note: This is correct, optional Resistance/Support/Keltner & Signal Setup software only works
from within TS.

In fact, a quote from your announcement is as follows: "This great supplemental software is not really
needed and certainly not mandatory to learn and successfully trade this methodology." Since I don't own
TradeStation and have no intention of buying it there was/is no reason to purchase your auxiliary software
no matter how helpful it might be.

Mr. Mylotte goes on to criticize you, Dave, for allotting those "cheapskates" 5 videos containing Bollinger
Bands and only 2 videos containing "your" software, meaning Keltner Bands. I can only guess where his
mind was as you were constantly reminding the viewer that both bands worked equally well in the
methodology and were almost identical. There is absolutely no merit in that personal attack. That shot and
the one above would have been better left unsaid.

The methodology works just fine for at least this "cheapskate" who charts real time using one of the many
other programs out there.

I had to get that off my chest. I'll have more, positive contributions to make in the near future.

TradeStation Seminar Too Simplistic For Experienced & Too Technical For Beginners - Joe Schuchter

As with other contributors to CTCN have both positive and negative experiences with Omega Research and
TradeStation. I signed up for their TradeStation Seminar in December '96. As a rather new user of
TradeStation I found myself 'left behind' after just a few hours, and at the same seminar I talked to veteran
TradeStation users who found the presentations too simplistic. Clearly the seminar was aimed at
TradeStation users with a good knowledge of TradeStation, but of little value to those who are beginners or
experts.

Omega Research had monitors present and they were quite interested in participant feedback and in taking
steps to make the seminar more effective. Further, they responded to my written concerns about the
seminar with an in-house refund credit for the cost of the seminar. They respond quickly to customers'
concerns and willing to make changes that improve their products.

10-Year Historical Data Base & End-Of-Day Data $89.00 Yearly - Joseph Light

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Members looking for an economical database should scrutinize Investors Alliance at 888-683-1181 or 607-
243-3601. This non-profit association has survived since 1987.

They offer fundamentals on 9,000 stocks, technicals on 16,000 stocks, information on 5,300 mutual funds
end-of-day data, and a 10-year plus historical CD ROM database.

Most indexes are included, however no commodity information is available. Analysis software is included.

It's great for that spare slower computer. TradeStation and Bonneville it is not. It certainly qualifies as a
functional, economical source worthy of comparison to other software and data sources. I am not affiliated
with Investors Alliance.

Questions About the S.A.T. Articles & S&P Daytrading - David Kent

Just a note following up my fax of 12/11/96 (copy enc) requesting updated CTCN subscriber information
for 1997. I've read and reread your special CTCN edition containing reprints of S.A.T. articles which you
sent out last Spring, and would like to know how much all the back-issues of CTCN would be. Also, (at
one time) you had stated that you could only fulfill Revealed Secrets trading program orders for the first
100 or so people.

Editor's Note: We no longer offer individual reprints of the Successful Anonymous Trader (SAT) articles,
except when purchased as a package along with all our back-issues.

About our educational trading package, we did decide to make available a number of packages in excess of
the planned original number. This was because we later determined since the method is NOT 100%
mechanical there was really little, if any, danger of too many traders taking the same trade at the same price
and time.

Our Real Success methodology uses different entry techniques, different target prices and a number of
various signal setups to select from. In fact, there is a degree of subjectivity and judgement involved in the
signal setups, all of which are not meant to be traded. This results in different interpretations and diverse
trades and subsequent varied trading results by our traders.

Even so, what are the chances for the program and tapes, etc., being re-offered in the future, such as in
1997? And if the program won't be or is no longer made available, can the software you advertised still be
purchased? You have probably had to answer these same questions innumerable times since you first began
taking orders for the S.A.T. program, and so I hate to sound like the proverbial parrot, but Dave, you
happened upon a really good one.

A few more questions: What kinds of successes are your subscribers having, using the

S.A.T. methods? Have there been any rookies in your rank and file?

Editor's Note: As mentioned before, we did in fact produce additional educational packages (at high pre-
paid production cost) but decided to not offer them to our members because we are working on a new series
of tapes which utilize our new enhanced trading methodology. This was done because the original
methodology unfortunately did incur a drawdown in real-time trading last fall, mostly during the Oct/Nov
time period.

Of course, we were not happy with the drawdown so proceeded to modify the methodology to make it
work "better." We have been paper trading the new method and it definitely seems to be enhanced with
lower drawdown and good success.

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Commencing by mid-March (or earlier) we plan to be trading the new methodology in real-time and also
taping our trades. This new enhanced educational package will be offered to our members (when taping,
editing and re-production is finished, in all likelihood by July or August 1997). We also plan to send it
"free" (we will only ask for payment of our out-of-pocket duplication cost and S&H) to all registered
owners of the original Real Success Educational package.

About your question in regards to "what kinds of successes" our S.A.T. (Real Success) traders have
achieved. The success rate varies quite a bit. This is a result of it not being totally mechanical. The trades
actually taken in real-time and subsequent overall trading results are highly variable.

Many Real Success traders report they have made excellent profits using this method, while some have
reported losses, others report break-even trading results. Some others have never actually traded it in real-
time and some traders did not use it exactly as designed, but instead used the methodology in conjunction
with their own trading method, as an enhancement or supplement.

By the way, the above variable results scenario is quite common with most all futures trading methods or
systems. For varied reasons, not the least of which is interpretation, judgement and discipline, trading
results are extremely variable using basically the same method or system. In the past I have received calls
or letters from traders (sometimes on the same day!) with one highly critical of a method/system and
complaining about losses but the other trader is complimentary and talks about his profits and success using
the identical system or method.

Also, yes, we have a number of beginner traders using the methodology with variable results but most find
the methodology very useful, educational and helpful.

As with so many of your subscribers, I would like to learn how to trade successfully for a living from my
home, and learn how to keep most of the profits. I need to learn a lot more, but just how much does a
beginner have to learn before many of the kinks are ironed out? For about one year (7/92-7/93) I traded
many markets, some haphazardly, some cautiously, and still I lost--both my own money and a partner's.

Originally I had taken the TWMPMM course from Ken Roberts, but hardly used his methods, because it
seemed that at the time I began trading, most of his trades were held for weeks, and he wasn't profiting
consistently from the trades I monitored on his hotline. So I abandoned his system (this was in Spring and
Summer of 1992) and I soon whittled away everything because I didn't stick to any plan or use enough
discipline to be a wise student of the markets.

Now, in retrospect, I can see that I need a proven system, good money management and self-discipline to
be a winner. I believe what S.A.T. said--It is you against you in the markets.

To daytrade the S&P 500, how much capital would you say needs to be secured to begin? S.A.T. has stated
that you should not risk more than 2% of your equity on any one trade. Does that mean I should forget
daytrading the S&P 500 if I have less than $10,000 in a margin account?

Also, both S.A.T. and Mark Douglas suggest setting aside some money you won't mind losing. Does
anybody ever not mind losing when they're only starting with a limited amount? So how much is enough?

I'm truly searching for sage advice, and there must be good, right answers for someone in the same position
I am in. I want to do this right, to begin and to end well, for a change. Dave, I believe that from what I've
read, you have much advice on these matters. What do you say, and what would you recommend for me?

Editor's Note: We will answer all these questions, and many others, in our newly updated Real Success
Info-Guide, due to be published and mailed out sometime during 1997.

I know each person's situation is different, but some others' experiences, hangups and financial
disadvantages might be similar enough to mine, to offer suggestions. I know quite a few of the basics of

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trading, and many of the concepts. I have a wife and four kids to care for and want to learn to make a better
living than I now am, doing something I enjoy, out of my home and working in leveraged markets.

From what I've seen, after some broken dreams playing the markets, I and many others like me have been
scared away because of stupid mistakes, ignorance and lack of discipline in their trading. But many also
appear to have made successful comebacks. What do you say?

Any wisdom you could share will be well-taken and greatly appreciated. Dave, thanks for your time and
attention to helping others like me find a forum and advice that could change lives.

Commodity Option Selling and The Stock Market - Don Twist

Commodity Options in Grain

In that article I discussed commodity options and the fact that most options expire worthless or as Mervin
Pearson calls them a rotter. In that article I stated "this will be another golden opportunity to sell puts as the
market rises and sell calls after it peaks." "Look back in history and you will find these markets will peak
before planting or the latest in late June. This was right again with record prices paid for corn and wheat
and peaking from May to mid-July. How many traders bought those out of the money calls and saw them
rot? They were once again selling options on soybeans for November at prices up to $10.00 per bushel that
rotted.

I will add another dimension to option trading in selling the premium and not buying the premium. My
current data vendor TBSP has daily option volume available the same day, unlike futures contracts that
offer no volume the same day.

As I stated last year, you must chart options like futures and use the same methods. Now look for the days
with abnormal volume compared to the open interest and you will find the turning points. In November
there were excellent signals in the soybeans with abnormal volume days. On 11/1/96 there were 6,443
January 675 puts traded and they closed at 23.50 cents. On 11/29/96 they were selling at 1-cent.

I would speculate that this year could be the year for soybeans, as last year saw record prices in wheat and
corn. Think of the premium that was available last year on calls in the distant months that rotted or could be
still rotting for those that sold 1997 calls in wheat and corn.

If one would compare the great bull market in cotton in 1995 and the wheat corn markets of 1996 and then
look at the year after in cotton which was very subdued. This might be the scenario for wheat and corn for
1997. If the grains peak in May, selling the call options for the new crop months should be easy money
again.

Key Reversals

I have read numerous articles in various daily publications calling key reversal days in commodities or
stocks and to find that these were not reversal days, but brief trend change days with the prevailing trend
resuming in the next couple of days.

A key reversal occurs only when the vehicle you are watching or trading closes above or below the
previous four days closes.

Four days is the key, not one day as most newspapers state in the daily explanation of what the markets had
done yesterday.

Stock Market Comments

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I would like to thank Patrick Smith for his excellent article on Sheep in Sheep's clothing.

Did you ever wonder why a stock hitting a new all time high can advance so rapidly? Let me give you my
scenario.

In any stock there are numerous orders in the book to buy or sell at specific prices and the amount of shares
for sale at each price. Now consider the fact that if the stock has never traded this high or low how many
orders could be on the books to buy or sell at these new prices?

If a money manager is in the process of ramping up a stock he continues to place buy orders at new highs
which has very little stock for sale, what happens to the prices? He and his fellow fund managers can ramp
a stock up relentlessly which improves their fund performance. While everyone knew America Online was
over priced for years, the Fidelity Funds were large buyers of this stock and continued to squeeze the shorts
and have this stock rise how many fold before they finally sold.

Everyone must remember that the brokerage houses are very big traders and when they make a buy
recommendation they have their own agenda based upon their inventory. Until recently, most
recommendations have done exactly what they were supposed to do. However, as this BULL is getting
very old and the trends in many stocks are down, beware of the buy recommendations as they may be
unloading some inventory of their own or a big client's holdings. They can also label this a secondary
offering when none of the proceeds accrue to the company and some big shareholders are gracefully exiting
their large position.

In the Wall Street Journal on 12/26/96 in the Heard on the Street column there were some interesting
comments from Robin Carpenter, "Years in which the full four digit numbers form a prime are worse then
when a two-digit number forms a prime."

There have been only six of these years: 1901, 1907, 1913, 1931, 1973 and 1979 and they showed an
average loss of 20.3%

He notes that 1997 is a double whammy since both 97 and 1997 are primary numbers. I believe the first
half of the year will have surprises with an ugly spring and a bottom in the second half of the year.

OPTIONS & SPREADS: A Gann/Elliot Report for

Night-Owls & Tomb-Robbers - Greg Donio

In a book of essays published in 1920 and entitled Old Junk, London Nation associate editor Mr. H.M.
Tomlinson wrote a piece called "Bed-Books and Night-Lights" which began:

"The rain flashed across the midnight window with a myriad feet. There was a groan in outer darkness the
voice of all nameless dreads. The nervous candle-flame shuddered by my bedside. The groaning rose to a
shriek, and the little flame jumped in a panic, and nearly left its white column.

Out of the corners of the room swarmed the released shadows. Black specters danced in ecstasy over my
bed. I love fresh air, but I cannot allow it to slay the shining . . . candle-flame, the comrade who ventures
with me into the solitudes beyond midnight. I shut the window.

There are few books which go with midnight, solitude, and a candle . . . For though at that hour the body
may be dog-tired, the mind is white and lucid . . . It has a sharp focus, small and starlike, as a clear and
lonely flame left burning by the altar of a shrine from which all have gone but one.

A book which approaches that light in the privacy of that place must come, as it were, with honest and open
pages."

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My own midnight readings? Professor C. Leonard Woolley's book The Sumerians has escorted me via
Manhattan lamplight through the shadowy vaults and chambers of Mesopotamian crypts circa 3,000 B.C.
Then there are the books and articles by or about W.D. Gann and R.N. Elliot.

I have done well enough as an option-trader to stay up, sleep late in the morning, and otherwise make my
own hours, thanks at least in part to the latter two gentlemen. Also, to prodigious readings of a variety of
authors at mixed-mosaic hours. So why are those two particularly suited to night-owl perusal?

In "Nature's Law -- The Secret of the Universe" (The major Works of R.N. Elliot), Elliot wrote "Pythagoras
a great man, lived in-the fifth century B.C., and made an impression on history that is seldom approached.
(Mention of Encyclopedia Britannica passages. He was a persistent investigator of the discoveries of others
and visited Egypt which is often mentioned as 'The Cradle of Civilization!

"Pythagoras is prominently known for his studies in mathematics. He drew a triangle and placed thereunder
the cryptic title The Secret of the Universe." (page 231)

"It was made after he returned to Greece following a prolonged visit to Egypt. It is fair to assume that the
Pythagoras diagram refers to a pyramid." (page 158)

Elliot went on to tell of 13th century A.D. Italian mathematician Fibonacci, also known as Leonardo da
Pisa. "He visited Egypt and Greece and on his return to Italy disclosed what is known as a summation
series." That is, the Fibonacci numerical sequence. (page 159)

In the Oct./Nov. 1990 issue of Trader's World Magazine, Gregory and Helen Meadors wrote that W.D.
Gann "would incorporate Scripture, natural laws, numerics, Pythagorian harmonics, astro-cycles and the
Law of Vibrations.

"As a student of ancient sources of knowledge, Gann may have also studied the Great Pyramid (the
structuring of which) contains an amazing array of mathematical (Fibonacci) ratios, Biblical
correspondences and knowledge of the heavens." (page 32)

W.D. Gann and R.N. Elliot both drew heavily upon the classic Dow Theory of Charles H. Dow and his
subaltern scribes Robert Rhea, William P. Hamilton and S.A. Nelson who wrote books expounding on his
concepts. Yet Gann, Elliot and their own "take-off" doctrinal theorists also reached much farther back in
time to gain wisdom, which is sometimes a good idea and sometimes not.

The archaeology buff in me cannot help but be spellbound by the notion of Elliot and Gann walking with
Pythagoras in the hills of Italy back when it was called Greater Greece because of the Hellenic colonies
there. Likewise when they strolled in spirit among the dead pharaohs in the Valley of the Kings near Luxor.

My midnight oil-burning interest in ancient artifacts is only part of it. Religion-wise I am skeptical about
Afterlife. Yet I enjoy spooky stories about torch-lit castles and alchemy labs. I am semi-cynical toward the
occult and regard astrology as a false science. Yet I have a weakness for wooden bookstalls containing
volumes brown with age on "ancient secrets."

Ancient secrets. Jersey City take-offs on centuries-old hermetic and kabbalistic tomes. Depression Era
bargain reprints of Babylonian esoterica. Seven keys to wisdom and the evil eye.

All nonsense? No, but a mixture of wisdom and nonsense, of gems and pebbles and cheap fragments that
shine deceptively. Archaeology is rich in mystery and adventure but is also an evidence-oriented science.
The same can be said of financial speculation or trading. Both attract too many phrenologists and bumped
heads. Both have their distinguished doctors, their snake oil frauds, their well-intentioned bloodletters.

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Of course, in these fields as in politics and religion, one person's wisdom is another's nonsense and vice-
versa, complicating matters even more. R.N. Elliot sent his spirit back in time to sip vintages with
Fibonacci in pre-Renaissance Florence and to pore over papyrus with Egyptologists at the Karnak temples.
In his theorizings, W.D. Gann communed with Old Testament patriarchs and Sumerian astronomers.

Such notions release some intriguing phantoms and ritual candles into the pagan darkness of one's musings
after all lights vanish but the reading lamp. Yet hieroglyphics must be viewed with an eye of scientific
skepticism. What passes for ancient wisdom may be a failed alchemy formula or a superstitious cure.

Spread strategies using Put or Call options have paid for everything from the tenderloin and lasagna in my
freezer to the Certificate in Finance I recently received for courses taken at New York University. Un-
owned "underlying securities" are either commodities contracts for futures options or, in my trading, stock
shares for equity options.

W.D. Gann and R.N. Elliot made those stocks navigable for me. In Gann's writings, share prices bounced
between floors of support and ceilings of resistance as though along the stone passageway of a pyramid. I
soon learned to sense whether the stock gravitated more toward the ceiling or floor; also to check whether it
stood on a long-term upslope or downslope.

If ceiling-pull/upslope showed and earnings and P/E looked robust, I positioned a horizontal spread of Call
options above that ceiling. If the share price pulled toward floor/downslope, also having decrepit earnings
and P/E, I positioned a horizontal Put spread under that floor.

Ergo, if the stock stayed within the passageway, I profited from time-decay, the natural progression of
horizontal calendar spreads. If the share price broke through the anticipated ceiling or floor, placing the
options "in the money." I bought back the short-end of the spread and held the fattening long-end. Gann's
pyramids held ample treasures for me.

Thanks to R.N. Elliot's impulse waves and corrective waves, fluctuations fit within the blueprint instead of
ripping at it. A study of Wave Principle brought me far fewer unwanted surprises. With fair accuracy I
could anticipate whipsaws and angular line-juts, and incorporate them into my schemata.

Admittedly, I had to clear away a fair amount of dross to get at the conceptual shine. Elliot put into print
some occasional bits of pseudo-paleontology and what sounded like encore-to-palm-reading numerology.
Gann could find financial "powers and interpretations" in varieties of Biblical numbers, readily tying in the
61,000 donkeys and 32,000 virgins (Book of Numbers 31;34) with the Dow Industrial Average of such-
and-such a lunar-cycle date.

Self-proclaimed Gannophiles of astrological persuasion have carried such questionable reckonings even
further. The 60-degree angles in the Seal of Solomon supposedly connect with the sun/moon woman in
Revelation 12 and zodiac sign Virgo in force when the Dow soared Aug 1987.

It can make for bewitching reading in the wee hours, like examining cuneiform clay tablets by lantern-light.
Yet both situations call for the archaeologist's scientific objectivity and skeptical eye. Thus, we separate
ancient wisdom from ancient superstition, Hippocratic ethics and science-by-observation from Hippocratic
bloodletting.

Gann theory and Elliot theory both offer plenty if you will settle for good, helpful methods but not
"perfect" ones. There is no holy grail or philosopher's stone; there are the trail compass and the surveyor's
theodolite in the Yukon. El Dorado? A myth. But gold-rich soil known as "paydirt" ain't no fairy tale. Nor
the hammer-built "Long Tom" separating trough.

Through the dim corridors of 25 centuries, Pythagoras utters his teachings: The eternal recurrence of all
things; the profound, elemental significance of numbers. History repeats, Gann said. Numbers form ceilings
and floors. Patterns repeat, Elliot said. Five waves up and three down.

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If the securities--stocks, futures, options--do not always follow the game plan, at least the game plan robs
them of a lot of their surprises. Also, the Gann Maxim, "Discover the trend and go with it," would make for
fewer troubled spirits in the financial boneyard. The screech-owl goes silent as the radio on the night table
finishes playing "Ebb-Tide." The distinctively after-midnight book closes. And so to bed.

Recommended Readings: W.D. Gann's two books in one bound volume The Truth of the Stock Tape & The
Wall Street Stock Selector; The Major Works of R.N. Elliot; George Angell's Sure-Thing Options
Trading...

Editor's Note: Greg referred a book source who would not list CTCN in their catalog but listed a
competing publication because he is a "old friend of the editor." They also fabricated a story about an ad
they once placed in CTCN. See our Elliot Manuscript reprint offer below.

Editor's Note: "Nature's Law -- The Secret of the Universe" (the major work of R. N. Elliot) is available
thru CTCN. Send $27., plus $3 S&H, $30.00 total ($12 foreign S&H), to get this rare, fascinating and
interesting 63-page spiral-bound re-print of Mr. Elliot's original manuscript.

Send check (or credit card info) to our new address: Commodity Traders Club News, 34522 N. Scottsdale
Rd., # 477, Scottsdale, AZ 85262.

Technical vs. Fundamental - Keith Carr

Some thoughts pertaining to the question of whether technical analysis has merit in a successful trading
campaign. The first question is: How does the fundamentalist define accurately the point where his analysis
is wrong? This is coincidentally the same point where the educated technician will place a stop (limit the
risk). Market price is ultimately the consensus of all the participants' opinions represented by the net sum of
all the buying and selling pressures in the market at any time. So it seems logical to attempt to trade with an
awareness of just what those vertical bars are telling you.

Next question: How does the fundamental analyst scientifically quantify volatility in the market? The
inability to be able to define volatility and tie it into one's analysis is one of the main reasons why many
traders are not successful. Volatility and time both qualify price action.

The successful chartist does not need a boat-load of different indicators to trade with. Most traders cannot
really define what the indicators are telling them about the market, especially when several different
indicators are apparently saying different things at the same time.

Scientific price action analysis combined with accurate multiple time frame interfacing is in fact the key to
learning to read those vertical price bars. The astute trader defines trends on multiple time frames within
the framework of clearly repeatable top and bottom formations. Of course, this means that the trader must
do his homework prior to trading the markets.

It is a mistake to believe that trading commodities is a quick pathway to riches without much hard work and
dues paying. The use of a canned trading system that generates buy and sell signals is to imply that the
trader is denying himself the use of extremely necessary and valid information that is to be obtained from
careful consideration of different time frames.

Remember the market is telling you what it wants to do if you'll pay attention. Could it be that the
fundamental analyst might be mislead by [intentionally] false information such as government reports,
news services, etc.? Nothing in trading is 100%. But at least the technician can work volatility and
truthfully enter the market knowing beforehand what he's going to do given any possible scenario he might
encounter. How does a fundamentalist define support and resistance zones accurately? The same way a
technician does, I suspect, he looks at a chart. Can a fundamental analyst generate statistically verifiable

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profit objectives and price targets on different time frames? This is extremely important, because it ties in
directly with proper money management. One must learn to trade the price action.

In the end, the successful trader and individual has attained knowledge of where he is in relation to the
market and his discipline and self-control. My education continues.

Much thanks to Kent Calhoun. It would be difficult to find a teacher and technician who is more ethical and
knowledgeable.

Editor's Note: New CTCN member Ms. Ellen Halpin recently attended Kent's KCI Seminar and purchased
Kent's Trading Manual and video tape. To satisfy member requests for information on Kent she has
volunteered to do a review on Kent's methodology in an upcoming issue.

Ken Roberts' Course Review

J. Salisburg

In the OCT/NOV/DEC issue, Maury Breecher asked about Ken Roberts "Most Powerful Money Manual &
Course." I subscribed to that for about a year back in 1987 and again in 1993 (for 3-months). I think Ken is
really sincere in his desire to help people learn about markets. He had added bunch of options courses in
1993.

My experience in '87 was I got too excited too soon. Didn't learn about money management until I had
taken my $5,000 account down to about 2K. Then I took a month off from his hotline. Got long and lucky
on two sugar contracts which I rode up to 11K. Then euphoria took over and I traded it back down to 2K
and quit for 5-years.

He basically was teaching position trading. I am finding out that I am more comfortable daytrading the
bonds. Less margin and less stress. If I blow out again (I don't intend to) it is easier to start again.

His course, and Larry Williams hotline are good places to start. I also read & reread Larry's 2-volumes on
Futures trading, especially the money management parts, and Taylor's Book method. Available from
Trader's Press.

The Ken Roberts Course Is For

Absolute Beginners - Dan Wu

Rats! I just cleaned up my house and gave away my Ken Roberts' stuff to the local library. Anyway, If you
really want to buy it, maybe you should look at the ad on the last page of the CTCN (last issue). There is
someone willing to sell it at a reduced price.

Ken Roberts stuff is good for absolute beginners, however in my opinion a bit over-priced. It has lots of
hype and very little meat. It is good reading though, you won't get bored. Oh, you will probably spend more
than $200 because he has other products. If you really want to learn, probably get a few books to start
(which is a lot cheaper than the Ken Roberts course and a lot more meat).

You can get good decent commodity trading books at a good book store or a decent library. Or you can get
a catalog from Lind-Waldock (they happened to have an ad in the ad section of the CTCN). There are other
good book sources like Traders Library for example.

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Anyway, if you decide to get Ken Robert's stuff and after going through the material and listen to
testimonies, and after you paper traded a few times and made tons of money of paper - please, please,
please do not quit your normal job.

If commodity trading interests you, be prepared to put in lots of hard work to learn and spend lots of
money, because it's an expensive hobby to say the least. You probably will read your share of books, buy
your share of tapes, attend your share of seminars, and make your share of mistakes in the market. What I
am trying to say is, you got to really like commodity trading or this is one hack of a depressing hobby.
Wish you success in your commodity education.

If a man loudly blesses his neighbor early in the morning, it will be taken as a curse. Proverbs 27.14

An Unscientific Study on Slippage

T.M. from SC

I've never seen a scientific study on slippage, so here's an unscientific one. My last 100 stop orders on the
S&P averaged $37 slippage each way. In my case the commission is $15 plus fees of $4.54, so my average
round trip cost is $93.54. Sort of gives me some confidence in the old "$100 commission and slippage."

I trade with a discount table at First American Discount Corp., breakouts of short-term support and
resistance, where my stops probably have plenty of company. I think the fills are pretty good. I couldn't
help but notice that my best fills (some even in my favor) generally occurred in very dull markets or when
I'd buy at the high, or sold at the low for the day (mostly losers). While the worst slippage, of course, came
with fast market conditions in my direction (mostly winners).

Does this mean that along with "loving our losers," we should "love our bad fills" also?

What You Need to Know About W. D. Gann - Norman Winski

Are you one of those people who has tried to read some of the writings of W.D. Gann and felt like you
might as well be reading Greek?

Consolation is here. Most beginning students of Gann's works feel thoroughly confused if not totally
baffled. The situation is somewhat analogous to someone who picks up a book written in Greek, having
absolutely no knowledge of Greek, and tries to understand those writings on the assumption that they are
reading English. The difference is that Gann's writings utilize the English alphabet. Therefore, further
wrongly reinforcing the illusion that he is communicating to you in normal conversational English. W.D.
Gann was actually writing in another "language" or jargon, but he usually didn't bother to tell most people
this.

The language of W.D. Gann is Astrology. Throughout the writings and charts of Gann are allusions to the
principles of Astrology. For example, in your Gann research you may have noticed Gann's use of; the date
of incorporation for a company, the date of the first day of trading for a stock or futures contract, the
zodiacal dates surrounding the "square of nine" chart, the planetary symbols found on his own handwritten
market charts, the planetary ephemerides with his personal notes written inside found among his books, the
use of angles basic to astrology, and the collaboration with other astrologers. I said "other astrologers"
because first and foremost W.D. Gann was an astrologer. Everything else is supplementary.

Astrology is the correlation of extra-terrestrial phenomena with terrestrial phenomena. It is a specialized

branch of cycles. Gann liked to refer to it as "the law of nature" or "natural law." The bottom line is that

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Gann said that timing was the most important factor and he based most of his market timing on astrological
factors or principles.

Several years ago, I had the good fortune to talk on the telephone, on several occasions, with a former
associate of W.D. Gann's. Due to a promise to keep his identity a secret, I cannot tell you his name. But, he
lived in Pittsburgh, PA, and his initials are R.C. R.C.'s father was a very good astrologer and had worked
with Gann. When R.C. was a young man, he followed in his father's footsteps and starting working with
Gann. He worked with Gann on a full-time basis as a partner and collaborating astrologer for about 10-
years, from the late 1930's to the late 1940's.

During our conversations, R.C. told me that "first and foremost Gann was astrological." He also said that
during the period he worked with Gann, Gann made most of his money by selling market letters and $5,000
courses. In 1948, when Gann accurately forecast the top of the Soybean market, almost to the penny and
the minute, Gann sold one soybean futures contract short and rode it down one dollar for a gain of $5,000.

This is certainly a tribute to "Gann the man" but it does punch a hole in Gann the fifty million dollar super
genius trader. Of course, no trader is better than the system he uses. Was Gann a genius? Perhaps, but
knowing that will neither help you trade or help you learn the systems and perspectives Gann utilized.
Were the systems Gann used ingenious? On that there is no doubt the answer is a resounding yes. Gann
was successful because he had the benefit of thousands of years of ancient principles on his side, of which
he was a relentless student.

Just in case you are still skeptical about W.D. Gann using astrology, I have included a chart of May
Soybean futures used by Gann. A copy of this same chart also appears on page 202 of P.C. Kaufman's 1978
book, Commodity Trading Systems and Methods. I mention this so that you can see for yourself that I did
not in anyway alter this chart. Now, please refer to this chart. In the upper left-hand corner you will find
"May Soybeans." Follow the vertical line, down which goes through the "y" in May, three horizontal lines.
There you should find a strange looking four, followed by a 30 and an arrow like glyph. The strange
looking four is the astrological/astronomical symbol glyph for the planet Jupiter. The 30 represents thirty
degrees. The arrow like glyph is the symbol for the sign of Sagittarius (240º). Gann was indicating that with
Jupiter at 30º of Sagittarius, 240º plus 30º=270º, there should be important support/resistance at a price of
270.

There is another Jupiter glyph on the left side of the chart near the price of 264 on the price scale, with a
dotted jagged line extending up and to the right. The dotted line plots the movement of Jupiter. Directly to
the right of this last Jupiter glyph, below the "a" in "Soybeans," you will find a small circle with an arrow
on top, the symbol for the planet Mars. This is followed by "22", and the arrow like glyph for Sagittarius.
Gann drew a line to the right pointing to another dotted jagged line. This line represents the movement of
Mars. Now, follow this line up and to the right. Notice that it intersects with the Jupiter line. This represents
Mars conjunct Jupiter or in the same place by longitude. This is an important astrological event which
coincided closely with the retest high of the market.

The time has come for you to decide for yourself whether to learn the true ancient principles that Gann
studied or to remain in a confused cloud of delusion. There are no easy answers. W.D. Gann took 10-years
of his life to study at the world's greatest repositories of ancient knowledge and continued to study the rest
of his life. For those so inclined, there is no greater awe inspiring adventure than to pursue the study of the
universal laws of nature.

I have studied for 19-years and have had the good fortune to have acquired libraries that were accumulated
over several lifetimes. You can benefit from my good fortune, hard work and experience. Norman Winski
& Associates offers you the leading technology in Gann and astrological investment/trading total support. I
look forward to being of assistance to you at 941-261-7261. copyright© 1989 Norman Winski (and jointly
copyrighted by Commodity Traders Club News by virtue of its publication herein).

Unabomber - 1-Minute Trading System for the S&P -Terry R. Davis, C.B.M.

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Before trading this you should know / need:

1. floor access (call me for a very good broker)

2. speed dialer on phone

3. a reliable data feed (under no circumstances use DTN)

4. good software package - Ensign 6 or Vista recommended (TradeStation will not receive data fast enough
to produce the same signals as a DOS based program)

5. iron will to be able to watch the market all day and respond immediately to trades.

6. if you don't like it, don't use it

7. this system will not transfer to any other market

8. I developed this system for a violent market and I have no way to get in on a longer time frame where I
normally trade -- have since started trading it exclusively along with 4-minute system

9. System buys / sells more or less on pullbacks - we are trading against the crowd - a real plus

10. Paper trade for at least 2-weeks before placing real money on-line

You will generate the most trades and have the most opportunity for profit from the shortest practical time
frame where there is reasonable volume. The potential for large intra-day profits exists only on the S&P. I
already know that many of you will take what I will present here and change it. Good! It will not work for
you and I will take all of your money when you take the other side of a trade I am in. There are absolutely
no guarantees real or implied in this article. It is simply presented as a method that I have been using along
with a couple others. If it is so good why am I giving it away? The answer is: if I present something this
good for free maybe I really do have something better to sell. The second part of the answer is: no one ever
follows anything anyway.

I am not going to try to explain the whys of the system. I am only going to present the rules as I apply
them. The technicals you will use are:

1. . . . 78 period simple moving average

2. . . . 21.3.05 volatility stop

3.. . . 9,2 Keltner channel

4. . . . 67 period exp average of low with .11% bands (unichannel 67L, 11%,11%)

Chart Patterns to Be Familiar with: Charts in print copy

Using the technicals:

1. the 78 simple is used as a coarse filter to gauge what is up and what is down - we will look at its
value when the trade is setting up and its value 6-periods ago. The direction that it is facing is the "true"
trend of the market - remember the true trend on a 1-minute can be of very short duration (and
frequently is) - this system was developed to solidify (qualify) my entries on the 4-minute

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 2. the volatility stop (Welles Wilder) gives us a couple trades we wouldn't otherwise have without
it. By the way, the VS concept is by far the best thing Wilder has ever developed. It can be modified to
fit any time frame with different values.
3. Keltner channel gives us a "fast" channel to contain market movement
4. unichannel gives us a "slow" channel to contain market movement
5. when 3 and 4 are in general agreement market will change direction

BASIC TENETS:

1. all entries are stop entries

2. when you are 40 pts ahead go to theoretical entry for a breakeven trade -move your stop to this price - if
you were trying to buy 74560 stop and your actual fill was 74565 and price touches 74600 (40 points
profit) your stop goes to 74560 not 74565 - this will keep you in a lot of good trades

3. your initial risk is between 50-60 pts. If the pivot is greater than this much you should either skip the
trade or arbitrarily risk no more than 60 pts

Number 4 with charts is in print copy

Many times on the 1-minute the 78 line will appear flat and you have to physically go into program to get
values.

Shorts are exactly the opposite - before you go any further in this article take a pencil and paper and
construct the shorts so you have no doubt about how it will look.

Type 1 buy - Look at Figure 1 - Sloppy! Not so bad when everything is color coded. Hard to show without
color, but follow on and we will learn the first buy.

step 1 - qualification 1 met

step 2 - trade can be taken above 78 or below 78

step 3 - reversal bar must form at bottom of Keltner Channel or bottom of unichannel (either or) - if
reversal bar occurs at bottom of Keltner low must also at least touch center of unichannel step 4 - at time of
trade 78 must be higher than 6 periods ago

Look at Figure 2 where the actual trade sets up. The actual trade is a stop entry 3 ticks over the top of the
reversal bar. The high of the bar is 74260 so our entry is buy 74275 stop - our protective stop is 2 ticks
under this pivot if it is filled. The low is 74230 so our protective stop is 74220.

Look at Figure 3 for trade as it expands. Depending on the volatility of the day, I try to make $500 $1000
on each trade. Look at Figure 4 for a trade that occurs at the very bottom of the swing.

Type 1 Sell - Sells are exactly opposite of buys. Look at Figure 5. Notice on this particular trade that both
the top of the Keltner and the top of the unichannel came together at the same time. Normally both don't
come together at the same time. It is imperative that you move your stop as soon as your breakeven level is
reached. You will have many break-evens or small losses. With this system by itself there is no way to
rectify it.

Castle Buys or Sells - These trades are basically the same as the type 1 trade with the exception of the
pattern of entry. Instead of the reversal formation there is the castle formation - everything else is the same.

Look at Figure 6 for sell. Look at Figure 7 for buy. In all of the previous trades the 78 was facing in the
direction of the trade. In all buys this period's value was higher than the value 6 periods ago. In the case of
the sells this periods value was lower than the value 6 periods ago.

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Screamer Buy - I have only seen this trade on buys. It may or may not exist on sells. My feeling is that it
probably does. Again Qualifier 1 must be satisfied. This trade uses the 78 line and reversal bars.

It takes two things lining up. the 78 and: center line of Keltner or bottom line of Keltner center line of
unichannel or bottom line of unichannel Look at figure 8.

Volatility Sell - Qualifier 1 has to be in effect.

Anytime that the volatility stop and center line of Keltner or 78 are together take trade with either reversal
or castle pattern. Look at Figure 9.

This system should provide you with all of the action (as well as profits) that you could ever want. I always
try to get my students to paper trade for a couple of weeks before they put their money on the line. I would
suggest you do the same.

I can be reached at 217-347-5101 during market hours if you have questions.

Editor's Note: Terry included many charts in our printed newsletter.

Member Requests:

Liang Zhou - I would like to get more information on how to trade futures. Some people say futures trading
is very risky, but you can make quick and big profits if done properly. In the past, someone in the USA,
through correspondence, introduced me some sort of training course on futures trading and claimed that his
method is very simple and I could never lose if following his methods. He did not tell me exactly how, of
course, because I would have to pay to purchase his training materials. I don't know if futures trading can
really be as simple as he claimed and worth purchasing his training materials (around $350). I would
appreciate if anyone could advise.

G. Tudor-Matthews - I have about $2,000 in a mutual fund, but I am getting nervous the way the stock
market is behaving; it simply cannot continue to make new highs indefinitely - someday there will be a day
of reckoning. Someone suggested to me that a Canadian, a William Grandmill, was exceedingly successful
trading soybean options, and that's because there is constant demand for soybeans and their by-products, it
was a relatively safe way to get into the commodity market. Grandmill wrote a book about it, which I have,
but I am uncertain about whether I have enough capital to take option trading on. I am retired, living on a
fixed income and seeking a practical way to augment a somewhat meager social security check. So, given
these parameters, would you agree with my friend's advice and, if so, how much do I need to trade soybean
options at a minimal level?

David Lamkinl - I am interested in taking a course that would give me strong fundamentals of options and
futures trading. It should be well done and easy to comprehend. If you can be helpful to a novice trader, I
would be grateful. Thank you

Ron Eckert - I am somewhat interested in joining a commodities club to interact with other traders. Being a
novice futures trader, I need exposure to other traders to learn and exchange ideas. Are there any members
in your club from southern California? I do use SuperCharts and I'm a technical trader.

Editor's Note: We have many active members in Southern California, which by the way, has more off-the-
floor commodity traders than anywhere else in the country. However, the geographic location of our
members is not important as we normally communicate via the newsletter, with little, if any, personal
contact.

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 George Campbell - I noticed on the web site, reference is made to "webtrading," and in the most recent
issue of CTCN, you explained about the e-mail address change. I assume the web page is more up-to-date
than CTCN. Was unable to find "webtrading, what's the story?

Editor's Note: As explained earlier, even though our name is "webtrading", we are not currently involved
in actual real-time trading over the Internet. We do eventually plan to do this, but we need authorization
from the CFTC before we can proceed. In addition, as of now, there are technical difficulties in trading via
the world wide web.

About your assumption our web site is more up-to-date than this newsletter, this is incorrect. The
newsletter is much more up-to-date than the web site. The web site is mostly used for prospective clients to
obtain information prior to joining CTCN and not designed for any recent or current information.

Michael E. Mobley - Before I submit personal information (i.e., home number and address)l would like to
know if your newsletter also includes insights from different traders about current market trends and
viewpoints to which they anticipate prices to move. I actively trade option contracts on the grains, cotton
and livestock. These are areas I am mostly interested in at this time.

Editor's Note: We are an educational type of newsletter and not an advisory service. There is little, if any,
coverage on current market trends. In addition, since we are not a CTA, we are not permitted to give
specific trading advice, as mentioned previously. If you want specific trades, CTCN is not for you. You
should contact an advisory type newsletter, a hotline, a market analysis type of publication, or a CTA, etc.

Tim Majewski - Everyone I've talked to so far, says stay away from futures because they are too risky. My
wife and I aren't scared off yet (high risk tolerance???)! Why are you and those you're associated with so
enthusiastic about futures?

Editor Comments & Announcements

A number of members have incurred problems contacting us via e-mail or have not received a reply from
us. This is because for various reasons we have changed e-mail addresses and providers four times in the
past 7-months. Our current e-mail address will in all likelihood (barring unforeseen problems) be
permanent. It is ctcn@webtrading.com

By the way, if you did not receive a response from us, either via your e-mail, phone call, letter or fax, we
do apologize to you. In addition to e-mail, we also incurred communication problems due to both new
mailing addresses and new telephone and fax numbers. Please resubmit any communications to which you
did not hear back from us. Sorry for any inconvenience or problems this has caused you.

Issue 37.

New Trader - Learning With Every Trade, Loser or Winner - Tom McCullen

I thought I'd drop you a note saying how much I appreciate this newsletter. I'd been paper trading for a
couple years, having gotten a start from the ideas of the Ken Roberts and the Larry Williams courses. I'd
trade hypothetical 5K accounts because I knew that is what my initial stake would be. I didn't paper trade
the KR style, 1-2-3 tops and bottoms, because it just seemed too simplistic to me. I liked the ideas that
Larry Williams had about premiums, commitment of traders, and overbought/oversold indicators. Also, I
subscribed to Commodity Price Charts which LW recommended which is full of various indicators such as
RSI, 20-day stochastics, Williams %R and others.

I eventually evolved my paper trading into a "model" where I would only buy/sell depending upon if all of
those indicators agreed. I really wasn't ever sure when exactly to enter a trade. The usual procedure would
be to enter Monday since I received the Commodity Price Charts on Saturday. I really never felt
comfortable trading that way, although on paper I had some success. Then I found your web site on

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www.ino.com and sent for info. I ended up ordering all of the back issues, which have been invaluable to
me. Really, if you haven't ordered them then you should.

I know that this is just repeating what others have said but the Successful Anonymous Trader series and the
D'Angelo Profit Center series as well as articles too numerous to mention really shot me up the learning
curve tremendously. I was so excited that I decided to trade with real money (I had already set up a $5,000
account months ago with a broker). This was April 2. Somewhat in the fashion of the Successful
Anonymous Trader, I looked for swing lows/highs on daily (not intraday) charts in trending markets and
traded those signals.

The grain markets appeared to be trending the best to me so that's where I traded. My first trade was long
one contract July Wheat. I placed a buy stop order above the close, had $300 slippage but did get filled. I
was up $300 more in very little time and thought I'll move my stop to a level $50 less because I was happy
with a $250 profit. A stupid mistake. The price bounced right down to my stop and then shot up about 40¢
($2,000) since then. So I learned a valuable lesson right off the bat about being more careful about letting
profits run. The next couple trades I again followed my plan exactly, but was stopped out at losses of $250
each.

I then read the Market Wizard books by Jack Schwager which has been mentioned several times in this
forum. Definitely must read in terms of realizing the importance of risk management and acceptance of
losing as part of the process of learning the "game." And I also looked back at Larry Williams Batting .800
manual, which when I first read it 2-years ago I could not understand half of what he was talking about.
However, after having read CTCN, I really had a much better grasp of things. I found his zero balance
formula which is quite interesting and has helped me figure out when to expect certain big trends.

I applied it to all my old charts and whenever a zero balance situation occurred, a trend could be predicted.
I know that applying a system to historical data doesn't necessarily help in the future, but nonetheless it is
very interesting. And, looking back at my July Wheat buy, this method picked the very day that I entered as
a day when the market would start shooting up.

Although at the time I had no idea that was the day since I hadn't even heard of zero balance. Just
coincidence. Moreover, in real time it's not so easy to know that you are in that particular situation but you
can come close. I'm sure there are many interpretations that you can make off the zero balance charts and
I'm referring to one situation. That's all I am comfortable with now and it doesn't give a whole lot of
signals.

To summarize; After my first two weeks of real trading I am down $700 of my initial stake. (If I hadn't read
all of the above noted sources, I probably would have thought about quitting out of frustration). I don't like
losing one bit. But knowing that I'm learning with every trade, loser or winner, helps a lot. It gives you a
little perspective. Two weeks ago I was afraid to trade for real. I'm not sure if it was because I thought I
would lose money or not. Now I look forward to it, though I know losing is going to happen. My concerns
are how to deal with slippage and deal with locking in profits so as not to avoid a big move.

My initial stop will probably stay at a $250 level, which is about 5-7% of my stake. As far as slippage goes
I'm wondering if other traders will recognize that a possible pivot bar is occurring and will Buy/Sell near
the close of the day, anticipating a gap or fast-moving market the next day. Or is that too risky if it turns out
that it wasn't a pivot day and you got in but the price went against your position? I will trade based on the
trend I think is going to happen and I will enter based on pivot points and we shall see.

If anyone has ideas along any of the lines that I mentioned, e-mail me, or to make it more of a learning
experience write to CTCN with your comments.

Once Thought To Be Master Of The Universe - An Amazing Beginning - Henry Mandel

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I'd learned that most lose their money trading. I was determined to be profitable. I opened a $20,000
account with Robbins Trading Co. I'd learned trading from Larry Williams video Tape course. I signed up
for his hotline and traded only the signals I liked, based a little on what Larry teaches but mostly on
intuition. In December '96, I made $2,000. In January I made $8,000 (after commission and slippage). In
February I thought I was a master of the universe: I made another $8,000. Believe it or not, by the first
week of March, I was up another $8,000!

I decided to change from end-of-day quotes to real-time and got set by the tenth of March. In about four
days, I lost $8,000 day trading the S&P. Even though I went short or long in the correct direction! Fear and
greed had asserted themselves. My timing and stops were wrong.

I called Larry and before I told my tale, as soon as I said I'd got equipment for real-time quotes, he shouted:
"Throw it away; it will get you in trouble." I sent it back. I was shaken and went down $5,000 for March
and then made the mistake of adding up all Larry's P&L for the four months involved (as reported in his
newsletter). He actually lost a little money, averaging approximately $1,000 (roughly figured) for each
month if you add $50 per trade commission cost. A double whammy of major proportions.

I wasn't a master of the universe and my guru whose signals I'd depended on, lost money in the 4-months
while I made a lot. How did I do it? Could I do it again? So far no, I am down $10,000 to April 20. With G-
d's help, better record keeping and much study and work, I believe I can continue to be profitable over time.
I completely enjoy CTCN. I got all back-issues and am savoring them.

About Brokers, Data and Member Albert Orozco's Dislike of Editor's "Attitude"

I would like the name of a broker that will give me fast fills and minimum time on call. Does CSI data have
intraday quotes?

I would also like info on your trading system. I don't like your attitude on letters about your system. People
have a right to know what others are saying about it. We would like to believe we all are capable of
weeding out things we don't agree with. I don't like others doing it for me and don't understand how others
would?

Editor's Note: We are still researching the quality of fills and service at Advantage Trading Group and are
not quite ready to issue a report on them. As far as CSI is concerned, the last time we checked they did not
offer intraday data, only end-of-day data.

By the way, we highly recommend CSI as your primary daily data source. CTCN has its own daily
downloading portfolio setup on CSI's computer. It's known as the Trendx/CTCN Portfolio. It consists of up
to 100 contracts, including our fixed 35-Market Trendx/CTCN Automatic Rollover Portfolio. The cost is
$26 per month on a yearly prepaid basis. CSI's phone number is 800-274-4727 or 561-392-8663.

Editor's Note and Information Update, July 1997: We did not complete our research based on the actual
trading of our account at Advantage Trading Group. This is because we closed our account at Advantage
Trading Group due to other reasons. We won't be discussing this issue right now. All we can say at this
time, is the fact we had extremely serious problems in our dealings with Mr. R.S., ATG's Pres. & CEO. At
this time we can only say we no longer recommend them, more on this later.

About my "attitude," I always try to give both sides of an issue and be subjective and unbiased. We also
publish most all contributions received without any editing. However, I must reserve the right to print
occasional Editor Comments, especially to clarify or correct any known inaccuracies on points made by a
contributor.

25 Vitally Important Points on Market Psychology

Trevor Byatt from Australia

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I read the following quotation in an article on the current Prime Minister of Australia, Mr. John Howard, in
a copy of The Weekend Australian recently and thought how appropriate it is and how completely it
defines a successful trader:

"Howard personifies Bismarck's principle that a fool learns by experience, a wise man by the experience of
others. The difference, of course, is that he (Howard) has also learnt from his own mistakes."
How true this is of a trader. Utterly invaluable lessons can be learnt by reading the advice of experienced
traders. For example, by reading the now classic Market Wizards and The New Market Wizards by Jack
Schwager and Reminiscences of a Stock Operator by Lefevre in conjunction with clearly written books on
technical trading such as Trading for a Living by Elder, and I suspect not such a well-known, but superbly
written and readable book Listen to the Market by Ivan Krastins.

Of course, a trader will still make mistakes, but he or she can then keep losses from mistakes to a
financially acceptable level during an admittedly long apprenticeship of actual (as opposed to paper)
trading. Paper trading may have its place as initial practice, but the real final learning can only be
experienced when your own money is actually on the line.

I drew up a list of what I considered vitally important points on the psychology of medium-term trading
and which you published in Volume 3 No. 8 and No. 9.

Market Psychology

1. Understanding and acting in accordance with market psychology is vitally important. It is no good being
a good technician if you are a bad tactician.

2. Market psychology is very different from the psychology necessary for normal business and/or academic
success. Many highly successful businessmen and academics have been abysmal failures as market
operators.

3. Develop your own system, test it, then stick with it. Other people's systems may work well for them, but
probably will not be compatible with your psychological makeup.

4. Accept total responsibility for the results of your trading results. Even if you authorized someone else to
trade on your behalf, it was you who made this decision - nobody forced you. Remember losers always
look for somebody else to blame. Winners look to themselves, particularly if they have to take a loss on
some trades - as is inevitable for all traders and all systems.

5. Do not take the advice of others. They could well be thinking in a totally different time frame from you.

6. Always place a pre-calculated stop whenever you open a trade and decide how you are going to move
this stop for all possible movements of price during the trade. Stick to your plan during the trade.

7. Do not keep ringing your broker during trading sessions to inquire about market prices. (The exception
of course is the day trader who would be crazy not to have his own quote system.) Your stop will protect
the decision you should already have made. Ringing your broker will adversely influence your decision and
may cause you to act irrationally and hence almost inevitably wrongly.

8. Never worry that you could have done better had you second-guessed your system. Concern yourself
only that you followed your system and predetermined stops. No system is perfect. The best systems can
only give you an edge - never 100% of profitable trades.

9. Do not trade for excitement. Avoid elation over fast profits and depression over losses. If you have a
good system it does not matter whether any particular trade makes a profit or a loss. Remember all systems
will generate losses. Only chide yourself if you broke the rules of your system (this applies to profitable as
well as losing trades).

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10. Always trade with a view to protecting capital and limiting the value (not the number) of losses and
never with a view to making large profits. Net profits will follow automatically if you execute a good
system well.

11. Never worry about the ratio of the number of profitable to losing trades. A good system may generate a
relatively large number of small losses (and small profits) and relatively few large profits. Sticking rigidly
to a good system will however produce a good net profit over time.

12. Cut your losses quickly and let your profits run (with a predetermined stop). You should have read this
advice so many times that it almost sounds trite - it is not - it is the best summary of all these rules that you
could have.

13. Reverse the natural reactions initiated by hope and fear, i.e., you should hope that profits will increase
and fear that losses will increase. The overwhelming majority wrongly do the reverse, i.e., they take profits
too quickly (fearing they will disappear) and keep losing trades (hoping they will decrease). They should
keep winning trades (until stopped out by raising protective stops) and quickly close losing trades (however
much it may damage the ego - if you are rich enough to afford the ego you do not need to trade).

14. Never become complacent. This frequently happens after a string of good profits, which often are
followed by unacceptably large losses. In such a situation, lighten up or stop trading and take a look at
yourself. The unacceptable losses will inevitably be the result of complacency and consequent failure to
follow the rules. Start trading again only after you have fully recognized your mistakes. If necessary, take a
vacation or an extended period of not trading. "A great many smashes by brilliant men can be traced
directly to a swelled head - an expensive disease everywhere to everybody, but particularly in Wall Street
to a speculator" - Livermore.

15. Never think as a biased bull or a biased bear. Decide from your system whether the situation is bullish
or bearish or neither and act accordingly. By all means "Have an opinion on what the market should do but
don't decide what the market will do" - Baruch "There is only one side of the market and it is not the bull
side or the bear side, but the right side" - Livermore.

16. Never trade for the sake of trading. Only trade when your system indicates a high statistical probability
of success. Exercise patience (often difficult) and wait. "It was never my thinking that made the big money
for me. It was my sitting. Got that? My sitting tight . . . Men who can both be right and sit tight are
uncommon. I found this one of the hardest things to learn . . . It is literally true that millions come easier to
a trader after he knows how to trade than hundreds did in the days of his ignorance" - Livermore.
"Knowing when not to trade - patiently standing aside until just the right moment to enter the market - is
one of the toughest challenges facing the trader " - Kroll.
"When in doubt get out or do not get in" - Gann.

17. Act promptly and decisively and do not procrastinate. When your system indicates a potentially
profitable situation - ACT (also of course placing a suitable stop).

18. Work hard. Always keep your charts and analyses up-to-date and your hard disk organized. You must
be organized in order to conform with #17 above. Remember that successful trading is not easy anymore
than is success in business and/or a skilled profession. A 10-year period of study and experience is usually
necessary prior to any spectacular success.

19. The human mind is more flexible than any computer. But it is subject to adverse behavioral patterns.
Hence the best approach for most people is a good system aided by a computer to save time - and then
followed by analysis by the trader provided he or she exercises rigid self-control as indicated above.
Maintain an open mind. Do what is right (which is frequently not what feels comfortable). Dogmatic and
rigid personalities rarely if ever succeed in the markets.

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20. Follow the rules of Neuro Linguistic Programming (NLP) - For further details, see The New Market
Wizards (Faulkner) by Jack Schwager

1. Use both 'toward' and 'away from' motivation.

2. Break down potentially overwhelming goals into chunks with satisfaction garnered from the
completion of each individual step.
3. Have a goal of full capacity plus - anything less being unacceptable.
4. Fully concentrate on the present, i.e., the single task at hand rather than the long-term.
5. Personally involve yourself in achieving goals as opposed to depending on others.
6. Make self-to-self comparisons to measure progress based on past performances.

21. Never be loyal to a trade. Close it when the time is ripe. The market is utterly ruthless and it could not
care less about you or your opinion.

22.Never get mad with the market if you make a loss. If the loss is small, it may be consistent with your
system. If it is large, it is almost certainly either your fault for not following the rules or the result of a
surprise event beyond your control. Chalk it up to experience and move on, but never consider particular
stock or commodity owes you - it does not.

23.You can't win if you feel you have to win to survive. This is irrational gambling not logical speculating.
Never turn to the market because you want money from it for a specific purpose (e.g., a new car, boat,
house, etc.) - you will inevitably lose and be worse off.

24.The key to building wealth is to preserve capital and to wait patiently for the right opportunities. Then
and then only will extraordinary net gains be made.

25.Remember price movements are largely but not entirely random. They give statistically valid signals
and stay trending long enough to make substantial profits in short-term, medium-term and long-term
trading. Which time-span you choose will depend on your own individual psyche and lifestyle. However
under no circumstances will you make net profits unless you exercise strict self-discipline along the lines
indicated above. I hope the above will help you - it is the result of hundreds of hours of research and study
of the opinions and rules of a large number of traders who have proved themselves to be highly successful
over extended periods.

References and Recommended Reading

Schwager, Jack - Market Wizards

Schwager, Jack - The New Market Wizards
Letevre, Edwin - Reminiscences of a Stock Operator
Bernstein, Jacob - The Investor's Quotient
Elder, Dr. Alexander - Trading for a Living
Krastins, Ivan - Listen to the Market

Exactly What Support/Resistance Numbers Does the Successful Floor Trader Use?

- re: Jim Molinaro's Letter In Vol. 4-#5 - Jim Shaw

Love the newsletter, hope to see Real Success bulletins return soon.

Editor's Note: Unfortunately, we must wait for authorization from for the CFTC/NFA informing us we are
not giving trading advise in the Bulletin before we may resume its publication.

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Also, in Vol. 4-#5, Jim Molinaro wrote about a floor trader who did very well using a simple plan. "Buy
breaks and sell rallies at the support and resistance numbers. If prices broke through these levels he would
take his one or two tick loss and reverse his position."

My question is what did this trader use as the support and resistance numbers? Did he use the highs and
lows of the current day or the previous day's trading range, or did he have a different formula to determine
these levels?

Maybe there are other readers of this newsletter who might share their favorite methods to derive these
numbers.

Jim also states he has been trading since 1982, that's a long time and I'm sure he has many valuable
experiences to share. I hope he can be coaxed into telling us more so complete novices like myself can gain
some insight.

Volatile Market Conditions & Elevated Prices Make Using

Small Stops Difficult - Jack Zahl

I just signed up for Juno E-mail since I am not on the Internet. This is my first use of it. I saw one of your
subscribers announced it in CTCN. I Heard about it from a relative.

After reading the latest copy of CTCN, I thought I would drop you a line with a few comments and queries.
I have a 480-80? (Editor's Note: Is there such a computer) computer with Windows 3.1 and 8-MBytes
Ram, nothing fancy here. My TradeStation shows none of the problems you seem to have. My "days back"
seems to be very stable, it defaults to 8-days after each shutdown of the program no matter what it was set
on during the previous session. The time at the bottom of the chart seems to read and be correct at all times.

I am concerned about a couple of items. The Robert Gross article indicates a 10-14 second max. delay in
displaying data. I have sent a fax to Omega for a clarification on this. No answer yet.

I follow the S&P every day. I have noticed that much of the huge moves are made the last 30-45 minutes of
the session. I can't trade these moves with this system and my resources. Too scary. I have basically been
on the long side of the market since the market has been mostly going up, and down moves did not seem to
follow through, but after seeing the market action, I will start looking at the short side.

I have reviewed the Real Success Methodology tapes many times. I feel that I know the basics, as
presented, pretty well. I do not feel confident about taking trades for two reasons: The markets are so
volatile that they do not follow through much of the time. Many trends now seem to start from a point that
does not lend itself to an entry with this method. Also, execution is very difficult in these markets.

My broker is Jack Carl. They have flash fills, so I know where I entered the trade, which is good. However,
I have noticed that many traders must be doing something similar to what we are doing. It seems that on an
entry signal by the time my order has been placed, the market shoots way past the two tick entry points,
indicating much activity coming into the market.

Many times the entry is 30-40 points past where it should be. Then the market will drop back. I have had
more than one trade where the market would shoot up. I would get in 30 to 40 points past the two tic entry
points then the market would back off and head the other way fast. Going past the entry point in the
opposite direction and hit the 60 point stop. It would sometimes do this all within 2-3 minutes. Sometimes
it would keep on moving so fast in the losing direction that by the time I put in a call to the broker and the
stop trade was executed, I would be down over 100 points from entry, so I started to place a stop with the
broker at 60 points below the entry price at the time of entry. At least this has kept my losses small on each
trade.

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I have not traded since December, right after talking to you on the phone. I had seven losers in a row then. I
will paper trade for a while and compare the 85 point stop with the 60 point stop.

Editor's Note: Here is a perfect example of how one trader (above) is unhappy and losing while at the
same time frame (December) another trader (below) iss happy and making money, using the same basic
methodology! See Donnie's comment appearing after this article by Jack.

Since you are selling more Real Success method packages, I hope you are right about it not affecting the
potential trading results of the method for all of us. I don't know anything about floor traders, but it surely
seems like they are laying in wait for traders utilizing this type of trading.

Editor's Note: The S&P 500 market is far too big and too liquid for a comparatively small number of our
traders to effect it. Keep in mind, in all likelihood the vast majority of our clients are not even trading this
method at any given time. Also, remember since the method is not 100% mechanical there are a number of
different ways to trade it, including taking different trades than others are taking, and using varied target
prices and other variable techniques involving a degree of subjectivity. This degree of judgment means
very few traders are acting on the same entry signals and exiting their trades at the same time.

I still feel that I will be able to master this method. I'm counting on it. I look forward to getting, as soon as
possible, the new tapes you are preparing.

Doing Well Trading The Real Success Method

Donnie Vineyard

I have also been having E-mail trouble! Have been doing fairly well at trading with the new broker, my last
seven trades have made right at $2,000, December was a good month.

About Buying A Seat On The MidAm Exchange

Jeff Salisbury

I e-mailed the Mid-America Commodity Exchange to see about buying a seat ($8,500) and how much a
MidAm member would pay in commissions versus a regular retail rate. When I get the stuff, I'll forward
you a copy. A few bucks probably doesn't matter to short-term or to position traders, but for daytraders like
me it is a consideration. If I do five trades a week at two contracts per trade I'll have paid for the exchange
seat in about a year.

Reply from MidAm: "You might be able to lower your rates to about $4-$6 a round turn. We are sending
you a list of firms that you call and find out how low commissions will be. Also, several firms have you
call directly to the trading floor to place your orders.

We have members all over the country that are trading at membership rates. These rates vary from firm to
firm but can be dramatically lower.

Thanks for your interest in the MidAm."

How Do You Allocate Funds To

Different Systems And Markets

George Famy - France

I've enjoyed the articles on money management written by Tom D'Angelo with whom I had a chance to
speak by telephone. Maybe Tom or someone else can help me with the following questions that I have.

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Does anyone know what "fixed ratio" (a la Rumery & Lehman) trading is and why it is supposedly better
than fixed fractional trading (i.e., what most pros use now)?

How do you determine how to allocate resources to different systems and markets to get the smoothest
equity line?

I trade three S&P 500 Systems (one active, the other two infrequent special situations) and two systems on
a basket of markets (intermediate term). All these systems have various profit factors, total profits, profit
per trade, etc., but how do you allocate to them. Do you give the most money to the "best" system and less
money to the others? Or do you give the most money to the system with the highest profit factor, highest
net profits, etc.? Or do you allocate the same amount of money to each system whether it trades twice per
day or once per month?

Thanks and good trading to everyone in 1997$$$

Terry Davis's Unabomber- 1 Minute Trading System

Alvin Yee

I just finished reading the above article. The methodology resembles somewhat John Stenberg's publication
some 3 or 4-years ago. Of course, John also used another half a dozen indicators, many of which he
abandoned in a matter of months. However, I would not be surprised that if John knows about this, he
would write you a nasty letter.

Editor's Note: How could John Stenberg justify writing a nasty letter? This is because there is no way
CTCN could possibly know prior to publication about a similarity or the degree of similarity between a
method written about in CTCN and a vendor's methodology. In fact, you say it "somewhat resembles
Stenberg's." However, this is not verified or proven. Even you use the term "somewhat resembles," which
seems to say even you are not sure about a resemblance even though you are apparently familiar with his
method.

In addition, we do not normally attempt to analyze and study the various methods written about in CTCN.
Of course, if we had any prior information a contribution was infringing on someone's work we would
certainly look into the matter before publication.

We are not familiar with the mechanics and algorithms of the many trading systems and methods out there.
So it would be very difficult for CTCN to make comparisons, even if we tried to.

In addition, since technical analysis and indicators are limited in number and scope, there are no doubt
similarities between many trading systems/methods. There are very few truly unique trading methods.
There's probably a resemblance, to varying degrees, involving most of the trading systems and methods
developed.

I don't think that the use of combinations of indicators can be proprietary or can be trademarked. For
example, the use of Welles Wilder's volatility stop, Bollinger Band, Lane's stochastic and RSI, etc. in some
combinations can be trademarked. It would be different if one went to a trading course and repackaged the
material and sold it to the public.

I guess my question is the legality of disclosing the contents of a trading system, trading course, etc. Can
you shed some light on this in your next publication if you deem appropriate?

Editor's Note: Of course, CTCN would never knowingly allow the publication of any information which
discloses details on any copyrighted trading system or course. The keyword is "knowingly," in that we first
must be aware it may be violating someone else's copyrighted and (or) proprietary method to avoid
publishing it.

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 My Experience with the Advantage Trading Group
Alvin Yee

Based on the first article on Advantage Trading Group in CTCN, my partner and I opened an account with
them. The account was opened under my partner's name. Our experience with them was quite negative.

The trading desk can execute market orders. But for "STOP" orders, they would not arb it in. They have to
write the order or paper and have the runner hand it to the broker at the S&P pit. It may take some time to
know if our order was executed because the runner has to take the executed order back to the desk. In a fast
market, we may get 'killed' because the filled order maybe one or two hundred basis points from where the
stop was. It would be at least several minutes or more before we know the fill. This is not acceptable for
daytrading S&P.

The trading desk gave us a hard time doing cancel and replace orders. We stayed with Advantage Trading
Group for a few days and then pulled out our account. We have more than 10-years of daytrading
experience. The Advantage Trading Group is not the worst, but far from the best. My suggestion for the
CTCN readers is that one has to be skeptical of the "owner's" promotion. It is not as rosy as one may think.

A Reply to Mr. Yee from Mr. R.S.

of Advantage Trading Group

As many of you have probably found out, when the market is extremely volatile all stop orders will go in to
the pit on paper. When the market is ticking 40-60 points and the volume is high, brokers will not take
stops "on the arb."

Beginners sometimes do not realize what really happens in pits like the S&P. The first priority is always
market orders. When the market is moving fast, brokers will not take the time it takes to get a stop arb'd
into them and then have to arb back to the clerk that the market is already through the stop and find out
what the client wants to do with the order (go market or cancel). Needless to say, the market can move
quite a bit in this time and the broker may miss other orders.

We clear through the biggest floor operation on the CME in terms of presence and volume. You can rest
assured that if they are not arbing stops, no one is. The fact of the matter is that very few retail traders know
how the pits operate and that's a shame because it could really help them trade.

NASDAQ 100, Check It Out

Don McCullough

The NASDAQ 100 is a relatively new futures market worth looking into. Trading began in this market
April 10, 1996. The per contract margin is only about 1/4 the margin needed for the S&P 500. When the
S&P makes a $2,500 move per contract, the NASDAQ will often make a $1,000 move. Multiply that
$1,000 by 4 contracts and you have a $4,000 move vs. the S&P's $2,500 move. These figures are far from
exact and the differences in the size of moves between these two markets can vary considerably.

My main reason for writing about this market is to, hopefully, persuade a lot of traders to start trading it
and thus improve the liquidity--and chartability--for everyone. The much lower margin of this market and
the 1/2--1/3 risk factor makes it much more appealing to the average daytrader than the S&P market. The
only thing this market needs is more traders to increase the liquidity. In time, I think the NASDAQ 100
futures market may become as popular as the S&P 500.

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The Signal symbol is ND and the trading months are the same as the S&P. (H,M,U,Z) Remember, this is a
relatively new market, with typical growing pains. It's well worth looking into.

Editor's Note: I recall a NASDAQ futures contract was offered by one of the major Chicago commodity
exchanges a number of years ago. At the time it was very heavily promoted and publicized but ended up
being a complete flop. The commodity exchange lost a lot of money developing, advertising and promoting
the new contract.

The contract was a total failure and I heard it was eventually de-listed as a result of very poor volume and
resulting poor liquidity. At the time the problem was due to competition from the well established and
highly liquid S&P 500 market. Traders were afraid to trade the new contract due to its very small volume
and consequent poor fills or difficulty getting out of a position in a fast market. Unfortunately, this may
happen again with this new NASDAQ contract.

"Street Smarts" - High Probability

Short-Term Trading Strategies

(A Book Review) - Raymond F. Kohn

I just finished reading Street Smarts (237 pg. $175) by Laurence Conners and Linda Bradford Rashke.
(Published 1995, by M. Gordon Publishing Group, Malibu, California).

For many years Ms. Linda Rashke has been highlighted in various financial and investment publications,
including articles for "Stocks & Commodities Magazine" She and her co-author, Mr. Larry Conners, are
well respected in the industry and collectively have over 34-years of trading experience. They have seen it
all, ranging from: Being floor traders, running an institutional desk, hedge fund managers, and being
CTA's, while trading their own accounts the entire time.

The focus of their book is "short-term swing trading" of both the futures and the equity markets. The book
is written for "active traders." The trading time frames for most of their trading strategies range from
intraday to short-term (1 to 4 days). On very rare occasion they might hold an equity position longer.

Their trading strategies would be described as "well structured," but not strictly mechanical, combined with
a heavy dose of "pattern recognition." Each trading strategy makes generous use of stops to limit losses and
protect profits. The authors wait for specific and well-defined chart "setups" or "entry patterns" to emerge,
either intra-day, or over several days, and then take the appropriate position. Their position exits are less
formalized, and appear to be more discretionary and subjective in nature, with the use of trailing stops
being a key element in protecting short-term profits.

The strategies they use are simple and easy to implement. Naturally a real-time data feed is necessary for
trading these strategies intra-day or short-term. They describe their book as: "a manual of precise setups
that have you in the market for only a limited amount of time. Consider it to be a collection of 'surgical
strikes' with a distinct methodology for managing each one!" They further say that: "Most of the setups can
be traded on any market and on any time frame."

This last sentence is very insightful. I am sure that we have all noticed the similarity between the chart
patterns which exist between intra-day, daily, weekly, or even monthly charts. Markets tend to "move" in a
similar fashion regardless of the time frame that we are looking at. Therefore, the investment techniques
you learn in one time frame can be easily translated for use in another time frame. As a result, the value of
this book is not strictly for those electing to trade intra-day because the strategies and concepts can be
easily adapted to generate entry points for position traders as well.

The authors offer us 15 different "setups" or "patterns" which, in their own words, are designed to:
"minimize risk and put the odds of success in your favor." In their preface they state: "even though we

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present many different patterns, you only need ONE strategy to be prosperous. Some of the best traders are
successful because they trade only one strategy."

The 15 different "patterns" are divided into three general groups: "Tests," "Retracements" and "Climax
Patterns." Five different trading strategies, or "patterns" are provided under the section titled "Tests." Three
trading strategies are provided under the "Retracements" heading. And, seven trading strategies are
provided under "Climax Patterns."

Each trading pattern is given its own chapter. Each chapter is well organized with a brief introduction of the
trading pattern being discussed, followed by an easy to follow list of very specific "entry rules."
Additionally, several sample charts are provided which highlight that particular trading pattern. Each
significant bar on the chart is numbered, and a correspondingly numbered brief descriptive analysis is
provided which details the action taken at that point in the chart pattern. Each chapter ends with a scripted
conversation between Larry and Linda which is designed to give you an added "personal insight" about
trading the pattern just discussed. It was a very nice and creative way of ending each chapter.

If I were to characterize a common denominator which seems to exist within each of their trading
strategies, it would be that classic old-fashioned talent, (which is pretty much a lost art), of "reading the
tape." And, more specifically, locating support and resistance levels and looking for price extremes, which
have a high probability of being corrected with a price move in the opposite direction. Linda and Larry
have developed and used these trading strategies over the past 15 years and have found them to be
effective and profitable.

A shortcoming worth mentioning is the natural tradeoff which inherently exists in "short-term" trading.
That being -- It would not be uncommon for a short term trader to exit a position, achieving a short term
profit as originally intended, only to see the market momentarily pause before continuing onward, thus
missing out on additional profits as the original trend resumes. However, it should be noted that any trading
strategy you choose requires that you establish a trading "time frame," which then becomes the frame work
of the selected trading strategy. As a result, you naturally sacrifice the potential profits that developed if
you were trading in a "different time frame." But, as we all know, you can't live in two worlds at the same
time.

Prior to reading this book, I had developed a number of trading techniques on my own that I have
successfully used for many years, and coincidentally a couple of these entry methods are described in
"Street Smarts." I know they work. Additionally, I am so impressed with a number of other trading
strategies that were described in this book, that I will be evaluating them for possible addition to my trading
arsenal.

The last chapter entitled, "The Secrets of Successful Trading," is a real eye-opener and is worth the price of
the book all by itself. It was written by Mr. Fernando Diz, who is an assistant professor of finance at
Syracuse University School of Management. Professor Diz completed a 20-year study between 1974 and
1995 of 925 CTA programs in order to discover what made one CTA program successful, while another
failed. During the study period 435 CTA's or programs went out of business while the remaining 490 were
still in business at the end of the study period. This chapter, and his research, have definitively answered
that age old question, "What is the secret of successful trading?"

It would serve no useful purpose for me to paraphrase his results. You've already heard it a hundred times
before. This chapter just seems to penetrate the "old gray matter" a little better when you get a chance to
actually see the research techniques he used, the supporting data, and begin to understand the consequences
and implications of his research. It literally is the difference between success and failure. This chapter is
worth reading every so often just to keep yourself on track.

The book's Appendix contains research statistics concerning specific market activities that are only
"generally related" to the trading strategies presented in the book. The authors describe these statistical
studies as follows: "We wish to be perfectly clear that we are not testing mechanical systems. Rather, we
are examining a variable to see if there is a tendency that might be useful as part of an entry or exit

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methodology. We use this statistical testing for its comparative value only. It is not meant to represent a
mechanical system. Thus, no statistics such as commissions or slippage are factored in, nor are data on total
profitability or maximum drawdown provided."

It is unfortunate and disappointing that the authors did not attempt to make a few minor (and fully
disclosed) stop-loss and exit assumptions for the purpose of creating "mechanical trading models" for at
least those trading strategies which lend themselves to such modeling. And then, back-tested and evaluated
those trading models in a SystemWriter or TradeStation like fashion.

Providing back-testing results would not have been difficult, since they have already written the code and
offer this code as an extra cost software package ($150.00) as an add-on module for Omega's
"TradeStation," or "SuperCharts" for automatically identifying entry points and setups throughout the day.

The authors tried to present their trading strategies as not being "strictly technical or mechanical in nature."
In other words, they're telling us that there are subjective and discretionary elements to their trading
strategies. (This is a powerful caveat that shouldn't be ignored).

It has been my experience that technical trading systems can be generally divided into two general groups.
The first is the "strictly mechanical" systems whereby entries and exists follow specific and inflexible rules,
therefore, similar results can be achieved by different traders using the same fully disclosed mechanical
trading system. The second type of system is "well structured" to the point of "appearing" almost
mechanical in nature. But in reality, the system's effectiveness and profitability are based as much on the
experience and subjective trading ability of the developer, as it is on the proposed "trading rules" that they
provide you.

Anytime a proposed trading method includes ANY "discretionary" or "subjective" elements, Beware . . . It
is these seemingly minor variations in applying the discretionary elements of a trading method that will kill
you.

The lack of back-testing with reasonable assumptions for commissions, slippage and stop placements is a
significant shortcoming of this book.

Editor's Note: Don makes a major point here, in particular with regards to the significance of mechanical
stops not being included as part of this methodology. See the Editor Comments section for more on this.

If you purchased and read Joe Krutzinger's book, "The Trading System Tool Kit" (which was the subject of
my last book review), you can appreciate the significant "void" that exists in Street Smarts that could have
easily been filled with quick run on SystemWriter, or TradeStation. (Especially since they have already
written the software code.)

If you decide to add this book to your library and implement some of the trading strategies, I would suggest
that you fill in that unfortunate "void" that I mentioned above, and create an appropriate mechanical trading
model. Editor's Note: Much easier said than done! (which reflects how you plan to use the selected trading
strategy), and then back-test that model over your historical database.

This book is priced at the high end of the scale. And, at those price levels, Linda and Larry have provided
an eloquent, but unfinished symphony of trading ideas. The book is well done and worthwhile, and I
recommend it to anyone looking to expand their understanding of short term trading and entry point
identification techniques. It is a tribute to the concept that successful trading strategies cannot only be
simple, but very effective.

Help For Sam Fuqua In Portland &

About IRS Professional Trader Status - Raymond F. Kohn

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Sam Fuqua requested some assistance in locating a local tax preparer (CPA) in the Portland, Oregon area
who would be familiar with Ted Tesser's book Trader's Tax Survival Guide. I hope this information can be
of help.

It has been my experience that "tax preparers" often are not familiar with unusual areas of the tax laws.
CPA's are sometimes better equipped, but they too, can also have blind spots when it comes to unique, "less
defined" areas of the tax code.

The US Tax Code has become so complex that the IRS itself, has a difficult time administering the code,
(let alone us poor taxpayers' trying to comply with it). It has often been said that the tax laws have become
more of an art form than a science. To further emphasis that point I recall "Money Magazine's" annual tax
test, in which they send out a fictitious family's tax life to about 50+ perjurer's around the country. Each
preparer completes a sample tax return and the results are published in the magazine. Needless to say, no
two tax preparers' get the same answer. And, the difference in the calculated tax owed can be two to five
times greater from the lowest to the highest results.

I have been a student of the tax laws for over 30 years, and I have always prepared my own returns and
would never dream of using an outside practitioner. (Given the Money Magazine results of these so-called
professionals, how much worse could I do?) Therefore, I hope that the following information might be of
help to you and others facing a similar dilemma:

Unfortunately, declaring "Professional Trader Status" is one of those unusual, and "less defined" areas of
the tax code. In fact, the US tax code does not specifically identify "Professional Trader Status" as a
taxpayer classification, and therefore does not describe how income and expenses are to be handled if
someone were to be a "Professional Trader."

As a result, I have no doubt that most "tax preparers" and many "CPA's" would be very reluctant and
extremely uncomfortable using any mass-marketed consumer oriented book like "The Trader's Tax
Survival Guide" as their foundation or justification for preparing your returns. How do they know this guy
isn't just another crackpot trying to sell books.

Mr. Tesser's book has a lot of fill to plump up the volume between the covers. It makes for interesting
reading and helps make the point, but may also tend to overly complicate and mystify a very basic and
simple area of the tax code.

Additionally, it's a serious misnomer to refer to his tax advice as "his philosophy in preparing taxes." Taxes
are not "philosophical." It's a matter of what law, and accepted practice dictates and allows.

The tax code currently distinguishes between two classifications of market participants: One is "Investor"
status, which includes all individual investors/traders who invest for their own account. As "Investors" we
report our gains and losses on Schedule 'D'. And, only those investment related expenses which exceed 2%
of our Adjusted Gross Income can be deducted as a "Miscellaneous" expense on Schedule 'A' form 1040.
Also, you "Must Itemize" your deductions in order to take advantage of this "Miscellaneous" investment
expense deduction.

The second classification is "Dealer" status. These are brokerage firms, and other institutions, etc. who
actually hold securities in "inventory for sale to the public." Needless to say, this classification does not
apply.

"Professional Trader" status, as a distinct classification, does not exist in the tax code.

I researched "Professional Trader" status last year by contacting the IRS help line at 1-800-829-1040 for
information. (If you decide to call, be sure to ask for the "Technical Division - Section 7"). I was fortunate
enough to talk with an individual who had done some recent research in this area and was actually familiar
with this part of the tax code. She confirmed that a taxpayer would use Schedule 'C' in reporting all
expenses related to his trading activities and all trading profits would retain their "capital" nature and be

695
reported on Schedule 'D'. Therefore, Schedule 'C' would theoretically show "No Income," and only
"Expenses" which would be fully deductible on Line 12 Form 1040 ("Business income or (loss). Attach
Schedule C or C-EZ").

It should be noted that the 2% of Adjusted Gross Income limitation does not apply to Schedule C losses.
And, you DO NOT have to itemize your deductions on Schedule A in order to realize these investment
related trading expenses.

She also confirmed that IRS documents DO NOT identify or acknowledge a "Professional Trader" taxpayer
classification, and IRS documents do not provide example scenarios of such a situation in their
publications. She recommended that I purchase a copy of the "1997 Master Tax Guide" published by
Commerce Clearing House (CCH) as a reference guide. (She confided that the IRS uses this publication
themselves when they give advice to callers since it is more clearly and accurately written in a "plain-
English easy to understand style" than their own documents). This CCH publication does reference "Active
or Professional Traders" whose trading activities are such that it becomes classified as a business activity.

Any "tax preparer" or "CPA" in your area will comfortably work with a CCH tax publication as opposed to
Mr. Tesser's consumer oriented book.

When you interview "tax preparers" you can ask them one basic question as an initial screening technique:
"If my market trading activities are such that they are considered a business activity for tax purposes, how
are my trading related business expenses reported, and how are my trading profits and losses reported on
my tax returns?"

If they answer in any other way than the way I have described above, call another preparer. If they need
time to do research on the subject, let them complete their research and get back to you. There really is only
"One Right Answer."

Trading Is A Great Hobby But Can't Give Up My Job

Ernest B. Goldstein

Having been a member for quite a few years now, I still enjoy the book (CTCN) when it arrives. In fact, I
can't wait for the evening so that I can open it up and start reading it. One thing that strikes me now is the
dissertations that many of our members go on when they write their articles. I wonder if they are trying to
give us helpful information or just attempting to push their own vested interests. I feel that more useful info
is gotten from our neophyte traders who have just come on board than from the old timers.

I assume that most of us who are not professional traders rely on a mechanical system to do our trades. I
know that I do not have the time to watch a screen all day. My income still comes from my 8:00 - 4:00 job.
Trading is a great hobby, but I certainly can never give up my job and make the same kind of money that I
am now earning. I am still waiting for one of those philanthropic traders who are making that $60,000 a
year to come forth and teach me his system.

Editor's Note: The above comment by Ernest inspired your editor to address the issue of all the many
trading seminars (and the credentials of the trading expert who gives the seminar) which you have seen
advertised or heard about. For more on this, see Editor Comment section re: Trading Seminars

Meanwhile, I am still looking for that Holy Grail to give me true happiness money will buy. What I have
learned is that I do not believe any one system will give me constant winners on just one commodity. There
have to be loses; therefore, if anyone has what he believes to be a good system than he must apply that
system to a portfolio. So that when the inevitable breakdown of his system hits one commodity the other
commodities will carry on.

Knowing How Is One Thing, Actually Doing It Is Another

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 J. L. - Wimauma

Just read the last issue and my article in it. It's unique to see your own thoughts in a neat publication like
this. And do you think I'm writing these articles to myself too? You bet I am! Y'all should try it! We write -
01' Dave takes the flak! Such a deal!

There are commodities, futures and then there are both! I fail to see how financials, currencies and yes, S &
P's are commodities at all - futures yes, but commodities? A commodity to me has intrinsic value,
otherwise known as the cost of production. If it ain't planted, fed or dragged out of the ground at great
expense, it surely could become worthless (and surely will someday). Will soybeans or silver ever be free?
Of course not! That same cost of production MUST always stop the fall. I know I should ask if people
might never want beans or silver again. What do you think?

So why is this important? My pieces are about Commodities. What one of us isn't touched by contributors,
especially younger ones "with mouths to feed," stuck in dead-end jobs, wanting to make a living at home
with their family? I'm here to say yes, it can be done!

In my humble opinion, you can first take that giant step from trader to investor. And, you have enough
money to buy the cheapest commodity at the time, and if it falls, to buy more. Yes I'm talking scale buying.
If it's good enough for the commercials, it's good enough for me. (I believe they call that a market "under
accumulation"). I think that anyone doing commodities who hasn't at least read Robert Wiest's book, just
isn't trading with a full deck. Every purchase level and the amount of money necessary (plus reserves) is
preplanned before you ever make that first call. How's this for a win-win situation? If prices go up you are
profiting from the contracts you already own - if they go down, you get to buy another one! And
incidentally, as a bonus, all orders are limit orders. Kiss slippage goodbye forever with the market paying
your commissions to boot!

Now no one ever said you could make money without money. No pro would argue with the fact that for
every dollar you have available, your odds of eventual success just increased proportionately. Of course,
they generally mean that after all those "small" losses, you may be still around to win one. That's not what a
scale buyer has in mind. It means he can buy more contracts for the inevitable recovery!

So after locating the cheapest commodity (how about the fewest dollars to the 13-year low?), you prefigure
your scale leaving around 30% for reserves and making sure it's wide enough. (Thank you, Robert). And
nice to have a 14-month slow scraping bottom with good seasonals, too. Do you think you could afford to
buy one measly contract and begin a scale? I'm not going to take all the fun away and tell you how to take
profits (we all should have such a problem), but I'll say I never liked being "scaled out" completely just as
some huge move begins! Don't shoot me, Robert! After all, if prices have recovered that much, even if they
fell back again, it sounds at worst as though you've got a bottom building, so I'll scale trade the heck out of
it! (How about exiting on the first solid sell signal after another commodity gets cheaper?) But I will tell
you what I will do if all Hell breaks loose and prices slam right thru those long-term lows. Is there any law
against selling an equal amount of near-bys on a close or signal of choice below said lows and removing
them on your favorite reversal signal of choice above those lows or lower if it can be done safely?
(Remember, you're scaling 6-months out so they are not disturbed). Didn't you also just cut your margin
requirements almost in half too?

So as the saying goes, "If I'm so smart, why am I not a millionaire?" Which brings me back to the title of
this piece. Why do I still sooner or later think that I can predict where and when prices will go, and as
Robert puts it, "take a flier?" Sure we all have traded other methods with some notable successes, but if I
had "mouths to feed" (besides my own) this approach would probably be my first choice. I'm convinced
that I'll someday be that millionaire if someone will please pass the humility!

System Testing With WAVE W1$E Program - Glenn Skirvin

697
For those of you that would like to do some serious testing of indicators and trading systems, but can't
afford the steep price tag of TradeStation or other higher-priced system testing software, I'd like to suggest
that you take a look at the WAVE WI$E market spreadsheet program offered by Jerome Technology, Inc.
(P0 Box 403, Raritan, NJ 08869; Phone 908-369-7503; Internet web site: http://members.aol.com/jtiware).
The cost for the basic spreadsheet program is $150, but there is a data server add-on that can be purchased
for an additional $100. The data server allows you to easily transfer data and other computations (e.g.,
system testing results) from WAVE WI$E to another spreadsheet (e.g., Excel, Lotus, Quattro Pro) and to
manipulate spreadsheet data in WAVE WI$E from your other spreadsheet (e.g., using an Excel macro or
Visual Basic module). I recommend the data server be purchased along with the basic WAVE WI$E
spreadsheet program.

The difference between WAVE Wl$E (WW) and a traditional system testing program like TradeStation or
System Writer Plus is that WW presents all data and computations in spreadsheet rows and columns format
and requires that you enter numeric constants or formulas in each column to accomplish your testing or
study goals. The nice thing about a spreadsheet format is that you can see all the computed values of your
indicators, logical flags, etc. for any data point. This makes reviewing a system's performance and
correcting its problems easier because the details at any point in time are readily available. WW also
provides charting capabilities, allowing you to chart any data or computed value in your spreadsheet and
even to use dynamic coloring of price bars (similar to a PaintBar study in TradeStation or SuperCharts).
WW differs from traditional spreadsheets in the following ways:

1. WW uses one formula (or formula group) per column and the data items are loaded from your stock,
commodity or time series database. This allows you to build general "studies," using various formulas, and
apply those formulas (within a study) to any number of data files.

2. WW does not embed your data directly within the spreadsheet. Instead, your data remains in separate
data files (e.g., CSI, Computrac, Excel, MetaStock, Symphony, TC 2000) while your custom formulas link
your study to the data files you wish to analyze. After your data files have been updated, the new data will
be accessed and used by your WW study files. You need maintain only one set of data, and you are assured
that the same exact data will be used by all WW studies.

3. If you wish to maintain your data within WW, you may enter your data into the spreadsheet and then
save the data into a WW data file (."TXT").

WAVE WI$E offers a plentiful array of built-in functions that are useful to the trader and system builder,
including some that you don't traditionally find in general trading analysis packages (e.g., astronomical
calculations for a given date). But here's the good part: If you need a custom function or indicator that isn't
offered with the standard WW package, you need only present your request to the program's developer, Mr.
Pete DiGirolamo, and he will write it for you at a cost of only $20. Or, you can use WW's built-in formula
procedure capability and write your own detailed function or computation.

I have found Pete to be consistently responsive to any question, suggestion for program improvement, or
programming change that I have presented to him. For example, I was not totally satisfied with the built-in
@SIGNAL function that allows you to generate a buy or sell signal for a trading system based on user-
defined criteria because it required that the buy and sell price component be the same (i.e., both would need
to be the closing price, or opening price, or whatever). In real life trading systems, it is common to have an
entry and/or exit based on stops set at certain breakout levels. At my request and at a cost of only $20, Pete
wrote a @SIGNAL2 function which allows the added entry/exit signal complexity that I requested. I
believe this is now a part of the standard WW program. On another occasion, when I was writing a
somewhat complex formula procedure for determining pivot points on a chart, I ran into a built-in program
limitation that prevented me from successfully completing my procedure (only 127 numeric constants were
allowed in a single procedure). When I presented the problem to Pete, he had his programmer revise the
program just for me, upping the number of allowable numeric constants to 255. This was done at no cost to
me. Try getting this kind of service with Omega Research or Equis International.

698
If you would like to see some examples of WW programming, check out the "Traders' Tips" section in
Stocks & Commodities magazine. Pete does an illustrative example every month based on one of the
magazine's articles for that month. I've learned a few things about how to use the program just from
studying these illustrations.

Do I have any complaints about WAVE WI$E? There are a few, as it's not a perfect program, but they are
minor. One of things I don't like about the program is that the charting capabilities are not as complete as I
would like them to be. As I mentioned above, you can chart any data item or computation column in your
spreadsheet. The limitations occur when you try to combine charts. Let's say you want to display your basic
OHLC bar chart for a commodity or stock and below it in subcharts you want to display Wilder's ADX, an
oscillator of some sort, and the phases of the moon. The current version of the program allows you to
combine charts in a split format, but you can only include one subchart below the main price chart, and the
subchart automatically occupies half of the available chart space. It would be nice to have multiple split
charts and be able to size them in a manner that's pleasing to my eye. One of the things you can do, though,
is "normalize" each line to a scale between 0 and 1, and then you can see up to 7 lines in that one split
screen chart with each turning point nice and big and visible.

Another potential program limitation, particularly if you have created a computationally complex system, is
that the number of total spreadsheet columns available is only 127 - half as many as most standard
spreadsheet programs. However, those 127 WW columns can contain multiple formulas and they allow
easy and fast manipulation of entire streams of data. In this respect, Excel is far behind WW. WW
calculates large, complex spreadsheets amazingly fast. In SuperCharts, MetaStock or Windows on Wall
Street you can only manipulate one or two data series in their formulas.

I would also like to see more programming conventions built into the formula procedure capabilities; in
particular, I'd like to be able to use WHILE . . . DO loops rather than just FOR . . . NEXT loops, since
WHILE . . . DO loops allow you to effectively scan your database, forward or backward, to see if certain
conditions are met.

Lastly, for futures traders WAVE WI$E requires you to do some extra work to compute the amount of
money gained or lost with a trading system. This is because you must manually change the tick value and
dollar value per point for each commodity that you test (also commission/slippage if different). It would be
nice if a user could set up a database within the program that would identify certain data files with certain
commodities and then build a table with the tick value and dollar value per point for each commodity. The
other way to work around this problem when testing a system over many commodities is to use the data
server capabilities described at the start of this article and control the tick value and dollar value per point
columns in WW form, say an Excel spreadsheet which does have a table set up containing all pertinent
information for each commodity. This is what I'm planning to do. It involves some extra work, but once
you've set up the tables and written the necessary macros you can really roll with your system testing,
including generating sophisticated system results reports out of Excel (or other spreadsheet).

Most of the limitations I've just mentioned are being addressed by Pete DiGirolamo in a new, 32-bit version
of WAVE WI$E which I believe will be released sometime in 1997. This 32-bit version will apparently no
longer run in Windows 3.1, but only in Windows 95 or Windows NT. The developer has indicated to me
that the charting capabilities will be improved, the spreadsheet will expand to a maximum of 255 columns,
and there will be some other improvements as well.

I hope this information is helpful to some of you. If you're inclined to do your own work and don't mind
setting up your own spreadsheet formulas and the like, you might want to give this program a serious look.
The great thing about WAVE WI$E is that, compared to SuperCharts, MetaStock and Windows on Wall
Street, it has no computational limits. Just about anything you can dream up is potentially programmable
and testable in this program.

I am not affiliated with Jerome Technology, Inc. or Pete DiGirolamo in any way. My only relationship is
that of customer.

699
 Stops Are Not Just for Roads!

Rick J. Ratchford

When the discussion turns to the use of Stop Loss orders, you can be confident that a division will occur
between all the participants of the discussion. As they are first divided on whether to use stops, and then
those who say we should, are therefore divided again on how to use them in everyday trading.

It is with this understanding that you read this article with an open mind. And if you are of the opinion that
stops are not useful in your trading, rest assured that the author of this article respects that opinion, and
merely addresses the subject for those who do use or should use stops.

The bottom line is on how we can limit our losses. Stops are one-vehicle in achieving a good risk
management plan. Properly placed and allowed to work, your trading losses can be limited, while you let
those winners reach your objective.

The argument for using stops is really basic and simple. If you speculate that the market is going to move in
one direction, and it goes the opposite way, the stop is meant to get you out before your losses grow any
larger. If you did your homework, and I stress that you should do so first, and it is of your opinion that the
market is to perform in a certain way, and it does not, at what point would you finally admit to yourself that
your initial analysis was incorrect and you should get out and reevaluate? If you don't use stops, are you
leaving this up to how you feel when the market moves against you?

I personally have experienced the aching feeling of seeing the market move against me, and then when it
reaches the price that would have been my stop had I placed one, where I had previously calculated is the
price that means I was wrong, I hesitate because I don't want to call in and take a deliberate loss. Then, in
my despair, I watch it go against me more, and more, and more, and . . . Stop!

Well, that is one way to place a stop, but I would not recommend it!

Many will argue that had they placed a stop, they would not have made the profit they did, when the market
finally turned around and went the way they had originally calculated. Yes, this has happened to me, and I
walked away happy that I did not have a stop in. But this happiness is fleeting, and is dangerous to
experience, especially if your trading experience is limited. It can turn you into a gambler, one who takes
unnecessary risks. I submit, if a trader does not use a stop, he is in essence admitting that he has no clue as
to what price against his anticipated move constitutes an error. If he had such a clue, he would place a stop
in that area of manifested error. Yet, I must add that this does not apply to all types of trading.

For example, a scalper would not use stops. Why, the time to place and reverse them and so-forth would
murder such a trader. He is one that is watching and actively trading the market at such speeds that he isn't
going for long pre-calculated moves. He knows his support and resistance areas and is trading off of those,
as well as what he sees the action doing.

Another may be a day trader who is merely taking out chunks from a daily range. The action is usually too
quick to calculate those stop areas. And just like the scalper, speed is of the essence.

However, as a former daytrader turned short term trader, I found myself getting chewed up on several
occasions where I should have exited when my anticipated move did not materialize, yet to just watch the
market continue to move against me for great losses. All I can say is, daytraders beware!

Now we come down to the problem of placing stops. Where should we place them now that we are
convinced that we should use them?

This problem of placing stops seems to stem all the way down to the Municipal level. In the city where I
live, they seem to have stops all over my neighborhood. It seems that they don't have a clue as to where to

700
place their stops either. I imagine that if they were traders, they would over use stops to the point of many
losses over time.

There are volumes of books on the subject of trading. But have you ever noticed that when it comes to the
subject of stops, they may seem to fall short of stating exactly how they should be placed? Reason may be
that there is no exact way to place a stop. Yet, this will not stop the trader in trouble from continually
asking the next guru in line, "Where should I place my stop?"

I'm going to share with you the technique that I use to limit my losses. I find this technique works really
well. However, it uses a method that is core to my way of trading. My method of trading involves several
elements, which by themselves are quite basic, yet together are quite powerful.

First, to limit my risk, I trade only on time days. Now, if you don't understand time days, feel free to read
about them at my web site (http://FSoftPublishing.com). I wish not to get into that subject here. The reason
I trade only on time days is because the odds are greatly in my favor that the market has made its extreme
move around this time, and gives me a basis for placing my stop.

Next, I need to figure out my support and resistance prices for my time day period. You can do this using a
basic calculator, trend lines, or many other software programs. I use TTC as most of you know to find these
prices. Now that I have my time day, and my support resistance levels, I have a very good idea where to
place my stop once the trade is on. Let me now illustrate.

Take June 97 Live Cattle for our example. I had a time day for 3/20 and 3/26. As well, I had calculated my
support levels and found the market confirmed by making the low at 6342. The following day, when the
market did not penetrate my time day low, I went long at 6370.

Now, I expected the market to go up to the next time day, and could have warmly felt that I did not need a
stop. And as you can see, this market could have allowed me to do without one, although it could as well
have killed me. Resolute to place stops just in case, I now must decide where. If I had placed my stop just
below my time day low, on the next time day, I would have been knocked out and missed out on the run up.
Yet I was not knocked out. Here is what I did.

Take the last short term range that lead down to your support price, in this case the high of 3/28 (6582) and
the time day low on 3/20 (6342). The range value is 240. Now, multiply this by 15% or .15. You come up
with 36 points. So my stop would be placed at 6307 (rounded), which is about 36 points below my support
time day low. On my next time day, instead of making a high, it made another time day low at 6332, well
above my stop. I was safe, and exited the market when it reached my pre-calculated resistance level.

When finding ranges in channels, this is easy. On a powerful trending market, it is not. Remember one big
rule I believe in, don't trade against the trend! So, with the trend, you use the range of the rally or pullback.
Your time day and support/resistance confirmation should not be violated by move than 10%, otherwise
admit your wrong and let the market take you out. Based on my example above, my risk was limited to
$252 per contract plus commission. I try to avoid risking more than $300 a contract, and very rarely find
that I need to.

Now note that this article only addresses your 'initial' stop placement. As the market moves in your favor,
you will need to adjust your stop accordingly to capture your paper profits. One way to do this is when your
going up, once the market reaches the next resistance area, you move your stop a few points above your
entry price for a free trade. Then, once it penetrates the resistance area, you move your stop below the new
support which was your resistance level before it was penetrated by the same number of points you used
originally under your time day support (36 pts).

We dealt with a market going up, but just reverse for a market going down. Simple. Now if I only can get
the city to remove many of their stops, I'd be a happy camper!

701
 Reprinted with permission of Barron's

Article by Michael Santoli - "Farewell, CFTC?

Sure Looks That Way"

If several powerful Congressmen and Alan Greenspan have their way, the Commodity Futures Trading
Commission could soon disappear. A bill speeding through the Senate threatens to yank most of the futures
business out from under the CFTC's regulatory oversight. The bill's most provocative provision would let
futures exchanges set up unregulated markets for "professional" traders in nonagricultural commodities
under term that would remove 90% of trading from the commission's purview. The idea is that
professionals - defined as entities with-net worth of at least $1 million don't need the CFTC's hand-holding.
Says Patrick Arbor, chairman of the Chicago Board of Trade, "George Soros doesn't need the same
protection as Aunt Mildred."

The bill was introduced just three weeks ago but gained momentum a few days later after some frank
comments by Fed Chairman Greenspan, who suggested the CFTC is over-regulating the futures markets.
One CFTC official said Greenspan's remarks sounded like "nails in the coffin" of the commission.

The heat got intense enough that CFTC Chairman Brooksley Born felt the need to declare the commission's
relevance in a press briefing Thursday, in which she suggested Greenspan is a free-market zealot who
would send US futures markets back to the "19th century." Born has gotten nowhere trying to negotiate a
compromise with the exchanges, which would love to see the CFTC clipped.

So, what's the upshot for the average commodities trader? To hear officials at the futures exchanges tell it,
the plan is nice and neat. An unfettered "professional" trading pit would stand alongside a retail pit, which
would be run with current levels of regulatory oversight. It's not tough to guess which pit would have the
greater liquidity, better pricing and sharper trading opportunities.

While few people believe the regulatory blanket on the industry needs to be as thick as it is today, even
fewer believe the exchanges' lament that they are losing loads of futures business to overseas markets and
the over-the-counter arena because of excessive regulation.

As one commodities executive put it, "The individual with the $10,000 commodities account is
disappearing." Maybe so, but the; little guy isn't extinct yet.

Plans To Stick With Aberration System &

About Trading Futures With An IRA Account

Michael Murphy

I purchased the trading program Aberattion from Keith Fitchen. I will use this program until I am totally
wiped out; , I become too old to play this game, or; if a better system comes along.

There is one item of interest I would like to pass along. I have not seen anything written about this. I am
talking about trading within an IRA. I felt that a trading account of $12,000 would be sufficient for me to
get started. Imagine my surprise when the Account Trustee told me that 30% of all IRA rollovers, transfers
and contributions are withheld from trading. I was told that this was a "disaster" fund. I guess, given the
constraints on IRA contributions, holding a portion of the account aside does make sense. I would like to
have known this going in. My $12,000 wound up being $8,330 after all fees were deducted. My broker said
he told me about this beforehand. If he did, I forgot him doing it.

I will have to liquidate other funds to make up this difference. I do not feel that trading Aberration with less
than $10,000 is smart. The risks increase substantially. This is not a big deal for me at this time, but I think
it could have been. I would like to make other potential traders aware of this restriction.

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 Prove It - Steven Astley

Years ago, having tired of reading all the marketing rhetoric, promising astronomical financial gains and a
relaxed lifestyle, while my trading results were a disaster, I decided to start over and "prove" the validity of
each and every step in trading. The first question I asked was: "how much money does the Market make
available, per week?

I built a spreadsheet of all commodities (and optionable indices-e.g.: OEX, XAU, XOI) that I trade/follow.

Editor's Note: For some odd reason the e-mailed spreadsheet did not copy on our end. If Steve will mail us
(by US Mail) another spreadsheet we will make it available to members upon request.

I simply take the commodity's weekly high and subtract the weekly low from it and multiply that quantity
times its dollar value. Obviously, this calculated amount is the absolute, maximum, gross dollar amount
available for that commodity during that particular week. I then total, at the bottom, the column for the
week, and under that, I get a weekly average.

The second column is an average of each commodities' (row) values. NB: Do not expect to get identical
results - it depends on the timing of contract rollovers, etc.

What this confirmed was that there was, indeed money to be made and lost in the markets. And the
markets, directly told me so, not some over-inflated guru or software vendor. The market, period! Also, I
know which markets are most volatile, and those are the ones I trade, if and when my proven methodology
gives me a signal.

Finally, don't expect to make the specific dollar amounts shown, that's unimportant (they are absolute
maximums). But, paraphrasing the legendary Bernard Baruch: "Be happy with a percentage of the move."

Success is: consistently implementing, your proven, trading strategy! But you've got to take the time and
make the effort yourself, to prove it!

Admonitions And Vendor Tales about $50,000 of Trading Products Compiled

Going Back To The 1960's Which Actually Cost $200,000 - James M. Allen

This started out as an E-Mail to Joe Ross, but I got carried away. It didn't seem fair to mention Joe Ross in
the final result, names being changed to protect the innocent, etc. I have no bone to pick with Joe. I'm about
to buy his books! Maybe even his seminar!

I enjoyed the day I spent writing this article, even though I missed a $10,000 move in the S&P. Some
people may complain that the views implied in these stories are harsh, and maybe not true. Just remind
them of Dollie Parton's answer when she was asked if she was offended by dumb blond jokes: "No because
I'm not dumb, and I'm not blond!"

Dear *****
"I read of your seminar on your web site this morning. I was investigating your books and methods after
reading favorable comments about your ******** trading system in ***** magazine. I would like to have
full information, where, when, how long, what is covered, etc.

I am a veteran trader, and have even more experience studying, joining secret societies, swearing never to
reveal guru's secret methods, and going to seminars of the one or two day variety. I have an impressive
collection of books, videos, computerized systems and trading methods going back well into the 60's which
I have compiled at a cost of over $50,000. Actually trading these methods has cost at least another
$200,000 more.

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The first computerized trading system I bought was the most widely advertised I had ever seen, full color,
full page ads, never a losing year, fantastic returns on account equity, even fancier brochures. I bought the
whole thing, plus computer and end-of-day data feed, got it all set up and running, and spent not quite
$20,000 in the process, mostly on the system. I put a very considerable sum of money in an account with
the broker recommended by the gurus and began trading.

Things sort of went OK for a few months, some up, some down. One morning I came in to discover that I
had lost about $50,000 - in one day. Fortunately, I had not followed the recommendations of the guru about
account size and number of contracts to trade, but I later heard about someone who did. He bought the
system, and put it on the computer the week before the "drawdown" (don't you just love that word). The
morning I had the $50,000 loss, this kid had $1 left in his account. From $25,000, he lost it all! In less than
one week! Using a system that had never had a losing year, and was averaging about 130% per year return
on the minimum account size (measured at the brochure)! I guess he was lucky, he could have gone debit.
They've never mentioned him in their ads.

The guru selling this wondrous product refuses to register with the CFTC, the NFA or anybody. I heard
why he objected to it so vociferously. Somebody said he has been convicted of a felony in the past. I have
no idea what felony, but even if its felony spitting on the sidewalk, he would have to answer "Yes" to that
supremely awkward question on the form, which is public info, or lie under oath. Maybe the CFTC won't
let felons be registered. I wonder how many others have the same "problem?"

Most recently, I dropped about $10,000 to a fellow named*****who was characterized as the greatest
living technical analyst or something like that (according to the ads, anyway) for books, manual, faxes and
seminars. Trading the *****Method last summer costs about $120,000 at a time when the faxes were
showing minimal weekly drawdowns. I was horrified to learn during the postmortem that apparently the
only people actually trading the ***** Method last summer with real money were me, and the guru. I
imagine his results were different from the faxes, too.

In the past, I have gotten involved with various gurus' because of ads, without much checking. The guru
referred to above, for example, was highly recommended by an IB who was handing out his literature.
Having now read all the back issues of CTCN, I see that a good many of the "gurus" whose names and
faces adorn the ads seem to have more detractors, and less success, than they let on. Every lawyer knows
that an eyewitness always ruins a good story. These "eyewitnesses" who have parted with real money paint
a very different picture than those "testimonials" in the brochures.

Has anybody ever actually met a real honest-to-Pete, verified full time professional trader? You know the
type, a guy (or gal) goes in and trades every day full-time, who pays his bills, and raises his kids, and earns
his living from trading, not living off a fat inheritance, who does not sell books, or systems or faxed
recommendations, or manage money, not a "local" or exchange member. We read about them here and
there, like the "Anonymous Trader," but who knows whether these are mere figments of the con-man's
fertile imagination.

I want to be one (a full time trader, that is), and it just dawned on me this minute that I have never known
one. When I wanted to be a Navy officer, I knew many who were, and the same when I wanted to be a
stockbroker, and a lawyer and . . . Say, wait a minute . . . ! You don't suppose that there aren't any, do you?

This reminds me of when I was a stockbroker back in 1969-70 BC (before computers). We had a character
in the office every day, a "customer," who brought in his briefcase great mounds of futures charts, which he
laboriously updated by hand throughout the day. He was the local "guru" of commodity trading, and quite a
colorful chap, with lots of aphorisms, stories, anecdotes, fables and market savvy, and not the least bit
loathe to share his wisdom with anyone who appeared deserving of it. He was there when the market
opened, he seldom left for lunch, and was there when the markets closed. I thought he was a trading genius.

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Well, one day, during a meeting with the office manager, who handled this fellow's account, I remarked
what a great thing it must be to have an account that's active, who could be depended upon to generate
trades (more importantly, commissions) on a daily basis. I was shocked, I mean shocked to learn that
"Jones" was not active, in fact, seldom traded. He was a "gentleman rancher" who enjoyed the camaraderie,
and the excitement of the office environment, but rarely traded and almost always lost when he did. He
took up a bit of space in the back of the peanut gallery, but he entertained the other customers, helped keep
the coffee pot full, and was careful not to be too much of a nuisance. Later, I think be got kicked out and
gravitated to Merrill Lynch's office, when our manager retired. He is as close to a professional trader as I
ever recall actually meeting.

Wouldn't it be funny if all these system sellers, all these brokers, all these magazine editors and writers and
advertising agencies types, the entire "industry," all unknowingly existed only for the purpose of rounding
up a steady supply of fresh "investors" whose money could then be deftly moved from their pocket to
others, lured by the hope and not-so-thinly-disguised promise, of fabulous wealth without working, and
protected by the oft-heard, and oft-ignored admonitions that "there is a risk of loss in futures trading" and
"past performance does not necessarily guarantee future results?" After all, somebody has to be the losers
for the big locals to prosper as, it is claimed, they do.

On the subject of admonitions, I suppose it is only right to tell you in advance before coming to your
seminar that the most fabulously lucrative systems, contrived by geniuses who have unlocked the timeless
secrets of the universe, and having revealed these mysteries of the ages to me, one of the chosen and very
limited few (having remitted the requested stipend) turn to absolute crap soon after I initiate trading with
these secret methods. Anomalies unknown for hundreds of years suddenly happen, one after the other, to
the astonishment of the genius involved and all his devotees, and to my loss, usually in amounts of $10,000
or more. This has happened not once but several times, actually. I am beginning to have an idea.

Perhaps the more mutually beneficial and rewarding arrangement would be for me to sell you a covenant
not to trade your methods for a certain period of time, renewable upon payment of a further fee. I would
promise for the duration of our agreement never to attend your seminars, read your books or trade your
method even if such methods should be inadvertently revealed to me through no fault of my own, or yours,
all spelled out in writing, for say, $150,000 per year.

For a significant additional fee, I will further agree to purchase and faithfully trade, for as long as your
"account" is not in arrears, up to five specified competing systems. This is the chance of a lifetime! What
would it be worth to have those five nasty competitors' systems thoroughly rubbish, and all perfectly legal?
Those guys are all undeserving ***holes, anyway. Think of the things they've said about you behind your
back, at THEIR seminars! Their customers would begin losing their butts, and come running to buy your
stuff! The computer programs, books, tapes, seminars, T-shirts, think of it! Maybe even an autobiography.
Movie rights! A bargain at twice the price!

Your business will quadruple or more, and I will finally be getting paid for doing what I do best, (or at least
have the most experience doing) losing my butt trading over-optimized, curve-fitted garbage systems.
Although past performance is no guarantee of future results, I can offer a solid track record of very
satisfactory results over a long period in this peculiar and unique "service."

I've come up with the wording for a brochure (printed below) to send out offering this "service" to a very
select few system vendors. What do you think? Happy trading!"

Here is the Proposed Sample Brochure

James Allen

"Dear System Vendor: Have You ever noticed how the performance of your competitors' systems are
rolling along, seemingly incredible, making money hand over fist for their customers, when all of a sudden,
everything goes into a spin? Maybe it has even happened to one of your systems!

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It's discouraging to have your system all back-tested, and curve fit, and having spent a fortune on marketing
and advertising to get the word out on how fantastic the system results have been in the past (not
necessarily indicative of future results, to be sure), only suddenly, without warning, the bottom drops out
and all those new users lose their butts, and blame you!

Now, there is an answer, and a defense, to this too-common phenomenon.

For years, I have been a prosperous real estate lawyer, but before law school, I was a broker at a then major
Wall Street brokerage for a time after graduating with a degree in finance. All the books I read, all the
theories I studied, all the "gurus" I followed, were sure-fire winners. It would be too easy to spend 15-
minutes a day, maybe half-hour tops, to coast to a sure fortune. Why spend full time at it? I could make my
fortune and enjoy the enticements of a dignified professional calling!

I've mastered the money making, stock-picking theories of all the legendary trading masters, such as Gerald
Loeb, mysterious Gann, enigmatic Elliott, glamorous Jesse Livermore, even Lord Rothschild ("I always
sold too soon"), Warren Buffet ("I never sell at all") and most of the new ones.

Methods that had produced solid, dependable profits for years, miraculously had me buying just as
everyone else was selling--or buying what nobody else wanted! None of these guys cared--hell, they don't
sell systems and most of them are dead!

Even though I lost a lot of money, I am nothing if not tenacious. Thanks to the miracle of the personal
computer, I could still search for, discover and acquire a system that would easily fulfill all my lifelong
trading dreams, not to mention make back all I had lost!

In the early days, l tried them all, but now there are so many, it is just impossible to keep up. All totaled, I
must have spent more than $200,000 over the years on computerized systems, books, seminars, data
services, fax services, personal one-on-one consulting, memberships in secret societies, any one of which
would be just the ticket to trading success. Actually, that's the cheap part, since my trading losses using
these have been many times that amount.

I bought a system once that advertised that it had returned over 250% per year or something like that for
more than 5-years, without a single losing year, not even a margin call. Soon after implementing the
system, and carefully following its directions, under the watchful eyes of the system inventor and the
broker especially selected by the system inventor, I lost more than $50,000 in ONE DAY! Actually I was
very lucky, because on that same day, many of this guru's customers were completely wiped out!

Think of how unhappy they were! The irate phone calls, the offensive and even insulting letters from their
lawyers, the expense of defending the suits and complaints to CFTC, must have been unbearable!

I'm telling you all this only to demonstrate that nobody is better qualified than me to make the extremely
valuable proposal I'm about to make to a select few system vendors, including you.

I don't know exactly how to describe what I am offering in technical market terms, maybe an inverse call -
no matter. Here it is: For a specified fee, I will agree in writing, backed up by my personal five way
guarantee, that I will not buy, otherwise acquire, or in any way use any of your designated trading systems
for a period of one year. That's right--I won't buy your book, your system, or your video, nor will I show up
at your seminars, or trade your system even if it should be inadvertently or deliberately revealed to me
through no fault of mine--or yours! How's that for fair? You are covered, no matter what!

And, as a new customer special, for those who can pay over the specified fee within the next thirty days, I
will also include any person or entity related to, controlled or advised by me!

Think of it! For the next year, you will have my personal assurance, independently verifiable and backed by
my written five way personal guarantee, that there is no way I can use your specified system. This should

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give you clear sailing to compile a wonderful track record, unsullied by those awful, dreaded "drawdowns."
(Don't you just love that word?)

Nothing could be easier. All you have to do is send money, and each month spend one-half hour or even
less to review the special report prepared just for you verifying that I have not used your system in my
trading. For the first ten vendors who respond to this offer, and for a significant additional fee, I'll begin
trading up to five competing systems of your choice. You will know whose systems will soon be showing
crappy results, with plenty of lead time for your ad campaign! You can use this advance, inside information
to trash your competitors' systems, and who deserves it more than those lying, swindling, whining a-holes
who overblow their own pathetic system, and demean and slander yours. I'll bet you can think of three or
four systems you'd like me to begin using immediately, and I will, as soon as your check clears, provided
you act quickly!

Your sales will skyrocket, seminars, computer systems, videos, books, T-shirts, maybe even an
autobiography of the world's greatest money making analyst of all time! Those greedy, sleazy, incompetent
bastards offering competing systems will never know what hit them, and it's all perfectly legal!

I am only going to offer this special program to a very select few, so don't delay. You'll want to be among
the first to sign up. After all, what if one of these competitors signs up first and pays me to thrash your best
system? You had better act now!"

Human Nature, Psychology And Trading - C. J. Chin

Many people, if offered the choice between, _ a 10% chance of winning one million dollars (and a 90%
chance of winning zero); or , $10,000 cash -- would choose the "sure" $10,000 cash. This is true -- despite
the fact that the expected value of choice is worth $100,000, or 10 times the value of the $10,000 "sure
thing." This is a simple "model" of human nature and people's preferences.

Investing/trading is one of the most interesting and challenging endeavors available. However, as we've
read before, "if investing were that easy, everyone would be financially independent." The combination of
human nature and society make investment decisions difficult for most traders.

Shopping Analogy -- For instance, when most people go shopping, they look for a sale or some sort of
bargain. "How much did you pay for the orange juice?" "Did you negotiate when you bought your car?" In
society, most people like to get bargains. In trading, however, this mentality frequently leads to poor
results. How often have we heard that the worst "fills" lead to our best trades? Or worse, that the trader
never entered the trade, "hoping for a better price." This brings us to the "ego" -- or trying to outsmart the
market.

The Ego, or "I'm Smarter Than The Trading System" -- In school, and later in society, we are taught to "get
ahead." You should try to do well in school -- and later in your career, show that you are full of good ideas.
When applied to trading, this philosophy often backfires! The person who tries to outsmart the market - or
even his or her trading system -- frequently gets "outsmarted" and falls behind.

For example, the "ego" might cause the "outsmarted trader" to "wait for the market to come back to a more
reasonable price." However, the market often "doesn't cooperate" and the hesitant trader misses a good
opportunity. Some of the best trades are missed because the market never comes back to that "bargain
price."

Greed & Fear -- Although "greed and fear" are the most-talked-about personality traits of investors, they
should never be forgotten or underestimated. Greed and fear often drive markets to extremes and cause
investors to buy or sell at the wrong time.

This is particularly true during this tremendous bull run in the stock market. Today, it seems like everyone
expects stock mutual funds to earn 20%-30% forever. People seem to have forgotten that stocks have

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earned a more moderate 12% over the long-run. Indeed, all of this talk -- and seeing 401(k) savings plan
money pour into stocks -- seems to be a signal that the "greed" in today's stock market is excessive.

Moral? -- If there is a moral to these tidbits about human nature and investing, it is that a systematic
approach helps to avoid the pitfalls of emotion when it comes to dollars and cents. There are numerous
ways to capture excess returns in the market. However, the tough part is doing your homework when
developing a system -- and having the discipline to stick with the chosen strategy.

A computerized, systematic approach helps the trader to avoid the pitfalls of greed and fear -- or the
negative impact of ego and human nature. If you have any questions, please feel free to (contact me via
CTCN).

OPTIONS & SPREADS: The Pyramid And The Palace

Greg Donio

In The Sketch Book published in 1820, Washington Irving wrote of his visit to London's centuries-old
Westminster Abbey: "I entered from the inner court of Westminster School, through a long, low, vaulted
passage that had an almost subterranean look, being dimly lighted in one part by circular perforations in the
massive walls.

"Through this dark avenue I had a distant view of the cloisters, with the figure of an old verger, in his black
gown, moving along their shadowy vaults, and seeming like a specter from one of the neighboring tombs."
The approach to the abbey through these gloomy monastic remains prepares the mind for its solemn
contemplation. "The sharp touches of the chisel are gone from the rich tracery of the arches; the roses
which adorn the keystones have lost their leafy beauty; everything bears the marks of the gradual
dilapidation's of time, which yet has something touching and pleasing in its very decay." (From the essay
Westminster Abbey)

I too have seen dilapidation and decay but could not call them either touching or pleasing. Not in London
but Atlantic City. Certainly, the casinos have crystal chandeliers and thick carpets and art deco and huge
windows showing night descending upon the ocean, but Pacific Avenue runs the length of the elongated
city, one block from beach and boardwalk, passing the street entrances of most of the hotel/casinos. In great
profusion, shops along the avenue exhibit three-feet-high yellow signs bearing big red letters, "Cash For
Gold." Their loose definition of "gold" includes jewels, watches, cameras and numerous other valuables.

Standing at one point along Pacific Avenue, and glancing a couple of blocks in either direction, I could see
seven of those red & yellow signs without walking a step. One little shop was the ultimate multi-purpose
outfit: Cash For Gold, Western Union, Checks-Cashed, Chelsea Bail Bonds.

That storefront is practically a curbside sermon for financial traders. Count yourself some kind of a success
if you do not pawn anything, stay out of trouble with the law, do not wire family or relatives for
desperation-money, and you cash your checks at a respectable bank.

The short walk in Atlantic City from ritziness to decay contains other lessons for traders, including my
fellow option specialists and spread specialists. The most popular types of gaming at the casinos has come
to be the slot machines. They easily outdraw all others. The developmental years of the Jersey shore
gambling houses saw repeated increases in both the number of slots and the amounts of floor space allotted
them.

It "just so happens" that of all forms of casino gaming, the one-armed bandit requires the least knowledge
or intelligence. Just drop in the coin and pull the lever. People baffled by dice, roulette, blackjack or
baccarat swarm in vast numbers to the slots. Isn't it sad how humans keep falling into pyramid hierarchies,
with the least brainy forming the biggest layer at the bottom?

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I have written in the past and quoted other financial writers about the "sucker trade" in securities investing
and speculating. Many people want big money in a hurry, too impatient to await profits from 10-year bonds
or slow-growth stocks, quarterly dividends or semi-annual interest. That is not necessarily fatal. However,
many of them are also impatient to learn about stocks or futures or options in any real depth. People who
pore over the engineering textbooks or the restaurant management manuals are too profit-grabbing anxious
to be bothered studying investments or strategies. Anxious to plunge.

Spend months studying options? Hell, no. They want to multiply their money again and again during those
months. Otherwise they might as well settle for a passbook. Such an attitude is fatal. Like casino lover-
pullers who feed a machine mathematically rigged against them, they routinely transform their bank
balances into other people's grosses and profits. No matter what education availability, warning labels or
legislation, the pyramid's bottom layer will always be its biggest layer.

This carries not one but two extremely important messages for the intelligent trader. One is to stay the hell
off that bottom layer. That is not as easy as it sounds. When just about anybody speaks of "the average
person" he means someone else. "I'm better than average because I know what's what." When he speaks of
"the sucker trade" he emphatically means someone else. Consequently, bottom layers are full of people
who think they are farther up the incline.

Every art contest or song-writing contest brings an avalanche of dross from people who think themselves
gifted. The man who thinks he is Napoleon judges himself an expert in military science. Thus they do not
award Rhodes Scholarships to people who mark their own test papers. Of course, you should have
confidence and should believe in yourself. But self-evaluation can be more tricky in the financial realm
than elsewhere, and more dangerous.

The sharpshooter either hits the target or fails. The trader often adds a dose of "I'm a nice guy" or "I deserve
rewards" to his self-scoring. The armchair explorer who thinks he knows how to deal with cannibals or
wild elephants is at least protected by the lack of these in Appleton, WI. The stock, futures and options
markets routinely devour self-proclaimed financial geniuses.

You can be a smart and capable trader with something less than an Olympic athlete's preparation, also
something less than a cattle breeder's or diamond merchant's time and effort. But your study and
preparation, time and effort, must be professional grade. Also, judge yourself with the clear-eyed
objectivity that goes into judging a gemstone or a prize Hereford. The "sucker trade" and the base of the
pyramid teem with Self-evaluators who casually gave themselves the medal.

I know a phoning bill collector who occasionally gets told by one or another delinquent debtor, "If it
weren't for me, you wouldn't have a job." So those deadbeats bottom-fished for a reason to praise
themselves. If they took up trading, they would declare themselves financial geniuses Monday and be
bankrupt by Thursday. To stay above this level, remember the advice of the Executive Speechwriter
Newsletter: "Go the extra mile. It's never crowded." Unlike the territory of the one-armed bandit.

In stating that a pyramid's bottom layer is always its biggest, I added that this carried two key messages for
the smart trader. What is the Second? You will enjoy a hefty financial plus if you are on the receiving side
of the cash quantities that the base layer routinely spills forth. The gambling house always wins via dollar
slots and other games. The pawnbroker always wins when wagers hock valuables at a fraction of their
worth. How can you gain continually? There are bottom layers at securities exchanges and in casinos.

Washington Irving wrote that his mind prepared "for its solemn contemplation" where "a coat of hoary
moss - obscured the death's heads and other funereal emblems" at Westminster Abbey. Occasionally I feel
solemn among the ghosts and headstones of options that expired worthless--after fattening my bank
account. Just as deadbeats tell bill collectors, "If it weren't for me, you wouldn't have a job," losers in
options trading could say to me, "If it weren't for us, you wouldn't have those profits," such is the cashing-
in-at-the-morgue aspect of spread strategies.

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Let us get a more positive handle on it. Petroleum tycoon J. Paul Getty said he had three rules for success:
(1) Begin work early in the morning; (2) work until late at night and; (3) find oil. You may regard that
startling third as the Star of India sapphire and consider the other two dispensable. Anyway, my variation
on those three rules does not leave much of the original.

As mentioned, the multitudes of losers in the options game include many who failed to devote the time and
effort to in-depth study and preparation; who wanted better than diamond dealer profits without at least
studying a few crystals or learning some business intricacies? Time and effort, yes. Yet here I am pounding
my home typewriter at noon and planning an afternoon stroll in the park under blue April skies.

I did not and do not duplicate J. Paul Getty's 14-hour work days. Nor do I laze like the horse-player who
dreams of fabulous wealth. In reading the stack of books, past and present, and in handling transactions
through the discount broker, and in doing ballpoint calculations with blank paper and the financial page, I
put in the time and effort necessary for the business of options. Do things right and you will have leisure
time.

Long hours of hard work are often necessary but are no-guarantee of fortune. Spend 12-hours a day writing
an Elizabethan-style verse-play in iambic pentameter for Broadway. See if the backers or the ticket-buyers
pour forth the cash. Good business is less a matter of clock-time than of gearing oneself to the financial
realities of the marketplace: What will people pay money for? Thus Getty's Third Rule--"Find oil"--can be
taken symbolically as, "Have something to sell."

The word "proletariat" literally means "those having no property except their sons." In actual usage, of
course, it means those having nothing to sell except their labor. The industrialist has manufactured goods to
sell. The farmer, crops. The shop-owner, retail wares. The broker, stocks, bonds, futures, options. Thanks to
spread strategies, options are among the few items in the strongbox that can spin off near-duplicates of
themselves.

I favor option spreads because of this generating power in the "something to sell" department. Can a barrel
of Getty oil create or beget another barrel of oil? If you buy an antique car, you may be able to resell it later
for a nice profit. But can it spin off another antique car that you can sell on the day of your original
purchase? Likewise a parcel of land, Swiss francs, gold Krugerrands--No can do.

In launching an option spread-known in brokerage terminology as "opening a position"-- I have a flagship

rule: Do not go into business unless somebody else pays for more than half. Soon after the start of March
1997, I noticed something interesting about the NASD stock Vivus (stock symbol VVUS; option symbol
VVQ). Although the near-in-the-money options for March expired in less than three weeks, their price was
more than half that of the equivalent April's.

In opening a spread with call options, I look for a stock that is trending upwards with strong earnings and a
good price/earnings ratio. With put options, the stock should be trending downward and the lousier the
earnings the better. According to Barron's and the Wall Street Journal, Vivus hovered in the high 50's and
low 60's from a 52-week high of 811/4 with no earnings for the previous 52-weeks and no price/earnings
ratio. Stock-holder hell is put option heaven.

The gap between Vivus March 55 and April 55 puts was about a point and a half with the March trading for
a little more than that. I phoned the discount broker and said I wanted to open a spread position, Vivus put
options. Buy 10 with an expiration date of April and a strike price of 55. Sell 10 with an expiration date of
March and a 55 strike price. With a point and a half debit. Therefore, the amount at which I would buy was
open, as was the amount at which I would sell, but the differ-between them was fixed at a point and a half.

What I phoned in was a "day order" as opposed to a "good till canceled" one. Near the end of that March 5
trading day I called in and received the results. Bought 10 Vivus April 55 puts for 3-1/4 points. Sold 10
Vivus March 55 Puts for 1-3/4 points. Notice the difference or "spread" between them: The "point and a
half debit" fixed when the order was entered. In dollars and cents, I bought 10 option contracts for $3,250
and sold 10 for $1,750, paying only the point and a half "spread" or $1,500 difference plus commissions.

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Paying for the April 55s I bought: $1,750 from the sale of the Marches and $1,500 (plus commissions) of
my own capital: More than half somebody else's money! Call it lift-the-phone capitalization. Call it a silent
partner. Call it sucker money from the slot machines. What is it not? No beating the backwoods for
customers. No advertising for clients or business partners or financial backers. No Initial Public Offering
shares lying unsold in the desk drawer. Owning options gives you the right to create and sell options. The
biggest molten gold nuggets ever to come out of the dirt could not claim as much. No 14-carat spreads.

When the 1965 New York World's Fair was in the planning stage, many feared that pickpockets would
swarm to the fair ground. Instead, the fair had very little trouble with pickpockets. Police figured out why.
Pickpockets would not pay the two-dollar admission fee. Too big an investment! However, one can be
"stingy with capital" lawfully and smartly, like the spread strategist who routinely pays less than half the
total.

With spreading, profit is usually made via time-decay. On my Vivus venture, for example, at the end of the
first full trading day after the day I opened the position, the March options lost one 12th of their time value
(one slice off the 12 trading days until expiration) while the April's lost only one 32nd of time value thanks
to the expiration 32 trading days later. The point and a half gap or spread between the market prices of the
March and April options grew to a fraction over two in a few days.

The performance was cut short when the market value of Vivus shares descended below the 55 strike price
of the puts. I had to pull out to prevent an exercise of the March 55s, the "short end" or obligation end of
the spread. Since in-the-money options are "assigned overnight," there would have been no problem if
Vivus shares had temporarily fallen below 55 then climbed to "at or above" that figure before the end of the
trading day. But as the March 13 trading day neared its close, the stock was bedding down below that line.

I phoned the broker and said, "I want to close out the position at the market." I never say "at the market"
when opening a position. As already indicated, I give a specific debit amount or what-I'll-pay amount or in-
the-gap amount. The way option prices fluctuate, saying "at the market" when you apply to open a position
could result in your spending or investing 50 percent or more than you intended, e.g., two and a quarter or
more instead of a point and a half, stacking the numerical deck against a profit. When closing out a
position, however, "at the market" is fine for a quick bail-out. I netted $784.71 after commissions, just over
50% profit in six trading days.

Mention deserves to be made of the availability of both puts and calls, enabling the option trader to play a
stock's rise or fall with equal ease. It has always been possible to profit from the decline of share prices by
selling short. Yet this has perennial disadvantages, both financial and psychological. For the long-player of
stocks, the potential loss is limited since share prices cannot fall below zero, but for the short-seller no
barrier exists on the upside. With Vivus I could have lost the optioned $1,500, but no more than that. The
play-the-downside ghosts still wail in vast numbers over Resorts International's shooting star, also called
the short-seller Alamo.

The psychological drawback may be viewed either seriously or lightheartedly, with me preferring the latter.
Short-selling has long been regarded as the investment ghetto, if not the villainous cabal, the 5 percent who
bet on stocks to go down while everybody else roots for them to rise. One investment book contains a
chapter entitled, "It's Not Immoral To Sell Short." The author actually felt it necessary to explain that the
practice is not exactly like mugging a grandmother.

A smattering of the stigma has spilled into put option trading, less than a lot but more than zero. In a July
share-slide I took profit on an IBM put spread just before the stock rebounded. (I had relaxed my rule
against spreading puts under a company strong in earnings and fundamentals. The result was a profitable
close shave.) A young woman stockbroker said to me only half teasingly, "You played IBM to go down?
You had better pull down your shade before you break out the champagne and celebrate."

I have amply used both calls and puts, with both delivering mostly profits but the latter delivering the irony.
Around New Year 1996, the commentator on the financial cable channel lamented that 1995 had been a

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dismal year for investors. I had done well thanks to put spreads under Latin American shares and other
stocks. Ah, the forbidden zest of hearing a joyful song in your head while they play mournful music.

In recent weeks, a female financial analyst on TV practically wept over NASD tech stocks. My Ascend
Communications put strategy could have dried a few tears. In trading and finance, every sorrow is a joy to
somebody else, and vice versa. The pursuit of joy includes switching sides occasionally. When a stock
price decays and the right options are there to meet it, I can understand Washington Irving writing about
"something pleasant and touching in its very decay."

Why are we treading the worn stones beneath the chiseled traceries of Westminster Abbey? Because I still
insist on traders and investors being Renaissance men and women. You have a better chance of staying out
of those Cash For Gold shops if your heart strolls the colonnades and courtyards of Europe in the 1500s.
Notwithstanding his fondness for British places including abbeys, novelist Henry James (1843-1916) made
14 trips to Italy during his lifetime and made some noteworthy observations.

What he saw included Venice of the late 1800's as described by John Addington Symonds in Sketches and
Studies in Italy and Greece: "We carry away with us the memory of sunsets emblazoned in gold and
crimson upon cloud and water; of violet domes and bell-towers etched against the orange of a western sky;
of moonlight slivering breeze-rippled breadths of liquid blue; of distant islands shimmering in sun-lighten
haze; of music and black gliding boats; of labyrinthine darkness made for mysteries of love and crime; of
statue-fretted palace fronts; of brazen clangour and a moving crowd; of pictures by earth's proudest painters
cased in gold on walls of council chambers where Venice sat enthroned a queen."

Yea, Venice has always brought out authors' penchants for descriptive writing. With artists, a key vision of
more than one was to personify the city as an enthroned sea-queen receiving offerings of pearls from
Neptune and the Tritons. Tintoretto and Veronese both painted huge ceiling art on this theme surrounded
by gold ovals in the Ducal Palace. In Italian Hours, Henry James wrote of the Ducal Palace, "The reflected
sunshine plays up through the great windows from the glittering lagoon and shimmers and twinkles over
gilded walls and ceilings. All the history of Venice, all its splendid stately past, glows around you in a
strong sea-light.

"Every artist here is magnificent, but the great Veronese is the most magnificent of all. He swims before
you in a silver cloud; he thrones in an eternal morning. The deep blue sky burns behind him, streaked
across with milky bars; the white colonnades sustain the richest canopies, under which the first gentlemen
and ladies of the world both render homage and receive it. Their glorious garments rustle in the air of the
sea and their sun-lighted faces are the very complexion of Venice . . . "Veronese revels in the gold-framed
ovals of the ceilings, multiplies himself there with the fluttering movement of an embroidered banner that
tosses itself into the blue . . . The mixture of flowers and gems and brocade, of blooming flesh and shining
sea and waving groves, of youth, health, movement, desire--all this is the brightest vision that ever
descended upon the soul of a painter."

Florentine Renaissance artists were stand-outs in form, Venetians in color. Influencing the latter, earlier
Byzantine art and Gothic art counts as two factors, a third the visual splendor of the city and surroundings,
celebrated by Symonds as "that melodrama of flame and gold and rose and orange and azure, which the
skies and lagoons of Venice yield almost daily to the eyes."

Yet rich colors and shimmering sea-light could sometimes be omitted. In the Church of San Giorgia
Maggiore, Tintoretto painted a dusky "Last Supper" which John Ruskin described "We are reminded that
the subject is a sacred one, not only by the strong light shining from the head of Christ, but because the
smoke of the lamp which hangs over the table turns, as it rises, into a multitude of angels, all painted in
gray, the color of the smoke; and so writhed and twisted together that the eye hardly at first distinguishes
them from the vapor out of which they are formed.

"The picture has been grievously injured, but still shows the miracle of skill in the expression of candlelight
mixed with twilight; variously reflected rays, and halftones of the dimly lighted chamber, mingled with the

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beams of the lantern and those from the head of Christ, flashing upon the metal and glass upon the table,
and under it along the floor, and dying away into the recesses of the room." (From The Stones of Venice)

The eye that can appreciate such detail is markedly less likely to overlook the details inherent in stocks,
futures, or options. Henry James wrote of Venetian "masters, who form part of your life while you are
there, who illuminate your view of the universe." Your view of the universe includes investments and
speculations. These are tough enough without the disadvantage of Norman Arial as "illumination," a light
at the pyramid base!

So when you send a wire, do not wire for emergency money but for Venetian lace, glassware or gems.
Also, if you should need a pawnbroker or a bail bondsman, be sure to find one capable of discussing
paintings of "violet domes and bell-towers etched against the orange of a western sky" and "blooming flesh
and shining sea and waving groves."

A Couple Of Good Books - Buzz Ross

I am currently reading two very interesting books that pertain to trading and general markets. I strongly
recommend the first one, very germane to trading behavior, be thoroughly read, absorbed, and used
frequently as a reference -especially, when agonizing about liquidating a position? It is all about transacting
the second half of the trading (or investing) commitment -- the very reason for even bothering with the
markets in the first place (assuming you're engaged in this endeavor to make money)?

This jewel is the newly revised edition of It's When You Sell That Counts by Donald L. Cassidy. What a
dynamite book? For the trader that masters (and applies) the content of this work, the rewards must pay off
handsomely. There is much of value also for those of us who invent, evaluate, and develop trading
strategies. The book's tone is directed more to stock and mutual fund investors, but the psychological and
technical considerations are every bit as important and useful to futures traders. Needless to say, I cannot
recommend it highly enough!

The second book, more general but highly fascinating nonetheless, concerns arenas of inherent risk and
decision making. Recently published, Against the Gods: the remarkable story of risk by Peter L. Bernstein,
describes how we humans have interpreted our environment throughout our evolution, how measures of
risk evolved and developed, how we have dealt with inherently uncertain situations encountered in life, and
biographically sketches many prominent people who have made significant contributions to understanding
the nature of risk, including their ideas for dealing with uncertain endeavors.

A good deal of attention is directed toward speculative markets throughout the book, and includes various
misperceptions we indulge in. It's unlikely that this book will help you on a specific trade, but absorbing the
essence of the material might improve your overall approach to trading and the strategies that could work.
Even though I've barely read a third of the book, I'm enjoying it so much that I thought that those of you
who are unaware of it might want to read it also. Enjoy!

On page-10 of the July '96 Real Success Bulletin, in your answer to Henry Amann's question, you indicate
that "the Keltner Band formula, the basis for all the other resistance/support indicators" are available upon
written request. Since I do my own programming, I'd appreciate your sending the formula(s) and indicator
info to my address above."

Disappointingly, I never received a response and thought you might have been too busy at the time. By
now, the request has probably been lost in the abyss of other paperwork. However, I'm still interested in
obtaining this info. Thanks again. I enjoy CTCN and appreciate the work you put into making it all
happen?

Editor's Note: Sorry about the non-response, which may have been due to our relocating twice since last
summer and (or) our fax/telephone number changes and all our E-mail problems. Anyway, here is our
Keltner Band formula which we wrote using Omega EasyLanguage code:

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 Input: CoK (200) , LnBand (7) , Price (C) ;
Vars: KeltUp (0) , KeltLow (0), KeltMid (0) ;
KeltUp=Average(Price,LnBand)+
((CoK/100)*Average (TrueRange, LnBand)) ;
KeltMid=Average(Price,LnBand) ;
KeltLow=Average(Price,LnBand)- ((CoK/100)*Average(TrueRange,LnBand)) ;
Plot1(KeltUp,"KeltUp") ;
Plot2(KeltMid,"KeltMid") ;
Plot3(KeltLow,"KeltLow") ;

The above source code is Copyrighted©1997 by Webtrading Co., D.B.A. Commodity Traders Club News,
34522 N. Scottsdale Rd., #477, Scottsdale, AZ 85262. Phone: 602-595-1777 fax: 602-595-1717 e-mail:
ctcn@webtrading.com

Editor Comments

This seems like an appropriate time to address some recent requests from CTCN members for information
and (or) our recommendations on their possibly attending various seminars they heard about or saw
advertised or promoted in other publications.

Our members are also quite interested in the credentials of the trading experts who give the seminar.

There are perhaps a dozen or so vendors who are now giving or have recently offered trading seminars. At
these (usually high priced) seminars the promoter claims he will teach you how to trade successfully.
These seminars are usually held for 3-days or so and may involve classroom type instructions and lecture
over the weekend, occasionally combined with some real-time trading, normally on the following Monday.

Sometimes after the seminar is completed, you will also receive additional assistance such as limited free
consultation with the "trading expert" or with an assistant, fax services, software, etc. Also, after the
seminar is over you may be solicited by the seminar promoter to purchase additional products at extra cost,
such as a more comprehensive trading course or manual, additional consultation and advice, video tapes,
fax advisory service, more software or software add-ons, etc.

Daytrading the S&P 500 market seems to be the main subject taught at these seminars, but sometimes they
will also cover other markets and (or) position trades rather than only daytrades.

You should be aware of the fact its been alleged some of these seminar vendors either do not trade at all for
their own account or else do not trade successfully. Therefore, you should always ask the seminar vendor to
see his personal P&L broker statements. You should insist on reviewing a series of continuous monthly
broker statements from the seminar vendor, with no gaps involving missing months.

Some vendors will allegedly try to give you a number of daily statements in lieu of monthly statements.
Daily statements are of little value in determining if the vendor himself is really a successful trader. This is
because the vendor may be hand-picking which group of daily statements to show you. He may bypass
many losing days and stop the consecutive daily statements about the time they start to show some losing
periods. He may commence the daily statements about the same time a profitable run occurred. There in all
likelihood will be gaps rather than continuous statements for a long time frame.

If asked why there are gaps in the daily statements or they are not consecutive, or there are not many
statements provided, the vendor may say he did not trade at those times for various reasons. He may also
say he was trading a different or unrelated system, so certain days were not shown as they were not relevant
to the particular method he wants to sell you. Don't be fooled.

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You might even consider telling the seminar vendor you will only attend his seminar providing you see
consecutive monthly statements from his broker, or at least an explanation for his non-trading. Make sure
any broker statements supplied clearly identify both vendor and broker name and address. Also, make sure
the statements do not seem to be altered or have erasures or cover-ups.

If it turns out the trading expert giving, the seminar admits he does not trade at all, ask him why. He may
have a satisfactory answer. Sometimes a non-trading vendor may have great knowledge and his services are
very valuable. You should also know you still may get good value in the form of educational instructions
from a seminar, even if the expert himself is not an active trader or a successful trader.

However, if the expert admits he does not trade it should at a minimum raise some red flags. Perhaps his
method is too non-mechanical and involves too much judgment, or is too subjective to trade successfully.
Perhaps the drawdowns are far too high. Perhaps his method has too much risk. Perhaps his method does
not disclose a workable stop-loss or exit method, etc.

Other things to look for are items like does the vendor appear to be successful himself. Does he live in a
nice house and live in a good neighborhood? Does he drive a nice automobile? I recall a few years ago the
story of two vendors who were widely promoted and referred to often in the pages of a competing
newsletter. It was alleged by traders who met these two well-known vendors that one drove an old rusty
car, and the other one drove a car with a cracked windshield because he did not have the money or
insurance coverage to get it repaired. It also was alleged by a trader who visited, one of them lived in a
small old rundown house located in a poor neighborhood.

Other things to look for are minor things such as does he have a separate dedicated fax line or does he only
have one telephone line, perhaps using a fax switch box, to save money by not getting a second line
installed. Does he use an old obsolete computer or not even use a computer himself? Does the vendor not
have a data feed or not use TradeStation, because he says it's too expensive? Is the vendor easy to reach
during the day or is he rarely there and utilizes an answering machine or secretarial service?

Does the vendor have another unrelated job besides doing seminars or selling systems? If so, why does he
need the other job, why can't his trading activity or seminar/system sales produce sufficient income for him.

I have heard of or known a number of trading product/system vendors and system computer programmers
who at the same time they were selling trading systems or programming them, they also had other jobs.
Such as being a salesman selling unrelated products, accountant, doctor, engineer, computer programmer
employee of an unrelated (to trading) company, even one I knew personally who worked as a Los Angeles
city bus driver while he was programming trading systems!

Is the vendor willing to provide a number of testimonial letters from clients? Be cautious of letters that
were retyped by the vendor to allegedly make them more readable. Insist on a photocopy of the original
testimonial letter in the clients own handwriting or done on his own word processor.

Also, be wary of testimonial letters coming from well-known people in the industry, such as an editor of a
trade magazine, another system or trading product vendor, etc. Some of these people will frequently give
glowing testimonials without actually using, analyzing, reviewing, or even knowing much about the
specific product. It's alleging testimonials from people in the industry are of questionable or dubious value
in evaluating products. Testimonials from individual private traders seem far more valuable.

Highly complimentary testimonials are sometimes given by well-known industry figures (more often than
you would imagine), in exchange for getting their name published, or as a personal favor, or sometimes as a
swap in exchange for getting their own product recommended by the vendor, or for receiving a testimonial
letter covering their own product/service from the same vendor.

Of course, most vendor testimonials are truthful and legitimate. However, some testimonials are plain
fraudulent, fabricated, or exaggerated. At one time we spoke with a trader who was the author of a very

715
well versed and widely used testimonial letter. It was being used heavily as a powerful sales tool by a
vendor who sold trader psychology type of tapes and manuals. This trader, who was a former client of the
vendor, told CTCN the testimonial was partially fabricated, exaggerated or misstated, and many words used
were not his own.

After looking into the circumstances and some admissions by the parties involved, it was determined this
well-known product vendor had an advertising/public relations type of agency compose and type this
testimonial, using the client's name and address and some actual words of the client. However, they
allegedly twisted, exaggerated, or misstated what he really said, or the true meaning of his words. This way
it all sounded much more positive, more powerful and stronger than the client really intended his original
words to be.

This misleading testimonial was mailed by this particular vendor to tens of thousands of unsuspecting
traders whose names were on a mailing list, many of whom purchased the vendors products based in a large
degree to the twisted and exaggerated testimonial letter.

This is a continuation of the Editor's Note about the Book Review by Don McCullough. Both a mechanical
(or at least a partially mechanical) stop-loss and exit method at a target price are vital to the success or
failure of any trading system. Even a stop-loss and target price placement technique which is not 100%
mechanical and allows for some flexibility and judgment is better than no exit method at all.

Sometimes a trading method or system, be it offered via a book, seminar, trading course or manual, or
software, will not include specific stop-loss and (or) profit target exit prices. Unfortunately, it has been
alleged the reason this important matter seems to be avoided by some vendors is the fact the vendor was
unable to calculate a mechanical stop and target level which "works" successfully with his method.

Perhaps the best stop/target level the vendor was able to come if with really does not work well with his
system. By revealing his recommended stop/target it would be easy for the trader to program the system
into TradeStation or another testing type of program and back-test it and also follow it in real-time. Then
the vendors' client would find out the method he purchased really does not "work," at least with decent
profits combined with low risk and low drawdowns.

By omitting a stop-loss/ and target price methodology the trader would have great difficulty verifying
whether the methodology "really works." If he had a way to test it and found out it did not "work," he then
may possibly return it for a refund, which of course the vendor understandably wants to avoid!

We are not saying any particular vendor has done this. In fact, we have heard or read a number of good
things involving Linda Rashke and Mr. Conners over the years and they have done some valuable work
and received excellent testimonials.

The deliberate non-disclosure of a sound stop-loss and target price exit method is a fairly common practice
with many other trading system vendors. However, in the event a methodology or system does not include
mechanical stop-loss and exit instructions it still may be worth your acquiring it. This is because it could be
quite valuable in other ways, such as entry and timing methods, discipline, money management, etc.

Another reason this goes on is the fact a surprising number of traders do not realize how critically
important both stop-loss and exit orders are to any trading method or system. We have seen a number of
systems where a very small and seemingly unimportant difference in a stop-loss or exit price method made
a dramatic difference in the systems overall P&L. Your editor has personally made many trades over the
years where a one or two-tick difference in his stop or target level made a difference of many thousands of
dollars on a specific trade.

Unfortunately, many conversations with a number of traders over the years have led me to believe a
significant percentage of traders (including many experienced ones) fail to fully realize just how huge a
difference accurate stops and targets are to their methods trading success or lack thereof. It seems most

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traders wrongly believe the technical algorithm itself which signals the trade entry is much more important
than anything else. In our opinion this is not correct.

It is our opinion the poorest technical entry indicators will outperform the best indicators if the poor
approach has sound stop-loss and target price methods compared to poor stop/target methods of the better
technical approach.

In fact, I would go as far as saying tossing a coin combined with excellent stop-loss and exit methods will
easily and consistently outperform almost any well-known technical indicator or set of indicators which are
using poor or nonexistent stops and target price methods. To be a successful trader you must know where to
get out of a trade and take your profits on winning trades and conversely must know when to exit a losing
trade.

On a different subject, some of you may be saying why don't we (or some of our article contributors)
always reveal the names of people, about who negative things have been said or alleged about in CTCN.
The reason is very simple. Namely lawsuits! A few years ago we asked members to contribute to a so
called CTCN Legal Defense Fund. This idea was supported with lots of positive comments but little real
money.

A frivolous or groundless lawsuit involving CTCN could easily cost a minimum of $10,000 to initially
answer the lawsuit. Much more than $10,000, perhaps $50,000 to $100,000 or so later if it goes to actual
depositions and trial.

Keep in mind, in addition to paying our local law firm, we will probably be forced to also hire an out-of-
state attorney to handle the suit, as no doubt our local attorney will not be licensed to practice in another
state. If the court venue stays in another state we would not only have to hire a law firm licensed there (who
no doubt would overcharge us), we also would eventually have to go there ourselves for the trial, etc.

Unfortunately, we have also in the past been forced (due to lawsuit threats) to not publish some articles.
This has only occurred a few times but that's a few times too many! For example, CTCN member George
Famy (who lives in France) once wrote an article for publication in which he was critical of a very large
Chicago discount brokerage firm. Before our publication George sent a copy of his article to the brokerage
firm.

A few days later we received a phone call from their attorney. This lawyer told us if we in fact publish the
article he will file suit against CTC for slander, etc. He said this was "not a threat but was a promise, and
promised he will be filing the suit instantly upon publication." As a result, we were forced (due to the
potential legal costs) to forego publishing the article.

Unfortunately, there is no way we can pay out tens of thousands of dollars in legal expenses, what with our
limited income resulting in your paying less than $100 per year to get our publication.

You may not know this, but CTC was involved in a costly lawsuit last year which cost us tens of thousands
of dollars in attorney fees, expenses, lost revenues and untold amounts of time before it was finally settled
out of court.

As a result, we are very cautious in mentioning specific names in our newsletter. Also the word "allegedly"
is frequently used. This means any negatives construed from the article are allegations, rather than proven
or verified correct information.

Recently, it seems there have been a number of advertisements in trade magazines and mass mailings done
by vendor's who mention their high Futures Truth ranking. These vendors use the fact their system was
rated highly by Futures Truth Ltd., apparently as their primary sales tool.

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In several past-issues we have warned our members of the alleged fact there seems to be little, if any,
correlation between the results shown by Futures Truth and actual trading results the system user normally
experiences after buying the system.

In the past we informed our members about this apparent oddity. We also told you we do not recall
speaking to anyone who managed to achieve the same results Futures Truth had reported. Several times we
asked John Hill of FT to write an article about this matter but unfortunately John decided to not respond.

As a result of our members allegedly losing lots of money trading many highly rated by FT systems, we
decided some time ago to no longer list FT's Master Performance Tables in CTCN.

We also made this decision due to Futures Truth's non-response in addressing this important issue, after
repeated attempts to get a written response to this significant matter from them.

Again, we are obligated to warn you not to purchase a system based mainly on the vendors advertising the
fact they are ranked highly by Futures Truth.

Please remember it has been alleged numerous times our members do not achieve good results with their
highly ranked systems. In fact, it's alleged most members lose money trading these top-ranked systems,
contrary to what they are led to believe by virtue of the glowing FT rankings and the vendors advertising.

Unfortunately, it has been alleged the ranking service offered by FT is of very dubious value. You should
also be warned a competing newsletter routinely recommends FT. When asked by its readers, they are told
to contact Futures Truth if in the market for a highly rated trading system.

As an additional co-mingling of these supposedly independent businesses, Futures Truth Ltd. and our main
newsletter competitor share web space on the same web mall and maintain links to each others site. This
way visitors to one site will normally end up visiting the other web site.

Of course, traders not only may buy both products, they also sometimes end up acquiring an alleged poor
performing trading system and allegedly end-up losing lots of money attributable to the high rankings given
the system in the "Futures Truth Master Performance Tables."

This issue marks the end of our 4th year of continuous publication. The premier issue of CTCN was
published during May 1993. We have managed to endure the constant threats of lawsuits from vendors
(including one actual suit) and continuing government involvement in the business of commodity firms like
ours. Including, the apparent requirement we must register as a CTA and forbidding our giving any form of
so called "trading advice," it may be difficult to continue publishing CTCN for another four years.
However, we will try hard to continue our publication for as many years as possible.

We have basically eliminated our classified ads which are printed within CTCN (rather than as a separate
flyer), except for a small advertisement by Greg Donio, perhaps our most prolific article writer and by far
the most articulate and interesting contributor.

A couple times In the past we have been forced to spend considerable time and expense answering legal
papers served on us by the CFTC. This was the result of an investigation involving a direct advertiser and
the CFTC wanted lots of information, which we had to send them. The CFTC must assume we have
detailed information on an advertiser (which we don't) who they are looking into because their ad was
printed in CTCN, rather than on a seperate flyer.

Thus, in the future we are only offering separate and segregated individual 8 1/2 x 11 flyer inserts and also
a new Classified Advertising Flyer insert page. This way we will avoid any conflict of interests or co-
mingling thoughts, even though this was never a real problem.

By the way, accepting advertising helps defray our postage expense thus enabling us to keep your
membership cost low.

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As you know, our e-mail address has been c/o The Microsoft Network. Like America OnLine, they also
have had serious problems. In fact, their E-mail facility was inoperable for a number of consecutive days of
late. This prevented us from receiving or sending any e-mail for an extended period.

MSN was our 4th e-mail address in 7-months and was "OK" for a while but now seems to have deteriorated
due to their recent "upgrade" and continuing serious E-mail problems. The upgrade is more glittery and
much more graphical than previous versions. Consequently it seems to run much slower, likely due to all
the glitter, very time consuming (in loading) graphics, and extra options and functions they have added. It
also includes automatic playing of music thru my computer speakers while trying to collect E-mail, which I
find annoying and distracting.

It seems MSN is mostly interested in chat channels, entertainment channels, on-line games, music,
graphics, etc., rather than fast and efficient on-line time and E-mail. For example, a recent 2-page letter
from MSN talked at length about all their glitzy and advanced new features but not one word was
mentioned in that letter about their E-mail facility. It seems like E-mail has taken a back-seat at MSN and
also at some other Internet providers like AOL and others.

Due to these concerns we have again been forced to switch e-mail providers. Our new e-mail address is
ctcn@webtrading.com which is our 5th e-mail address in 9-months! Unfortunately, the new local access
provider seems to also be having problems, what with more than occasional busy signals. However, overall
E-mail and Internet access is still much better than MSN. The new provider also says they are adding more
phone lines for improved access. Therefore, we will stay with them and see if we are satisfied.

Member Comments & Requests

Member Gerry Barrington wants to know if Internet access problems are caused by AOL or are the
addresses wrong.

I am reading an (old issue) of CTCN . . . having just fired off an e-mail to Ganntrader re: Delta Solution.
Hot to trot, I tried to reach the other two mentions www.elder.com and www.trading.com. Both of these
attempts failed to yield web sites going through AOL.

Are the addresses in the current issue full and complete? Could it be that these people have turned off their
web servers during a holiday week? AOL suggests traffic on the i-net. Can you get through? Please advise.

Editor's Note: The addresses listed were typed correctly in that issue according to the way we received
them. Try http://www. and then the rest of address. Our members should know we do not normally check
or verify the validity or accuracy of web site or mailing addresses and phone numbers given by members.
The access problems may also be due to trouble at AOL. As you probably know, users of America On-line
had great difficulties lately getting connected due to heavy usage resulting from their switch to a flat
monthly rate combined with alleged inadequate computers on their end. We also had serious problems with
Microsoft Network. See Editor Comments section for more on this.

Member Tom Cruckshank would like to know if any one of the readership knows about the Tide System by
Gil Castillo. Please respond through Dave. Thank you.

From Rod Bonvicino: Are there any sites on the Internet where I can view current futures charts - short-
term - long term and/or daytrading charts?

From Edward Chin: Does anyone know about a company called The Ken Roberts Company which offers a
course for about $200 on Commodity Trading? If so, any good or bad thoughts.

From Vernon Tyler Re: The InfoSeek Internet Search Engine took some time this weekend to do some Net
Surfing. InfoSeek (which PC-Computing, this issue, states is substantially improved) has worked nicely.

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 Also, found that (Jake) Bernstein, MBH Commodities, has a large presence. Search on "MBH
Commodities" via InfoSeek returns an large number of hits; refers to numerous MBH publications and etc.
So ignore the ring on that one.

Is Oldcastle Laboratory Greg Donio's Business Name? - Vern -- I suppose this is obvious, but I trust "The
New Donio Formula" (Oldcastle Laboratory) advertisement in CTCN is a work about Greg Donio's
methods?
Do you have a telephone number or address handy for Bernstein (MBH Commodities).
I was very surprised to see a half-hour TV Infomercial promoting a Bernstein course (ALA' Ken Roberts). I
don't have much interest in the course, but am looking for some of his other materials.

Editor's Note: Jake Bernstein's (MBH) telephone number is: 800-678-5253.

Yes, Oldcastle Laboratory is Greg Donio's business name and offers an option trading manual based on his
work. Greg prefers not to publish his telephone number but here is his advertisement with his address: "The
New Donio Formula (option methodology). Never before available, the locked-drawer blueprint for
independent trading as a limited-risk business, not a dice-roll. $70 payable to Oldcastle Laboratory, PO
Box 508, New York, NY 10276"

A special thanks to everyone who has contributed knowledge to this issue of Commodity Traders Club
News. Without you it would not be possible. Special Note: We ask you please do us all a favor by making a
contribution to the next issue of CTCN. Don't worry about your submission not being interesting or useful
to Members . . . rarely is that true. Usually, most all contributions, submissions and articles are quite
interesting and valuable to other traders, but the author usually does not realize the actual value of his
knowledge or experiences. Submissions can be any length, long or short; typed, handwritten or submitted
on a disk. Formal or informal. Please participate by sharing your information and knowledge with other
traders. Please make a contribution about your experiences, both good & bad with systems, services,
advisors, data vendors, and other trading related product. PS - Remember, as a special reward for making
just one contribution/submission per year, you'll receive an automatic 50% price reduction on your
subscription renewal.

Special Editor's Note to non-member traders reading this via the World Wide Web: This moneysaving
membership renewal offer is normally only valid for exising CTCN members. Now, via this new
Webtrading Web Site, it's also also available (for the first time) to new members. Simply submit your
article/contribution at the same time you join our group and save 50% on your initial membership!

Issue 38.

All About Vendors & Seminar Types - They Are Not All "Low-Lifes,
Preying Off The Public" - Larry Williams

Enjoyed your March/April issue and would like to add some comments about system vendors/seminar
types and the like. I clearly include myself in this category, but I also trade and have actively done so since
1965.

It appears many of your readers think people like myself are low life's, preying off the public. Certainly,
this does go on in this business, just as it does in all business. Yes, I have seen it go on over the years. But,
when I was on the Board of Directors of the NFA I saw a multi-million dollar scam take place in the
brokerage firm of one of the other directors, who to my knowledge was never reprimanded.

Let's look at some of the shots aimed at us. The most common is "If it's so good why are you teaching it?"
So, what should I do, teach bad stuff instead? I think not, what, if any reputation I hope to develop will
come directly from what I choose to show people and to what extent I am responsible for my actions. Good
system developers, seminar leaders and letter writers stay the course and have a habit of outliving their
competition as well as their critics. We are known for our products, not our personalities.

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Does this mean we should just listen to the elder statesmen, the tried and proven? I think not. That would
have us listening to George Lane who claims: He's a Doctor, he's not a real one; and ‚ That he developed
Stochastics, he did not, Ralph Dysant did.

New brains coming into this business of speculation have just as much opportunity to crack some of the
markets' code--and right to talk about it --- as us old guys. Truth, like oil, is where you find it, and there are
always dry holes. Young ones and old ones . . . so I'm all for giving new blood a chance to find what I
could not. The lack of experience may allow them to see what I have passed up.

Two men who taught me about the markets, Gill Haller and Bill Meehan, did not live in fancy houses, drive
fast cars or even have much money. But, boy oh boy, those guys were brilliant when it came to the
markets! They were true mental giants. I'm sure glad I did not use the rule of "check them out" or I'd still be
floundering. What I did do was listen to them and what they said was logical and backed by plenty of
examples.

Neither Bill nor Gil was registered with the Feds, nor am I. And why should I? Then they could ask for
and get the names of all my subscribers, regulate what I say and write about. Does my unwillingness to deal
with these bureaucratic, myopic socialists make me any less qualified or does it show I walk my talk, that I
do stand up for my rights and my subscribers? You'll have to decide that, and my life is a pretty open book.

You ask that we provide testimonials and copies of our trades . . . I think I was the first one to ever do that.
But, all it may prove is you have lots of admirers and caught a hot streak. Then again, it may not! It may
prove I've got a bunch of ringers set up to snooker the public.

Or, the lack of such documentation may show that my "followers" really don't want to open up their lives
(and books) to tire kicking traders. Plus, I really do not have time to "introduce" traders to each other. I
probably get 10 requests a week to refer someone who can vouch for my work. When times are slow, I do.
But all one has to do is check out the CTCR listings of our actual reports, if a newsletter writer, or read our
books and see for yourself.

Here's a confession for you. When I was much younger and "smarter" I reviled in devising systems and
sold my fair share of them. I'm now inclined to think that despite the continued success of most of these
systems, I probably did a disservice to myself and these people.

Why? Because things do change, markets, our insights, our understanding. So the idea of a system --- a
total immovable object --- flies in the face of ample evidence that there is in fact no Holy Grail or be all-
end-all (I used to really think there was, and that certainly lead me astray).

There's a good analogy between learning one of the martial arts and trading. In the do-jo (workout room)
the student learns the system of Karate, Tai Kwando, Judo, etc. The "master" teaches the system and it
works perfectly . . . in the do-jo. But, take it out in the street and you'll usually get your nose bloodied.

I think I can help my fellow trader more by teaching them how the markets work, how to think about the
markets and how to react . . . all piled on top of the trading approaches, systems and techniques that I use.
Still all this is not trading or fighting in the streets.

Finally, let me set the record straight on the real-time trading seminars that are now popular. Jake Bernstein
(MBH Commodities) was the originator of this concept. I have traded with Jake Bernstein at almost 30 of
these "affairs" and we've made money 28 times, and unlike an accusation in your commentary, I have never
sold anything at these seminars. No fax service, no additional "whiz-bangs" that you "must have."

This is getting long so let me sum it up. Trading takes skills, these skills can be learned and I've found
teachers all over the world who have helped me. Some I paid substantial amounts to and I've paid my dues
discovering what I have learned. It's public record that, in turn, many of my students have gone on to make
fortunes, quit their jobs for trading, etc. But, some lost all they started with too! How can I explain this

721
contradiction? My dad was a great carpenter, he gave me his tools and I literally could not build a dog
house. I tried, it was a disaster.

Some people pick these skills up rapidly and can go way beyond their teachers. Others could be given the
mythical Holy Grail and; a) not understand it and; b) lose money trading.

Speculating takes thinking, hard work and the ability to deal with risk, day in and day out. Some people
have the ability and desire to show others how they do it. Please don't confuse the generous act of teaching
with the validity of what is taught. And keep in mind that market "stuff" is priceless or not worth the paper
it's printed on.

When it comes to systems, hot lines etc., caveat emptor is the best thing I have ever learned.

Editor's Note: The editor comments in our last issue were about trading seminar vendors in general and
also referenced a couple seminar vendors who are believed to be doing (or not doing) the things outlined
therein. In fact, we believe most trading product and service vendors are honest and try to provide a good
product and do a good job. It no way did it refer to Larry Williams (or Jake Bernstein). More traders have
learned successful trading techniques and methods from Larry and Jake than probably anyone else over the
years. Larry is to be commended for contributing so much to the futures knowledge base.

Is It Really One Indicator to Profits? H.M. - Australia

Well I sit here reading the newsletter and thinking, "How the hell do these guys do it?" The ones who write
in and say they are an expert of many years, who don't disclose their indicators/systems and say they
managed to stumble on to this very simple indicator that worked and now the struggle is over and they just
trade away. After 9-years of testing and trading, I find I need 10 or more indicators to make a decent
assessment of the market. I call a daily, a weekly and a monthly each an indicator even if it is the same
length moving average for all. That means I've looked at three indicators already, so how do these winners
manage with only one indicator? What irks me is that they call it not only simple, but robust. Irksome in the
sense that I find it so bloody hard and they find it easy. Supposedly.

Rather like those tests they use at management seminars. Put eight matches into one triangle without
touching another match twice or some such mind twister. And of course, there is someone at my table who
instantly sees the answer without any effort and I'm still waiting until the tea break to see how it's done.

Yes I know the better systems are simple, but how do you do it with only one indicator? Or are there also
some things they look at, e.g., different time frames which are noted but not counted as separate indicators?

To me hearing someone is profitable using only one indicator is like winning a chess game in one move.
Maybe there are just many different approaches. I see myself rather like a net fisherman where it takes a
long time to build a net and prepare for its use, but it's fairly reliable as opposed to the bird in the sky that
can make it look easy with its quick plunge, but it only has one shot at catching the fish. Obviously I would
rather take one shot, but from past experience the one shot dive has cost me a lot because mostly my picture
was incomplete. I tended to peck into a lot of plastic fish.

Boy, in those early days it seemed so easy. Just soar overhead and dive on unsuspecting suckers. Sweet and
simple was my decision (analysis) sour and nasty was the taste (result) so much so that I was forced to pass
on the quick and "simple." I would prefer the quick and "simple," I just couldn't make it pay in real-time.

So hats off to you experts with your superbly profitable single "simple" indicators.

Factors Involved in Trading Success Keith Carr

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From reading the March/April copy of CTCN, it seems many traders have experienced a lot of the same
obstacles in achieving success in trading the markets that I have. There has been at least a couple of times
that I decided that trading commodity futures was just an impossible task, especially for the small trader
who is unable to monitor the markets intraday. I really struggled with the idea of defining which time frame
I could realistically trade.

The weekly charts are obviously the desirable charts to trade, but then the monetary risks associated with
the weekly time frame are beyond the scope of my small account size. So if the small trader cannot afford
to deal on the longer time frame, then entry and more importantly exits must of necessity occur on shorter
time frames. But if one cannot trade intraday, what can you do to protect against adverse moves?

Well, I thought, there must be some way to tie price action to time to be able to gain something of an edge
on the markets. After a heck of much study and research, I am not sure there is a way to effectively do this
on a statistically verifiable basis. There is much value to be placed on historical studies and forming
statistical databases to glean as much information as possible. But when you get right down to the nut-
cutting, we must trade the hard right side of the chart.

I have found the most effective approach for me is to observe what the market is telling me it wants to do
by analyzing on all different time frames, from monthly to 5-tick charts. It has really been helpful to have
delayed intraday data from BMI, even though I am not looking at it real-time. There are times just looking
at the daily charts just does not really identify how the price action formed during the day. Now I can really
quantify volatility to fine tune entries and exits; in this way I try to take intraday risks for weekly profit
objectives.

Of course, the methodology I am using enables this, but what is interesting is that through the interpretation
of the price action, the market also seems to say what it's not going to do. This information is just as
valuable, as this leads to a way for the small trader to be insulated from moves against your position. That
is option usage. An example of this might be to sell a call at a higher strike price than where you are
entering a long futures contract. This can help finance your stop-loss, and it is a statistical aberration for
price to move more than two standard deviations as a rule. So you are really not limiting your profits that
much, while gaining some extra income if price moves your way, and getting some protection if price
moves to the downside. It really pays to get at least a basic knowledge of options usage. There are
strategies that can enable profitability in different market conditions, such as trading-range markets that are
just basically going sideways. Neutral option positions and calendar spreads are some of the ways that the
small trader can steadily try to build up the trading account. This is not to say that timing is not important.
Timing is, but observing volatility can really help to define the right time to take action as well as the right
action to take in light of the present market conditions.

Some Other Thoughts on Vendors in the Industry

I for one have spent much more money than I should have on trying to become educated enough to try to
survive in the markets. Of course, when one is trying to learn about trading, it is not apparent until too late
that one may have been scammed. That is what is really irritating about intervention in the efforts of CTCN
to be a forum where traders can interact and find out about what works and what doesn't work, different
vendors, etc. Vendors should be willing to undergo the scrutiny that is due when they are trying to market a
product. That is a necessary part of a free-market economy. I have been extremely fortunate to have been
able to study the work of a for-real market technician and teacher.

The use of fraudulent lawsuits to prevent traders from finding out about others' experiences prior to a
possible purchase is absolutely appalling. I suppose we all keep on trying to succeed in trading, in spite of
all the obstacles. Because of the fact that trading is one of the last bastions of true free-enterprise available
to the average person, if you can pay the price of admittance to join that small minority of consistently
profitable traders. I hope to someday be able to day-trade professionally (S&P 500) as well as position
trade and actively trade options.

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 Does Murphy's Law Apply to Your Trading Methods? - Duane

Murphy's Law has implications for traders we ignore at our peril. Dismissed as unfounded popular wisdom
by some, the author of a recent article reveals scientific evidence which supports the existence of Murphy's
Law. Salted down with humor the article is informative, readable and applicable to traders. Chuckles
emerge as readers relate to examples given.

Few CTCN readers are likely to read "Scientific American," however all traders are encouraged to read
"The Science of Murphy's Law," by R.A.J. Matthews in the April '97 issue. Share your observations
regarding applications of Murphy's Law in your trading. This may help others recognize the odds which
favor the use of stops. More revealing, may be insight into unlimited risks one is exposed to when stops are
not consistently used.

I will encourage the author, Robert A.J, Matthews to apply his analysis to our field of commodities trading.
While in London in June, I will invite him to join me for lunch and a visit to the London Stock Exchange. I
will share with him my trading experience and need for objective analysis.

Hopefully, Matthews will address Murphy's Second Law, which asserts when Murphy's First Law occurs, it
does so at the worst possible time. In other words, if you normally use stops, but fail to do so 10-percent of
the time, what are the odds for having a limit down day? Or a series of them?

Similar studies may have been done in the past. If CTCN readers are aware of prior work in this area you
are encouraged to share them here.

A keen interest in the effective use of stops has been whetted by my current trading experience. My two
best (of ten) years trading have generated significant profits without the use of stops. Reliable sources
reveal that consistent profits are more likely, using larger stops. This strategy is limited to traders who can
afford to take significant losses. It is neither recommended nor applicable to S&P trading.

My grain trades generated 372% profits by 21 April. However, by holding to fundamental analysis and not
effectively applying stops, profits dropped to 192%. Both technical analysis and fundamentals favor the
long side as I continue to hold and prepare to add to those positions. But clearly, stops are needed for
consistent performance on both sides of a trade. Informed experienced traders are obviously using stops
above their long positions to take profits as well as below for protection. The reverse is true for short
positions.

If you have an input for discussions with R.A.J. Matthews, you may post them to my e-mail address,
duane@lava.net - Good trading

Looking Forward To Becoming A Confident Trader & Achieving Real Success In The Market - Roy
Kaylor

Thank you Dave for CTCN and all the good writers sharing from their hearts.

I have been helped in my trading of the S&P, "day trading" one contract. Readers have helped me solve
problems. I look forward to becoming the confident trader I can be. (After several whipsaw losses and/or
violation of my trading rules, I have been known to just look at the screen and not trade). To get out of it, I
find I can if I paper trade for a while to build back confidence. I am not where I want to be, but look
forward to the real success that is in the market. I am not where I used to be.

Also, thanks Dave for CTCN's Real Success tapes and manual. I agree with Thomas Mylotte in his article
(Dec 96) on the tapes. They do need to be upgraded. Thanks for getting that underway. Your Real Success
software is very helpful. My VCR did not let me read any numbers on the tapes and only when you
expanded the price bars could I watch your moves. Of course, the comments were vital and I learned more
each run. Most of all, I covet your confidence in order entry.

724
Further, it's so great that you have no apparent emotion if it is a loss. I agree the stops are too low at 60
points. I am using 80 and I actually place the stop order after the fill. I know the floor guys can pick them
off, but I believe I need the protection in event of reversals and stop slippage.

I use TradeStation 4.0, Real Success Software, ASC Trend (Prof Wang) on top of Real Success (Method)-
(same charts), TradeStation Trend Lines, 5-min bars are basic, but also separate charts using 3-min &
MACD, and 15-min, 30-min, 60-min and daily for trend reference. Usually ASC Trend is the lead signal
with Real Success swings to confirm. I am sometimes 20 seconds behind the broker and want suggestions
to help this. I plan to upgrade above 8mb ram for one thing. I use signal cable-plus to receive. Having real-
time stops come on each tic helps a lot. (ASC Trend 3)

I have sent you a printout showing Real Success Software, ASC trend, with trendlines and trailing stops. It
looks so simple. Just buy the blue bars (up), then sell the red. And Real Success gives confirmation. Keep
on Dave, you are a blessing.

My Advice - Your Decision Your Trading Will Improve Dramatically By Using Knowledge of Others As
Tool But Own Perspective - R. J. Ratchford

Trading is a business. Not only on the side of putting on actual trades, but the commercial aspect of trading
is definitely there as well, as I well know.

You can find myriads of books, videos, systems, trading software, audio tapes, seminars, and of course,
advisory services.

Advisory services are abundant. There are so many who offer their knowledge in the form of tips,
techniques, trade recommendations, and other various trading words of wisdom. You don't have to look far
for this kind of ware, for it will most likely find you. We truly live in an information age where it is not
difficult to sell ones expertise on paper, via e-mail or fax. What is my opinion of all this? Frankly, it's great,
if put in proper perspective.

There are many who really know how to analyze the markets. Over time, they have come across some
really good techniques. They have been able to isolate certain telltale signs of market action, or designed
indicators that in some fashion can prove quite useful. Why limit yourself, when there is so much out there
we don't know about?

From my previous articles, a point was made to not put too much stock in market gurus or market advisory
services. This is still my stand on the subject. Too many traders take what they read or hear, and then trade
on it. Soon, their accounts twiddle to nothing and they are out of the game.

I submit that there are no professional, profitable traders out there that have not read various books, seen
several videos, listen too many tapes, or considered a newsletter or two on the subject of trading. Why?
Because no one knows everything, but as a whole, you can get pretty close. Someone has information that
will fill a piece of your puzzle.

The thing is, these profitable traders do not make their trading decisions based on what someone else has
said, but on their own analysis. In other words, they may consider the analysis of another, but the decision
is theirs and theirs alone.

For example: Each week, Don Fisher of DGL fame sends out his market analysis to anyone who owns his
method. I have a copy of it myself. Because there are so many markets, I'll notice when he uses a phrase
like "this market looks like a good shorting opportunity" or something indicating a possible trade coming
up, and then do my own analysis on the market of question. If we don't agree, I will go with my analysis,
not his or anyone else. Not that there is anything wrong with his analysis, because frankly I think he does a
pretty good job, but the point is it is his analysis, not mine.

725
It is advisable to treat advice as that, advice. When you subscribe to an advisory service, and I think that
you can find some very good ones, make sure that the final decision is yours, and no one else. This is not
the same as saying "the decision to follow someone else's trade recommendation is mine." No, if you
follow someone else's recommendation, without doing some of the analysis work yourself, your results will
usually be worse than his. Often, the analysis is done by someone who doesn't even trade! So figure out
what that means to do worse than he does. Funny thing though, I've read some great analysis from these
non-traders!

My advice is to put advice into proper perspective. Use the vast knowledge of others as a tool to either get
you to pay attention to a particular market, or to provide you with ideas in which to form your own
decision. But from there, make sure you put a great deal of effort in coming up with your own perspective
of what the market is and will be doing. Your trading will improve drastically, this I also know from
personal experience. Of course, the decision to follow this advice is yours alone!

Swing Catcher Has A High Percentage of Predicting Market Direction & Made Money Using It - Lanne
Terry

I was amazed to find you are not currently using your Swing Catcher (S/C) for futures signals.

Editor's Note: We were not using it as we were concentrating our efforts on the Real Success
Methodology for both daytrading and position trades. In addition, we had problems getting it operational
again due to problems the program suddenly developed reading our CSI data. Barring any problem, as
Lanne suggests, we have "dusted off" our Swing Catcher disks and will be using it once again in the near
future.

Over the past six months I have watched the T-Bond signals daily and the Harmonic signal every 3rd-day.
The signals have a high percentage in predicting direction of the market, suggesting an entry at the next
morning's open. (There was approximately 30 regular signals and 12 Harmonic signals during this period).
The bad kicker is the stop-loss recommendation! The regular S/C signal asks to put a stop six ticks behind
the entry and the Harmonic asks for 66 ticks behind.

The number of ticks I've been using lately for a stop is 1/3 of the number of the ticks from entry price to the
target price (which S/C gives). Each day I move the stop to that number of ticks, but only if it reduces risk.
(Move only to lock profit).

I don't take signals in front of the FOMC or Employment reports at the opening. I do place an entry stop
order (in the direction of S/C signal) of 20-24 ticks to jump on the volatility around those reports. (Got two
fills this way!)

After commissions, I have made money using Swing Catcher in the foregoing manner the past few months.
My problem remains with trying to find the 'holy grail' which would give me a 100% correct system with
1% effort and time instead of honing what I already have. Somehow I don't believe I'm alone in this pursuit
or there would not be so many schemes on the market tempting us!

Some CTCN readers may wish to "dust off" their Swing Catcher Trading System disk and use the entry
suggestions therein. Other goodies in Swing Catcher include as example; with any futures contract in the
harmonic chart mode, it is very easy to see the trend without drawing a line. Many more such helpers exist!

Helpful Hints on Using SuperCharts - J. B. from Texas

It's my hope this contribution to the newsletter will be of some help if you are a SuperCharts user, or if you
are thinking about buying SuperCharts.

726
First off let's establish the fact SuperCharts (by Omega Research) is definitely on the cutting edge of
technology for technical analysis. For this reason alone we must expect that it will be exciting, but not
without some problems.

One can easily see the genius running throughout SuperCharts as you work with it. Bill Cruz deserves all
the success he is achieving through it. However, as you use it and are enjoying all its marvelous features,
you are going to find times when the genius went out to lunch. Therefore, we can only guess who
programmed the rest of it.

I encountered many problems and you will too if you buy it. However, that doesn't mean it's not worth
getting. It all depends on how badly you want your own ideas computerized, and how willing you are to
hang in there as each problem arises.

Here are just a few of the problems I encountered and how I dealt with them. The first was when I talked
with the sales lady about the product. I explained to her what my basic idea was that I wanted to program.
She assured me SuperCharts could handle it. But to my dismay, after many correspondences with the
EasyLanguage department, they determined SuperCharts could not handle it. So, I would either have to go
to TradeStation (much more money) or hire a Solutions Provider to program it for me.

Since what I wanted to do was actually very simple, I opted for the Solutions Provider and he accomplished
it with relatively little additional expense. The only problem with going that route is that you are going to
have to share your private research with someone else. This sort of undoes the whole concept of buying the
software, so you can do it yourself and keeping your research and ideas private.

My suggestion to you is that if you are contemplating buying this product, that you get the video on how to
use it first, and also the video on EasyLanguage. If your custom programming is going to be anything more
difficult than what Bill shows in the videos, your options are to hire a Solutions Provider to do it for you,
pay more money for TradeStation, or try the software from another company.

I found the two men in the EasyLanguage department very courteous and knowledgeable. The only
problem was that it took a very long time to get anything back from them. The irony here is being a novice
in this area. Many of my questions were so simple that they could have been easily answered if Omega had
provided better documentation with the product or a more comprehensive OnLine manual. My guess is
they could easily cut down on probably at least half of the inquiries to technical support if they included
better instruction and more examples.

I understand that with SuperCharts 4.0 they have included a bigger written manual. However, I have no
idea how adequate it is. By the way, I experienced the same problems with quality control that others have
noted in this newsletter. However, in each instance they made good on paying the additional FedEx charges
as well.

I will not discuss all the problems I encountered in using SuperCharts. But will zero in on two of them that
are particularly annoying, and how I have dealt with them.

Omega has a whole bunch of really good drawing tools. Some tools you will find extremely useful and
others you will enjoy experimenting with. The problem lies in the fact there is no place to use them except
over past data. That's right, I'm not making this up! There is no way to extend the drawing out into the
future, which cuts down greatly on the drawing tool's usefulness.

What needs to be done here is for Omega to make it possible to move prices from the last bar, backwards to
somewhere in the middle of the screen. This will leave a blank space on the right side of the screen where
the lines created from the drawing can extend. I found only one way to effectively deal with this situation.
The solution is to go into the Downloader and edit the data base. You need to create 20 or 30 more days of
data entries into the future. Naturally, there will not be any prices there yet, but it will allow a blank area to
appear on the screen.

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But this is only part of the solution. You will find that even after doing this, the lines you have drawn will
still not go over into the blank side of the page, nor will your pointer or anything else. Go to Tools and
click options. Then click Securities where you will find a box saying "show daily holidays," activate that
box. Now SuperCharts will think every blank day in your data base is a holiday including the ones you
recently added that belong to the future.

But you must do one more thing to make this work. Go to the last day in your data base and place a
fictitious price there in the box for the close. It's probably best to keep it near something to the actual close
of the last trading day in your data base. Only when you do this, will SuperCharts think the other blank
places are holidays. Now you can place your drawing tools on the charts and their lines will extend into the
future.

The only additional problem is that lines will also extend from every other indicator you have placed on the
chart. This creates sort of a cluttered appearance, but actually no worse than what is over the rest of your
chart. If that's a problem you might want to create a separate work space for using your drawing tools only.

The other problem I'd like to discuss involves entering your end-of-day data by hand. If you follow only a
few stocks or commodities, you will probably want to enter the data by hand instead of paying a quote
service.

This should be a routine procedure, but I encountered a particularly troublesome error. At least once every
day I would get a message saying OR_ DMAN. . . . has caused an error. . . . which would take you
completely out of the program. Not only would you have to start SuperCharts all over again, but you'd have
to figure out which was the last stock where the data was successfully entered.

I found the solution to this problem was essentially the same as the above, that is, to create 20 or 30 more
data places into the future. Then at the end of the day you go into the Downloader and click EDIT. You can
load all the charts in your directory and simply start filling in prices for today's date.

I have no idea why this works, but now the OR DMAN error appears only about once every three weeks or
so.

As fast as computer technology is moving, it is my guess that in only three or four more years the
competition will be as intense in this area of "program your own thing" as it now is in canned trading
packages that you can buy for under $100, and did cost two or three thousand dollars just a few years ago.

It is my hope that Omega Research will meet the challenge by first streaming and correcting the simple
performance errors in their product, as well as continue to create more and more of these amazing
innovations, which they are so good at. And also to realize that eventually as new competitors enter the
market, Omega will initiate a more realistic pricing policy.

Good trading to you all, and please, it you have any information about SuperCharts or their competitors, let
us all know about it.

Place Your Stop-Order After A Gap Opening Trading Tactic

Bill Raworth

Just wanted to share a trading tactic I've learned in 23-years of fairly intensive trading.

Let's say your system - or your good judgment tells you to enter an order to sell your long July Soybeans
tomorrow at 807 stop. Let's further suppose the beans close at 815 today, and the call from the pit tomorrow
morning is for beans to open 7 to 10 lower. Do not enter your stop, but wait 2 to 15-minutes after the open
and then place your stop at or just below the low of the day (if lower than 807).

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You'll find remarkably often your revised stop is not far from the best price you could have hoped to get,
and you'll be exiting your position later in the day at a much better price.

Three cautions: Don't try this if the morning call puts the price dangerously near a limit move; ‚ Don't try
this if you're so undisciplined that you might find yourself saying 10-minutes after the open something like
"I believe I'll give it 3 more cents room on the downside" and; ƒ Do exit the trade the day your stop is hit.

So Why Ever Take a Loss? - J. L. from Wimauma

Think about it. Given a reasonable amount of capital (as in any business), one need never take an actual
loss (in spite of the dogma, "Cut your losses, etc."). That rule was written by some broker somewhere in
cahoots with every floor trader who's ever run a stop.

I had best define "actual loss." One may take FIFO (first in, first out) "losses," rollover "losses," and under
the most extreme conditions (like breaking a 13-year high or low) may elect to risk an actual hedge loss.
That's it. And yes, that means that every trade is profitable. That's for the wag (like me) who says he can
avoid losses by never taking a trade.

So does one indiscriminately buy a contract and wait for it to be profitable? Well, yes - except for that
indiscriminate part. Do you think you should buy cheap, be able to afford it, and at least start out with
enough time left on the contract? Not to mention, it's sure nice to be able to scale buy some more if you're
early (not wrong, early). All this is surely advisable unless you happen to have an "indiscriminate" amount
of capital.

Case in point - "The Sleeping Giant" - what else but OJ. Have you guys been watching OJ for the last 5-
months? Naturally when you read this, this will all be history, but look back to May 12. Contract low is a
measly $1133 from the 13-yr low and prices started out the day almost there. Since I had been scale buying
July since March 10, and was therefore on about contract #15, my day looked like +$14,200. Did I have to
wait for it? Of course, but while waiting, my personal (here I go bragging again) method of taking some
profit and later repurchasing the same contract produced this bottom line: Max drawdown about $16,000,
closed out profits almost $5000, and about $2000 of those plowed back into the repurchasing process. Did I
bail out when I was probably slightly ahead over-all after this one day? Am I crazy? That's debatable, but
by design, I only actually pocketed $150. Will prices probably drop again (up too far, too fast)? Probably.
Otherwise how can I repurchase those last two contracts I sold!

Now that you pros have noticed those huge 5-mo descending triangles on the weekly and monthly charts,
(and all the 9-period fast-K divergences), I know those triangles were supposed to break downward, but
already low prices and the seasonals (thank you, Moore Research) argued differently. May looks cool, and
June might give me just enough trouble to put the final low in. By the way, isn't it great when a pattern does
the opposite of what it's supposed to do? Everybody "leaning the wrong way" sure lit a fire under this
markets you know what!

So by my numbers, a $5000 return on $8000 (half the max DD or roughly the daily average of the money at
risk so far) in two months=375% annualized in a market trending against me! O.K., you sharpies, I know I
left out the margin money (because it's not at risk, making in 1-yr T-Bills what many people think is pretty
good for "safe" money). And I've got a few more of those too in case all Hell breaks loose and 13-yr lows
beckon. That would be soon enough to consider that hedge loss I talked about earlier. The question
becomes should I accept a lot of money sooner or (if prices drop again) a lot more money later?

And please don't think I'm giving trading "advice." I wouldn't think of upsetting some G-man's tea
somewhere. If this publication is truly a pile of traders' experiences, then throw this one on the heap. You
know how to end the year with a $1,000,000 balance, start year with $2,000,000.

A Fraudulent Advertising Alert to CTCN Readers from Larry Williams

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A Mr. Jay Sames is advertising and using a totally fraudulent and misleading quotation. I have repeatedly
asked Mr. Sames to delete the following verbiage from his promotions:

Direct Quotes from Actual Letters I've Received! $1,147,607 in less than a Year.

"Yes, it is possible to become a millionaire in a single year. I know because I did it when I won the World
Cup Championship of Futures Trading by turning a small account into $1,147,607 in less than a year." L.
Williams-Iowa

THE TRUTH IS in a mailing Futures Magazine did, sent from Iowa, the above quotation, from myself, is
presented. BUT, the implication from Mr. Sames is that I wrote this, personally, to him regarding his
approach to trading commodities. Nothing could be further from the truth.

I do not recommend his course, do not know him, and am bitter over the fact he continues to use this
statement, misleading traders, after my many pleasant requests to him to stop. That should tell you about
the man, but also consider this:

He is also claiming his system has made over $18,000,000 in the last year or so. This is totally hypothetical
and speaks for itself. I encourage fellow traders to avoid all dealings with Mr. Sames until this problem has
been resolved.

(Here is his ad): "Read what others have to say about the profitable world of commodities...Direct Quotes
from Actual Letters I've Received!

$1,147,607 in Less than a Year.

"Yes, it is possible to become a millionaire in a single year. I know because I did it when I won the World
Cup Championship of Futures Trading by turning a small account Into $1,1 47,607 in less than a year." L.
Williams - Iowa

Huge Moneymakers - "The World's Greatest Investment" and "The Mother of Wall Street" arrived
yesterday. Thank you for writing and publishing them and making them available to the average person
such as myself. You did a great job of keeping them to the point. They will prove to be huge moneymakers.
S. Almond - Canada

The Next Success Letter I Quote Could Very Well Be Yours! $2,136,000 in 6-months - Free $295 Offer.
Call free for 24-hr Recorded Details..."

Question on Cash/Futures Diversion & "This Club Has Really Helped Me" - Charles McDaniel

What are all the ramifications of cash prices on a commodity? If the futures price is below the low of the
cash price or the spot market, what's going to happen and when? What of the reverse is true? How
important is the cash price?

Now on a side note. This trading club has really helped me on my trading. This publication has really
helped me. I know it sounds corny, but I love the guys and gals who write. I wish every beginner, like
myself had this material before we started trading. I'm making some good trades now. I'm developing a
simple, but good trading plan and most of it is from (information given by) these writers. When my plan is
fully complete, I will share it with everyone.

The Downside of Investing Money - "I'm A Fighter, I Will Win It All Back, Plus More in the Long Run" -
John Penterman

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I've been trading on my own since 1980. I've given my money to a broker who churned an account down to
nothing. I have given the money to a fund which had a specular return record and saw my $25,000 go down
to $2,000 in 6-weeks and the fund collapsed also at this time.

I gave $8,000 to Dan Falk of the Analyst Fund who falsified the fund values for 2-years, then ran when
people got onto his game. He was caught and then served no time because the government didn't want to
spend the money on a trail and after all, he was going to pay us back (per his lawyer). So far, in 8-years I
haven't received dollar one.

On 12-19-96, I was short a Dec96 S&P-500 740 call, which I did not get out of before the close. The
contract expired at a value of 6.65 or $3,225. The CME has a way of settling these contracts based on the
average opening prices next day. I got out at a price of $10,585, or an added cost of $7,360. I feel I was
legally robbed by the exchange.

I'm a fighter. I am coming back. I will win it all back, plus much more in the long run with position trading
based on fundamental information, scaling in positions and avoiding "panic situations" as much as possible.
The market has tough-ended me. I've paid my dues and now positive I can, with time, get my money back.
P.S.: To add to my woes - I'm 61-years ancient!

"Street Smarts" Stop Signs, and Safety - Barrie W. Blase

Let me state my bias right up front - I think that "Street Smarts" by Connors and Raschke is one of the best
books on the market today for commodities traders. It's simple, clear, and the methods actually work. This
is quite different from most of the stuff out there which is waste of your money twice - once when you buy
it, and again if you trade it.

I'm puzzled by Raymond Kohn's conclusion and Dave's comment that this book doesn't provide clear-cut or
mechanical tops.

Editor's Note: I have never read this book but was using Raymond's (assumed to be accurate, like all
contributions) assertion in his article as a lead-in to my editor comments. This was about the great
importance of trading systems in general having a workable stop-loss method for them to be successful.

It emphatically does! Each method gives a protective stop-loss for the time of entry and many include the
advice to then trail this stop as profits accrue. Even Kohn's review states, "Each trading strategy makes
generous use of stops to limit losses and protect profits." What's the problem?

Dave also discusses at length the need for "target price exit methods." Is there any evidence that these are
superior to trailing stops for exit? It seems to me that short of having an incredibly good crystal ball, there's
no way to accurately predict the price where you should exit. You can see support and resistance areas, but
you have no assurance the market will stop here. Often the best part of the move is the punch through old
highs or lows. I think it's better to simply liquidate part of your position as you approach these areas (or at
break even) and then let the market stop you out of the rest. Comments?

I enjoy CTCN- keep up the good work.

Editor's Note: When I referred to a target price exit method, I was not excluding trailing stops as a valid
exit technique. Trailing stops are indeed a workable exit approach. However, I prefer a target price as this
way you are getting out with the market moving your way. With a trailing stop you are exiting as the
market goes against you. A distinct disadvantage. However, Barrie is right in that it's difficult to predict the
price where you should exit. It's also difficult to decide on what trailing stop to use but is probably easier to
do than a target method.

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 "Hit and Run Trading" - The Short-Term Stock Traders' Bible (A Book Review) Plus: Commentary On
Exit Strategies - Raymond F. Kohn

I just finished reading "Hit and Run Trading" (152 pages - $100) by Jeff Cooper (Published 1996, by M.
Gordon Publishing Group, Malibu, CA)

Jeff Cooper is a full-time professional equities trader. He makes his living trading equities.

The focus of his book is "short-term swing trading" of equities (stocks). The book is written for "active day
traders." The trading time frames for most of his trading strategies range from intra-day to short-term (1 to
4 days). On occasion he might hold a position longer as the merits of the trade warrant.

This book is very similar to my previous Book Review on "Street Smarts." The trading methodology is
similar and the structure of the book is almost identical.

However, the primary focus of "Hit and Run Trading" is stocks, and not futures.

Everything that I had said in my previous book review of "Street Smarts," also applies to this book, "Hit
and Run Trading." Given that Jeff Cooper is good friends with Larry Conners, and they are using the same
publishing firm, it seems to be a logical assumption that Jeff used "Street Smarts" as a template for his own
book.

Just as in "Street Smarts," the trading strategies provided in "Hit and Run Trading" are "well structured,"
combined with a heavy dose of "pattern recognition."

Each trading strategy requires the use of stops to limit losses and protect profits. The author waits for
specific and well-defined chart "setups" or "entry patterns" to emerge during the day, (or over several days)
and then takes the appropriate position. His position exits are not formalized, and are more discretionary
and subjective in nature. Trailing stops are mentioned as a key element in protecting short-term profits.

In his book he says: "You will note that I am a discretionary exit trader. This means I often get out of my
profitable positions based on my instincts. I have found that experience, and experience alone, is the best
teacher when it comes to exiting a trade."

(Mr. Cooper's above quotation regarding exiting a trade could just as easily apply to the exit approach used
in "Street Smarts." This discretionary attitude regarding "trade exists and stops" represents the key down-
fall of both books. I will discuss this subject in more detail at the end of this review).

His strategies are simple and easy to implement. Naturally, a real-time data feed is necessary for trading his
strategies intra-day or short-term. He states: "I recommend you get the best data feed, hardware, trading
software program, etc. you can afford. Remember you are competing against hundreds of brokerage houses
and thousands of traders who have state-of-the-art equipment."

Jeff typically follows "high-priced" stocks where a modest move of 5 to 10% can mean picking up several
points of profit. He trades between 1,000 and 2,000 shares per trade and says: "I am usually right
approximately 60% of the time. If I can minimize my losses when I am wrong I am assured of remaining a
profitable trader."

I am sure we have all learned from investment experience that each investment vehicle, whether it is a
particular futures contract or a stock, has its own unique characteristics or qualities in the way it moves
throughout the day and over a period of time. Therefore, selecting the right" futures contract or selecting
the "right" stock can be more important than the trading system you use. Jeff acknowledges this, and puts a
great deal of emphasis on selecting the "right stock" to trade. He indicates that the ideal stocks for his
trading strategies are those which are higher priced, trending strongly, and are fairly illiquid (but not so
illiquid that his purchase of 1,000 to 2,000 shares would have an impact on the price of the stock), and are

732
under accumulation or distribution. (Note: An illiquid stock creates higher volatility and in turn greater
price changes when buying and selling pressure comes into the market.)

His strategies can be easily applied to other time frames such as daily, weekly or even monthly charts.
Markets generally tend to "move" in a similar fashion regardless of the time frame selected. Therefore, the
investment techniques you learn in one time frame can be easily translated for use in another time frame.
As a result, the value of this book is not strictly for those electing to trade intra-day because the strategies
and concepts can be easily adapted to generate entry points for position traders as well.

The author organizes his trading strategies into two basic groups. The first set of strategies is located in Part
One entitled "Main Strategies" which consist of five different "setups" or "entry patterns" which in his own
words are described as: "My main strategies reflect my five best strategies. If you told me I could only
trade two or three of my strategies, I would choose them from this list. These are my bread-and-butter
setups and allow me the luxury of being a professional trader."

The second group of trading strategies is located in Part Two entitled "Ancillary Strategies" which consist
of seven different "setups" or "entry patterns" which in his own words are described as: "The next seven
strategies are my back-up strategies. Most are just as profitable as the main strategies, but they tend to
occur less often."

Each trading "pattern," or "setup," is given its own chapter. Each chapter begins with a classic inspirational
quotation -- which added a nice touch. Each chapter is well organized with a brief introduction of the
trading pattern being discussed, followed by an easy to understand list of very specific "entry rules." Each
chapter also includes several sample charts which highlight that particular trading pattern. Each significant
bar on the chart is numbered, and a correspondingly numbered brief descriptive analysis is provided which
details the action taken at that point in the chart pattern. Each chapter ends with a summary which is
designed to give you an added personal insight and increased clarity about trading the pattern just
discussed.

(A Personal Note: I personally trade equities using the technical trading techniques which were initially
developed for short-term trading in the futures markets. I modify the various mathematical parameters for
use with stocks, and utilize a longer time frame. Given the different trading economics between futures and
stocks such as: The lack of high leverage for stock traders, bid/ask spreads, short-selling limitations, and
commission costs, I was never really sure how effective short-term technical trading tools would be when
trading stocks on an intra-day basis. Jeff Cooper's book not only demonstrates that it is possible, but that it
can be quite effective. However, he does make mention that commission costs are an important factor that
must be controlled for his strategies to have merit).

One of the last chapters in Jeff's book is titled "Walking the Talk: A Week of Hit-And-Run Trading." His
introduction to this chapter describes its purpose: "I thought it would be informative and fun to keep a diary
of a week of actual trading. I hope to show the good as well as the bad and I will let the chips fall where
they may."

Jeff's diary begins Sunday, June 9, 1996 as he plans for the week ahead. For each subsequent trading day
during the week, the date and the exact time are clearly identified as he records his thoughts, comments and
the actions taken at that moment. As each hour passes you can see how the various trades materialize, and
how he implements his trading strategies. This Chapter was a terrific addition. It clearly demonstrates the
practical application of his methods in a manner that might not have been as effectively done in any other
way. Jeff deserves kudos for providing us with this revealing and insightful peek over his shoulder while he
trades each day.

It is unfortunate and disappointing that Jeff did not provide the supporting historical testing for his various
trading strategies. With a few minor (and fully disclosed) assumptions concerning stop-losses and exit
strategies, he could have easily created a "mechanical trading model" of each of his strategies. And then
back-tested and evaluated those trading models in a SystemWriter or TradeStation like fashion.

733
At the back of the book, he offers an additional cost ($175) software package, which is an add-on module
for Omega's "TradeStation" or Omega's "SuperCharts," which when loaded will automatically identify the
various "entry points" and "setups" mentioned in his book. (Note: No mention is made about this software
package providing any "trade exits")

The lack of back-testing with reasonable assumptions for commissions, bid/ask spreads, and stop
placements, is a significant short-coming of this book, as it also was for "Street Smarts." If you purchased
and read Joe Krutzinger's book, "The Trading System Tool Kit" (which was the subject of a prior book
review), you can appreciate the significance of this "void" which could have easily been filled with a quick
run on SystemWriter or TradeStation. (Especially since they have already written the software code).

I did some experimenting on my own. It was a simple exercise for me to write the necessary code to create
a SystemWriter simulation of one of his primary strategies. I used five years of daily price history for a
stock that Jeff had selected himself, and used as an example in his book. (Therefore, variances in selecting
the "Right Stock" would be eliminated). I tested to see if the stock showed a profit at the close of each
subsequent trading day, ranging from day 1 thru day 5. My assumption was that if the entry signal was
correct, the trade would show a profit by the close of at least one of the 5 days following the trade.

The test results were not encouraging. However, this is not unexpected. Negative results are very typical
when converting a "well structured," but "somewhat subjective" system to the strict rigors of a mechanical
trading model. So this negative result, in of itself, should not discourage you from considering his
techniques. However, this negative result would indicate that Mr. Cooper's strategies (used alone), is not a
complete trading system. Each trader will have to discover and add all the missing elements which Mr.
Cooper failed to include, before his techniques become really usable as a trading system.

It has been my experience that technical trading systems can be divided into two general groups. The first
is the "strictly mechanical" systems whereby entries and exists follow specific and inflexible rules,
whereby, any trader following the rules could have achieved similar results. The second type of system is
"well structured" to the point of "appearing" almost mechanical in nature. But, in reality, the system's
effectiveness and profitability are based as much on the experience and subjective trading ability of the
developer, as it is on the proposed "trading rules" that he provides you.

Anytime a proposed trading system includes any "discretionary" or "subjective" elements, not unlike Mr.
Cooper's own words, when he says: "You will note that I am a discretionary exit trader. This means I often
get out of my profitable positions based on my instincts. I have found that experience, and experience
alone, is the best teacher when it comes to exiting a trade." Anytime you read a qualifying comment like
this one, or any other undefined amorphous qualifier, Beware . . . it is these seemingly subtle comments
regarding the application of the various discretionary elements in a trading method that will kill you.

For the experienced trader, who has acquired the knowledge of being able to read the market well, this
book can provide added helpful insights. But, as a pure trading system which can be used as described, it
leaves a bit to be desired.

Personally, I am a firm believer in the development of trading systems which prove themselves via the
rigors of "back testing." It is imperative for any trader to have absolute confidence in the trading systems,
methods and strategies he is using. And there is no better way of achieving that level of confidence in the
trading system you want to use than actually seeing the historical test results. Given the availability and
simplicity of today's back-testing programs, there is no excuse for not providing the historical test results as
part of any proposed trading system which is presented to the public.

If "historical back-testing information" isn't provided by an author, it behooves each of us to fill in that
unfortunate "void," and do the research ourselves, before committing time and money to the trading system.

That being said, I do not wish my comments to take anything away from Jeff Cooper's fine book. As I
reviewed my personal library, "Hit and Run Trading" represents a first-of-its-kind, (that I am aware of),
whereby a trader has applied the intraday short-term trading techniques, more typically used in the futures

734
market, to stock trading. The book is well done and worthwhile, and I recommend it to anyone looking to
expand their understanding of short-term trading systems, and entry point identification techniques.

His book, and personal trading abilities are a tribute to the concept that successful trading strategies cannot
only be simple, but very effective.

Personal Commentary on Exit Strategies & Stops

In closing I'd like to make the following observations regarding "exit strategies" and "stops." These
observations would apply to "Hit and Run Trading" and "Street Smarts," and most other trading system
books available today.

To begin, once you cut through all the verbiage, the bottom line is that a trader has to make two basic
decisions; First, when to enter a position and second, when to exit the position. It has been my experience
that most traders are focused on achieving success by finding that elusive "Holy Grail" of an entry system.
Most traders mistakenly assume that once you "correctly" enter a trade, the profits will just keep rolling in.
Given this "one-sided" view of successful trading, it is no wonder that self-proclaimed gurus, seminar
instructors, and the multitude of authors, focus their energies on providing would-be traders with the next
"secret of the universe" entry system.

I don't mean to be harsh, but for most system sellers, it's a simple matter of telling these poor uninformed
souls out there, what they want to hear, and packaging it in such a way that they'll pay good money for it.

Do you really think that the "long lost secrets of the universe" are being offered to you via a Bulk Mail
advertising piece? Gimme a break!

The last issue of CTCN had a great article by James Allen. His humorous sarcasm, and marvelous wit, was
not only fun to read, but more importantly, his article accurately portrayed the dirty truth about system
sellers. Mr. Allen has shared some hard lessons with us that we should all take very seriously.

Most information published today presents itself as being the next "killer trading system" that will make
you rich beyond your wildest dreams. These glamorous, high profile, entry systems are exciting, fun and
make fascinating reading. While, on the other hand, money management techniques, exit methods and stop
placement techniques aren't nearly as exciting, and are in fact rather dull and boring. For most of us, money
management is what you worry about after you've made some money.

The truth of the matter is that any entry method is only 50% of the equation for a successful trading system.
The other 50% of that equation is the exit method. And, despite popular biases towards searching for the
next great "entry system" with profits being protected with "trailing stops," there is significant antidotal and
research evidence that the chosen "exit method" is far more important in generating trading profits than the
entry signal.

"Futures" magazine just published a "Special Issue" titled "The Art of Day Trading." It is absolutely
terrific, and if you have not read it, you must make every effort to get a copy and read it cover to cover.
This "Special Issue" will give you more solid information on day-trading than a dozen seminars or books
on trading.

One of the articles in this "Special Issue" is titled "S&P Day Trading Systems: What works and what
doesn't" written by George Pruitt, who is director of research at an independent systems' testing firm. In this
article he rigorously tests the impact of various "trading exit strategies" and their impact on Profits,
Drawdowns, and Percentage Wins. Some of the "exit strategies" tested include "Protective Stops," "Profit
Targets," and "Trailing Stops." Each exit strategy was historically tested using various incremental dollar
amounts. The test results are both astounding and revealing.

In a nut-shell, Mr. Pruitt developed two very simple and basic "entry systems" which remained constant
throughout his testing of the various stop placement methods and exit strategies. Both "entry systems" were

735
identical with only a modest alteration to one of the systems in order to create a greater number of trades
over the 11-year test period.

His research results are mind-boggling. He clearly demonstrated how an identical "entry system" had
generated as much as $63,000 in losses over a given test period, and by just altering the "dollar amount" of
the protective stop, that same "entry system" was able to generate $58,000 in profits over the exact same
test period. And the only difference between the two test results was the dollar amount of the protective
stop.

In another test that Mr. George Pruitt ran, a protective stop of $750 was used. With this protective stop the
basic system generated $29,000 in profits over the 11-year test period. By adjusting the protective stop
level to $500 the same system generated $58,000 in profits over the same test period.

Mr. Pruitt's research clearly shows that the "exit strategy" you select for a given trading system, can make
the difference between generating excellent profits or horrendous losses.

By the time you finish this brief article and review his test results, you are provided with the inspirational
knowledge that knowing how to exit a trade can literally be more important than knowing when to enter the
trade. Mr. Pruitt ends his article by saying: "I've been told that 40% of research should be spent on the
system, and 60% should be spent on money management. In day-trading, your exit is your money
management."

Once you grasp the implications of Mr. Pruitt's research work, it becomes easy to understand why "system-
buyers," who diligently apply trading systems proposed by various authors and seminar leaders, tend to
lose money with astonishing regularity, (while the system developers may have actually made money using
their own systems).

The failure to provide specific "trade exit strategies" within "Hit and Run Trading," "Street Smarts," and
other books of their kind is a major short-coming that every reader should be aware of. A well-structured
entry is useless, without a well-structured exit.

Trusting Your Method - Rick Ratchford

Mcagle wrote: "Well, here is what I did today -- learning another lesson on how to trust the TTC. Canadian
Dollar closed yesterday at 73.45, with a low of 73.40 and a high of 73.62. After doing these calculations
below, I decided to go Long at 73.33 -- a few ticks above L1 -- when the market opened. When I checked
the early bids, they were running between 73.42 - 73.37. They joggled in that range for the first hour this
morning, and later in the hour was starting to settle in the upper end. Since I didn't want to miss getting in,
I went Long at 73.40 with a 73.20 stop. Mistake!! L1 said "73.3l," and that is what it meant! The market
closed today at 73.29!! -- two ticks lower and right on the number with the Fib. Range Levels Calculator!!"
(Info on TTC is available at http://fsoftpublishing.com)

I wanted to comment on this fine post by Mark because it teaches us a very valuable lesson that I have
come up against on many occasions. As with most of us, I've paid dearly to learn the lessons I have, and
continue to pay when I disregard them.

Mark talked about trusting TTC. Yes, it really does come down to trust, whether it is TTC or some other
approach to trading. So many times I'd be holding in my hand the support or resistance price I expect the
market to reach on any given day (usually a time day). Yet, the market will bounce all day up and down on
the other end of where I am expecting it, and I soon lose patience, thinking that I'm going to miss a good
move.

More times than not, it does come down to where I expected it, yet I already moved the order up, and I end
up with a less favorable entry price than I would have. It is almost as if the market is 'toying' with you,

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trying to get you to stop trusting yourself or your techniques. It is trying to convince you that you are in
error, and that you better jump on now or 'see ya!'

Many times I will just place my order in where I expect it to go, and if it doesn't hit me, I'll just write it off
and move on. Do I feel regret? Yes, I do. I kinda feel that I knew direction, but was off 30 or 40 points
because I did not figure it to react to a level I was unaware of. Sometimes we just don't know all the support
or resistance levels, because to get them, you must enter the correct variables of the past. However, sticking
with my pre-calculated order, I find I can get the win ratio higher than the loss ratio. The other possibility is
chasing the market, and this has its perils, needless to say.

So, the bottom line is this, trust your method, regardless of what it is. If you are going to use it, you must
have proven to yourself beforehand that it works, or why are you putting on big trades with it? When
testing, use single contract orders and even trade the MidAm until you're in the driver's seat in technical
confidence.

Then, once you've given your technique the green light, don't swerve from what it is telling you unless your
intuition is telling you something is wrong. Then at that point, just don't enter the trade. For once that trade
is laid down, stick with it. I know there are many day traders that think this is not good, and maybe for that
kind of trading they are right. But I know for a fact that for any other kind of trading, you best trust your
judgment before you go in, or in my humble opinion, your just gambling anyway.

Build up that confidence in the technique you've chosen as your market tool, and make your decisions with
the knowledge of knowing all the previous times it was right in telling you where to enter and wait. You
trusted it, and it repaid you many times over. Only when you stop trusting your method is when you start
taking on those annoying losses, your confidence starts to wane, and you start to look around for other tools
that can combat this problem, only to miss where the problem really lies. . . . with you!

The tools are plenty. Do you have what it takes to trust them?

"Woulda, Coulda, Shoulda"- Peyton Morgan

Just when it seems that all that coulda gone wrong had, the worst thing happened. I woulda called in my
stop, but didn't want to exit too early. I didn't want to sacrifice all those profits which I knew were to be
made on this trade. When I told my wife, she said I shoulda listened to her and never taken the trade.

Sound familiar? If it doesn't, we're not listening. If it does, read on. The woulda, coulda, shoulda's are the
next most dangerous disease to the might-as-wells. That's when we've decided to remodel the kitchen. The
budget calls for carpet but, you say, might as well have Spanish tile. All the reasons follow.

Things can get out of hand quickly without a well conceived plan. A trading plan (notice I didn't say
system) is an organized approach to running your trading business. We don't plan to fail, we fail to plan.
This is anathema to our trading.

A trading plan includes many elements. We'll talk about each of them over the next several sessions. It is
important to realize that trading, like any other worthwhile endeavor, deserves and commands your respect.
If it were easy, everyone would be doing it successfully. But, they're not.

Actually, trading is one of the least dynamic businesses we know. You can only be long, short or flat. The
markets only go up or down. You can close your business for the rest of the day, week or month at your
pleasure. Limited overhead, no employees, great hours, relatively low capital requirements are just a few of
the benefits of the trading business.

Many think that entry techniques are the beginning. Actually they arrive much later. The beginning is really
knowing how to trade and being ready to trade. Here are some of the topics we'll attempt to cover.

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So you want to trade? Getting ready, psychology, myths, records, margin, account size, testing, systems,
market, selection, setups, trade selection, entry, orders, trade management, money management, stops and
alternatives, exits, mistakes, and holidays.

Each of these could be the subject of a chapter or even a book. But without giving each their proper respect,
you'll likely be just another victim of the woulda, coulda , shoulda's.

Did I say this was easy? No, not at all. It's a business. Treat it like one for best results. Peyton Morgan,
editor@tradersdigest.com http://www.tradersdigest.com

Winner by a Nose! - Rick Ratchford

One of the greatest values of keeping a log of your trading activities is you can go back and note what you
did when you made money, and what you did not do that caused you to lose money.

Another fascinating thing such notes might show you, that if you are a short-term trader, had you just plain
exited your trade at the close of the same day you entered it, you may find that many of those losses would
have actually been winners!

Granted we are not talking a killing here. But then again, isn't it better to make even a small amount of
money than nothing at all? I bring this up because going over my notes, I noticed that in the last few
months, most of the losses I happened to run into started out as winners!

In fact, last November I had a Cocoa trade up $900 a contract and 'knew' that it was to go up until three
more weeks elapsed. Yes, I was correct, and it did go higher up to around the 1400 area, but not until it
went back down for a quick trip, taking me into minus land and causing me to exit with a loss. Needless to
say, I was pretty bummed about being right and not getting paid for my efforts.

Now, of course, I know what I did wrong, but that is another subject. What I want to point out though, that
from my analysis, it seems that I get moves against me usually within two to three days from entry. Why
risk it? Thus, I decided to take a wide view of what has transpired these last few months and contemplate
an approach that may prove worthwhile. I share my findings with you.

About one quarter of my trades were losers. Of that one quarter, 3/4 of those were winners for two days
until taking me out with a loss. At least half of those ended up going my way after all. However, I do not
gamble, and therefore take my losses up front and move on rather than 'hope' it would go my way.

What I found though is that if I had exited each trade by the close of the second day, only one tenth of my
trades would be losers, or one out of every 10! When I added this up, I found that I would also have made
more money, since I would not have given so much back as has been the case many times with the winners.
Winning 4 to 1 isn't that bad, but 10 to 1 is much better for your psyche. Since my losses are usually no
more than $200 a contract, this is good ratio even if wins will average about $150-$200 per contract.

So, going over the data, this is what I submit, leaving open the fact that real life testing is what I will be
doing for the next few months.

If you enter a trade and it goes your way, stay in till the next day. Only on Friday, exit the very same
day.

‚ If the day looks like it will close with a small loss, exit at the close. Don't go overnight with a loss, only a
win.

ƒ Place an order to exit close to the next sup/res price level depending which way you are heading (res if
long, sup if short), and come near the end of trading if it looks as if you won't get hit, cancel and replace the
order to exit at the close.

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With this strategy, I feel that many losses will turn to wins or break-evens. Of course, if your ability to
enter a trade in the bottom end of a move for a long or the top end for a short is not up to par, I would work
on that first. This suggestion is for those who seem to find and enter really early, start making money, only
to give it back more times than you care to. If you fit this bill, try this out yourself.

Trading Questions - No Name

I have two questions that CTCN readers might answer for me:

I recently read that it is a good idea to trade in the direction of the major trend; look for corrections in the
major trend that stall at key Retracement levels and time your trades with Candlestick indicators. Does
anyone with five years or more of active trading use Candlestick indicators in this fashion?

‚ Does anyone use the "Trader's Commitment Report " on an active basis to help with trading trends?

Please reply via CTCN for everyone to benefit from the answers to these questions.

Editor's Note: The Commitment of Trader's Report is now available as a link via our new web site, along
with a number of other informative links. This is our second web site. You will find it vastly superior to our
old site. It just went on-line on the Internet World Wide Web a few days ago. The address is
www.webtrading.com

A Level Playing Field - Rick Ratchford

As mentioned in previous articles from this author, as well as many greats such as W.D. Gann, one of
whom I actually learned the concept from, Time is an important element in making profits in the Futures or
Equities market. It is the deep belief and opinion of this author/trader that this element should be available
first before even considering anything else. The second element, and one which completes all the
requirements of market information needed, is of course price.

The markets are moved by perceptions of a large mass of people, and they tend to divide into many camps.
Yet, the remarkable thing about this is that no matter how aligned or divided their individual perceptions
are, once it has been placed into action, the market tends to make turns in areas that are in complete
agreement with natural laws. Yes, you can use mathematics to find all the areas of which the masses will
stop moving a market and go the other way.

To uncover these areas would provide the astute trader with the second half of the Time/Price equation.
Once this marriage is complete, there is no more that needs to be known about the market itself, other than
how to get in and out. Knowing 'when' and 'where' the market is likely to turn makes other devices
unnecessary.

There are many techniques that have become part of the public domain in relation to finding Price, and
some of these are really good. One such technique was published by W. D. Gann, of which I will share
with you here in this article.

Gann's observation of markets brought him to the conclusion that the markets moved to and fro within the
confines of natural mathematical laws. I agree completely, knowing that 'all things' are connected by
natural laws that exceed the current ability for man to understand. Yet, as Gann was able to discover, some
of this information is available and within our grasp, that can help a trader discover Price with a minimum
of risk.

Gann noted that the halfway point in a market range from a Major Bottom and a Major Top was a
significant support/resistance area. Once reached, it may in turn create Minor ranges, where the market has

739
turned between a Major Top and a Major Bottom to create a Minor Top and a Minor Bottom, or a Sub Top
and Bottom if you will. Halfway between this range again provides another Level of support or resistance.

For example: Say you take the Lowest price and the Highest price the market has ever made. You then take
the price difference of this Major Top and Bottom and divide by two. The result becomes one of this
markets support/resistance Level. Now, suppose after this Major Top is made, the market then comes down
to our halfway Level price and makes a bottom.

We can now take the range (difference) of the last Major Top and this new Minor Bottom, divide it by two
as well to get another support/resistance area for this market. Each time these support or resistance areas
form another Top or Bottom, you then have another range of which to find the mid-range point for support
and resistance.

Now, there are other things to consider here. Although the halfway point many times provides
support/resistance to prices, there obviously are going to be times it will fail to do so. What Gann had
discovered was there are other areas as well that provide such opposition to advancing prices.

Here is another simple function one can do to discover these Price Levels.

Take the range from a market Bottom to a market Top. The best to use are those with some width to them,
that is, some time has elapsed from one extreme to the other. A few weeks or more is best. Now, divide this
range by 8, providing you with 12.5% of the total range. Now, add this value to the Bottom price for your
first Price Level. As well, until you reach the market Top you used for the range, keep adding this value to
the last Price Level you completed, effectively dividing the range into eight equal parts. You may first
notice that the halfway price is included as well. What you have done is uncovered other areas of support or
resistance that most likely resist market prices once the halfway point gives out.

Take your charts out and try to for yourself. You will find it quite fascinating on how the market moves
within these divisions. So, if you have already solved for Time by whatever means is available to you, you
can now determine with a high degree of confidence the Price to which you can enter a trade.

Can't Imagine How Futures Truth Can Devise a Test Which Tells Anything Worth Knowing About Future
System Performance - Jim Allen

I am reading your comments about Futures Truth in the latest CTCN, how there seems to be little
correlation between what Futures Truth reports and "actual results a system user normally experiences."

I have read the diatribes against Futures Truth in these pages. These are mostly from vendors who have
some beef with the way the people at Futures Truth run things. Some are from people who have purchased
a trading system after reading glowing statistics in FT.

I would bet that each and every system is delivered with the admonition that "past performance is no
guarantee of future performance." This has become so commonplace that I am surprised that people are still
fooled. By the way, I am neither a fan nor foe of Futures Truth. I would like to see something done about
bogus system vendors.

As I understand it, Futures Truth obtains a version of the offered software (there has been some controversy
about how it is sometimes obtained) and runs the software, or the algorithm, through a testing program, to
determine what the results would have been if the system had been traded during the test period, and
reports results. Some systems are mechanical and can be exposed to past price series to give the same
results. Those which require operator input, judgment or decision making cannot be evaluated in this way.
Usually, the future is different than the past. The goal of this is to provide some basis for saying: whether
the software vendors claims are even close to being factual, and/or; ‚ whether the system produces
satisfactory profits.

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FT probably can do a reasonably dependable job of reporting whether or not the software performed
during the period of the test the way the vendor claims. I cannot imagine that FT can devise a test which
tells anything worth knowing about what will happen with a system in the future. As pointed out in my
article last edition, the most remarkably profitable systems seem to go to hell as soon as I start trading
them, and other people seem to have the same experience. Is this the fault of Futures Truth? I don't think so.
Is it the fault of the vendor? Well, strictly speaking, no, but vendors are going to have to learn that they
must make objectively supportable claims for their products, specifically with respect to the inference that
the user of the system will enjoy profits anything like what has been achieved in the past.

Editor's Note: Futures Truth Ltd., is a popular subject at this time. This is mostly due to publicity
attributable to a couple vendors who advertise heavily their systems are ranked highly by FT.

As discussed in our last issue. There seems to be little, if any, correlation between the performance results
published by FT and the real-time trading results of the traders who purchased these highly ranked systems.
As a result of this, it is alleged the Futures Truth performance results are of very dubious value to our
members.

Our new web site will have OnLine information on Futures Truth Ltd. titled "Allegations and the Truth
About Futures Truth." This is free and very interesting details on their operation, including a number of
accusations made about them. It will all be a mouse-click away shortly. The web site is now operational but
the Futures Truth Special Report is not yet on the site, but will be there soon.

The CFTC has been running around putting the clamp on some system vendors, claiming that they should
register with the CFTC as CTA's. System vendors howl like hell at that idea. But, so many claims made
over the years have been so bogus, so blatantly unsupported, so statistically misleading, and so many
dollars have traded hands on the strength of these inflated claims, that some regulation is probably
inevitable. I dislike crooks, and wouldn't mind seeing a regulatory scheme like FTC regulation of
medicines, which basically forbids the sale or offering of medicines until the manufacturer has
demonstrated to the FTC that the substances have some value in treating whatever it is for, poses no chance
of serious harm, and the use can be supervised by a licensed professional (i.e., Doctors).

Under this idea, before offering for sale any trading system, etc., the vendor would have to obtain a permit
from the CFTC upon a showing that this system was based on sound trading principles, had some basis for
a claim that use of the system would add some value to a trading operation, and testing of its past
performance was accurately and legitimately done, etc., etc.

This would go quite a ways towards eliminating the crooks, charlatans and con-men from the ranks of
system vendors, and give the legitimate operator a competitive boost, since he would no longer have to
"beat the cheat" to receive attention from the marketplace.

Losing Money? --- Maybe It's Not Your Fault - John Bond

There is a dirty little secret in trading that no one talks about. In Chicago they call it "cuffing." Cuffing is a
term originally used by card sharks who hid aces up their sleeves. In trading, cuffing is the act of a phone
clerk taking your order, getting a fill and then sitting on the fill until the market has moved. If the market
moves in the right direction the clerk will wait as long as he dares, perhaps 100 points or so, and then
announce the new close as your fill, as he exits the first fill. If you complain you're told it is just normal
slippage. When the market moves in the wrong direction to your order, you get the original fill which is
usually very close to what was displayed on your screen when you placed the order.

Talk about "low risk" trading, a clerk that is involved in cuffing has absolutely nothing invested and can
never lose a dime. For example, when the S&P market is moving he can skim 100 points or more in
seconds. That's 100 points or so when your getting in a trade and 100 points or so when your exiting. If he
is truly ruthless he can keep you in a losing trade until he has acquired whatever number of points he is
after. However, getting an occasional bad fill is not necessarily a sign someone is cheating you.

741
The way the system is set up there are many reasons why a trader can get an occasional bad fill without
being involved with a dishonest clerk. On the other hand, if there is a consistent pattern where you are
losing a large amount of points getting in trades and a bunch more getting out, you should be concerned.
Just the possibility that you might be trading with someone who is less than honest is worrisome. There
should be no room for that possibility to exist.

Phone clerks control large sums of money. Traders are expected to accept their fills and whatever else,
based on a clerk's word alone. Nothing else. What is missing here is a system of electronic checks and
balances. That is the heart of most problems in trading. The exchanges are using a system which depends
far too much on word of mouth. Times have changed and there is too much money at stake for this to be
practical. Banks and other institutions have eliminated similar problems with upgrades in computers and
systems that place less reliance on the human factor. Certainly the technology is available.

Using a system that relies on word of mouth is deliberately unfair to a trader. From the time an order is
given to a clerk and until it returns as a fill, a trader has no knowledge of what is happening to that order.
And yet the trader is held responsible for the fill. Let me put this another way. The current system refuses
to allow a trader to know who or what distractions may be slowing down his order, yet the trader is
obligated to pay for the results based on someone's word alone. Anyone from the phone clerk to the trading
pit can be careless or make mistakes and the only person who is going to pay for it is the trader.

This system is not only archaic, it is despicably stupid. If a trader is to be held responsible for a fill he is
entitled to irrefutable electronic confirmation of the entire path of each and every order. Having a computer
date, number and time stamp an order as it comes in, and then continue to track and time stamp the order
until it becomes a fill is nothing new.

It is technology that has been around for a long time. So why aren't brokers and the exchanges using it? It
certainly could eliminate errors or theft. As things stand now, trading is sharply tilted in favor of the
brokers and exchanges. I think traders deserve an even playing field.

All too often, even in a normal market, fills can come back as much as 150 points more/less than the close
at the time the order was given. For anyone using market orders this is a disaster. It is no wonder 90% of all
traders have problems. They not only must pay for their mistakes, but they must also pay for everyone
else's mistakes.

Change to protect traders is needed, but change will not come until enough traders demand fairer
treatments. Until then, if you want faster fills there are a few things you can do.

Take your trades direct to the floor- The floor answers the phone giving current bid and offer prices. If
you trade these prices you will get instant fills and equally important instant confirmations. Electronic
trading offers promise, but as it is currently available there seems to be problems getting instant
confirmations.

‚ If your broker will not let you go direct to the floor, ask about "conference calls." No matter how fast you
give an order to a phone clerk, your order cannot be placed until the clerk reaches the floor. By having the
clerk call the floor first, you get to hear the bid and offer prices. Then give the clerk your order based on
what you hear from the floor.

ƒ If your broker will not let you go direct to the floor, and refuses to offer you conference calls, and you are
not happy with your fills, perhaps it is time to talk to another broker. However, before you quit there is one
thing you can try. In fact, it is a good idea to try this any time you have a string of bad fills. Call the broker.
I don't mean the phone clerk, get a hold of one of the principals of the firm. Never accuse any one of
stealing! Wait until you are calm and collected and then make your call and explain your problem. Have all
the details of the trades in question available in case the broker requests them.

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The broker does not want to lose you because of possible problems with a phone clerk. Politely remind him
you opened the account because his firm advertises "flash fills in seconds." Ask him if there is anything he
can do to help you get better fills. This should make a difference.

„Always trade using a work-sheet. It may not help you get better fills, but it will help you be a better trader.
A work sheet can prevent you from entering a trade accidentally in the wrong direction. You can also use it
to check your broker's statement. Keep the time of each trade on it to the nearest second. It will help you if
you want to dispute a fill.

Most traders are people who have been very successful in life. But how long can anyone remain successful
bogged down with other peoples' mistakes and relying on the word of strangers? Think about it, just exactly
what is "slippage?" Certainly the trader hasn't done anything to cause it, so why are traders willing to write
off large amounts of points because someone they don't know uses that word? I hope other traders, brokers
and even the exchanges will take the time to share their thoughts on this in CTCN. Wishing everyone all
the best.

OPTIONS and SPREADS: Gemstones in the Blueprint Room or, Growing Apart Profitably - Greg Donio

At a cemetery, a man stood weeping before a grave. "Why did you die?" he sobbed over and over. "Why
did you die?"

Another man passing by noticed and tried to give some consolation. "Gee, this must be a loved one. A dear
member of your family."

"No, no relation," the weeper replied. "I never even met him." Then he began sobbing again. "Why did you
die? Why did you die?"

The puzzled passer-by asked who this was who would cause such carrying on. The mourner moaned, "It's
my wife's first husband."

The lamentation was not without some scientific validity. Surely one must be a thinker of sorts to weep
over a link in the complex chain of causality. A person active with speculative securities should be
similarly cause-and-effect conscious. However, said trader can do without the widespread human tendency
to blame everyone but himself, including the dead. He can also make better use of that ubiquitous tool
known as the word "Why?" which 99.9% of humanity misuses as: a griper and; ‚a too late utterance.

Scientifically, everything is causality. It has been said that every man is the architect of his own fortune.
Some variations say "fate" or "future." Anyway, he who does not ask "Why?" until the building collapses is
not much of an architect. If such a collapse is to be prevented, you must address causes and effects at the
blueprint stage. As a trader in stocks, futures or options, can you handle the hows and whys, the details and
causalities at an early stage rather than saying "What went wrong?" at a late stage?

Most people cannot. Remember that humanity never packed the blueprint room the way it packed Yankee
Stadium. Many financial writers have criticized many speculators for going into action without a definite
plan. Actually it is worse than the lack of a battle plan. It is bare-faced disregard for the simple fact that the
enemy might not co-operate.

The trader's enemy is whatever can go wrong. Many a venturer's expectation of winning is also the
expectation that the enemy will cause no difficulty on the battlefield. What reality! This is not the approach
of a smart strategist mapping a breakthrough.

At the blueprint session or battalion map session, understand what you are up against by pondering the
basic arithmetic. A thousand dollars must double only 10 times to become a million, 10 more times to
become a billion, 10 more to become a trillion. The stock, futures and options exchanges, the casinos and

743
racetracks all teem with vast numbers of people, each expecting to double his or her money not once but
countless times.

You know, of course, that not one in those vast multitudes has purchased the U.S. Mint. Immense hordes
end up without ham and eggs money. It cannot be stated too often that futures and options are both zero-
sum games: Somebody must lose a dollar for every person who gains a dollar; worse than zero-sum when
you factor in brokerage office expenses and exchange expenses.

In such a milieu, you cannot hope to pile up an impressive bank account unless you have an "edge" over
those other fortune seekers. I have found from experience that spread strategies with equity options or stock
options provide an excellent edge, although I acknowledge that spreading is also possible with futures
contracts and futures options. More about equity option spreads shortly.

For now, please accept this advice: Concentrate on good profits, not on allegedly fast and easy
astronomical wealth. What constitutes "good profits" will also be dealt with in more detail subsequently.
W.D. Gann wrote, "Handle speculation as a business, not a gamble." The AST program teaches, "Trade for
a living, not to get rich overnight." I would say, "Be less of the crap-shooter, more of the gem merchant."
The diamond dealer does not expect to keep doubling his money into infinity but he does keep taking his
profits to the bank.

It is the crap-shooter and the horse-player, and their anxious counterparts on the exchanges, who anticipate
doubling, squaring and cubing their cash into a mansion on Easy Street a month from now. They emerge
empty-pocketed and sorry they spurned a passbook or C.D. An effective financial strategy is gear-fitted to
reality and flexible enough to change with the shifts that reality brings. A noted surgeon told a group of
people, "I could teach any one of you how to remove an appendix in just 10-minutes. But to teach you what
to do if something went wrong would take four years."

Becoming a successful trader need not take four years, but you must learn the details and causalities, the
trouble-shooting and troubler-preventing. Let us proceed to make a blueprint. During my senior year at
Cherry Hill High School West in subur-south Jersey, history teacher Gregory Egner explained the
advantages and disadvantages of different types of business: Sole proprietorship, partnership and
corporation. What he said has importance for you and me because a trader is a kind of one-person business.

One of the advantages of sole-proprietorship was, "You're your own boss. If you want to close it up and go
fishing, you close it up and go fishing."

With options, I need not close up anything yet I can let the kettle simmer for a couple of hours, then check
it by phone from wherever I am. My office is in my pockets and my business phone is the public touch-
tone. Lunch at the Boat House Restaurant on Central Park Lake, then call the broker's 1-800 number for a
quote. The stock price crosses over the strike-price of the options unexpectedly? Close out the position and
take profit while at the Hudson River ferryboat terminal.

No, it is not all vacation. The study and research, the planning and maneuvering, must be of professional
magnitude. But handle it capably and you can divide an afternoon between a well-placed trade and an
exhibit of ancient Roman coins or Chinese jade or Cromwell muskets or Milanese tapestries.

Another advantage of sole-proprietorship: "Limited paperwork." Every broker complains that his business
is the worst in the world for enormous paperwork, but only a small portion of this falls to the individual
investor. Attaching to my Form 1040 Schedule D (Capital Gains and Losses) is the breakdown of option
"buys" and "sells" which totals only 10 to 12 pages. Yet this is the mother-lode of my income. A one-man
cigar store keeps records far more voluminous.

One of the disadvantages: "Unlimited liability." If an unincorporated shop or office goes into debt or
insolvency, the proprietor's home and savings face jeopardy. With options, liability can be either limited or
unlimited depending on the type of position. Sell naked calls and you risk infinity. Sell naked puts and the

744
risk is limited but can be substantial. If you sell 10 puts with a strike-price of 100 and the stock drops to
zero, your loss is "limited to" $100,000. How comforting!

With "horizontal debit spreads" also called "calendar spreads," there is no nakedness because the long-end
of the spread covers the short-end. If the short-end is exercised, the long-end produces the stock which
covers the short-end obligation. And, liability? Alas, the spreader loses the "in between" money he put up
and is required to pay commissions on the buy of shares at the long-end and the sale of them at the short-
end. This is with call options. With put options, you receive shares from the short-end and dispose of them
on the long-end, also alas.

Very, very fortunately, avoiding an exercise is quite easy. That is why the able spread strategist holds the
title "the bookie who never pays off." If a move in the price of the underlying stock places short-end
options "in the money," the spreader can buy back the short-end and hold the long, or he can close out the
spread completely by buying the short-end/selling the long-end. As I mentioned in previous writings, in-
the-money options are "assigned overnight"--matched up with exercise orders after the close of the trading
day. You are safe from exercise during the trading day, also if the options go out-of-the-money before the
close of trading.

Remember always the gold core of the well-planned spread: Most of the money in it is other people's which
helps to cushion and shield your own capital. This does not guarantee either profit or total protection
against loss, but it is a substantial deck-stacker in favor of the spread strategist. In contrast to what the
straight long-player of options usually experiences, this "other people's money" factor makes wins more
frequent, and losses fewer and less severe. Therefore, thankfully, the spread strategist is one sole-proprietor
who enjoys "limited liability."

A mournful disadvantage for the sole-proprietor: "Death ends the business."

In the high school class, one fellow asked, "How is that different from any other type of business?" Mr.
Egner explained that with a partnership or a corporation, the business can continue. "Yeh," the student said,
"but what good does that do you."

No, the focus was on what happens business-wise and financially after the last rites. The question is more
complicated for the option trading account than for the barber shop or the one-person realty office because
options, like futures contracts, are "wasting assets"--losing value with the passage of time and becoming
worthless after expiration. The money in the bank account of the deceased pharmacist or music store owner
keeps accumulating interest while the estate drags through settlement but the assets of the departed option
trader face danger of disintegration.

Of course, everyone should have a last will and testament. You state in your will, let us say, that in the
event of your death, all your holdings be turned into cash and used to fund a rest home for worn-out
Republicans. Beards can grow in probate court or surrogate court before the carrying out of that simple
"turned into cash" step. Months pass, with slew after slew of options and futures reaching their expiration
dates.

I phoned a full-service brokerage house and asked a young broker straight-out: What happens or what
should be done if an investor dies and he has options in his account? The gentleman asked me to wait while
he checked with someone. He returned and said that the beneficiary in the will would receive the options
and would decide whether to sell them or not. Bad advice! That broker simply added options to the
standard estate procedure for stocks, bonds and CDs. He completely ignored the fact that these have
longevity while options can disappear while waiting to audition.

Then I phoned a brokerage house specializing in options and, incredibly enough, received an even worse
answer! The broker said, "You're dead, so what's the big deal?"

Hallelujah. A woman stock broker at the York Securities discount house proved to be the voice of sanity.
She enunciated the procedures: "When an options investor passes away, his attorney should immediately

745
fax me (a) a copy of the death certificate, and (b) the names of the executors of the estate. Then the
executors should immediately notify me and grant me permission to liquidate the option positions and turn
them into cash."

She told of a past experience in which one of the firm's investors passed away and had a fair-sized number
of options as well as other holdings in his account. She explained the above procedure to his family and
asked that the lawyer handling the estate and the executors act right away. Months passed with no
notification from any of them. The options dwindled in value then expired worthless. Apparently many
knowledgeable people who understand stocks and bonds do not comprehend an acronym known as
"wasting assets."

Make certain that your attorney and executors understand at least the basics of: securities with expiration
dates; and ‚the woman broker's 48-word "what to do" quoted above. Death ends the business for us all
eventually, but not everyone is caught unprepared.

Mr. Egner also explained the advantages and disadvantages of a corporation -- theoretically limited liability
on the plus side (but no protection against going broke), more paperwork on the minus side. Nothing very
persuasive for the individual trader. I know a couple of people who went the "one-man corporation" route:
A medical doctor who scrapped it after a year, a private-practice attorney who chucked it after 3-months.

The Gann maxim, "Handle speculation as a business, not a gamble," can be rendered as a locational
blueprint. Many if not most financial venturers can be divided into two groups: Grandmothers and crap-
shooters. The latter are, of course, the high risk speculators perpetually pursuing astronomical profits and
taking ghastly chances. Their "strategies" are so many frontal assaults on machine guns. They stop when
they run out of money and are replaced by others who run out of money. Hence the "high turn-over rate"
reported by futures brokers, and more than a few stock and option brokers.

The grandmothers--whether young or old, male or female--aim for safety and might or might not find their
targets. They are fond of "blue chip" stocks which often fail to produce a profit owing to meager dividends
or anemic share-price performance. Grannies will hold such dead weight in their portfolios for years and
even decades, always feeling that they are "investing in quality and the solid stuff." Many clutch passbooks,
with principal and interest guaranteed by Uncle Sam. The bites taken by inflation are an abstraction the old
girl refuses to ponder.

There exists a middle ground--a Golden Mean: Investment and speculation as a business, based on sound
business and financial principles. Here, the intelligent trader compares to the gem dealer: More careful and
conservative than the crap-shooters, more venturesome and more skilled with the calculated risk than the
granny. Bankable profits; no going broke trying to be an overnight millionaire, no paltry sums in the
sewing basket. At the center of my locational blueprint lie option spreads.

Near mid-May of 1997, I noticed that IBM common shares appeared to be on a gradual up-slope. This plus
solid earnings, P/E and fundamentals made it a viable candidate for a spread with call options. In the low
170s, the stock was close enough to 180 to plump up the calls having 180 strike-prices but far enough
under that a slight fluctuation or "muscle spasm" would probably not lift the stock over that line right away.

The IBM 180 calls with June expiration dates traded for a small fraction over 3 points, the July 180s for a
slightly larger fraction over 5. My standard strategy is that the nearer-in-time short-end of the spread pay
for more than half of the farther-in-time long-end. I phoned the broker to "open a position" and gave
specifications for a debit spread of the horizontal or calendar variety.

Typically I buy 10 and sell 10. I told the broker to buy 10 IBM July 180 calls and sell 10 June 180s with a
debit of two. When long (bought) options cover short (sold) ones, you must buy before you are entitled to
sell. When you enter them simultaneously in one order, you customarily state the "buy" first even though it
is more distant in time than the "sell."

746
The "debit of two" means a two-point difference between the cost of the buy and the proceeds from the
sale. One point is $100. When 10 options are bought and 10 sold, it means $1,000. Thus the amount for
which I sold the Junes and the amount for which I bought the Julys could have been anything, but the two-
point debit fixed the difference between them at no more than $2,000 plus brokerage commission. A
"spread" is so-called because of that difference or "gap" which the trader fills in with his cash.

Anyway, that order was not executed. At the end of the trading day, I was notified of a "nothing done." The
next day I entered the same order but "sweetened the pot" fractionally by adding a quarter of a point to the
debit. On May 16, 1997, I sold 10 Junes for $3,250 and bought 10 Julys for $5,500. Points-wise this
translates to a 3-¼ sale, a 5-½ buy, and a 2-¼ debit or $2,250 of my own capital plus two $65 commissions
for the two transactions or "ends" of the spread. Multiple commissions are why the phrase "discount
broker" is the Scout Oath of the spread strategist.

When I buy 10 puts or calls and sell 10, the two commissions equal about an eighth of a point. Opening a
spread position and later closing it total about a quarter point. So figure the amount of capital invested "in
the gap" plus approximately a quarter point (roundly $250) as the 'break even' amount or the "figure to
beat" if you want to make a profit. Compared to what many businesses pay in overheads this is not a lot.
Yet frugality prompts a wise trader to shop among brokers and compare rates.

Within two weeks after opening the position in IBM calls, I was between $300 and $400 ahead after
commissions if I wished to pull out. How good is this? Many speculators and investors do not bother
"annualizing" because it produces figures they cannot spend. Yet you must annualize to gauge accurately
your financial success. Five percent gain in a year? A bank can achieve that for you without risk. Five
percent in one week? You did 50 times better than mighty Chase Manhattan or U.S. Treasury Bills!

Many who fluff off this fact are crap-shooters and traders in the throes of speculation fever. Astronomical
returns fast or the hell with it! So out of touch with economic reality, these multitudes go broke or continue
via MasterCard. They do not resemble the diamond merchant or other sensible and realistic businessman
who gets a firm handle on profits. No, they resemble the people who search out the "make a fortune" ads in
the back pages of the check-out line weeklies. "Make $100,000 in Four Weeks!" You know how many of
them ever became wealthy!

With the IBM options, a $300 gain on a $2,500 (with commissions) investment in two weeks--annualized
on the basis of a 50-week year: 300%. This certainly beats 7% per year federal bonds and is anchored in
"time is money" economic reality. So in assessing your gains, remember to annualize.

I deferred profit-taking and a couple of things happened. After the gap between the Junes and the Julys
began to widen gratifyingly, IBM common split on May 28, 1997. The time-worn phrase "twice as many
worth half as much"applied, but with a bit more intricacy, Where I had been long 10 options and short 10, I
was now long 20 and short 20. Also, their strike-price was now 90 instead of 180. Furthermore, where the
break-even figure within the spread had been 2- ½ points (counting future "pull out" commission) it was
now 1-¼.

Companies split their stock to encourage new investors. Potential stock-buyers tend to favor lower-priced
shares. Shares in a company often rise after splitting but sometimes not and sometimes only temporarily. In
IBM's recent case the effect has been questionable so far. Having closed at 178 on May 27 and just under
90 on May 28 (briefly in-the-money option-wise that day but closing at-the-money or slightly out-of-the-
money on a 90 strike-price) IBM has since bobbed up and down in the low and middle 80s.

That bobbing-within-boundaries is good news for the spreader thanks to the effects of time-decay. Nearer-
in-time and farther-in-time options both lose value with the passing of trading days and weeks, but with a
gradual ramp for the latter and a steeper decline for the former. Since the spreader's vein of gold is between
the two, their "growing apart" enlarges his mining stake. What an irony that words which sadden the rest of
humanity are "Eureka!" to the spread strategist: Growing apart and time-decay.

747
The price of IBM's split shares seemed comfortable around 86 and 87. The gap between my 20 short
options and 20 long grew to a fluctuation between 1-½ and 1-5/8 points ($500 ahead and $612.50 ahead).
Then some trouble. A preliminary announcement on Wall Street stated that Intel's quarterly earnings report
due out shortly would be disappointing. That stock's dip pulled other technology shares down along with it.
IBM fell to 81-¾ on June 4 and 82-1/8 on June 5.

My reasons for choosing IBM for a call option strategy included solid earnings and fundamentals plus a
conservative price/earnings ratio indicating share price was not vastly inflated over basic value. My theory
held these would probably create a firm floor or base of support under the stock's price. So I stood pat and
waited. The shares' decline had shrunk the worth of both the June and July calls and had narrowed the point
spread between to just a $100 or so above break-even.

Also, anticipation of Friday's upcoming federal unemployment statistics was stalling most of the market
price-wise and volume-wise. I theorized that both this and Intel were only temporary "downers." However,
theories can be wrong. After the federal report, though, IBM climbed late in Friday's June 6 trading to 85-
5/8. Excellent date for a victory, a bloodless one better yet.

A stock price floor or base of support had materialized, and soon a couple of up-steps formed: June 9 to 11:
86 and a fraction, 87 and a fraction, back to 85 and a frac, then up a bit. And the spread: 1-5/8, 1-¾, 1-7/8,
back to 1-¾. Also, the changing prices of the options tell a story laudatory to spread: June 1, July 2-¾; June
13/16, July 2-11/16. Remember that those who bought the Junes I sold paid out 1-5/8 (adjusted for split)
and those who bought the same Julys I did and same time I did but without spreading paid 2-¾ (adjusted
for split). The holders of the June options are markedly in the red and the holders of Julys barely break
even.

A gap between the Junes and Julys of 1-¾ points translates to $1,000 in the black, a gap of 1-7/8 means
$1,250 for the plus column. Recall that at the start I bought $5,500 worth of options, sold $3,250 worth, and
paid the difference. Ergo, the total amount of capital in that spread position was about 60% other people's
money. That is "how come" the spreader can win even with the identical-twin securities with which other
participants lose. It does not guarantee a profit just as a race horse starting 60% closer to the finish line than
other horses does not guarantee a win but. . . .

Yet Seabiscuit with a 60% head start against milk wagon nags might stumble on the track. Do not wager
everything on one race or even a fifth of everything. With the spread now being analyzed, a deeper and
longer-lasting fall in the IBM common shares could have shot most of the meat off of the call options.
Risking only a limited part of capital per venture is one Jewelers Row tactic which deserves far more
popularity on the stock, futures and options exchanges.

The day of this writing--Friday the 13th--is far from unlucky. IBM stock peaked at 89-¾ and closed at 89,
up¾ from yesterday. The spread between June 90 calls and their July equivalents ticked during the closing
hour between 2-¼ points and slightly higher. That $2,500 venture (which counted entering and anticipated
exiting commissions) has climbed to $4,500, or 80%.

I have not yet closed out the position so as of this evening the profits are still on paper. I adhere to the rule
of Nicholas Darvas: As long as the speculation moves in the right direction, stay with it. Then when it starts
to turn, grab the money and run like a thief. Item: 80% profit has occurred during four weeks. Penalize
yourself three demerits if you forgot to annualize! The 80% times 12-months annualizes to 960%.

Of course I am one joyful prospector with nuggets in the knapsack. Yet how much is a good profit?
Remember that a gain of 8.5% per month doubles your money in a year with some coin silver left over. On
the cable financial channel today, Ron Insana announced as "big news" that the Dow Jones Industrial
Average had climbed 21% in six months. If you do a spread and find yourself 20 or 30% ahead after
commissions in two or three weeks, you have blessings to count. The corporate bond investor will settle for
less than that in a year. The dice-shooter and the fevered speculator will try for vastly more before wipe-
out. You are the able peer of the gems-in-the-satchel businessman.

748
What about Monday? If the stock climbs over the 90 mark, my short-end calls will be in-the-money with a
theoretical hazard of an exercise after the close of Monday's trading. Fortunately there is safeguard in
comparative figures. If an option is ¾ of a point into the money and sells for 2-½ points, then the option-
holder or long-player can gain ¾ of a point by exercising it but can gain more than triple that by selling it
instead. This weighs against an exercise.

It is a protection I never use more than one night at a time. If my short-end options go out-of-the-money the
next trading day, I let the spread stand pat. If they persist in staying in-the money even fractionally, I close
out the position and turn everything into cash. That is because there is the danger of their going farther into
the money, narrowing the golden gap dear to the spread strategist. Also, the danger of an exercise increases
as a put's or call's expiration date nears. The week before expiration begins Monday.

What if IBM stock goes down instead of up on Monday? I make a mental "stop loss." 88-1/8 was the
share's low for today, so if it goes anywhere below 88, I close out the spread position. Why not just close
out the position automatically Monday and take profit? My short-end June options (trading at about a point
or just under late today) have only five trading days until expiration and will lose value rapidly during those
days. Since they represent an obligation to me, their time-decay is gravy.

At this late date, however, time-decay must be declared secondary. The hazards of a rise in the stock
triggering an exercise of the Junes or its fall shrinking the meat-laden Julys take precedence. So I shall
stand still on Monday if the stock hovers in the 88 and a fraction/89 and a fraction range. Otherwise, my
broker will receive a "Close out the position" call to buy back June and sell July. As a trend-follower, I
think that IBM will probably keep rising. If it extends anything more than a small, quick toe over the 90
line, I think I shall tell it good-bye without an overnight stay. Tis getting late.

Having studied the detail-lines of an "option spread" blueprint, let us now repair to the drawing room and
the art works on exhibit there. In the past, I have advocated high culture for financial traders because it
entails the sense of detail and the grasp of time which they require. I do not presume to be prophetic, but
you will note that the word "Byzantine" (meaning intricate and labyrinthine and sometimes devious) is
being applied to everything from the court system to plots in novels to computer cyberspace and web sites
to Wall Street financial circuitry and circuitousness. Why not a look at the original or something akin?

Also, in the past, I have lambasted Right Wingers, reactionaries and fundamentalists owing to their
pretensions as Lords of the Temple of Tradition. They are as alien to anything worthy of the name tradition
as astrologers with their dime store charts are alien to the intricacies of the Mount Palomar Observatory.
With few exceptions, expecting cultural depth, sense of detail or grasp of time in their ranks is like
expecting a 200-inch reflector telescope in a Lassie movie or a revival hall. Admittedly, however, I
previously underrated their perennial "Make it compulsory under law!" game-plan.

H.L. Mencken made the observation that the ghosts of primitive peoples have short life-spans. A primitive
tribesman would report seeing the ghosts of his father, sometimes his grandfather. Then the spirit
population hit a vanishing point and dropped off precipitously. No sightings of spooks from, say, five or six
generations back.

Two reasons: As new ghosts are added to the folklore, old ones are forgotten. Primitive folklore continually
"loses cargo at the far end." Secondly, primitive peoples lacked history books and portraits to extend their
imaginations farther back in time. This "loss of cargo" from the past and this "farther back in time"
weakness afflict the Right Wing like a chronic epidemic. One could call it a "qualifying disease."

Today, most music encyclopedias state that the Ragtime Era ended in 1917, but prissily avoid mentioning
specifically what happened that year to bring about that conclusion. It was the closing down by police of
Storyville, the red light district of New Orleans, silencing the fleet of "genuine article" ragtime pianos that
were emblem and imprimatur of the bawdy house parlors.

Though on in years, the white-haired folks who enjoyed rag-time on The Lawrence Welk Show were too
young to remember the pul-pit sermons preached against "brothel music," too young to remember what

749
used to be the "dirty tunes" of pre-1917. Thus music's harlot yielded up a virginal ghost, thanks to people's
forgetfulness and the fiction, "Everything was so decent way back then." Such thinking bloats perniciously
when it reached the judicial bench and the halls of congress.

Judge Robert H. Bork wrote a recently published book entitled Slouching Towards Gomorrah which will
surely receive the embrace from every lover of "boy and his horse" movies and "country doctor" fiction. In
the chapter "The Collapse of Popular Culture" Judge Bork wrote:

"The difference between the music produced by Tin Pan Alley and rap is so stark that it is misleading to
call them both music. Rock and rap are utterly impoverished by comparison with swing or jazz or any pre-
World War II music, impoverished emotionally, aesthetically and intellectually. Rap is simply unable to
express tenderness, gentleness or love. Neither rock nor rap can begin to approach the complicated
melodies of George Gershwin, Irving Berlin or Cole Porter. Nor do their lyrics display any of the wit of Ira
Gershwin, Porter, Fats Waller or Johnny Mercer. The bands that play this music lack even a trace of the
musicianship of the bands led by Benny Goodman, Duke Ellington, and many others of that era."

The 'Tin Pan Alley' angle typifies the "olden days" reactionaries who cannot pronounce the title of a grand
opera. You must expect them to detour around any creative form so far removed from The Disney Channel.
Still, grand opera staged plenty of murders, seductions and suicides without causing the same in the
audiences. Judge Bork also neglected mentioning ragtime with its scarlet beginnings or barber shop
quartets and the nearby copy of the pink Police Gazette, with minister disapproved pictures of ladies in
tights.

The passing of time has moved these beyond Judge Bork's mental ken, like old jungle ghosts disappearing
from the memories of the village elders. This Right Wing "tribal village" vision of the past blacks out
approximately the earlier half of Irving Berlin's career. Before "Easter Parade" or "The Girl That I Marry,"
Berlin had his start as a piano-player in "dives" on Manhattan's Lower East Side.

In 1911, Irving Berlin wrote and published the song "How Do You Do It, Mabel, On 20 Dollars A Week?"
(still available in sheet music). According to the lyrics, Mabel moved to Now York City and took a job
dancing in a Broadway chorus. Weeks later, her hometown boyfriend visits her and finds her living in a
luxury apartment. He sings, "A fancy flat and a diamond bar, 20 hats and a motor car. How do you do it,
Mabel, on 20 Dollars a week?"

He ends his visit impressed with her thrift and careful spending. Less naive than he, audiences in 1911
laughed raucously, surmising that behind closed doors she used jam as a substitute for caviar. All right, so
old songs left more to your imagination than today's hard rock with four-letter words. Nevertheless, old-
time popular music was not all the "Silvery Moon" and "Your Old Wedding Ring" that good-old-days
conservatives keep hearing.

The Cole Porter song "Love For Sale" was banned by many radio stations in the 1930s and since. The Cole
Porter song "I Get A Kick Out Of You" ("I get no kick from champagne. . . .") began its second verse,
"Some, they may go for cocaine." This turns up in various recordings and sheet music as "perfumes from
Spain" and "a boppy refrain." The Fats Waller songs were dismissed by many as "colored music" from the
"juke joints." The word "juke" derives from the West African Bambara tribal word "dzugu" meaning
"wicked."

Numerous newspaper articles in the 1940s warned that big-band swing was morally hazardous, springing
from African jungle drums and lust-arousing dances around tribal fire. That any pre-rock music was ever
controversial or was ever denounced as a "moral menace" seems to have escaped Judge Bork completely.
Such things did not happen in the reactionary's Wonderland known as Yesterday. Owing to his all-those-
pieces-missing notion of time and past, Bork praised Cole Porter but failed to credit the revisers who
pondered the question, "What rhymes with cocaine?" In the Slouching Toward Gomorrah chapter
ominously entitled "The Case For Censorship," Robert Bork wrote:

750
"Is censorship really as unthinkable as we all seem to assume? That it is unthinkable is a very recent
conceit. From the earliest colonies on this continent over 300-years ago, and for about 175-years of our
existence as a nation, we endorsed and lived with censorship. We do not have to imagine what censorship
might be like; we know from experience. Some of it was formal, written in statutes or city ordinances;
some of it was informal, as in the movie producers' agreement to abide by the rulings of the Hayes office. . .
. The period of Hayes office censorship was also, perhaps not coincidentally, the golden age of the
movies." Back to censorial yesteryear, the learned judge advocates.

Here I must vent my Italian spleen. Under the Motion Picture Production Code (unofficially dubbed the
Hayes Office Code), several studios banned nude statues and paintings from on-screen and several others
permitted them only ever-so-briefly and limited to the background. They could not be displayed
prominently. Consequently, a film could not show Benvenuto Cellini casting the bronze Perseus, but could
show Al Capone piling up the corpses. No, I do not blame everything on the non-Italian world. Sadly, there
are plenty of Italian-Americans to whom "tradition" is Walt Disney instead of Lorenzo de Medici.

Censorship would make such standards and such thinking "compulsory under law," and they are bad
enough when not compulsory. If a barfly believes a dozen different fallacies, that is not necessarily
harmful, but eventually he starts putting his money where his mindset is, and that causes damage aplenty.
He pours his bank account into playing numbers he dreamed, or buys real estate sight-unseeing or
purchases worthless "collectibles," or invests in securities from cold-calling brokers in boiler rooms.

The mind that goes deeper than Tin Pan Alley or the Hayes Office has something extra in the lens and
reflector, an edge and a plus factor. The sense of detail, the grasp of time, the ability to cope with whatever
may be called Byzantine. An intelligent trader or investor needs edges and plus factors. Regarding an edge
at grasping intricacies, let us turn back the centuries for some mental exercise. Henry James was not the
only author to declare that fine art affects your vision of the universe...

Editor's Note: Due to space constraints we had to delete approximately one-page of this article at this
point.

One of the great "mixed message" artists was Fra Angelico (Guido Giovanni da Fiesole, 1387-1455). He
was a life-long devout monk of the Dominican order who painted only religious subjects. Do not, however,
let this conjure up any drabness in your mind. He became a giant in art history as a colorist. Mrs. Ady
wrote of the picture "Annunciation" at Cortona that "the angel's wings are gold tipped with ruby lights, and
his robe is a marvel of decorative beauty, studded all over with little tongues of flame and embroidered in
mystic patterns."

Fra Angelico painted celestial paradise which H.A. Taine almost turned into a prose-poem: "Glittering
staircases of jasper and amethyst rise above each other up to the throne on which sit celestial beings.
Golden aureoles gleam around their brows; red, azure and green robes, fringed, bordered and striped with
gold, flash like glories. Gold . . . radiates like stars on tunics and gleams from tiaras, while topazes, rubies
and diamonds sparkle in flaming constellations on jewelled diadems."

Wasn't it nice that the good brother entered the monastic life, shunning splendor and opulence? For rich
sensuality, an Oriental palace could not match the retinas of his eyes! The financial trader who catches such
intricacies and such ironies has to be something better than an exchange dice-roller. Also something better
than a Christian Coalition member whose "time-honored tradition" falls short by about seven centuries. He
is the sole-proprietor with an edge and something extra.

Slight Differences in Keltner Channel Appearance - Craig Carlson

I purchased CTCN's Real Success trading tool software a number of months ago because I needed the
Keltner channel on Omega Tradestation. Since then I have been trying to reproduce parameters that I have
been using for years in an old Ensign I program. At the same time I was trying to reproduce the same
Keltner parameters in Ensign for Windows.

751
So far I have been successful in creating an identical channel in Ensign for Windows using LNBAND=41,
PRICE=(High + Low + Close) /3, and COK=250., but when I use the same parameters in the Real Success
Keltner, it produces a channel that is "almost" the same. Do you have any idea why that would happen?

Is there something unique about your formula that would prevent me from reproducing the Ensign I/
Ensign for Windows Keltner exactly?

Editor's Note: I don't believe there is anything unique. However, a few others have also said they observed
a difference in the appearance of the Keltner. By the way, the Keltner Formula used in the Real Success
software was republished in the last issue of CTCN.

I know this is a long shot, but if you have any idea what would help me solve this, I would greatly
appreciate it. The formulas used in Ensign I and Ensign for Windows is listed below.

Keltner Channel - Ensign 1

Comment: Press K to place the Keltner channel on a chart. The Keltner channel is based on volatility
expressed as a bar's range. A channel is created on both sides of a moving average equal to the moving
average of the range multiplied by a constant.

Formulas
Center Line: AVE + (AVE* (N-1) + Price)/N
Average Range: Range=(Range * (N-1) + HIGH - LOW) / N
Boundaries: UPPER=AVE + RANGE * C
LOWER=AVE - RANGE * C

Parameters

1st parameter is the number of bars (I use 21) in the exp. averages. 2nd parameter is the multiplier constant.
(I use 2.5). The moving average variations of H, L, M, A, and F may be used with the 1st parameter entry.

Keltner Channel - Ensign for Windows

To place the Keltner study on a chart, click the Studies button and then select Keltner Channel. The Keltner
Channel is another useful trading band. The band distance is calculated based on the volatility of a bar's
true range (H-L). The average true range of each bar is multiplied by a number to adjust the band distance
from the average line. In sideways markets the band distance will narrow, in rapidly expanding markets the
band distance increases.

Formula

Average=PreviousAverage + (SF* (PRICE - PreviousAverage))

Range=PreviousRange + (SF * ((HIGH-LOW - PreviousRange))

Channels UPPER=Average + (Range Multiplier)

LOWER=Average (Range Multiplier)

SF Smoothing Factor=2 / (N + 1) where N=periods in average

Parameters: Average: N Number of periods In the average (ex. 7) (I use 41)

Multiplier: Used to expand the bands (ex. 1 or 2) (I use 2.5)

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 Control Your Emotions Before It Controls You - Control It First! - Rick

There are many factors that play into trading, and it is true that many new traders concentrate on the 'game'
aspect of trading while leaving the most important component relatively unpolished. That component is
mental. Mental, psychological, emotional, it all comes down to the same thing, the ole' grey matter. How do
you react when you win? How do you react when you lose? Are your trades causing you to swing the
emotional pendulum? Hey, get control of yourself!

Great you made some money, I'm happy for you. Oh, sorry for that loss though that took it all back with
interest. How did you take it? I sure hope the answer is "indifference."

This is a business, not a game of cat and mouse, the excitement of the chase, the thrill of the victory, the
agony of defeat. It is a bottom line, count the costs, approach with caution yet with a subtle hint of
confidence. Take that bull by the horns and then go home and forget about it , there comes another day you
know. What, you're going to go out and celebrate tonight? Is it your anniversary, get a promotion, friends
have a child? It isn't because you made a really good winning trade today, you know better, right? Lose
control of your emotions in relation to trading and it will control you and not the other way around.

Hey look, there are many things to get all pumped up about. How about the new method you learned?
Yeah, works good, don't it? Be happy and let's move on, there are trades to be made here. Look at it as if
each day you just opened the doors to your store. Do you see the merchant jumping up and down every
time someone comes in and buys something? He starts doing that and his jumping up and down days are
numbered.

Make sure not to get emotionally tied up with any aspect of this business, such as your account, your
trades, etc. If you want to get emotionally tied into something, make that designing and perfecting your
methods, this is a good thing. Why? Because passion has a positive affect on creativity and drive to make
something work, and work better as well. But as soon as you are ready to test drive it, make sure to expect
any outcome with control. Lose that, and your method testing will be affected by your butting in and
messing it up out of fear, greed, etc.

So, keep the passion, but under control. Be the master chess player looking upon a challenge, using your
intuition to design and solve, making a move with pure mechanical address. Control it first, before it
controls you.

Recommended Books Which Could Have Reduced Learning Curve Significantly - Terry Smith

In my opinion any trader starting out should consider reading the following books in the order they are
presented before opening an account. I could have reduced the learning curve significantly had I only
known about these books.

The Disciplined Trader by Mark Douglas - The best psychology book out there on trading the markets.
Traders will learn that "Emotion kills successful trading." The book will show you how to become a
disciplined trader. I have read and reread this book so many times it is literally falling apart.

‚Mindtraps Unlocking the Key to Investment Success by Roland Barach - A fantastic book on traders
psychology. The book lists 88 mindtraps we as traders easily fall into. After reading this book, I now
understand why the hardest trades to take turn out to be the most profitable. Learning to think in reverse of
conventional logic is one of the hardest things I have learned to do.

ƒMarket Wizards books I and Il by Jack Schwager - One on one interviews with some of the best
commodity traders of our time. Full of great advice on money management. Full of great ideas on how to
stay safe trading the market.

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„Investment Secrets of a Hedge Fund Manager by Linda Bradford Raschke and Larry Conners - Consist of
10 great strategies for trading commodities. Specific trading setups with entry and exit rules. You could
pick out I or 2 of these setups, commit to trading them and earn a nice living. In my opinion, if you are
considering purchasing any of Ken Roberts courses you will get nine more setups for less money in this
book. One of the best books to come out in a long time.

… The Traders Edge by Grant Noble - A great addition to the investment secrets of a hedge fund book.
Unique insights into what it takes to be a profitable trader. Many secrets of the business not found in any
other books I have read. My favorite and most profitable parts are the Fib Times, Routine of the market and
Analogous years.

So there you have it, five of the best books I have read in the last 10-years. Anyone else have any favorite
books they liked? Why not share them with the rest of us?

An Opinion: The Advertising Section is Due For A Comeback - Anonymous

My advice may be uncalled for, but I think your advertising section is due for a comeback. A couple of
years ago, I advertised my trading technique monographs in CTCN, Club 3000 News and Futures
Magazine. The differences in response surprised me. You won not by a nose, but by the whole horse.

For the record, I prefer to remain anonymous. Trading is a small world and I do not want any Chicago
financial editors mad at me. By the way, I invested in a no-load mutual fund solely with the proceeds from
my ad in your publication.

Editor's Note: We have always preferred vendor advertising not be placed directly within the pages of
CTCN but still permitted it. In the past we also offered little in the way of advertising via this media to
vendors and did little to promote it. Starting with this issue we are again offering trading product and
services ads in our newsletter. There is be no need for us to try to alleviate conflict of interest or co-
mingling concerns expressed by others, even though this was never a real problem. One reason we allow,
and in fact now welcome vendor ads, is because the income helps defray postage costs to keep your
membership costs low. In addition, there is a possibility you may learn about a product or service which
may help you in your trading.

A Way to Make The Elliott Wave Theory Less Subjective - Elliott Wave and You - Terry R. Davis

Have you ever read that Elliott Wave is too subjective to trade with? I have a friend, who shall remain
nameless, who sought Elliott knowledge. He searched for a chaotic mentor and finally found one who
promised great knowledge for a great amount of money. He flew to his house and was taught at the feet of
the master for a weekend.

One of the mentor's favorite sayings was "when in doubt about the wave count you are in some type of
wave four." This is closely akin to saying you speak all languages but Greek. When asked to speak Spanish
you reply - "that's Greek to me." My friend came home bubbling with his new found knowledge.

He was so impressed with his psychological mentor that he let him trade a $100,000 managed account.
After a month's worth of following the markets, my friend came to a remarkable conclusion. Elliott wave is
too subjective to trade with. Unfortunately, this knowledge came with a price tag in the thousands.

What about my friend's managed account? The mentor increased the account by $5,000 the first month.
Excellent! At the end of the second month the account was back to even and the mentor had frozen-he
couldn't pull the trigger anymore. So much for Elliott wave, right? Not exactly! You may think from this
proceeding paragraph that I think Elliott Wave has no value. After all, wasn't it George Lane who said "any
system is a success if it sells enough copies." Being in the "systems" business myself, I must that I would
have to agree with Mr. George Lane's comments. I am a Christian and believe that the cyclical nature of all

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things (including the futures markets) has to be in harmony with nature. Elliott wave has been referred to
as nature's law. I would rephrase it and say "Elliott Wave is one of nature's laws." I do not think of EW
(Elliott Wave) so much as a system, but as an adjunct to determine which side of the market I should be on.
For this it's excellent. Wave four is the hardest to identify because of the many formations that take place
there: double threes, a-b-c's, quadruple bypasses and the like. If this sound like so much B.S. . . . That's
because it is. For us to identify wave four we need to look outside of EW structure for another technical.

Welcome to the world of displaced moving averages. This concept (to the best of my knowledge) came
from Jim Hurst's excellent cycle work on half-cycle differencing in the stock market. Hurst was (is) a
genius in his own right. Again, that is another story. The displaced moving average is sometimes called a
phase shifted moving average. For the rest of the article I will call it DMA (displaced moving average).

This concept has been around since the late seventies. I present this concept in my one-on-one teaching of
beginning traders, and I am always surprised how few people have seen it before. We are going to use a 3-
period exponential average and displace it 13-periods in the future. This is very easy concept to understand
(especially after 15 years) but it always seems to cause problems in being able to be understood easily.

Let's look at Figure 1. On this chart we have two different moving average lines. The first is a 3-period
exponential average (TradeStation calls the average a 5-period exp.). The second line is identical but has
been "shifted" into the future by 13 time frames. Tough so far! Do you see it? Don't go any further in this
article until you understand this subject. I say time frames as opposed to days because this 3FL3 dma (<3>
period <F>orward <13>) can be applied to many time frames with remarkable results.

Now let's turn our attention back to EW. Wave four catches more people off guard than any other place in
wave structure. It's been said when the market is moving up (in a down market) but something just doesn't
"feel right" you are probably in wave four. In a down market this is where the public comes in as buyers.
Do lambs to the slaughter ring any bells? What I'm going to show you is more of a way not to trade than a
way to enter the market. If we don't lose isn't that very close to winning?

If you realize that being successful in trading is very near 100% psychological you will realize how
important it is for you to fool your "humanity." To me not being wrong is very important. You must
remember if you are right on your trading around 50% of the time you will make a fortune (do I need to put
in a disclaimer here?) What are we taught as we grow up? If you got a 50% on that math paper in school
what was your grade? A big fat "F." In commodity trading that same score rates a "B" (at least).

Your humanity will constantly forget in your way throughout your trading life. Hasn't it already? You can't
escape being, so you must outsmart it. This is accomplished by doing all the right things at the right times. I
have been trading for 15-years now and like to think l don't make beginners' mistakes anymore. This is
more or less true What about experienced traders' mistakes. Sadly to say they still haunt me.

To be an overnight success in the futures markets has taken me 15-years. What a journey! Sorry for these
asides, but they are very important in how things relate to trading and I wouldn't put ramblings in if I didn't
think they were important.

Do you understand Figure 1? Now turn to Figure 2. The first time a sustained move crosses back over
(from below to above in this case) the 3FL3 DMA you are in wave 4 and should be looking for a place to
'fade' (resell) this short term reversal.

Turn to Figure 3 for the exact opposite. When a sustained move crosses below the 3FL3, you should be
looking for a place to re-buy the market. Since this is the end of wave four, what does that us? I'm waiting .
. . ! It is the beginning of wave five. The last impulse wave.

The primary characteristic of wave five that I have noticed in actual trading is the speed and direction it
has. For this reason you need a very close trailing stop if you are lucky enough to get in at this bottom. A
one day trail is not out of line. I hope you will not take everything I am telling you at face value (if you are
I have some land for sale).

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I want you to get out your own charts and see if what I am telling you is true. I always hesitate to write
articles like this, because people think that anything for free is not worth much. I have even had people call
me on the phone and argue with me about free information. Smart huh? If you will study this information
you will have more Elliott savvy than most of the people making a living selling it.

Is there a way to determine where price will stop when you are in wave four? Why I thought you would
never ask. I have found that everything in the markets is related by a power of 2 (I even wrote a book with
that same title). This means that all Technicals can be doubled or halved. Any technical that you are now
using should have validity in the marketplace when it is doubled or halved. If someone tells me something
they are using to make money, this is the first thing I check. If I still see validity then I will do more
research to see how it can fit into my own trading.

I am constantly being asked to manage money and I have been doing more and more lately (since I am not
a CTA the maximum number of accounts I can manage is 15). I am constantly looking for something better
than what I now have. The pro fisherman on the bassmaster circuit will try to quickly catch a limit of fish
(normally around 8) that are legal. Then they will keep fishing in the hope that they can cull some of the
smaller fish they have already caught. If they catch a bigger one than the smallest one that they already
have, they throw back the smaller one and replace it with the one they just caught. As an active researcher,
I am always doing this.

At times I have culled all of my own systems and have been trading with other people's systems entirely
while still looking for one that is better.

On that same vein, I am always trying to reduce the parameters that a trading methodology has (a coin toss
only has two parameters). You see the pattern developing, don't you? You might even say cosmic! (I
wouldn't say that but you might). I think you are getting the drift.

There have been many things detrimental written about moving averages. For the life of me I don't know
why, because they provide a wealth of information to those of us that incorporate them in our trading. As in
everything else there seems to be some certain sequences (not Fibonacci) or individual starting points that
work better than others. Originally, I taught new students using exponential numbers.

There are as many ways to calculate EMA's as there are charting packages, so I have completely switched
to simple moving averages. There is only one way to calculate them and every package does it the same
way. Voila! Commonality (I just had to get that word in this article)!

The two values I use are 39 and 78. They extend both waves. In other words there also exists a 19 or a 156.
Do you see the relationship of 2 involved in these values? Price will stair-step up and down these three
values in every directional move. See Figure 4. They are not a trading system by themselves, but knowing
how to use them in conjunction with EW provides great insight in to where the market will hesitate. This is
where you get on board the trade for a quick fast ride.

When I trade on dailies, I never risk more than $500 per contract. I do not trade the stock indexes on
position methods, because the risk needs to be $1,200 on S&P or $700 on NYFE. This is outside my
Comfort Zone, so I don't have any inclination to enter. If you feel this risk factor presents no problem to
you then be my guest. If you are trading something like corn or bean oil there is no reason to ever risk
much more than $250.

There are already some of you thinking, I don't mind risking a little more than that on corn. Let me be more
direct. Don't be stupid. Chances are very great I know a lot more about trading than you do. My claim to
fame (if that is what you call it) in this industry is risking very little to position trade.

Okay, I've insulted 1/3 of you . . . Let me take a shot at the rest of you. You know who you are. The ones
who don't use stops for any number of perceived reasons. You know the ones . . . The floor brokers are
always picking off my stops and then the market turns right round and goes my way or the ever faithful - I

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can stand a little heat - it'll give it all back to me tomorrow or if not then, tomorrow or the day after that.
How much can you lose trading one contract without a stop. Pick a number...and add one hell-of-a-lot of
zeros to it.

When I first started trading in 1980, I met a likeable fellow at the local gambling (brokerage) house who
only traded hogs without stops. He was a very successful businessman in his own right. Instead of merely
taking his losses, he locked them in by spreading the next contract month against them. Brokers love this
practice (twice the commissions). In a period of four months, I watched this man lose a paid business, his
house and his wife and family because he traded without stops or refused to take a loss and get on with
other things. . . . All of this in the non-volatile hog market.

When I place a trade, I want something to happen now! Obviously, I want the market to go my way. If It
doesn't, I want to be stopped out right away so I can go on to the next trade. There is nothing more
demoralizing than going on day after day with a loss on the tally sheet. Your whole world revolves around
what hurts. In this case your psyche. Well, I think I am finally at the end of another tangent.

Back to our values that were presented earlier - 39 or 78. When price penetrates the 3FL3 and is into wave
4 we are looking for a stopping point. The stopping point will be one of these two numbers. There will only
be one nearby. Stay in the spot (or most active) contract month. The most likely number will be the 39.

See Figures 5&6! The rule being: if you are in wave four, the most likely place for a turn is on the 39
period simple moving average. The second most likely place is the 78. The 78 will be used rarely in down
sequences because price can rarely retrace back to the 78 in the free-falls that occur in the markets.

If you have read and studied this article and have done a little of your own research to see if I am indeed
sharing true knowledge with you then you will be rewarded many times over. Mr. Davis is a full-time
trader, he can be reached 217-347-5101 or fax 217-347-5122. Charts in Print Copy

Member Comments & Requests

Hiroyuki Narita is looking for one minute historical data for cash currencies such as d-mark, chf, gbp and
jpy. The hourly and daily data also helps. Any member who knows how to get those, e-mail to
hande@swiftech.com.sg or send me a fax. The fax number is Singapore 011 (65) 4441153. Also, I would
like to contact Australian members, especially private traders in Sydney. I'm going to move down there
within a few years.

Henry Mandel says the Traders Logbook, a format to write it down is an excellent tool with 25-pages of
instruction and examples of exactly how to place and record different type orders and space to record
thousands of orders.

Also, Larry Williams' hot line has done much better in the months following my last comment, especially
in S&P which is his favorite market.

Ken Lindauer is interested in members' experience with the following trading systems/vendors: Alpha
Trading System by Luiz Alvim (S&P day trading system); ‚ Trader Wins by Benny Wong (S&P day
trading system); ƒ Swing Trader by MX Capital Trading (end of day stock trading system).

Also, write in your comments on the above systems to CTCN for other members to read.

From Allen Katzoff katzoff@world.std.com. I am moving to Israel later this summer and would like to
make contact with any traders working there to discuss logistics, i.e., data sources, local resources, etc. Is
anyone there?

Responses to Member Requests from Lin Hall To Ron Bonvicino - Commodity Trend Services offers its
charts (I think the best available) either in hard copy mailed weekly or on the Internet. Cheaper on the net

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 and all the same info with one enhancement. They're updated daily if you check daily. They are at HTTP://
cts.dearborn.com

To Edward Chin - edchi@uno.com - Ken Roberts gets bashed a lot, but I have five of his courses and they
all work, if you follow the rules. It's simple, basic stuff, but if you've never traded before it's a great start. I
started with him in 1987. If you are interested I have five different courses all for sale since I have
graduated. If interested, call my voice mail 714-967-0504 and leave your number and I'll call you back.
Sorry, I'm not on the Net and have no e-mail either. I like it that way.

Editor Comments

High volatility continues in many futures markets. For example, as I write this the Dow Jones Average
closed today down 192-points! This high volatility combined with elevated prices result in the small stops
of 60 to 85 points, we prefer to use for low-risk daytrading, no longer "working", at least as far as
reasonable risk is concerned.

As a result, we have (at least for now) temporarily stopped S&P-500 daytrading. We are now concentrating
on overnight position trades in other markets. By the way, our daytrading methodology is also applicable to
position trades using longer term charts. The time frame makes little difference to the basic methodology.

Issue 39.

Why Most Futures Traders Lose Money - a Review of 50 Very Basic, Often Violated Rules for
Trading Futures 50-Rules For Success - Paul Britain

A survey of more than 500 experienced futures brokers asked what, in their experience, caused most
futures traders to lose money. These account executives represent the trading experience of more than
10,000 futures traders. In addition, most of these Account Executives (AEs) have also traded or are
currently trading for themselves. Their answers are not summarized because different traders make (and
lose) money for different reasons. Perhaps you may recognize some of your strengths and weaknesses. Yet
many of the reasons given are very similar from broker to broker. The repetitions stand to demonstrate that
alas, many futures traders lose money for many of the same reasons. Perhaps these statements from
experienced brokers can make a contribution to you, and make this sometimes fickle, often intricate,
always interesting marketplace of futures trading possible.

Here is what they said:

1. Many futures traders trade without a plan. They do not define specific risk and profit objectives before
trading. Even if they establish a plan, they "second guess" it and don't stick to it, particularly if the trade is a
loss. Consequently, they overtrade and use their equity to the limit (are undercapitalized), which puts them
in a squeeze and forces them to liquidate positions.

Usually, they liquidate the good trades and keep the bad ones.

2. Many traders don’t realize the news they hear and read has, in many cases, already been discounted by
the market.

3. After several profitable trades, many speculators become wild and un-conservative. They base their
trades on hunches and long shots, rather than sound fundamental and technical reasoning, or put their
money into one deal that can’t fail."

4. Traders often try to carry too big a position with too little capital, and trade too frequently for the size of
the account.

5. Some traders try to "beat the market" by day trading, nervous scalping, and getting greedy.

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6. They fail to pre-define risk, add to a losing position, and fail to use stops.

7. They frequently have a directional bias; for example, always wanting to be long.

8. Lack of experience in the market causes many traders to become emotionally and/or financially
committed to one trade, and unwilling or unable to take a loss. They may be unable to admit they have
made a mistake, or they look at the market on too short a time frame.

9. They overtrade.

10. Many traders can’t (or don’t) take the small losses. They often stick with a loser until it really hurts,
then take the loss. This is an undisciplined approach . . . a trader needs to develop and stick with a system.

11. Many traders get a fundamental case and hang onto it, even after the market technically turns. Only
believe fundamentals as long as the technical signals follow. Both must agree.

12. Many traders break a cardinal rule: "Cut losses short. Let profits run."

13. Many people trade with their hearts instead of their heads. For some traders, adversity (or success)
distorts judgment. That’s why they should have a plan first, and stick to it.

14. Often traders have bad timing, and not enough capital to survive the shake out.

15. Too many traders perceive futures markets as an intuitive arena. The inability to distinguish between
price fluctuations which reflect a fundamental change and those which represent an interim change often
causes losses.

16. Not following a disciplined trading program leads to accepting large losses and small profits. Many
traders do not define offensive and defensive plans when an initial position is taken.

17. Emotion makes many traders hold a loser too long. Many traders don’t discipline themselves to take
small losses and big gains.

18. Too many traders are underfinanced, and get washed out at the extremes.

19. Greed causes some traders to allow profits to dwindle into losses while hoping for larger profits.

This is really a lack of discipline. Also, having too many trades on at one time and overtrading for amount
of capital involved can stem from greed.

20. Trying to trade inactive markets is dangerous.

21. Taking too big a risk with too little profit potential is a sure road to losses.

22. Many traders lose by not taking losses in proportion to the size of their accounts.

23. Often, traders do not recognize the difference between trading markets and trending markets.

Lack of discipline is a major shortcoming.

24. Lack of discipline includes several lesser items; i.e., impatience, need for action, etc. Also, many
traders are unable to take a loss and do it quickly.

25. Trading against the trend, especially without reasonable stops, and insufficient capital to trade with
and/or improper money management are major causes of large losses in the futures markets; however, a
large capital base alone does not guarantee success.

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26. Overtrading is dangerous, and often stems from lack of planning.

27. Trading very speculative commodities is a frequent mistake.

28. There is a striking inability to stay with winners. Most traders are too willing to take small profits and,
therefore, miss out on big profits. Another problem is under capitalization; small accounts can’t diversify,
and can’t use valid stops.

29. Some traders are on an ego trip and won’t take advice from another person; any trades must be their
ideas.

30. Many traders have the habit of not cutting losses fast, and getting out of winners too soon. It sounds
simple, but it takes discipline to trade correctly. This is hard whether you’re losing or winning.

Many traders overtrade their accounts.

31. Futures traders tend to have no discipline, no plan & no patience. They overtrade and can’t wait for
right opportunity. Instead, they seem compelled to trade every rumor.

32. Staying with a losing position because a trader’s information (or worse yet, intuition) indicates the
deteriorating market is only a temporary situation can lead to large losses.

33. Lack of risk capital in the market means inadequate capital for diversification and staying power in the
market.

34. Some speculators don’t have the temperament to accept small losses in a trade, or the patience to let
winners ride.

35. Greed, as evidenced by trying to pick tops or bottoms, is a frequent error.

36. Not having a trading plan results in a lack of money management. Then, when too much ego gets
involved, the result is emotional trading.

37. Frequently, traders judge markets on the local situation only, rather than taking the worldwide situation
into account.

38. Speculators allow emotions to overcome intelligence when markets are going for them or against them.
They do not have a plan and follow it. A good plan must include defense points (stops).

39. Some traders are not willing to believe price action, and thus trade contrary to the trend.

40. Many speculators trade only one commodity.

41. Getting out of a rallying commodity too quickly, or holding losers too long results in losses.

42. Trading against the trend is a common mistake. This may result from overtrading, too many day trades,
and under capitalization, accentuated by failure to use a money management approach to trading futures.

43. Often, traders jump into a market based on a story in the morning paper; the market many times has
already discounted the information.

44. Lack of self-discipline on the part of the trader and/or broker creates losses.

Futures traders tend to do inadequate research.

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45. Traders don’t clearly identify and then adhere to risk parameters; i.e., stops.

46. Most traders overtrade without doing enough research. They take too many positions with too little
information. They do a lot of day trading for which they are under-margined; thus, they are unable to
accept small losses.

47. Many speculators use "conventional wisdom" which is either local, or "old news" to the market. They
take small profits, not riding gains as they should, and tend to stay with losing positions. Most traders do
not spend enough time and effort analyzing the market, and/or analyzing their own emotional make-ups.

48. Too many traders do not apply money management techniques. They have no discipline, no plan. Many
also overstay when the market goes against them, and won’t limit their losses.

49. Many traders are undercapitalized. They trade positions too large, relative to their available capital.
They are not flexible enough to change their minds or opinions when the trend is clearly against their
positions. They don’t have a good battle plan and the courage to stick to it.

50. Don’t make trading decisions based on inside information. It’s illegal, and besides, it’s usually wrong.

Despite statements above, it should be noted there is a risk of loss in all commodity investments which are
highly speculative in nature. Only risk capital should be used for such investments.

Computed Contracts: Their Meaning, Purpose and Application - Bob Pelletier

It is an unending study of an ever-changing subject. It is a quest that takes commodity traders and
technicians deep into the history of the markets, brings them rushing back to the present and hurls them
pensively into the future. Technical analysis is indeed an exciting, sometimes grueling business; one which
leads its practitioners to tackle large quantities of historical data for individual commodities. Speculators
demand a workable way to view the markets that simulate the perils, profits and pitfalls of actual trading.
Those in the know are finding that the most meaningful results can be found in the study of "computed"
contracts, which are derived from, but do not exactly mirror actual market activity. This is a discussion of
various types of computed contracts available to CSI data resource subscribers.

Computed contracts offer the advantage of providing long uninterrupted periods of continuous data to the
market technician for extensive study and analysis. Where a given futures contract has a finite life of
perhaps one to ten years, a computed contract can offer an extended life of upwards from 50-years or more.
The idea of exploring more data than less means that the analyst can observe more and more patterns of
repetitive market behavior that tend to certify a market’s tendency to repeat its inherent cyclic behavior.
The computed contract may appear to help foster the virtues of history student with the strengths of math
student both at the same time.

The history student examines the past to provide relevance for the future; whereas the math student applies
his knowledge of rates of change and trend following to gather a short-term directional perspective. Unlike
the history student who is advised to take note of the faction who wrote the historical account to discount
potential biases, a historical market data series is less likely to reflect biases because the historical record
was written by both the long and the short market forces in place at the time.

In the development of a particular computed series, let’s start with the basic fact that the futures contracts
from which a computed series is derived are relatively short lived. They are created on some date by traders
on some exchange floor and eventually die when their delivery dates are reached. This birth-death process
for commodity and futures contracts is an inherent characteristic that cannot be ignored. Some commodity
contracts have longer lives than others. Grain contracts, for example, trade for a year or two, while financial
markets may be traded six to ten-years into the future. In all markets, nearby contracts (those about to
expire) enjoy much heavier volume and open interest than contracts with later expiration dates. Technical
traders are wary of entering illiquid markets, where order-execution slippage can take a significant toll on

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both actual profits and efficient order execution. Liquidity factors relating to open interest and volume, life
span and distance from expiration are all important considerations.

Nearest Future Contracts

Traders of the 1950s and before were comfortable viewing a concatenation of contracts of the same
commodity over time. These were created by manually splicing together the nearest portion of successive
delivery months into a series covering ten, 20 or even 50-years. They could then simulate the practice of
trading and viewing the more active (and most liquid) period of each successive contract to obtain a feel for
trends, volatility and opportunity for profit. Many traders still prefer viewing the markets from a nearest-
contract perspective. An advantage to this approach is that the most heavily traded portion of every contract
viewed in the concatenated series is a representation of the actual market prices. A major disadvantage is
that significant price jumps or drops (discontinuities) occur from one contract to the next which help to
discredit, distort and diminish results.

CSI’s new Unfair Advantage® (UA) product accommodates this type of analysis through the Nearest
Future Contract choice in its Portfolio Manager. When selecting the Nearest-Future contract option, users
may select the calendar delivery months to include. Most users wish to analyze the first nearest future, but
the 2nd, 3rd, etc. nearest future may be selected instead, to add distance and time from delivery risk. There
is also a prompt allowing users to select the day and relative month of roll-forward. This option also adds
distance from delivery risk and clarifies when to expect one contract to roll to the next.

While viewing a chart drawn from this or any other computed series, UA users can display the name, price,
volume and open interest of the actual underlying contract in a movable window. This is done by
positioning UA’s cross-hair cursor on selected day and pressing right mouse button.

Contracts

W.D. Gann enthusiasts represent another trading group that is interested in simulating markets over a wider
spectrum of contract history. This group views the markets similarly to the nearest future proponents, with
the exception that like contracts (those with the same delivery month classification) of a commodity are
concatenated. For example, a Gann time series might hold the final year of the June 1987 contract,
followed by the final year of the June 1988 contract, followed by successive June contracts up to and
including the most current June contract that lies within 12-months of its expiration date.

Unfair Advantage accommodates this type of analysis through the Gann Contract choice in its Portfolio
Manager. First the single delivery month to be used for this Gann series is chosen. Then comes the roll
date, which can be selected as any day relative to month start. This allows for rolling on, say, the 1st or
10th day of month, or any date user selects. The ability to gain more distance from delivery is available for
these series by opting to roll in the calendar month prior to expiration. UA users can simply enter a 0 to roll
during delivery month, 1 to roll one month prior to the delivery month, or even higher numbers to roll
earlier.

The W.D. Gann approach may be better than the nearest-future variety because there are fewer
discontinuities. On the other hand, the one-year segments of a "Gann file" may be too long to yield
meaningful information. What may have been learned from the distant (early) portion of each one-year
segment of the time series may not readily apply to the more volatile later portion of each successive one-
year series. As a contract approaches maturity, its characteristics such as volatility and trading volume
gradually increase until a maximum level is reached near the end of each delivery month’s contribution to
the overall series. Unfortunately, the later period of each contract is likely, in a statistical sense, to show no
resemblance to the relatively tame earlier period. This phenomenon suggests a lack of stationarity, a
statistical property explained in the Perpetual Contract® data discussion below.

Perpetual Contract Data

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In 1970, when the computer became more popular for analysis, CSI unveiled its trademarked Perpetual
Contract data. This computed contract, very popular among CSI subscribers, represented a time-weighted
average price of the two active contracts that lie earlier and later than a fixed number of days and months
ahead of the then current date. This method of calculation remains popular because it provides an accurate
view of the market’s characteristic wave form over time that is "perpetual" in nature. It is similar to the
forward contracts offered by the London Metals Exchange (LME). The major drawback of the Perpetual
Contract data approach is that the contracts cannot be traded directly, and can only be used as a guide for
overall market direction. They are used to assist in examining long-term analysis alternatives. They should
not be heavily relied upon in examining agricultural markets where different supply-and-demand
conditions may affect the distinct old and new crops. An alternative to the standard Perpetual Contract data
is the open interest-weighted Perpetual Contract which has a near-contract view that results from all
contract prices being weighted by their respective open interest.

Advocates of Perpetual Contract data series point out that these series are more likely to exhibit statistical
stationarity than, say, a Gann contract. This is particularly true when there is a long enough period from
birth to death to change the contract’s volatility over time. The concept of "stationarity" is simple to
understand. For a serially correlated time series to be stationary (and most time series are serially
correlated), the mean and variance of the series must remain statistically constant. Another significant
advantage of Perpetual Contract data is that it offers flexibility to focus on near or far contracts as single
independent series for analysis purposes. For example, an analyst could pair off far-forward future hogs
against nearby corn (the raw material needed to produce hogs) to study the dependent impact of these two
commodities on each other.

Unfair Advantage accommodates this type of analysis through the Perpetual Contract choice in its Portfolio
Manager, where many options give the user flexibility to fine-tune the study. Any or all contract months
may be included in a Perpetual Contract series, but generally all active trading months (the default
response) are represented over time. The Perpetual Contract data user must choose how many months
ahead to view the market. Three months is the usual distance, but a two-month forward series may be
appropriate for commodities that expire every month or two such as the energy products and perhaps some
precious metals. Farther-out studies can also be useful as in the above example of near corn and far-off
hogs. Perpetual Contract users have the same roll-forward options as nearest future and Gann traders. The
Perpetual Contract choice in the Portfolio Manager is also used to affect open interest weighing on the data,
whereby no rolling is involved and weighing is based solely on speculative and trader interest.

Back- and Forward-Adjusted Contracts

More recently, traders have shown an interest in back- and forward-adjusted contracts. Back-adjusted
contracts use the actual prices of the most recent contract with a backward correction of price
discontinuities for successive earlier active delivery months. In a forward-adjusted contract, the prices of
the current contract are changed to eliminate the gap between the current and recently expired contract. An
important aspect to remember about forward-adjusted contracts is that current prices do not represent actual
values for today’s markets. Because of the removal of contract-to-contract price jumps and drops in both
back- and forward-adjusted contracts, they appear as smooth, blended, homogeneous price histories
representing a sorted and concatenated compilation of successive contracts over time.

This method of joining contracts in a series over a period of years or decades permits the analyst to focus
on the period when one might prefer to trade the markets in actual practice. Traders often wish to
communicate their own rolling preferences so that they will not be simulating trading situations when there
is either a risk of delivery or an exposure to highly volatile markets. To accommodate these preferences,
UA lets users choose their desired delivery months and a roll-forward date. The roll-forward date may be
relative to the start or end of the month for rolling. The option of picking a roll date relative to the month-
end is useful for traders who want to avoid risking delivery of their commodities by rolling out of a contract
on or before the first notice day, which is often calibrated relative to the end of the month. Back- and
forward-adjusted files can also roll when heaviest volume or open interest shifts from one contract to the
next. The switching of contracts based on volume or open interest is always based on the previous day’s
data because these values are released one day late by the commodity exchanges. For example, a rollover

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based on a change in volume or open interest on Monday would not be reflected in the data file until
Tuesday. If heavy volume or open interest switches back to an earlier contract, the current delivery month
will not change, as it is locked in to avoid confusing oscillations. Although the menu choice of these
adjusted files is called "Back-adjusted" the software can forward-adjust the data just as easily by reversing
the operation by checking appropriate box in the Portfolio Manager.

The delta is another user-defined option which heavily impacts the adjusted files. The delta refers to the
data points used to calculate the back or forward adjustment value. It closes the gap between adjacent
contracts by focusing upon the close-to-open, close-to-close or the open-to-open price differential of
successive pairs of contracts to be joined. The option of comparing the open price of the new lead contract
with the previous day’s close price of the former lead contract may produce a little more distortion than the
other two because overnight price fluctuations may inappropriately increase or decrease the adjustment
value.

Negative Values in Back and Forward-Adjusted Series

An advantage of back-adjusted approach to long-term market synthesis and simulation is that the data
observed is precisely the same as the exchange’s representation of the final contract in the concatenated
series. A flaw in back adjusting is the strong chance that an inflation-sensitive market could produce
negative price quantities into the past. The same logic allows forward-adjusted contracts in a deflationary
environment to produce negative current prices for today. The suggestion prices can be negative in
actuality is clearly flawed and could discredit accuracy of such a methodology for longer term analysis. No
one would really pay you to take 50 bars of gold away or pay you to take thousands of pounds of cotton.
This flaw demonstrates a bias through the removal of contract-to-contract price discontinuities.

When early contract prices in a concatenated set are significantly less than their real contract counterparts,
they tend to produce a bias that in simulated trading would heavily favor the act of buying over selling. In
addition, even if the early contract prices are not significantly different from their current-contract
counterparts, inflation could play a role in influencing buying over selling when such a long series is
introduced as representative of current pricing norms. This phenomenon should tell you that your results
may be invalid and that applying in the present what you have learned by simulating the past can distort
your trading algorithm. Fortunately, there's a way this bias can be removed without compromising the
validity of your simulation.

Detrending to Remove a Long-Side Bias

Users of back- or forward-adjusted series and all of the other series including cash series can, through a
simple time series analysis transformation, remove the upward or downward trend tendencies by detrending
the portion of the series that connects the final current contract with the earlier balance of the series. This
approach, which is found in the back-adjustment logic of the UA data warehousing system, removes any
evidence of long-term trend for any length series so that trading can be simulated without danger of
favoring long trades over short trades.

Two alternatives for detrending are offered. One allows detrending up to the very end of the contract that
lies before the current contract; the other detrends up to one day short of the period end. This series
includes all of the current contract up to, but not including the very last day on file. The latter approach
may be most suitable for use with UA’s Seasonal Index study.

The idea of detrending is meant to apply only to longest possible time period. This would be the period of
time that incorporates all or virtually all available history for the market to be studied. It wouldn’t be
practical to detrend the short-to-intermediate oscillatory period. This more fruitful period should be left in
the data for the technician to study.

Little or no penalty stems from the detrending process because all data is viewed from today’s perspective,
with today’s prices (when the entire series is detrended). Before detrending, each price in a historical data
file is assumed to be measured by today’s dollars. Given the effects of inflation over the years, this is

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clearly a faulty assumption. Consider that a six-cent price move in 1966 may have represented a limit-up or
limit-down situation, whereas, the same six-cent move today might be considered insignificant. When data
is not detrended, that very significant six-cent move of 1966 is rendered as insignificant as a six-cent move
today. Detrending, on the other hand, returns integrity to data from the distant past by putting it back into
proper perspective. The importance of detrending is that it increases the chance that analytical results
derived from yesteryear will be relevant and comparable to trading conditions in today’s market.

Don’t be fooled by analysis results which suggest that the simulated performance of a non-detrended series
produces greater hindsight profits than the same series in detrended form. Remember that this process
removes a bias that may give the false impression that buying is always better than selling. Such results are
not achievable in future trading practice. You also cannot easily trade across contract boundaries without
paying a heavy slippage and commission tax, even if you have carefully spliced together successive
independent series.

Deciding Which Computed Approach to Follow

There are many considerations in choosing computed contracts for analysis and, eventually, for impacting
investment decisions. Each category has some unique value. Both the nearest future contract and Perpetual
Contract data can view the markets from early and distant delivery perspectives by focusing upon contracts
that expire either early or late with respect to any given current date. The Perpetual Contract is the only
viable approach that can focus upon a fixed period forward in time and therefore achieve a substantial level
of statistical stationarity.

From an astrological perspective, perhaps only the Gann computation is valid. It seems to have the
advantage of offering a predictably long period of time to view a market on an annualized basis and may
have some longevity benefits not possible with nearest future contracts. Nearest future contracts have the
advantage of focusing upon the most liquid period of a contract’s life, but the disadvantage of offering very
brief periods of individual contract data.

Perpetual Contract data, nearest future contracts and Gann contracts could also benefit from a detrending
option which is in the works for Unfair Advantage. The overlooked idea of detrending of computed data is
especially useful because, without loss of substance, one can get data into a form where profits and losses
are not subject to extremes, portions of an entire time series can receive equal weight treatment, and the
early portions of a detrended inflationary series are progressively amplified so that they appear in as
volatile a form as the most current data. Given the situation where any form of computed data is not to be
detrended, the Perpetual Contract is a reasonably safe alternative.

The back-adjusted contract offers the most flexibility for the user. Current data can be supplied as it was
actually traded in exchange-released form and past data can be expressed in adjusted and detrended form.
The mechanical effects of back adjusting and price inflation can be removed, making the detrended series
an excellent source of information for seasonal analysis. A minor disadvantage to the back- or forward-
adjusted contract is the heavy computing requirements necessary to produce the resulting series. Total
computing time is measured in seconds rather than microseconds, making it necessary for one to wait for
results.

Perpetual Contract data is also a very good choice because of the statistical stationarity issue, but many
users dislike using non tradeable price representations. As an analytical guide or tool for overall market
direction and as an auxiliary independent supporting input, it is an excellent choice when analyzing non-
seasonal, non-agricultural markets.

This message is presented to guide you in your study of the commodity markets and to help you understand
the ever-changing subject at hand. It is not only for those who are contemplating building trading systems
based on computed contract series, but also for those whose trading systems have been derived from such
approaches. Each type of computed contract discussed here can add some visibility to market analysis. It is
important to consider both the strengths and possible weaknesses inherent in these methods to maximize
profits and preserve capital in actual trading.

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CSI Phone: 800-CSI-4727 or 561-392-8663 Web Site: www.csidata.com or Information:
marketing@csidata.com

Bend With the Flow - Rick J. Ratchford

Picture yourself as a branch on a tree. The wind is blowing with the fury of a stampede of cattle. You are
being blown back to limits of your flexibility. Will you snap, or bend with the flow? What kind of a branch
are you? Are you rigid or are you flexible? If you are rigid, you will snap under the pressure of the wind.
However, if you are flexible, you will continue to give way to the wind thus not allowing it to break you.

What kind of a trader are you? When the market is not going as planned, do you stubbornly refuse to
acknowledge it or are you flexible enough to realize that you are wrong? The rigid trader is one who
refuses to acknowledge that the trade has gone sour, and that it is time for a simple retreat or reversal. The
result of this ‘rigidness’ or stubbornness is that the market will eventually ‘break’ this one, destroying the
account and possibly the trader beyond repair. The flexible trader, will let the market move him in and out.
This type of trader will bend back after a hard move against him, thus around another day.

A flexible trader bends with the flow. This type of trader not only allows the market to pull him in or take
him out, but this type of trader is flexible enough to know that his original understanding of the power of
the market (wind) is going the other way and bends with it in that direction, completely going with the
market.

A good example of this is when using the Time and Price squaring methodology that I enjoy using. Say that
based on Price and Time, you discern that T-Bonds will make a bottom today and start up. So, prepared for
the inevitable, you fade into this trade and go long near the low.

Now let’s say that it does indeed go up the next day. Good, your analysis looks good so far. However, you
notice that on the next day of making a higher high, it touches known resistance and then closes near the
low of its daily range.

Now, here is where the kind of trader you are comes in. Are you rigid in that you will not consider the
possibility this trade may be turning sour, or are you flexible enough to accept this possibility? If trade does
turn south and breaks below your Price and Time low, will you just hang in there ‘hoping’ that it will go
back in the direction you originally thought it would, or will you exit the trade once it violated your low,
even being ‘flexible’ enough to reverse your position the other way if it closes below that Price/Time low?
What you do will determine whether you are rigid or flexible.

Usually, whenever the market closes below known support, it usually signals more times than not a
continuation in that direction of the trend. If you are flexible as a trader and ‘bend with the flow, you can
usually turn what would have been a losing trade into a winning one. Of course there are several factors
you must take into consideration, such as direction of the main trend and so-forth, but all aside this kind of
action is telling you that the ‘wind’ wishes to blow the other way. If we are to keep from ‘breaking,’ we
need to ‘bend with the flow’ of the wind, the market.

The error of the ‘rigid’ trader is that he refuses to accept error on his part. "How can I possibly be wrong
when I had both Time and Price squared?" Easy. Here is a good example using the T-Bonds illustration
above.

Note how I mentioned that the next day after the Price and Time low the market made a high that touched
resistance? Isn’t this also considered Price and Time? Who says that the Time part of your equation was not
one day off? Why couldn’t this actually be a Time and Price high instead? It most certainly can be, and in
this case it was! No man can forecast to the Day each and every time. Even the best in the business with
Time may be off a day from time to time. They are human, and the flexible trader realizes that he is human

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as well! Therefore, realizing the possibility of entering too early and the wrong direction, the flexible trader
takes whatever steps is necessary to bend with the flow, and to allow the market to direct him.

So then, what kind of trader are you? Are you flexible as the branch that bends with the wind, or are you
rigid like the branch that tries to fight the power of the wind and ends up breaking in half? Which one
would you rather be?

Internet Forms For CTCN Members - Rodney Marcantel

Thanks for the work you are doing in this area. CTCN is a great newsletter. I especially like Greg Donio’s
columns. Keep it up!

Your new web site is pretty good too. Any thought into having a forum much like INO has for people to
discuss the markets as they unfold? You could limit it to CTCN members. What about making your
newsletter an on-line Adobe Acrobat download in PDF format? You would save a lot of postage and
printing costs and could make it a security access only web page. A good example of this is INO’s Futures
and Option Letter by Bob Ecob: www.ino.com/advisory/foletter/report/. No reason to stop web page
development with your newly created web site.

Editor's Note: Thanks for your comments. We are looking into putting the current and prior issues on-line,
(in addition to the many back-issues already online) accessed by a password. However, we are not sure if
members would rather access it online or have the printed copy mailed. Personally, I would rather get
information as printed hard-copy so I'm not always tied to my computer. Such as reading it while laying in
bed, watching TV on the couch or floor, or at the kitchen table, etc. Plus, keep it in my 3-ring binder for
easy future reading or reference. Of course, this may also be done by printing the online version. However,
it seems whenever I print-out something on the Internet it almost always does not look anywhere near as
good as the original for some odd reason, or parts of it are screwed-up. It seems things like the headers,
footers, margins, indents, line returns, etc. seem to get screwed-up during the process of sending the
document to my HP Laser Jet printer. Does anyone know if using the Adobe Acrobat reader solves these
common printing problems? If it does, I certainly will look into getting it. We ask for feedback on this.
Please send us e-mail or write and let us know your preference. We will publish the survey results next
issue.

Options and Debit Spreads - Also An Anonymous Trader

Option purchases and option spreads are two very different yet similar strategies. Basically, if volatility in
underlying futures contract is high and it appears the market will move relatively quickly, either by strong
technical or fundamental indicators, then purchase of an at-the-money (or very close to-the-money) option
along with selling the farther out option is a great conservative way to position yourself in the market with
very little risk and a defined profit objective. That way you don’t over pay for the at-the-money option.

In other words, let someone else pay for the extreme volatility. This is called a vertical debit spread because
you pay the difference in premium. Only buy call or put options outright when the market is relatively quiet
and likely to make a move after forming a relatively long base. This way any spike in volatility insures a
profit even with a small move in the underlying contract. Purchasing these options at 2 to 3 strikes out-of-
the-money and with at least 3-months of time value will insure enough time for a move without a great deal
of risk. With spreads, I prefer to sell the option that is about 2 to 3 strikes out-of-the-money and about 2 to
3-months until expiration. Any time longer than that will likely take longer to profit. There is no need to put
up margin on the option sold because it is hedged against the option purchased, providing the underlying
contract is the same. Remember, a debit spread strategy does not approach maximum profitability until you
get very close to expiration and the option sold is either at-the-money or in-the-money. Very few options
achieve this status.

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Take December Corn for instance. I purchased a 270-call option for 10.5 and sold a 290 for 6.5 to pay for
more than half the 270 option. Hence a 4-point debit. The spread today is worth 2.3 points (6/27). Now if I
had just purchased the 270 call option at 10.5 before the market dropped further, my option would only be
worth about 5 points today. A loss of $275 to date versus the spread with a loss of only ($85). That’s three
times less for the same move in the underlying contract.

Another example is Sept. Cocoa. Cocoa had formed an impressive 7-year base looking at the weekly chart.
The market then bounced up and paused for 3-months. Then the second week of June hit and prices rose
rapidly from 1400 to 1700. This marked the start of a major bull market.

Now with an outright call option purchased in May, the market could have discounted the technical
indications and tanked rendering my option all but worthless. That is pretty risky depending on the price
paid for the option and if stops were strategically placed. But once the price moved higher, that confirmed
the technical pattern and fundamental news. By then, an option purchase would be expensive due to
volatility. But by using a call option spread strategy,

I let someone else pay for the extreme volatility. I was able to position myself in the market with limited
losses (the difference in premium) and set a specific profit objective (the difference in strike prices). I
expect when this article is published, I will have profited nicely from cocoa as long as it's at or above 1800.
Remember, you’ve got to limit losses and set profit objectives. Spreads are a sure fire way to do it.

Also Wants To Be Known As A (Successful) Anonymous Trader

It has been just about a month now since I joined Commodity Traders Club News, and at long last I have
finished going through the back-issues. I wish that I could say that it was an enjoyable experience - but it
wasn’t. Many of the articles made me uncomfortable, for all too often I saw myself in them.

And than there was the series from the Successful Anonymous Trader. First, let me say that I am green with
envy that it only took him seven or eight years to come around. I have been at it much longer - much, much
longer.

About a year ago, I could take it no more. The losses, the humiliation, and all that goes with one defeat
after another. I am not a dummy. I am a successful man. One who has achieved financial and professional
success well beyond most. Granted, when I first became interested in the markets, I dreamed of fabulous,
instant wealth, but that was a long time ago. My goals and dreams had long since turned much more
realistic. All I wanted was a good return from a pursuit I truly enjoyed. All I received was failure. So I
stopped trading, reassessed and reevaluated my entire approach. I put everything I thought that I knew
aside. I started from scratch.

It really was not all that difficult to abandon all the years of study and effort, because none of it had ever
paid off. I had proven to my satisfaction that there was no foolproof system, no indicator, no oscillator, no
angel, no ratio, no nothing that would give me what I so desperately wanted. I knew that the answer was
not in Gann, nor astro-harmonics, nor Fibanacci, nor any market guru, nor any newsletter, nor any fax. Yet
I knew that somewhere there had to be an answer . . . because there was always someone on the other side
of my losing trades!

Day and night I studied and read. I was fortunate to have stumbled on some words of wisdom relatively
early in my reeducation that went something like: Don’t try to figure out the market, because there’s
nothing wrong with it. If there is something wrong, it’s with you.

All the books, all the courses, all the seminars were all aimed at trying to figure out the market! They were
all aimed at trying to predict turning points, tops, bottoms, trends, reversals, whatever. And than there were
the experts I subsidized. Expert opinion on fundamentals, fair market value, supply and demand, cycles,
and more. I spent so much time and effort trying to master them all, I almost never really looked at the

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market itself - nor did it ever dawn on me that I was really the biggest obstacle I faced. I had lost touch with
reality when it came to my market approach.

For a number of years I had been intrigued with a series of books by Joe Ross. I had seen ads, and read
reviews, but had never bought any of them because they seemed rather pricey - if you know what I mean.
Now I am a man who has taken numerous hits in excess of ten thousand dollars. I have purchased software
packages to chart the stars for more than $2,500, but I was reluctant to pop a buck and a half for a book.

Well, I finally did. I bought Trading The Ross Hook, and then another, and another, and now I have all of
them. All totaled, I spent about a grand. What he had to say, and the way he went about saying it changed
everything. I am still in the process of reading them. I suspect that I will do so until they fall apart. Those of
you who have read Ross know what I am about to say is true. There is nothing but common sense contained
in his books. There are no new and exciting discoveries, and in fact, if you have been at it as long as I have,
there’s nothing that you’ve not heard before.

I have made money five of the last six months. In fact, I don’t ever expect to have a losing month again -
unless I mess up, unless I do something stupid. I think. I hope. I pray.

You see, that’s the other thing I am envious about when it comes to "SAT" - I lost for so long, I hurt so bad
that I don’t know how many winning months, or even years, it will take before I know for sure that it’s all
behind me.

By the way, I decided to basically go with the approach of selling options. It’s what seemed best suited for
me, at this stage, and at this time in my development. I am fortunate enough to be well capitalized, so I can
trade in lots large enough to make meaningful profits without taking undue risk.

Of course, I have no way of knowing just where you are along the road to success. Obviously some of you
are well beyond me, and just as obvious, some of you are still far behind. The point of this article is to
report that it's possible, it can be done, and is far less complicated then I ever imagined.

Seven Trading Secrets of the Professionals - George Kleinman

I have been a member since the beginning and you will be receiving my renewal again shortly. To date, I
have not made a submission, but would like to now. My book, Mastering Commodity Futures and Options
will be out this fall, published by the Financial Times of London.

I’ve titled Chapter 12 "25 Trading Secrets of the Professionals" and think the readers will find these of
value. Below are the first seven. If there's good response, I would be pleased to submit the remaining 18
for future issues.

At the times I’ve done well in the markets, it usually was because I did certain things in a certain way.
When I’ve done poorly, it usually was because I didn’t do these things. The ‘secrets’ presented below are
from experience and the ‘school of hard knocks’, but were also originally gleaned from reading the
masters. Two masters stand out, both long gone (their heyday was during the twenties), but still living
through their writings. You can still find the works of Jesse Livermore and W.D. Gann in libraries, and if
you search hard enough through specialty houses. Actually, I learned more from their failures than their
triumphs. The same mistakes made 50 and 100 years ago continue to be made every day. Technology may
change, but human nature never does. So, I thank these two men since I know many of the ‘secrets’ which
are discussed in this chapter while in my own words originated from them. There have been others who
have had a profound effect on my trading education throughout the years, and I have tried to thank some of
them in the acknowledgments.

Ultimately, the markets are the best teachers. There is a world of wisdom presented below. You personally
may not use all these secrets, but if you can absorb just a portion, there is no doubt in my mind you will

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become a success. If you disregard what’s presented below, you become lost in the financial desert and die
of thirst. (Perhaps that’s a bit strong, but trust me this is good stuff!)

The trend is your friend: So, don’t buck it. The way to make the big money is to determine the major
trend and then follow it. If the market will not go your way, you must go it’s way.

When you're in a bear market, and major trend is down, the plan should be to wait for rallies and sell short;
not try to pick bottom. In a major bear market, you can miss the bottom several times on the way down and
end up losing all your money.

The same applies (in reverse) in a major bull market. Always go with the tide, never buck it. Let me repeat,
because this is important: the big money is made by going with the trend, not against it. Livermore told us,
in a major bear market it is safer to sell when the market is down 50 points from the top, than when it is
down just 10. The reason is, at down 50, all support is gone, and those who bought the breaks have lost all
hope, are demoralized, and in a leveraged market are at the point where they all must try to exit the same
small door at the same time.

The result at times can be an avalanche. I can give you many examples of markets that have trended long
and far, made some people rich and wiped others out. You hear about the poor soul who lost his farm. I can
almost guarantee that guy was bull headed and fought the trend until he ran out of money.

In the twenties, New Haven, the premier blue chip railroad stock of the day, sold as high as 279.
Remember, in those days you could trade stocks on 5% margin, like we trade futures today. When New
Haven sold 50 points from top, it must have looked cheap at the time. How many would have the guts to
sell it short when it crossed below 179, 100 points from the top? Better yet, who would have had the guts,
or the vision, to sell it short at 79, or 200 points from the top?

It must have looked extremely cheap. Remember, this was the General Electric of its day. Yet, the trend
was down, and after the crash, it traded as low as 12. So, how do you do this, stick with the trend and not
fight it? Well, it isn’t easy. That’s why most people don’t make money in futures. You need to have a
strong will power. Once you can see the trend of the market, don’t change your mind until the ‘tape’ shows
the change.

In any major move, there will, of course, be corrective moves against the trend at times. Some news will
develop which will cause a sharp correction, but it will be followed by a move right back in the direction of
the major trend. If you listen to this news you will be tempted to liquidate prematurely. Avoid the
temptation and listen to no one but the market.

One way to do this, is never set a fixed price in your mind as a profit objective. The majority of people do
this, and there’s no good reason for it—it’s a bad habit based on hope. Do not set a fixed time to liquidate
either. This is the way the amateurs do it. They buy silver at $5, because their broker told them it’s going to
six. Well, it gets to $5.97, turns and heads south again, and they’re still holding looking for six, watching
and waiting as their unrealized profits melt.

I’ve seen it, and this is just plain bullheadedness. I’ve seen the opposite as well. The market closes at $5.95,
it looks strong and is fundamentally and technically sound. The amateur has his order sitting to sell at $6,
because this is his price. The market gaps up on the open the next day at $6.05 and his broker is pleased to
report he sold five cents better at this price.

However, this is a form of top picking, and who is smarter than the market? The market probably gaped up
above $6 because the buying interest was able to overwhelm the sellers. I’ve seen cases like this one, where
the open was sharply higher, but was the low of the day. The market never looked back until it hit eight
dollars.

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This is all a version of bucking the trend, which is something I do not recommend. Conditions do change,
and you must learn to change you mind when they do. A wise man changes his mind, a fool never. Just be
sure if you change your position it is based on sound reasoning.

When you place a trade, your objective is obviously to profit. There is no way you can possibly know in
advance how much profit to expect. The market determines that. Your mission is to determine the trend,
hop on for the ride, and stay on until your indicators suggest the trend has changed, and not before.

‚ When a market is ‘cheap’ or ‘expensive’ there probably is a reason. This one goes hand-in-hand with
‘don’t buck the trend’. Livermore would tell us, he always made money selling short low-priced markets
which are the public’s favorite and in which a large long interest had developed. Alternatively, he cashed in
on expensive markets when everyone was bailing out because the public thought market was high enough
for a healthy reaction. The public was selling beans short at $6/bushel in 1974, because this was an all time
high and into resistance. Who could have guessed they weren’t even half way to what would be record
highs over thirteen? Always remember, it's not the price that’s important, it’s market action.

The best trades are the hardest to do. You need to have guts. You will need to be aggressive on entry. You
will need to quickly cut losses when the market is not acting right. The news will always sound the most
bullish at the top, and appear to be the most hopeless at the bottom. This is why the technical tone of the
market is so important. If the news is good, but the market has stopped going up, ask yourself why, and
then heed the call. Bottoms can be the most confusing.

The accumulation phase, where the smart money is accumulating a position, can be marked by reactions,
cross-currents, shake-outs and false reversals. After bottom is in place, many traders will be looking for the
next break to be a buyer. After all, the market has been so weak so long, the odds favor at least one more
break, right? But it never comes. The smart money won’t let it.

The objective after the bottom is in place is to move the market up to the next level, and the best time to
buy may actually feel quite uncomfortable. However, the train has already left the station and you need to
have the courage to hop on.

„ Have a plan before you trade, and then work it! If you have a plan and follow it, you avoid the
emotionalism which is the major enemy of the trader. You must try to stay calm during the heat of the
session, and remain focused. To do this, you have to be totally organized prior to the opening bell.

Your daily mission, should you decide to accept it, is to make money each day, or barring this, at least not
lose much. In normal markets, you should take normal profits. In those unusual markets which occur rarely,
you need to go for abnormal profits. This is one of the key’s to success. You must always limit losses on
trades which are not going according to plan.

This takes will power and is as essential a quality as having plenty of money. In fact, it is more important
than having plenty of money. Money is not to hold on with, this is for the sheep and you don’t want to be
sheared. If big risks are required, don’t take that trade. Wait for an opportunity where you place a tighter
stop.

The way Livermore used to trade was to look for opportunities where he could enter very close to his risk
point. In this way his risk per trade was small in relation to the profit potential.

If you do not have the will power to take the loss when your risk point is hit during the trading session, then
you must use stop loss orders. Place the stop at the same time you place the trade. You probably heard
stories about the floor traders ‘running the stops’, but I assure you, in the good trades, the majority of the
time you will not be stopped out. This happens with the bad ones.

Personally, I have a trading plan laid out the night before. I generally know what I will do if the market acts
the way I anticipate it should, and just as important what I’ll do if it doesn’t. It is a guide, not written in
stone, and somewhat flexible. However, if a market is not acting ‘right’ according to my plan, I know it is

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time to take action, either to take the profit if available, or cut the loss if not. Generally, I’ve found when I
try to ‘fudge’ the plan I get my head handed to me. Not always, (and this why it’s hard to follow plans
many times) but enough to know the plan is smarter than I am in the heat of the battle.

When it’s not going right, when in doubt get out. If you have a compass in the middle of the desert, and the
oasis is north, don’t get fooled into following the mirage to the west. There is nothing better than getting
out quickly when you’re wrong!

…Be aggressive when taking profits and/or cutting losses if there is a good reason to do so. A good trader
will act without hesitation. When something is not right, he will liquidate early to save cash and worry.
Never think too much. Just do it! And, don’t limit your price—go at the market! Many times a market will
give you one optimal opportunity to act and that’s it—go with it. As Gann would say, the way to benefit
through tuition is to act immediately!

† No regrets. When you liquidate a trade based on sound reasoning, never regret your decision. Go on, and
if it was a mistake to get out, just learn from it. We all make them. Don’t ‘beat yourself up! You will lose
your perspective and become too cautious in the future. How do you do this unemotionally? Try not to
think about the price you entered. This is irrelevant. If the market isn’t acting right, don’t try to ‘get out at
break even after commissions’. This can get very expensive.

‡ Money management is the key. Think about this daily. You do not necessarily need a high win to loss
ratio, but your average win must be higher than your average loss if you want to succeed. To do this, there
must be (at least some) ‘big hits’. Some trades you will need to maximize. You need these big wins to
offset the inevitable numerous (and hopefully small) losses which are going to happen.

I’ve found by being able to just cut losses early, by even a small incremental amount per trade, say $100,
this can make a major difference to the bottom line. This takes decisiveness, so be decisive if trade is not
acting right. Waiting a ‘few more ticks’ is generally not a recipe for success.

One more point; it is bad practice to cancel or extend a stop loss order. You should never do this. My
experience has been that 99 times out of 100 canceling a stop is the wrong thing to do. It’s OK to cancel a
profit taking order at times, but the sooner a loss is stopped the better.

When you get out of a bad position quickly, and with a minimum of trauma, not only is your capital base
maintained, but your judgment will improve. Without a well-defined risk point, there’s no judgment, what
it’s called is hope. George Kleinman can be reached at geo@commodity.com or 1-800-233-4445

Regarding Barrie Blase’s Comments on The "Street Smarts" Book Review - Raymond F. Kohn

The CTCN forum is a marvelous format which allows for a wonderful exchange of ideas and opinions from
which all can benefit. In the last issue of CTCN, Barrie Blase was kind enough to comment on my prior
book review of "Street Smarts" by Connors and Rashke.

Thanks Barrie for reading the article, I appreciate your interest and comments. You are very correct in
saying "Street Smarts" is an excellent book, I think so too! And the fact it has contributed to your success,
as a trader, speaks doubly well for the contribution it has made.

Successful investing, with consistent profits, is probably one of the most difficult avocations to master. I
am always thrilled to hear about the success that others have been able to achieve, in what is a very difficult
undertaking. You are to be congratulated for your trading success.

In order that all of CTCN readers understand the basis for my prior comments, and your response to my
opinions regarding the stop-loss and money management techniques that were recommended in "Street
Smarts," I will quote the relevant passages directly from the book:

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In Chapter 3, titled "Money Management," Page 12: the book reads as follows: "All of the patterns in book
follow the same method of money management. The following principles will ensure your success in any
type of short-term trading!

Enter the entire position! ... Do not add to winning positions.

Place an initial protective stop on the entire position one or two ticks below the most recent high or low.
(The market should not come back to this defined support resistance level, or risk point!) The exact timing
to exit a trade is a subjective matter. What is not subjective is the initial protective stop.

Immediately look to scale out of your trade as the market moves in your direction. By taking some of the
trade off, you are decreasing your risk and locking in profits. If you are trading on a one-contract basis, as
you should if you are a beginner, move your resting stop to protect any gains.

Important, if market moves parabolically or a range expansion move, take profits on entire position. This is
very likely a climax!

To exemplify the above instructions, I will further quote the relevant money management and stop-loss
instructions provided by the authors in one of the trading methods given in the book:

If the buy stop is filled, immediately place an initial good-till-canceled sell stop-loss one tick under today’s
low.

As the position becomes profitable, use a trailing stop to prevent giving back profits."

And, that’s it. The above quotations pretty much cover the author’s idea of an exit strategy.

Now, for many of you out there in "investment land" the above money management and stop-loss
information may be all that is needed for you to apply the entry systems discussed in the book. More power
to you. I applaud you for your intuitive personal trading skills, which you are obviously taking for granted
and unconsciously applying in an almost transparent fashion in deciding upon a specific exit strategy or the
exact level of a trailing stop-loss.

It has been my experience that the intuitive skills that one trader may have (and often times takes for
granted), another trader may not have. Yet—It is these intuitive skills which a trader applies seamlessly and
transparently to the decision making process that are the keys to successful trading when subjective
elements exist in a trading system. Barrie—You obviously have those intuitive trading skills.

However, many of us don’t have those skills, and therefore, a more precise trading method is required.
Additionally, if someone wanted to "historically back-test" a particular trading method, to prove its
viability before using it, the computer will not understand nor tolerate a subjective undefined term like:
"Use a trailing stop-loss."

I have done a lot of historical back-testing and systems testing and development over the years, and in
doing so, I write a lot of system testing code on a regular basis. It’s an interesting exercise, and it causes
you to really think long and hard about what you are trying to do.

I find that when I am back-testing a particular idea or trading system, I am forced to delineate every aspect
of the trading process in a very precise manner. As a result, it causes me to have to think about all of the
various issues such as: "what is my exit strategy, what kind of trailing stop-loss do I want to use, and just
how far away do I want it to be?" A computer testing model just doesn’t understand, nor will it respond to,
a vague command like: "Protect profits with a trailing stop." That’s just not good enough. An exact and
precise definition covering every aspect of the trading system is absolutely necessary if that trading system
or methodology is to be properly evaluated and eventually used.

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If you had an opportunity to read my last book review on "Hit and Run Trading" the last section of that
review was titled "Personal Commentary on Exit Strategies and Stops", in that section I provided numerous
examples of various stop-loss techniques, and the resulting profits or losses that were generated when
subtle changes were made in the exact level of a given trailing stop-loss.

I believe that the examples given in that "Personal Commentary" made the point very clearly—That a
subtle shift in the exact level of a trailing stop can have a "dramatic effect" on the overall performance of a
system. Therefore, subtle variations in setting trailing stops can turn a winning system, into a losing one,
and visa versa.

This combined with the fact that even Connors and Rashke describe their own exit strategy as "subjective,"
and the contents of their book totally omits any "precise" or even "suggested" trailing stop-loss
methodology, is the reason why I believe my criticism of their fine book is valid.

Regarding the value of "historical back-testing:" You are very right in saying that no one has a crystal ball.
But, you do need a semblance of an idea of what may have actually worked in the past, and what has never
worked. (Full well realizing that what may have once worked in the past may or may not work in the
future). But, if your idea has consistently failed miserably in the past, what makes you think it will start
working now? And, who is going to have the confidence necessary to trade a system which historically has
consistently lost money? Therein lies the concept and the power of "historical back-testing" your trading
ideas before putting money on the line.

The major problem with the "historical back-testing" concept, is that you can’t "back-test" the viability of a
trading system or method when even one portion of that method is "subjective" or "discretionary." This is a
very important point, because it is impossible to duplicate and replicate a subjective and discretionary
trading decision.

So, the next time you read the next "Holy Grail" of trading systems that comes down the pike, and it
requires you to define even "one" of the various trading elements contained within that system—
Remember, it is you alone, who is defining and providing the missing "subjective" trading elements, and
not the author. And, in some cases, that undefined "subjective" element can represent as much as 50% or
more of the trading system’s effectiveness.

So, if you have been able to make money with a trading method which required you to develop and define
the missing "subjective" elements contained in that method—You are the one who made the system viable,
and not the author.

Happy with The Newsletter & Some Vendors But Not Others - Greg Wood

I’m a new subscriber and delighted with the newsletter. I’m impressed with your editorial control the
discipline you’ve imposed on your contributors. Reading the back issues has been very instructional for me.

I’ve been a happy/satisfied client of John Stenberg’s over the years. I’d be happy to write an article
describing my experience with him. The same applies to Joe Ross.

I’ve had some sour, unhappy and/or money-losing experiences with other vendors (including Kent
Calhoun, Essex Trading, TBSP, Larry Williams et al). I’m reluctant to put these comments in writing
because of the inevitable nasty responses. What’s your take on this?

Editor's Note: At least two of these vendors you have referred to have also had a number of positive
comments made about them, namely Kent Calhoun and Larry Williams. In fact, there have been more
positive comments on them than negatives ones over the years.

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The same is true about CTCN's Real Success Trader Educational Video Tape Course. We have received
numerous positive remarks (many more positives than negatives) about it, but also some negative remarks.
This just proves it's difficult to please everyone.

By the way, how many product vendors are there who give a six-month or full one-year guaranty of
satisfaction, as CTCN has done? Very few! In fact, there are several Seminar and Product Vendors who sell
their methods for thousands of dollars and give no reasonable guaranty at all or a one-day money back
guaranty! Some traders complain about their failure to back-up their seminar or product with a reasonable
time period guaranty of satisfaction!

Look in the current edition of Futures Magazine for example advertising from some vendors who fail to
back-up their products or seminars with a realistic and reasonable money-back guaranty.

It would be a great idea if they at least offered a Credit Certificate, in lieu of cash. This way the client may
acquire additional products from the same vendor which may help him in learning the methodology he is
unhappy with or did not grasp. At the same time the vendor would not have to did into his pockets for cash
but could still offer a reasonable guaranty to the client.

Getting back to CTCN's Real Success method, amazingly (several different times) we have received
feedback from two t traders at the same time (sometimes the same day) where one trader says he is making
money and happy with CTCN's Real Success and another trader says the opposite! This seemingly strange
happening also occurs involving other trading systems and methods.

By the way, I’m about to leave for a Linda Rashke seminar this weekend, followed by a week at
Commodity Boot Camp. If I write an article, what kind of approach would be useful?

Editor's Note: Point out things about it you saw as positive and also any negatives. I would also
concentrate on how mechanical and teachable these two trading methods are. What percentage is subjective
and requires your judgment come into play? If the approach is too subjective, in particular involving
mechanical entry, stop-loss and target techniques, the trading methods actual value would be reduced
greatly.

Comments from A Real Success Trader - Cal Boicourt

I had a good Monday and Tuesday with profits of 250 points. Today should have been terrific, but I kept
trading in the afternoon and let my profits slip away. It really gripes me that I can’t recognize a trading
range without spending a lot of money getting stopped out. I’ve read Mark Douglas’s book once and am
going through it again. I think it's helping me some.

About Ira Epstein's Site & Others - Gerry Barrington

First, I want to call to your attention that Ira Epstein is offering a free demo disk and computer chart
capabilities on a remote basis.

As I am new to the computer game this seems like a good way to get my feet wet without high expense. I
just sent for the demo disk so I have no experience as yet to relate. I will follow up.

I have no connections to Ira Epstein and am not a customer. I would be interested in learning of other
people’s application of their data. Maybe it is just too new. I just saw their ad. Their web address is
http://www.iepstein.com

This brings me to point #2; Dave, you mention other web sites in your editorial comments starting on page
30 such as Avid Trading Co., and inSight inFormation, and Investment News OnLine. What are the web

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addresses for these sites? I couldn’t seem to flush them out. Please advise of any other interesting
commodity sites for charts, technical analysis, etc. We need a commodity bulletin board.

Editor's Note: We also could not flush-out the URL's of Avid Trading or Insight. We will post their
addressees on our www.webtrading.com web site once we find their Internet addresses. Investment News
Online's is at www.ino.com P.S.: We have a number of interesting and helpful futures related sites on our
new web site www.webtrading.com look at the left side frame on our home page and click-on "Related
Sites." By the way, we are planning to add many additional links so if you have a favorite link you would
like added, please let us know its URL.

A letter like mine could be posted on it. You in turn could print some of the more interesting questions and
answers as part of the letter on the assumption that not everyone is going to read every posting.

"Futures Truth's Top-10 Systems Exposed" - Kent Calhoun Comments on FT's Top-10 Systems Of
All-Time

In 1979 I incorporated Calhoun Commodity Research Company, for computer research of profitable
methods. In 1981, I designed and sold my first trading system, the first volatility breakout system ever sold
to the public, for $10,000 to a trader Mark Adrian, who became president of Stellans Brokerage Company.
After eight years of selling trading systems from $10,000 to $35,000, to Chicago floor traders, I sold
Ultimate II for $120,000 to the world’s largest crude oil trader. It returned 165% over the next 12 months.

The July 1997 issue of Futures Magazine rates Futures Truth Top Ten, (a.k.a. "FTTT"), All-Time Most
Profitable Trading Systems. How many of FTTT systems would you really want to trade? If you look
carefully, probably none.

There are aspects of system evaluation I developed which would benefit all trading system purchasers. In
1993, my Ultimate-II was rated the most profitable system ever sold to the public. Every FTTT System
after a maximum equity drawdown beginning trading would have an annualized negative return except one.
Ultimate II returned 102% after a maximum equity drawdown. Flat-time is the amount of time waiting for a
system regain a new equity high, often a year or longer.

Basic Rules for Trading System Evaluation - Never buy a losing trading system for commodities you like
to trade - 50% of the "Top Ten of All Time" portfolios tested had one or more losing commodities within
their portfolios, which should have been eliminated. Never trade a system for individual commodities that
lose money! Donate the money to your favorite charity first!

Never trade a system for any individual commodity where the maximum equity drawdown is greater then
the total cumulative profits - Any system that has more maximum equity drawdown greater than
cumulative profits is producing more negative equity traded exactly opposite its design structure.
Universal’s LT made $1475 for copper after a drawdown of $10,300, $7 of negative equity for each $1 of
positive equity. This aspect is worse then a losing system, since it may be a loser but this fact is unknown.

Never trade a system where profits are twice the commodity portfolio weighing - A three commodity
portfolio should produce total profits equally. A skewered profit for one commodity equal to 200% the
portfolio weighing means 66.67% of profits are from one commodity of a 3-commodity portfolio. What
happens to the portfolio when that commodity begins to lose money. The entire portfolio normally crashes
with it.

Trade a system to suit your personality - The average waiting period for a system to make new highs for
these 10 systems is 320.7 trading days, or over 10-months. How many traders can wait for 10-months for a
system to produce profits above a previous high? One system had a 1.5-year flat period. Like watching
tectonic plates move?

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You must know the maximum equity drawdown before funding an account to trade any system - The most
important of all system figures was omitted by Futures Truth!

How many of the Top Ten systems would have been profitable one-year after a maximum equity
drawdown? Only one, and that one had a waiting period of 244 days before a new equity high was reached.
Very few traders will want to wait that long. The best systems have only 10% losing months, and regain
peak equity figures within three months.

Expect an immediate equity drawdown - The last time this article was published, 1993, combined systems
had a $150,000 equity drawdown. How much of a negative drawdown will be experienced now, these
systems have been published?

Analyze the Profits - The Yen and S&P’s have been very strong trending markets for the last three years.
When profits from these markets are removed from the combined system portfolios what happens to the ten
systems’ combined total profits?

They dropped from $919,761 to $401,434, a decline of $518,327, a decline in excess of 56%!

Sharpe Ratios should be over 2.0 to 3.0 for a good trading system. While Sharpe ratios have no absolute
value, they measure the relationship of risk of volatility to reward. The lower the Sharp Ratio the more
volatile the equity swings, since it measures the system return in units of standard deviations. The best
FTTT Sharpe Ratio was 0.05!

The Futures Truth Top Ten All-Time? You Decide!

Time Trend lll - trades S&P futures - 7-parameters-A maximum equity drawdown of $25,075 at the
beginning of trading would have made no money by year’s end. The average yearly profit is $19,593,
almost $5482 less than its maximum equity drawdown. Flat time - 529 days (zzzzz). Want to wait 1.5 years
for a new equity high? Sharpe.25.

Culler Currency System - contact Futures Truth, Swiss & Yen, 4 parameters - Would you like to watch
your account lose $19,313 to make $9,613 like this system did in Swiss Franc? Would you like to assume
overnight currency risk 45 trades per year to make a whopping profit of $7,529 per year? For 396 days, you
would have remained below previous equity levels. Yen produces 85% of profits! Sharpe-crapshooter’s.
14!

DCS II- sold PWA Futures - 5 commodities tracked with 4 parameters - Two of the five commodities lost
money and should have been replaced by any of the many that are profitable for this system. The three
profitable commodities of yen, franc, and coffee had equity drawdowns of $16,375, $21,163, and $35,494,
which are pretty hefty risk for some traders to assume. This may be the best of all the systems, because
other commodities not listed have lower drawdowns. Peter Aan, "America’s #1 CTA", has attended more
KCI Seminars than any other KCI trader, and has much better work. Sharpe.27.

DollarTrader-9 parameters - too many! Curve fitting optimization? The maximum equity drawdown is
more than 14O% of the average annual profits, this accounted for a l-year plus 9O days flat time. Anyone
for watching plate tectonics? Sharpe-.18. (Try Vegas slots; they have a higher Sharpe).

Grand Cayman - 8 parameters (yuck) tracking 7 commodities. More than half the commodities, 4 of 7,
when tracked together produced a loss! The other three have equity drawdowns totaling over $80K to
produce profits of $103K. Do you want to trade risk that high? Bring lots of money for little return. Not for
me. Sharpe.32.

R-Breaker-Richard Saidenberg - the only system with a positive annual return after a maximum equity
drawdown. I taught Richard’s programmer my parameter stabilization method. This system requires a lot of
trading, over 125 trades per year. Slippage and commissions were calculated at $75 per trade. Deserves
consideration. Sharpe.48.

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Universal LT - Stafford Trading, a.k.a. Futures Truth - After you eliminate Copper (drawdown $10.3K
profit $1.4K,)Crude Oil (drawdown $9.4K profit $4.9K,) British Pound (DD $8.7K profit $4.5,) & T-bonds
(DD - $22.2K profits $25.5K,) only 2 commodities remain. More than 53% of total profits are from the
Yen! Forget this! Sharpe.50.

Aberration - only one parameter (impressive,) 403 flat time days - snooze. An equity drawdown in coffee
of $39K for profits of $47.9K, you have got to really love coffee, (except for a losing British Pound, and
Swiss Franc -DD at $16.6 for $12.6, three commodities are acceptable with 60% winning trades for mark,
franc, and crude. Consideration this system for these markets after examining drawdowns. Sharpe.36.

Catscan - 5 parameters, 7 commodities, 4 combined lose money. This is the only system listed that lost
money for the Japanese Yen. T-notes lost $9.3K before making $860, Muni Bonds & Cotton - just as bad.
(Their ads always shows #1 rankings. How?) A flat time of 453 days. Why waste over a year waiting for
your money to return? Sharpe - blunt.24.

ComboAdvantAge-Black Box with undisclosed rules selling for $4,995 - requires a special type of sucker
(idiot) as a prospective client. Naturally 80% of this turkey’s profits come from the Yen, with horrendous
results for the D-Mark and Pound which combined together lose money. Why not just give this guy your
trading account! Sharpe a dull.14.

In my humble opinion, anyone who buys a black box trading system shows blatant disrespect for their
money. With a black box system any line of code could be entered, like "do not trade S&P’s on October 19,
the day of a system’s largest possible loss." The system purchaser, just like Futures Truth, would never
know the difference! Any company that rates a black box system should never be seriously regarded as a
respectable member of the professional financial community.

Anyone who rates trading systems, has no business rating their own systems. Stafford Trading is owned by
Lundy Hill, son of Futures Truth owner John Hill, and a partner with his father in Hill Financial. By rating
a black box system, by omitting the maximum equity drawdown figures, by rating their own trading
systems, Futures Truth is contributing to the most detestable and unethical predatory vendors who
avariciously prey on the public. Futures Truth has betrayed any ethical standards they once advocated for
other vendors, by clearly demonstrating a lack of their own.

Editor's Note: The August issue of Futures Magazine just arrived and contains a number of advertisements
from these "Top-10" vendors proclaiming their listing in the Top-10. As we warned you in the past and
before Kent wrote this article, the Futures Truth rankings and service is of very dubious value. We strongly
recommend all CTCN readers ignore the Futures Truth rankings. Also, as Kent so well points out, most of
the top-10 systems have huge drawdowns and flat time periods between new equity highs. Do not buy these
systems mainly because of their FT ranking. Remember, the Futures Truth ranking service is of extremely
dubious value. In addition, we have been told by the owner of Futures Truth their rankings really are
subjective.

Important Editor's Note: As an interesting side note, at one time CTCN (Trend Index Co.) had a trading
system which was highly ranked by Futures Truth but was dropped at the last minute from the Top-10. This
was because John Hill admitted he wanted to include his friends Welles Wilder's system in the Top-10
report in Futures Magazine's report on his Top-10. Therefore, he took our system out of the Futures
Magazine report and replaced it with Mr. Wilder's system. When we asked why this was done, his
comment was "today's top-10 may not be tomorrow's top-10" and indicated the listing was basically very
subjective.

Commodity Traders Club News is in the process of putting a Special Report on our new
(www.webtrading.com) web site titled "The Truth & Allegations About Futures Truth." Not only will this
expose on their highly dubious value Top-10 List be on the web site but lots of other insider type of critical
information.

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Important Editor's Note: Your editor will also include on our Internet Site (www.webtrading.com) his
own shocking and amazing past first-hand experiences with Futures Truth. No punches will be pulled or
facts hidden. We will tell you everything about our past dealings with Futures Truth.

This will include all the details on how they published heavily curve-fitted and optimized output from one
of our trading systems. This was done every month for a very long time by their asking us to send them a
new trading system disk each month with freshly optimized parameters and our own price data (which also
could have been easily curve-fitted - but the data wasn't).

How they then listed it in their Master Performance Tables and ranked it highly, all based on those heavily
curve-fitted parameters that were curve-fitted on a regular basis.

Of course, the un-optimized and non-curve fitted actual trading results would have been vastly different
and likely inferior to performance results they told the public about. CTCN members should all be aware
by now that performance of an optimized or curve-fitted system will in all likelihood fall apart or
deteriorate when you start trading it.

We wonder how many other systems are heavily optimized with their blessing. It's very interesting to note
John Hill admits in a past CTCN article that he does in fact allow the vendors to modify the systems
themselves, but FT does "not allow any "tweaking" of the numbers." Isn't this the same thing but a different
way of doing it?

Trading Using A Common Indicator An Adventure In Computer Simulation - Stephen Goldfarb

One of the more familiar indicators is called a Pivot-Point. The pivot point one can project the next day’s
high (resistance) and low (support). Some formulas include a second level of resistance and support beyond
the primary ones. Pivot points are frequently referred to in books on trading and in magazine articles.

I recall an early article in a magazine devoted to Radio Shack computers. The author claimed he inherited a
successful system from an old curmudgeon. Sure. Traders often wish to trade during the day. The appeal is
that a trade is closed out by the end of the day. One’s risks, and sleepless nights, are lessened. So, too, are
profits.

I thought I would test by computer simulation how the pivot points might be used for a day trading system.
As you will see, the challenges for successful day trading are not readily met. The formula to calculate a
pivot point and projected high and low for tomorrow is as follows:

Pivot point=(High + Low + Close)/3

Projected high=(2 X Pivot) - Low
Projected low=(2 X Pivot) - High

I also used a filter to determine in which direction to trade. I used an oscillator consisting of the three-day
simple moving average of the close minus the ten-day simple moving average. If the average moved up
from one day to the next, I considered that a "Buy" mode. If the average moved down from one day to the
next, I looked to enter short.

I used an additional filter to trigger entry into a trade. This came from William Greenspan’s article in
Technical Analysis of Stocks and Commodities (July 1996). If I were in a Buy mode based on the moving
average oscillator, I entered long if the day’s price opened below the pivot point and moved up through it.
If I were in Sell mode, I sold if the day’s price opened above the pivot and moved down through it. One is
entering in the direction of the short-term trend. Entering from below the pivot suggests at least a partial
reaction in price against the trend.

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The targets were the day’s projected high or low. If the price did not reach the target, I exited on the close. I
placed no stops for this test. If today’s prices were an inside day, I used the previous day’s prices to
calculate the pivot point and support/resistance levels.

Computer simulation is different from real time trading in a number of respects. In this case, the pivot point
calculations use the raw computer generated figures. They are not converted to actual tic values. Because
one is using daily Open, High, Low, Close, it is impossible to tell what price excursions occurred during
the day. In real time, a trade could have been entered, and the price might then move in the opposite
direction before ending at its final destination. Slippage and commissions are not factored in.

I used continuous T-Bond data starting July 1982 and ending 1-1994. That's about 10-½- yrs.

The results were as follows:

Cumulative profit: 15 points (approx.)
Wins long: 223 - Losses long: 132
Wins short: 202 - Losses short: 181
Total trades: 738 - Percent long wins: 63%
Percent short wins: 53%
Percent total wins: 58% Trades about once every 5-days

I also tried a simulation in which the profit potential had to be at least .20 points. I measured the profit
potential as the amount between the pivot point and the target.

The results for the latter test were as follows:

Cumulative profit: 19 points (approx.)
Wins long: 185 - Losses long: 114
Wins short: 161 - Losses short: 146
Total trades: 606 - Percent long wins: 62%
Percent short wins: 52%
Percent total wins: 57%
Trades about once every 4-days
A point in T-Bonds is $1000

Well . . . what can one say about such testing and results? The profits are negligible for 10-½ years of
trading. Even deep discount commissions would make major incursions into already meager results.

Traders who learn of an esoteric technique and trade it without testing, do so at their peril. Trading a
method that sounds intuitively correct (i.e., trading in the direction of the trend, entering on a move in the
chosen direction) does not guarantee success. Even with some validity to the methodology (eg., 62-63%
long wins) minimal day trading profits cancel out the advantage. There is more to trading than the siren
songs of high-speed computers and magic indicators suggest. Perhaps a little tweaking would improve the
results.

"To Good To Sell" - Dale

I received your publication and decided to give you a look. (Although as a professional CTA, broker,
system developer) I took great occasion to a few of the articles). It is no wonder that most people lose
money. The main attitude of many of the letters was that everyone was responsible for the people losing
money except themselves.

They took great efforts to blame professionals and system sellers. I’ve spent tens of thousands on worthless
systems as well - I look at it as tuition cost. Also, I have bought many good systems that I couldn’t make
money with because they did not fit my personality.

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My experience as a system’s leaser made me decide to get out of the business of leasing and keep my
system proprietary. I can make a lot more money that way anyway. I did think it would be nice to feel like I
helped many people learn how to make $$. But, In my 10-years experience, I have found that only about 1-
5% of people have any integrity and usually want to blame everyone else for their problems. However,
when I meet that 1% it does make the rest worth it. Thank God that I have a good system and don’t have to
lease it to anybody and can be very selective about who I do business with and associate with.

Editor's Note: This is odd. The reason Dale sent this to CTCN is because he received e-mail we sent him
asking why he's sending us unsolicited e-mails containing an attached file with his trading
recommendations. If Dale isn't selling anything why did Dale send these unsolicited e-mails to us?

Commodity Options - W. D. Vincent

I really enjoy reading CTCN and think that it’s really helpful. Due to this publication I, being a green
commodity trader, have decided to get back into trading after being less than successful futures trader back
in 1990-91. I started with the Ken Roberts course and am very thankful of the skills, terms and trading that
I learned and would recommend the course to anyone who is new to the "game." When I was paper trading
I made a ton of money. Then I started actual trading, and the economy change and my money slowly and I
mean slowly started to dwindle.

One trade forward and two trades back. If you ever been hustled, then you know what I’m talking about.
Not that I was, it just seemed like it looking back. Beginners lack of a money management plan was really
my previous down fall along with the failure to have a "what if this happens" plan and got hit constantly
with stops to close.

Therefore, this time I’m investing time in commodity options. I’m leaning on the selling side of the picture
due to the nature of mostly winning in four out of five neutral spreads. The beauty of these spreads is you
don’t have to predict market direction, just the range that they will stay in less than 45 to 60 days.

I just look for the biggest rise or fall in the last six months, add that to today’s price for the strike I put on
the call and do the opposite for the put. I also only pick commodities that are slowly trending and are not
close to their season high or lows and stay clear of volatile markets(coffee etc). Like I said, so far it works
on paper after 40 or 50 trades. I’ll have a pretty good data base to refer to, to give me a better direction on
what to do. Also does anyone trust Kaplin?

He seems to be the only one talking about himself. So if you are an options trader, I’d appreciate to hear
from you. I like talking options. You can e-mail me at gafftop@computron.net. I look forward to a long
relationship with ya’ll through CTCN. I hope this will be of some use to somebody out there!

Review & Opinion of R&W Technical Systems - Jim Allen

There have been inquiries about R&W Technical’s Master Suite trading program. It is comprised of
separate systems trading S&P, Bonds, Euros, plus DM, SF, JY and BP. You can buy the Master Suite, or
each individual system, Euro, S&P, Treasury or Currency. It is designed to run under SuperCharts or
TradeStation on end-of-day data. I think R&W also has similar modules for other markets, grains, meats,
softs, etc., but I have no experience with these.

I have owned the Master Suite for a couple of years. It is fairly easy to operate. Every night you download
your prices and run the system. It gives you the new orders on the system tracking page. The trades tend to
be longer term. At each quarterly roll-over each system must be set up anew, but this takes only a few
minutes once you get the hang of it.

Depending on when you start, your results can and do vary. The entire Master Suite costs about $15,000,
cheap if it makes you big money, expensive if you don’t use it, or use it properly. R&W claims you can use

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an initial account size of $26,000, but in my judgment, that would be extremely courageous. Count on at
least $100,000, to be a bit safer.

Be prepared for some heart stopping drawdowns sooner or later. I think that this is an unavoidable
consequence of a longer-term system. If your account is big enough and you take every signal, and I mean
every signal, and you live long enough (in the trading sense), it appears to show a profit every year on the
whole system. I don’t know if that can be said for each individual component. Although it is claimed to be
profitable in the long run, the drawdowns in the short run can be ruinous. The system sets some mighty big
stops, too.

My experience was that I was usually able to enter and exit fairly close to the system signal. They always
enter on the open, and always have a stop in the market after the day of entry. I did a brief examination of
slippage and found that it was about even, sometimes we got worse fills and sometimes better.

There are cheaper systems out there, and there are a lot of worse systems. I quit trading Master Suite
because it seemed we were leaving too much money on the table, and I was concerned about large
drawdowns, even though I was very comfortably margined at all times. I found that I was very
uncomfortable blindly following each trade, especially when the trades went the wrong way.

You sit there with a loss on the trade, not knowing, or having any way to know whether or not you’re about
to drive off the cliff! Then you have an overwhelming urge to step in and . . . second guess. At that point
you might as well just call the trades yourself and not bother with the system. As the ads say, there is a risk
of loss . . . and past performance is not necessarily indicative of future results! I have tracked it since I have
had it, and following the system would have been nicely profitable overall.

You should look at what happens to someone starting at various times during the period for which results
are claimed. For example, the results claimed show what happened if you started on January 1, 1987, I
think it is, and those results are impressive. But what happens to people who start at different times. Maybe
the results are not always so good. My trading was profitable, but the traders who started three months
before had much better results due to a couple of wildly profitable currency trades.

Editor's Note: Jim's comment about the starting date of trading being important is something not obvious
to most traders. The sequence of events which set-up the first signal and first trade can sometimes have
profound effects on the following sequence of trades. Another reason for the timing of the first trade being
sometimes critical involves optimized or curve-fitted systems who's optimized parameters were based on
the markets signature on a specific date or time period just prior to the first trade. As a result the first few
trades may be successful but the results will deteriorate as time goes by. Or if a different starting date is
used (even just a one or two-day difference in start dates) the results will be different, sometimes by an
amazing degree. We want to thank Jim for this review as he did it as a result of our asking him for it in
response to a number of inquiries we have had about R&W.

There have been only a handful of S&P trades in the last few years, but some of those were eye-poppers,
and made up for quite a few losing T-Bond and British Pound trades. I suppose that may be a strength of
the system, that it is a little diversified, so that the odds favor one system being good while another might
be struggling.

Maybe someone can run the results starting every quarter from Jan. 1987 to date, to see how many starting
points would produce disaster, and how many would produce satisfactory results. Call up R&W and ask if
anyone has ever done that! I’m not so sure what that would prove, since past performance is not necessarily
indicative of future results . . . but many people feel better knowing.

R&W got whacked by the CFTC over its claims. I believe that the big issue is the claim by CFTC that
nobody actually made the trades shown in the performance tables. But I don’t recall R&W claiming that
anyone had, only if you had been following the system, these signals popped up and you would have gotten
these results if you had traded them. I have run the system on the prices for past years, and am satisfied the
system pops up the signals, and sets the stops, as claimed.

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After all this, plus my experience with other systems, I think that blindly following a mechanical system,
no matter how sophisticated, is crap-shooting. It is better to spend $15,000 learning how to trade, and even
better to learn how to trade without spending $15,000.

A Lesson In Time (or How To Trade Time Days) - Rick J. Ratchford

This is a general lesson on how to trade time days, and the author will allow you to fill in the blanks as to
what time days you use. For most of these following techniques to work, however, the time days you
choose to use should do better than 70% in isolating a turn in the markets within one day. When you start to
go below 65%, you run the risk of losing confidence in your time days and their source. Without a
confident source of time days, it will be difficult to trade with the expectation that every time day will
work, and that can ruin a good trading plan using them.

Once you've found a good source of time days to work with, you must then proceed with the assumption
that all turns in the market that falls on a time day or within one day of the date that was forecasted will not
be breached for at least a few days minimum. You must assume this if you are going to develop necessary
skills in dealing with results of a time day, good or bad. Time day tops or bottoms are the tops or bottoms
for the short term, no exception. From here we may proceed.

All examples in this lesson are based on a short-term down trending market. We know it to be a down
trending market based on these rules. A top is a top if it is higher in price to the tops of the previous 2-days
and 2-days afterwards. A bottom is a bottom if it is lower than the low of the previous 2-days and 2-days
afterwards. This is for defining trends, not time day tops or bottoms which can be formed in one day alone.
So, our downtrend is when the short-term market is making lower bottoms and lower tops.

For uptrends, which are higher bottoms and higher tops than the previous bottoms and tops, you need to
reverse what is explained in this lesson. We will assume a downtrending market only for simplicity. Again,
all rules will be assuming just a down trending market. Reverse for up trending markets.

Consider that we have a time day due today, and the previous days have been going lower and lower up
until now. Now it again makes a lower low on our time day. Here are some rules to consider in this
situation: We only trade in the direction of the short term trend; ‚ We must assume that we have a time
day bottom; ƒ If we are already short, we should either tighten stops or exit now; and „ We must prepare
for an opportunity to enter this market in the direction of the trend within the next few days.

A time day turn is a very important turn. It marks a significant price level. When the trend is down and we
have a time day bottom, we cannot enter to go long because this would be against the trend. There exists
the possibility that our time day is actually a time day top instead, just one day late.

In other words, the next day after the assumed time day bottom the market makes a higher bottom and top.
Then the following day after that it resumes the downward move, possibly even taking out the assumed
time day bottom. What we have here is actually a time day top just one day late, even though it was made
only in one day.

Now here is how this time day would have been properly handled based on simple rules. Rule #1 is that we
only trade in the direction of the trend. Therefore, we would not have tried to go long on this time day low
and then get knocked out the next day with a loss. The trend dictates the type of trades that we take using
time days.

We only short to enter the market. So when you have a time day bottom at the end of a down trend, we first
assume it is a time day bottom and then we prepare in case it is a one day top instead by watching what it
does the next day. If it happens to make a top at 23, 38 or 50% of the previous range, this is a tip-off that
we may be reading to head back down in the direction of the trend. We then can either enter the next day

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after the open if the top is not violated by going short or we can place our order in below our time day
bottom to get picked up. Either way, our stop is placed above the top by a couple of points.

What we are now doing is assuming we have a time day top as well. The stop should be just above the top
to exit if we are wrong, and just below the time day bottom in case it is broken through. You see, if our
time day turns are violated, this is significant in the direction of the trend, and a low risk exit when in the
opposite direction of the trend. One way we want to be in, that is short in this down market, but out of the
trade if our top is really not a top after all. Cheap. Once you go past one day after the time day, you should
no longer assume a rally top unless you happen to have another time day which may mark it. Otherwise,
you have a time day bottom only to work with. Wait for the market to pick you up below the time day
bottom if it breaks through and you will usually go down for a few days before the next correction.

Exit stops should be placed just above the 24% price of the previous range from the time day bottom once
the entry is hit. The market closes below the time day low, the next day the exit stop can be placed above
the high of the day that broke below the time day bottom. Breaking a time day bottom is significant if you
are using good time days. They aren’t time days for nothing.

That was an example on how to deal with time days that fall opposing the trend. Now let’s consider how
we treat time days that fall in line with the trend. Our market is down trending and we are coming upon a
time day. Yet, a few days prior to the time day a bottom is formed and the market then heads up. It's
correcting, making a retracement of the last run down. We then are expecting our time day to be a top.
We're also looking for price to meet with the time day. The key is price and time. One way to get price is
just to do simple ratio math and find 23, 38 and 50% of previous range. If on your time day you fall near
one of these values, you may have time and price. Some programs can help you find support and resistance
prices on a retracement. Be prepared. Now on our time day we have also price that we calculated using a
reliable program. We can then enter the trade aggressively during the time day high and hope it isn’t going
to make even a higher top to the next resistance levels, or we can wait and verify by waiting the next day
and noting that the high does not seem to be threatened.

We must assume that on the time day it is the top and place our exit stops just above it. Reason is that if
you are stopped out, our time day top was invalid and we don’t want to trade this market. If you use
reliable time days, you should be confident in putting your stops just above that high since your time days
have come through for you on a regular basis.

The trade is short in the direction of the trend, and you want to look to tighten stops or exit when you come
back down to the last bottom prior to the rally you’re currently shorting if much resistance is being offered
at the level of the last bottom. We need to break cleanly through this bottom to continue down. As long as
lower bottoms and tops are made, we look to short only, and we do so on retracement tops (or like our
earlier example, below time day bottoms). Again, just the reverse in the event of an up trending market.

Now at times you may have a time day bottom and another time day is due soon. You expect that the next
time day to be a top, yet after a rally and a top is formed, the market falls and soon comes upon the next
time day as a bottom as well. The top was not a time day and so we don’t trade it. Only trade on time days
in the direction of the trend. We had no time day for the top so we couldn’t short it. Now we are back to
another time day bottom again. This time however, the assumed bottom is higher than the last bottom.

We may be seeing the trend change. If the bottom is formed on the time day at 23, 38 or 50% of the rally
range up, you can enter to go long with a stop below the time day bottom for a low risk trade. The key is
that we must cleanly break through the last rally top on our way back up to have a good opportunity to win.

Once price reaches that price level prior to breaking through, move your stop up to even plus commissions.
It is now a free trade in case the market is not changing trends. Absolutely no shorts should now be
considered unless not only does it fail going thru the rally top, it must now make a lower low than your last
time day bottom.

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The key is learning to discipher the trend and to trade only time day turns in direction of trend.

Now let’s say we only have one time day and it is a bottom during a down trend. Well, we can’t go long
since it is a down trending market. After one day and it doesn’t hit 23, 38 or 50% of the previous range
down, we pretty much eliminate a time day top one day off. Without another time day due in a few days,
we can place our short entry stop below the time day bottom in the event that a break will move to the next
level.

Breaking true time day turns are powerful. Another event that occurs during time days, just not as
frequently as turns, is an acceleration day. Acceleration days are days with a bigger than average move in
the market for that day. By applying our trend rule, we would not be on the wrong side of this move. Our
trend is down and we have a time day today. On this, instead of making a bottom, it makes a very big drop.

The following day instead of making a higher low thus verifying our time day bottom, it makes a bottom
also and the next and the next. We had an acceleration day. Since we would not be looking to go long, we
are safely watching. If we were already short, we just made a windfall profit if we only tighten stops and
did not exit.

We look to only trade pullbacks and rallies which are moves against the trend when they end on a time day,
thus entering only in the direction of the short-term trend and placing our stops above the time day top.

These techniques will allow you to trade and profit with time days in the direction of the trend as well as
those opposing the trend. With just a bit of practice, you’ll be able to see this quite easily. I completely
enjoy trading with time days and will not do so without. My time days of choice are Fdates
(http://FSoftpublishing.com). Using these techniques provide low risk with very high profitability.

Just make sure you get good time days and prices to work off of. The 23, 38 and 50% prices are rough
guidelines. There are even better techniques for finding price. But either way, the time days are the real
work horses, with these techniques.

Talkin’ to Myself Again - J. L. from Wimauma

So I’m gettin’ my "come-uppance." So I didn’t subscribe to Robert Wiest’s Scale Trader newsletter. So I
didn’t know about Brazil’s forthcoming bumper OJ crop until I talked to the "master" himself. Can I help it
if I hate relying on fundamentals? (Maybe I’d better?)

So I bought OJ (see my last issue’s article) a little too aggressively (even if I did my repurchases with the
"markets’ money"). The rollover to Sep. changes the picture. Sep. was so expensive that my profit targets
($1.00 per contract) are really up there now in a market still drifting downwards. If it may take a freeze or
hurricane to cash me out, what to do in the meantime? Not to worry. (Don’t forget that I determined that I
could afford OJ before I opened the "campaign," i.e., even if OJ went straight down to 13-yr lows never
bouncing. I could buy a contract every dollar down and still have 30-50% reserves for those nasty rollovers,
etc.! Is that focus or what?)

So this is what Plan B’s are for. Since I’m adhering to the original scale, my new purchase levels are quite a
bit lower resulting in an automatic temporary suspension of buys. So with a chunk of money tied up in
drawdown, what to do? Like any other investor, I want to be paid for making my money inaccessible to me
- it’s called a return. So a page from any farmer or cattle-rancher’s book tells me to hedge my longs.

Simple enough. Scale Shorting Nov. on bounces works wonders. In this bear, I short at the previous day’s
hi instead of the $1.00 level. I’m aware I could be "locking in" losses instead of winnings if prices go
tearing upwards, so I always stay Net Long even after I would take a few long profits if offered. It now
becomes imperative to have enough "inventory." How’s that for turning a large DD (16 contracts) into a
plus? If the name of this game is eliminating over-all risk, then . . .

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So while waiting patiently, selectively taking profits on my "hedges" earns me the $500-600+ a week that I
was making on my long bounces! And my "coup de grace" will come when my next T-Bill matures. Then
by re-activating my other account I can hedge the same delivery month to eliminate those aggravating
spread fluctuations and then have a Pure hedge.

Now that I’ve lost half of you and proved to the rest of you that I’m indeed wacko, the least I can do is to
try to end on a "warm-fuzzy" (if I could think of one). Oh yes. "A person allows change into his or her life
when the pleasure derived from bitching about situations (considerable to be sure) is surpassed by the
actual discomfort of said situations." (I made that up.) Good Investing

Psychology of Trading - Lin Hall

Have you ever thought about what it means when something is at risk? It means that there is the chance that
something could be lost. Even if a system will have 50 winners out of 100 trades, you still do not know in
which sequence the winners and losers will appear. Therefore, each trade is a risk. When the outcome of a
trade is not known, there is fear of a loss.

Most people associate trading with fear of financial loss, but that is only the tip of the iceberg. The bigger
issues are in the emotions and beliefs that lay beneath the surface, much like an iceberg whose mass is
hidden beneath the surf. Besides potential for self-esteem loss. All kinds of factors make up our self-esteem
and all of these are at risk with each trade. Loss of money and loss of self-esteem also have pain attached to
them, as does the feeling of being wrong.

Since every single trade you make has a non-guaranteed outcome, and since each loss carries with it
emotional attachments, a tremendous amount of potential pain is associated with each trade. All our lives
we have been conditioned to avoid pain and fear, so most traders are risk-avoiders rather than risk takers.
This means that the very nature of being human, which is to avoid pain and risk, is in direct conflict with
having to take a risk and face potential pain as is life within the markets.

The mind and ego are very complex and tricky animals. Though a part of you may feel confident in your
choice of system and trading strategy, another part which has experienced pain and loss in the past - in an
effort to protect you from the same pain in the future - may have a louder voice when risk of loss appears
again, thus causing you to see-saw and second-guess.

Meanwhile, each time you do experience a loss in the present, your mind drags up every similar experience
of loss from your past thus magnifying your experience of pain and suffering many-fold. Other hidden
agendas may involve feelings of unworthiness or lack of confidence which manifest as losing trades or
haphazard decisions. This all makes for a very confusing and complex situation when one is attempting to
trade the markets without wishing to be controlled by past-conditioning or the tricky wiring of the mind.

As a result, your trading must become a function of your attitude. Either you attach your self-esteem to
losses and wins or you do not. People who associate self-esteem and pain or pleasure to trading see each
trade as a "do or die" situation. Winners see markets factually or from a practical perspective.

The closer you are able to get to the state that where you do not feel emotional discomfort each time you
execute a trade, the greater constant success you will have in trading. This emotional detachment must be
true and real rather than merely an ability to suppress the emotions. Let’s take a closer look at the
differences between successful and unsuccessful traders.

The Unsuccessful Trader, whether consciously or unconsciously, unsuccessful traders, in their attempts to
avoid the pain of financial loss and feeling wrong, tend to second-guess, mistrust their own systems and
execute many haphazard trades. Rather than trading factually and consistently, losing traders tend to allow
their fears of loss and pain to dictate (at some level) how each trade will be executed.

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In one case scenario, that same trader may avoid executing a trade system gives, but for fear of pain, allows
over-analyzation, rationalization and second guessing to interfere with original intentions to follow a
particular system.

In each of these cases, the trader is attempting to avoid the pain of a potential loss rather than accepting
each trade, whether a to-be winner or a to-be loser, as part of a larger and more complex picture.

To this type of trader, a loss or two or three in a series carries with it much more weight than it would to a
trader with larger perspective. Unable to see far enough out into the future and trust his/her system as
originally intended, this type of trader judges loss as negative, frightening or something to be avoided at all
costs rather than simply an aspect of something larger, a natural rhythm to any system.

To this type of trader, it is often more comforting to lose a trade that is taken randomly rather than one that
is chosen by his/her system. In this situation, then, the trader can chalk up this loss to a "haphazard" choice
rather than worry about the validity and strength of his/her chosen system. Again we see how this type of
trader has attached self-worth and fear to his/her trading and choice of system rather than taking a more
objective and detached view.

For the unsuccessful trader, the risks carry much weight and meaning as the mind reeks havoc with issues
of self-worth and attempts to avoid fear/pain. Until he/she becomes detached from an emotional and fear-
based place, trader is doomed to a never-ending search for the "perfect system" with many setbacks along
the way.

The Successful Trader - Successful traders, on the other hand, are natural risk-takers who carry no fear of
loss. Unlike unsuccessful traders, they do not associate pain or self-esteem issues with any trade. Rather
they accept the inevitability of losses occurring in any trading program and do not attempt to avoid them
for fear of pain or temporary setback.

Their trading is consistent objective and based on fact. They have researched their trading strategy and the
money-management rules that go with it. They have done their homework and trust their own judgment and
powers of discernment. They are able to see and trust in the larger picture that, for instance, out of 100
trades, there will be many wins and losses, but what matters is the end result. They are able to play the
odds, while allowing their emotions to take a back seat.

To this type of trader, a string of losses here and there is to be expected as he/she moves toward net profit
through the ups and downs of trading the markets. A loss here does not mean failure. A win does not mean
success. The focus here is long-term from a bird’s-eye view. Long-term winning is expected and
anticipated.

To sum things up: Winners have a sense of humor; losers do not. Winners have trading and money-
management rules; losers have neither. Winners stick to a particular trading system and to trading a small
range of markets. Losers constantly change systems, markets or both. Winners feel fine about taking
vacations from trading when they don't have positions in markets. Losers feel as though they will be
missing out if they are not constantly engaged in trading. Winners trust themselves and their systems
whole-heartedly. Losers are constantly second-guessing themselves and their systems. Winners are secure
and satisfied with a trading system that is not perfect. Losers are constantly on the search for the "perfect"
trading system.

The Solution - As we have mentioned, when there is a risk, there is fear and we are wired to respond a fight
or flight conditioning. The flight response is to not take any more trades after a string of losses, to switch
trading systems or to switch markets. The fight response is to be stubborn and to not use stops or to keep
repeating the same mistakes over and over again until a bully market changes. Markets do not have
emotions. You have emotions. What is the solution? The solution is in consistency. Have stood money
management and, for each trade, calculate the risk you are taking. Have a good trading system and each day
calculate your entry, exit and protective stops and use them consistently. Develop a factual trading attitude,
and then repeat this attitude with each trade. When analyzing the markets, a trader tends to be factual, but

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when it comes to executing a trade, he/she becomes emotional Trading in the same manner that you
analyze could be a helpful factor. Trust that the trading program you have set for yourself will be
successful. Why are successful traders consistent? Because, they do not associate risk with fear or loss with
the pain of any sort. To be consistently successful, you cannot rely on hope. You must get to the state that
you can execute each step of a trading program consistently and without any part of you being in conflict
with the other parts. You move from the conflict stage to the creative stage.

To get to the creative stage, you must monitor how your emotions and thinking are working and heal the
conflicts within you. There are many conflicts within each trader and if you are unable to be a consistent
trader, the solution is not in another trading system, but rather in self-analysis. Trusting oneself and loving
oneself go a long way to healing the emotional conflicts that silently rage within each person.

Ask yourself these questions: Do your trust yourself? Are you afraid of yourself? If a trade is wrong, will
you judge yourself? If a trade is wrong, will the parental tape of judgment be playing? Do you believe
money is good or evil? Do you believe you deserve to be successful? Are you worthy of having millions?
Do you believe it is good to be more successful than your father or mother? Do you believe success comes
from consistency? What is the risk of taking the next trade? Caution: After you have understood the above
facts, worked on yourself and still cannot succeed, please understand it is not yet your time. Some people
hardly work and, with one idea, become millionaires and others, no matter how hard they work, are unable
to become financially independent. There is destiny involved.

It's Hard To Please Everyone - A Rebuttal to Earl McHugh - Greg Donio

A fair number of people write to me for trading guideline materials, most of whom add that they "enjoy"
my articles in CTCN. The frequentness of this word comes as no small surprise because-let’s face it—so
many folks regard financial writing as castor oil journalism. When readers say they enjoy CTCN, Dave,
you achieve the kind of praise that most financial editors never dare to expect.

The reason Earl McHugh gives for disliking my articles—"totally useless meandering"—is patently
spurious. No periodical publisher expects every subscriber to like every page or find it useful. Most S&P
traders do not care about pork bellies. Most equity option players are indifferent toward interest rates and
foreign currencies. Do they all write and complain about "useless" pages?

No, I stung Mr. McHugh for reasons other than what he said. My articles criticized Right Wing
reactionaries who call themselves "traditionalists" when their knowledge of tradition covers little territory
before the Laurel & Hardy era. As a proud Italian I exhibited a short fuse toward "golden yesteryear"
Lawrence Welk fans who cannot pronounce the title of a grand opera. Could it be that Mr. McHugh fits this
description? Be interesting to hear him try to pronoun Cavalleria Rusticana.

Everybody knows that speculating is a pound-of-flesh, play-for-keeps business. One person appreciates
some of the czarist art collection in the Hermitage, while another believes the Elvis-in-a-flying-saucer
stories in the supermarket tabloids. Earl McHugh would call this fact "useless" and "irrelevant to trading."
Yet which of the two has any kind of a chance as a trader? And which will buy advertised land sight-
unseen in Cactus Paradise Acres?

Something similar could be said about the fellow who leans toward the milky wholesomeness of Pat Boone
movies instead of toward the plays of Sean O’Casey. I use this example in deference to Mr. McHugh’s
presumed Irish heritage. Anyone who cannot digest a good Renaissance of Irish Drama stage play is a lamp
or two short in the mental attic, and the trading world lacks mercy toward vacancies atop the stairs. Earl
McHugh’s chance of success as a trader is boosted if he has read some John Millington Synge. I shall bet a
piece of my Grover Cleveland currency for his chance of success if he has anything on his bookshelf by
George Bernard Shaw. Then Earl won’t be so loose with the word "useless."

Editor's Note: Greg's rebuttal was in response to a negative letter about his past articles by former CTCN
member who complained about Greg's "meandering." It's interesting to note while some complain, many

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others enjoy Greg's long articles and find them informative, educational and very importantly, quite
entertaining. In fact, by an odd coincidence, in this issue one of our members comments on how he enjoys
Greg's articles.

Excerpted Details on How Advantage Trading Group Has "Screwed" CTCN

A certified mail letter dated July 7, 1997 addressed to Mr. R.S., Pres. & CEO of Advantage Trading Group,
4040 E. McDowell Rd., # P.H.West, Phoenix, AZ 85008

Dear Mr. R.S.: As you know, last year you promised to pay Commodity Traders Club News (or myself)
$100.00 cash for each commodity trader we referred to you who opened an account with your firm.

We only wanted these relatively minor funds as a way to compensate us for all the time it takes in
recommending and referring people. My secretary also lost considerable time with all these referrals what
with first talking to them, looking up your address and phone number on her computer, and coding their
name so our data base reflects the fact they were an ATG referral.

Believe me, what with all the time it takes, this is not a moneymaking arrangement, even if we would have
been paid. The fact you reneged on the referral fee payments makes this entire matter even more injurious
and insulting, what with all out time involved in talking people into going with ATG and answering their
numerous questions about ATG and your fill quality and speed, etc. As you know, we did not want these
agreed to fees to make a profit but to cover our time and expenses.

After a few months went by we received nothing for a number of referrals. You than said the reason for
non-payment was because you arbitrarily changed the rules (after the game had already started and was
well under way). Your new after-the-fact rule was they had to be trading for 30-days.

A few more months went by and still no money. You then seemingly dodged us for some time by rarely
returning phone calls about the promised payments. In the meantime, even though we weren't getting the
promised compensation, we kept on spending lots of time answering many questions about your service
and sending you more and more referrals.

When we did manage to talk you avoided the issue of all the missing $100 payments and kept on saying the
clients must be with you for 30-days. You ignored the fact that most of the referrals were in fact with you
for more than your arbitrary 30-day time period. You also later on offered to send us your 8000 name
mailing list as an additional form of compensation. That was 8-weeks ago and you never sent the diskette
after a number of promises to send it. Since then you have basically ignored our attempts to reach you
about this. We have sent you several e-mails and many phone call messages but you have ignored almost
all the messages, except for a few........

.....During our phone call of today, you said there is "no way" you will pay us the funds due. You then said
some nasty things, said I should close my trading account today (which I have asked you to in fact do), and
hung-up the phone. Unless you pay we may be contacting some of our mutual clients and asking them for
depositions about how long they had an account at ATG and if they opened it based on CTCN’s
recommendation.

We may put this in next months (July/August issue) CTCN which will be mailed to 2000 traders, asking for
more depositions from clients we may not have identified on our computer. Of course, to explain the
background on the deposition request we will also have to give the facts on how ATG promised to pay the
$100 referral fees and then reneged on the oral contract.

As witnesses, we will ask joint clients if they were aware of the fact you promised to pay us the referral fee.
It’s our understanding from talking to a few of them earlier, the referral fee matter had somehow come-up
in their conversations with you.

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Putting past CTCN articles written by Club Members about ATG, and the facts on this referral fee matter
on our Internet Web Site under the heading Advantage Trading Group Special Report.

Notifying the CFTC and/or NFA about your failure to pay the referral fees. And filing suit. Sincerely, Dave
Green, Pres. Commodity Traders Club Inc.

Legal Notice to Mr. R.S., Pres. & CEO of Advantage Trading Group

You have failed to pay or respond. Therefore, effective immediately CTCN must commence actions to
collect this debt. Starting today we will begin taking the steps outlined in our letter. Some of the first things
we are doing is contacting known referrals and other CTCN clients to determine how many there are and to
get their legal depositions form court use. Filing complaints with the NFA/CFTC will also be done. This is
your choice. You are the one who defaulted and screwed us out of this money. Do you think myself and our
staff worked hard for all these months referring people to ATG for nothing. It took lots of time and effort
and was actually worth more than the $100.

We don’t appreciate getting cheated like this! Like I told you when we first talked about referral fees Oct.,
1996, we have been screwed several other times by brokers and data vendors. You promised to pay us and
said "Don’t worry Dave, that won’t happen with me." It sure did happen. It’s really amazing how you think
our many past and lots of FUTURE referrals is worth less than the small referral fee payments involved!

Final Notice to Advantage Trading Group July 16, 1997

Dear Mr. R.S.: You will not get away with not paying this just debt and revealing confidential account
information to outside third parties as you have done. The principal of this is far more important than the
money involved. We really are hurt by you cheating us after all our hard work on your behalf. Not only
have you defaulted on the referral fees and made up a lie by saying we are "extorting money" from you but
you have also now slandered CTC.

You have also blatantly violated our signed Non-Disclosure Agreement (do you recall signing it last year)
by allegedly giving confidential information on our account at ATG to several people, including Joe Bristor
and Bo Thunman of Club 3000.

It seems your new friend Joe sent a letter to Jack Hutson the Editor of Technical Analysis of Stocks &
Commodities Magazine ( a copy of which we have, sent to us by S&C Magazine) in which Joe states Bo
told him all about my commodity trading account at ATG, including the statement from you "my managed
accounts are all losing". You also told them the accounts were losing "big". First, this is not correct
information. As of the date of our falling out on July 7, 1997 my accounts now under management were
very close to break-even, after only being negative 2% (as of June 1, 1997) or so in total, since opened
many months earlier. Second, even if it was correct (which it was not), what about the Non-Disclosure
Letter in which you promised in writing to never disclose any information at all, personal or business
information.

I had you sign that letter last October to safeguard against you doing exactly what I was afraid of at the
time. In addition, is this correct information, no! Secondly, even if it was you have no business violating
the confidence of clients by doing this even if you did not sign a non-disclosure letter. In fact, I bet it’s
against NFA/CFTC rules for you to do this in the first place. As a registered broker you surely are not
allowed to tell third parties (competitors or possible litigants in particular) info on an account.

Why did we spend lots of time talking to people and recommending they open an account at ATG, all for
nothing? It certainly wasn’t because you gave us a better rate because we knew all along we were simply
paying your "standard low rate" which many others (even your small or inactive accounts) were also
paying.

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The one-hundred dollars per client you offered us first in Oct., 1996 and during many, many phone
conversations after that date only would have covered our time and expenses and is far from a money-
maker, even if you paid us.

Do you recall all our conversations about your delay in paying? Do you recall all your excuses and
delaying tactics? Do you recall the Non-Disclosure? Do you recall the two faxes you sent telling us things
like your Feb fax we have in your file: "Dear Dave, A note of thanks for the overwhelming response". Did
you perhaps get even more accounts than the 25 to 60-plus accounts we earlier estimated? We shall find
out. Tonight I had a surprisingly friendly long chat with Joe Bristor. He tells me (among other confidential
things you discussed, which I won’t go into at this exact time) you admitted to him the referral fee
arrangement with us. He also tells me you said you only had a record of seven accounts thru my efforts. If
so, why not remit that $700 right now to stop this. We will then investigate to see if there are a lot more
than seven, as we suspect.

Here is a proposal for you. Mail the $700 you admit to NOW. We will then cease all other action, such as
our NFA/CFTC planned complaints and the planned law suit, and putting this affair on the Internet. All we
will do is continue to call and write clients to find out how many there are and arrange for possible
depositions. Do you agree to this?

Editor's Note: Mr. R.S. did not agree to this and failed to send us a penny and has been for the most part
almost totally unresponsive to these letters and seemingly uncaring about this matter. Therefore, we
respectfully ask all CTCN members and readers do CTCN a big favor by writing us or send e-mail if in fact
Commodity Traders Club was helpful or somehow involved in your contacting Advantage and eventually
opening a trading account at Advantage. We realize this is a bit of a imposition and may be somewhat
troublesome for you to do. Therefore, to reward you and thank you for your getting involved we will
extend your Commodity Traders Club News subscription for 2-years at no cost to you. If you are no longer
a subscriber or it has lapsed we will give you a free two-year membership to thank you for your trouble.
Since a 2-year subscription is worth more than the $100 lost referral fees you will realize the principal of
this matter is far more important than the money involved!

Good Returns From Over-Valued Out-of-the-Money Options - William Raworth

I’m convinced a good return can be made by a trading plan of consistently selling a varied portfolio of out-
of-the-money options that are appreciably over-valued and have a reasonably liquid market. These short
option positions would be closed out if they either became significantly under-valued or expired. Of course,
stops (necessarily mental) would be used to help prevent disaster.

My tentative thoughts are to aim for the over-valued options where there is a 70-90% chance that the option
will expire worthless (the thought being that the odds better than 90% automatically translate into
commission and slippage being too high in relation to premium).

Would appreciate very much any and all thoughts about feasibility and best software or option valuation
service available. Please fax your phone number (not on Internet yet) to 601-634-1677 and I’ll call you
back using my dimes. Or phone me your phone number to 601-636-2870. Or reply via CTCN for all
readers to gain knowledge on above.

Whether you have any thoughts or info regarding my plan or not, I’d be happy to help any trader with the
problem of unreported fills in those cases where you simply have to know whether you’ve got a position on
or not (as in case of day-traders where you’ve entered a limit order that’s been touched or minimally
exceeded). It took me 20-years to come up with this ploy, but it works.

One Indicator to Profits? - Dr. Claus Hallmann - Germany

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Regarding to the anonymous trader H. M. from Australia (CTCN, Vol 5-3, pg.2-3) asking "Is it really one
indicator to profits?" I have to say: Yes.

It’s possible to make a lot of money in the markets if you develop your own very simple indicator. All you
have to do is trust your method/system and trade it.

After a lot of negative experiences, I developed a very easy indicator and system for the Deutsche Mark &
Swiss Franc. I will stay in the markets only for 1 to 3 days. And if my system says "get out and reverse" I
will do it. What happened the last two months: I made more than 120% (in 2-months, not as per year basis).

If you are more interested in my thinking about the markets, money-making and money management,
reading the articles in CTCN, VOL4-2, pg. 36-37; Vol 3-6, pg. 9. Regarding the last mentioned article, I
didn’t do what I wanted to do, because I couldn’t develop the right method for my trading style.

Using Neutral Option Positions Without Having to Predict Market Directions David L. Caplan

Traders that have been trying to predict the direction of the T-Bond market have had a difficult time as
bonds and interest rates have remained relatively stable for well over a year. After the 1996 decline to lows
near 106, bonds reached highs above 116 late in the year.

Bonds then reacted to fears of emerging inflationary pressures and speculation about tighter monetary
policy from the Fed, and again retreated to the 106 level, which proved to be very good support; the "value"
of U.S. Treasury bonds at this level (relative to inflation and other international rates) quickly brought out
eager buyers.

Also, with equity markets at lofty and risky levels, some assets naturally shift to the guaranteed yield of
high-grade bonds. After bonds had defined their trading range, new economic data continued to provide a
"neutral" outlook regarding the long-term direction of interest rates. With both the fundamental and longer-
term technical picture pointing to a sideways market, bonds have been unable to start a significant move in
either direction. Several respected analysts have projected stable interest rates for the months ahead.

The European currency markets have also exhibited this type of sideways action for several months, as the
British Pound has moved sideways after retreating from highs in late 1996, and the Swiss Franc and
German Mark have stabilized for four months in what may be a long-term bottoming pattern after their
steep declines. Chart in Print Copy

This type of sustained sideways market action is ideally suited to our Neutral Option Position Strategy. In
the bond market, with option premium at attractive levels when compared with the actual volatility of the
underlying market, we have been using these strategies to collect premium from speculators on both sides
of the market.

For many months, these strategies have provided good income, while most adjustments were made to
collect more premium from one side of the market. The result is that we have profited in a sideways,
choppy market (which is normally very difficult to trade), while most directional speculators have had a
difficult time.

Our latest strategy involved selling the December bond 118 call and 104 put, with bonds currently near
111. This position collects generous premium and has an 81% probability of profit (computer-generated
statistical probability of futures being between 104 and 118 at expiration).

In the currencies, the British Pound and Swiss Franc have provided similar opportunities. Chart in Print
Copy

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The Neutral Option Position is a trading strategy that provides the trader with many benefits over a long or
short futures or options position. While option purchases and futures trades are only successful if the
market moves in the direction predicted (without the trader being "stopped out" first).

A Neutral Option Position can be successful in a non-trending or choppy market, (studies have shown that
markets are in a non-trending or sideways pattern over two-thirds of the time), or if the market moves
slowly lower or higher.

In addition to allowing the trader to be successful without having to predict the direction of the market, the
Neutral Option Position incorporates the advantages of probability, and option ‘time decay.’

The out-of-the-money put and call we are selling contains only "time value." The "time value premium"
decays every day for both the puts and calls, and this decay accelerates as the options approach expiration.

This may be best looked at by considering ourselves as "bookies." We are, in effect, taking bets from
traders on both sides of the market who are attempting to pick the direction of the underlying futures
market. Some feel that the market is going to go up, while others are betting that the market will head
lower. The traders who feel that the market is going to go up can purchase calls, while those negative on
the market purchase puts. We become "bookies" by taking their bets on both sides of the market. ("laying
off our bets" by staying evenly balanced). However, we have several advantages that are not available to
the house ("bookie"), even in Las Vegas.

For example, if a "bookie" takes bets on a prize fight and "balances" his book properly, half the people
betting will win and half will lose. He must pay off half these bets. The "bookie" derives his profit by
establishing odds for the two fighters. (assuming that the fighters are evenly matched, the "bookie" may
quote 6 to 5 odds "pick em."

This means that you can pick either fighter and receive a five-dollar profit for each six dollars you bet).
Therefore, if a "bookie" is able to obtain bets of $600,000 on each participant in the fight for a total bet of
$1,200,000 no matter which fighter wins he is obligated to pay off $1,100,000 or a profit of $100,000.

However, the Neutral Option Position can allow us to do even better by allowing us to "win" on both sides
of the "bet" (if the market stays within our predicted or "adjusted" trading range).

For example, with treasury bonds trading near 111, we have taken the view that the market is going to
remain within a range between 104-118, and sell the 104 put and the 118 call. These options are sold to
other traders who are "betting" on their prediction of market direction—that the market is going below 104
(puts) or above 118 (calls). We are making no prediction other than that it will remain in this wide trading
range.

Neutral Option Position (104 Put - 118 Call)

104 put gains
118 call worthless (Both options worthless at expiration 104 Put SAFE ZONE 118 Call 118 call gains
104 put worthless
97 100 103 MARKET PRICE
104 111 118
119 122 125

Even if the market moves out of this range, the position can still be successful. This is because every day
both options lose some of their time value. This continued loss of time value on both sides provides
significant protection. Further, "adjustment" techniques are available, allowing us to "rebalance" this
position when necessary. (However, always remember, when selling options there is unlimited risk of loss;
therefore, you should use strict money management principles).

Benefits of Neutral Option Position include:

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 Not having to predict market direction.

‚ Being able to collect premium from both sides of the transaction - from both the buyer of puts and buyer
of calls.

ƒ Being able to take advantage of the "overvalued" time value of out-of-the-money options (although the
amount of option premium changes from time to time, traders continue to buy options, thinking they can
"beat the market").

„ We can use "special circumstances" to our advantage based on favorable market conditions (high option
premium), and we have 40 different markets to choose from.

… Finally, we have the ability to both adjust our positions and increase our position size. This is the reason
that most casinos have limits on the amount of money you can bet, because it has been mathematically
shown that with an unlimited amount of money, the odds of beating the "house" becomes significantly
greater.

Member Comments & Requests

Paul Lester - For Sale- Omega SuperCharts 4.0 End-of-Day Software CD ROM version with Historical CD
database. $125.00. Wanted: SuperEditor published by Investment Engineering Corp. (Doug Deming). This
is an add-in for Omega SuperCharts. No longer being published. Like to locate a current user of the
program. plester102@worldnet.att.net

Steve Redington at sreding@postoffice.ptd.net I saw information on http://www.webtrading.com/

issue35.htm - on that page, under Comments Regarding Article "Omega Total Lack of Quality" by Robert
Gross. I saw some information on a DBC PCMCIA FM receiver. Could someone let me know how to order
or get in touch with the company that offers this PCMCIA FM receiver? I would really appreciate it.

Kimball Letter - Robert Rardon - I just wanted to share some information I picked up by reading
Commodity Traders Consumer Report. CTCR tracks approximately 25 different advisors on their trade
recommendations. One of the advisors is L. M. Kimball (Kimball Letter). He bases most of his
recommendations on what the large commercial traders are doing as reported in the Commitment of
Traders Report. He doesn’t give specific buy or sell prices, but tells you what markets might expect a
change in trend. His letter is published every two weeks and coincides with the release of the Commitment
of Traders. It is also very reasonable priced at $60 per year.

Joe "veteran" Trader - Trevor Byatt noted some helpful platitudes in his April article. He quoted Kroll, but
did not reference nor recommend his writings. Anything written by Stanley Kroll is worthwhile reading . . .
for novice or veteran trader.

Editors Comments

We do apologize to members over having to publicize all the sad details on how Advantage Trading Group
has cheated CTCN out of some hard earned money. What does all this say about them, their ethics,
honesty, and integrity? By the way, these so called referral or finders fees are routinely offered by many
companies in the futures and investment industry. They are commonly offered by brokers, data vendors and
some software vendors. Individual private traders like yourself may also qualify for referral fees.

Of course, it's understood no one (including CTCN) would refer someone to a vendor unless they were
happy with the vendor. For example, as mentioned within our web site, at one time we were trading with
Advantage and were satisfied with their brokerage service, which is why we recommended them.

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 However, due to their lack of integrity as evident by not paying us and mostly due to their amazing
violation of client confidentiality by disclosing details on our trading to outside third parties, we certainly
would never recommend them again no matter how good their service and fills are. What makes all this
even more alarming is the fact ATG allegedly disclosed this confidential client information to an unfriendly
rival of ours, Mr. Bo Thunman of Club 3000, who in turn allegedly passed it on to others.

Try referring a trader friend to a place like Signal for example, and you will quickly find out how much
time and patience is required in recommending them. Sometimes it may involve several lengthy phone
calls, many questions, and lots of time. I recall several Advantage and Bonneville BMI referrals we made
which involved perhaps an hour or more of time involved discussing the vendors service.

Speaking of BMI. They also failed to pay CTCN numerous referral fees over the past 1-½ years, mostly in
conjunction with our Real Success Methodology. However, their default was not as blatant, as personal and
as insulting as Advantage's default, even though there is probably a lot more money involved with the BMI
default than Advantage.

By the way, we still recommend BMI but will have more details on them, including the speed, quality and
cost of their data service, in our next issue. We will also let you know how you can still get online intra-day
and end-of-day data from BMI but at the same time save lots of money with sharply lower monthly fees.

As time goes by you will see e-mail being substituted more and more for phone calls, faxes and letters. It's
definitely the best way to communicate, especially now that more and more traders the world-over are on-
line.

Issue 40.

Learning How To Trade Futures, or A Journey Into "The Pits" - M.K. Davidson

With all the recent talk of vendors in your newsletter, I thought I'd share one of my experiences with your
readers.

In my quest to become a better trader, I took a course from a well-known trader and creator of a highly
respected trading methodology. The class was being held at his training center/office about 1-½ hrs. drive
from my home, in the grain belt of the Midwest (just far enough where driving home each day was
impractical). Ah, beautiful downtown Cowpatty (not real name), the home of grain elevators, greasy food
and people who smelled like livestock.

I spent 3-nights in the better of two motels available in town. (You'd be surprised how interesting cross-
country truck drivers are. Farm implement salesmen are too bad either.) Kentucky Fried Chicken was the
best meal in town, and you thanked the dear Lord for cable TV. Are you getting the picture?

The first morning, I began looking for an office of a man reportedly worth millions. What I found (after
passing it three times), was a small rundown building that housed a dance studio with a window next to it
that bore the name of the company I was looking for.

I had arrived early and sat in my car listening to the local radio station. What I heard were the daily
obituaries --- complete with organ music in the background and a man's voice that was stereotypical a
dulcet toned funeral director. I heard myself saying, "This is not a good start."

As the day progressed, I met Mr. Trader, a kindly old gentleman in worn pants and sweater (which he wore
all 4-days). The other three students with whom I would spend the next few days included a retired
businessman from Detroit, a young professional tennis player from Europe and a woman who wrote a book
on the psychology of trading, from I can't remember where.

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We were ushered into his "training center." A rather small and incredibly dirty office. It held a long folding
table, a few folding chairs, and a coffeepot that was last washed circa 1980. An orange crate held a phone
with the phone number written on it in big numbers with a felt tip pen. God only knows what critters lay
beneath long strands of acrylic pea green shag carpet, circa 1975. Shelves with trading memorabilia lined
the walls. Neither had ever seen the likes of a dust cloth. I really hesitate to discuss the bathroom, which
was shared with the dance studio. Mr. Trader graciously asked if we'd like a cup of coffee as he held up
coffee mugs that I was sure needed to be soaked in dish detergent. I hoped he hadn't seen me cross my eyes.
"Oh well," I thought, "If this is going to help me trade better, I can do this!"

The class was structured to be 2-days of instruction and 2-days of live trading. Much to the chagrin of those
of us around him, Mr. T. began by lighting up a cigar. He passed out his manual (which was 3/4's charts)
and turned on the slide projector (which contained 3/4's charts). In between the slides of charts where his
interpretations of double bottoms -- two women riding away on bicycles in bikinis -- double tops -- two
women riding toward you in bikinis. My eyes crossed many times during the course of these 4-days, I'm
surprised I don't have double vision! The 2-days of instruction were worth diddle squat. I could have
learned what was offered in 2-hrs.

The following 2-days of live trading was even more of a challenge to my patience. We arrived early to be
there for the opening of the currencies. Within the first half-hour Mr. T. proclaimed, "There are no trades.
Bad trading day." At this point young Mr. Tennis took over one of the two keyboards to the computer. Miss
Psychology took over the other. Mr. Retired Businessman and I stood behind. Mr. RB and I looked at one
another in surprise when she said, "I don't share my toys." Her attitude was fast becoming intolerable.
When someone would ask a question she felt was elementary, she would make a clicking noise with her
tongue and shake her head. She professed the excellence of trading at every opportunity. I thought Mr. RB
was going to lunge at her a couple of times during the course of the class.

Mr. T. convinced there were no-good trades, walked behind the computer built into a freestanding wall and
began to burp and flatulent. (God, strike me dead if I'm lying!) To his credit, he said, "Excuse me."

On the 4th day, a snowstorm was threatening the area and the interstate adjacent to "Cowpatty" is famous
for closing during these occurrences. Everyone decided to leave at around 9:30 A.M.

You too can have this wonderful experience for the small sum of $1,300.

Editor's Note: We were unable to contact Mr. Davidson for the name of this allegedly odd and weird but
"well-known" seminar vendor. Perhaps Mr. Davidson, very kindly and generously doesn't want to use this
vendor's name as he doesn't want to embarrass him by name, which this article certainly would do!
Subsequent Editor's Note: We have now found out the identity of this trading seminar vendor. Contact
CTCN if you are curious about who he is.

What You Know May Not Be So - J.L. from Wimauma

A cop on TV the other night said, "I believe nothing of what I'm told and 50% of what I see." To that I add
"90% of what I've been told in life was either honestly mistaken or a damned lie." (Yes, that means starting
with Santa Claus.) A new friend of mine (a stock broker for 4-years) told me, "To be a successful stock
broker, you have to be a psychopathic liar." (For those who have forgotten, to be psychopathic means that
you must really believe what you say.)

"There you go again." Last issue started with the oft-repeated "Litany" - "50-Rules for Success." No
surprise that it was compiled by brokers. A lot of common sense is in there, but can the brokers be
objective when their very existence depends on Cardinal Rule #1? (I'll let you figure out which one I
mean.)

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I don't think I'm stupid. Did I, for the most part, break those rules for 13-years or did I usually follow them?
And then it hit me! Forget me. If 80%+ of traders are net losers (as I was), does that mean that they and
these same experienced brokers broke those rules 80% of the time, or did they follow them 80% of the
time? I rest my case.

To say it another way, my best year I made $8,000 when I accidentally said "Buy" when I meant "Sell"
cotton right after the Tianimin Square Massacre! Last year I did $31,000. This year I'm grinding out $500-
1,000/wk with no risk, mostly in a market that is still going against me! (See my last issue's article.) Will
you agree that perspective is everything? Is the glass half full or half empty, i.e., when is a "loss" a loss?
(The following was to be a future article but it fits too well right here.) I'll say it again. Stop-losses are
needed for investments that we couldn't afford in the first place.

We spoiled brats. Someone somewhere told us commodity traders that we could buy 5, 10 even 100
contracts and not pay a penny for them! They probably told us that because amazingly we can! (Sure we
have to protect our broker with margin, but I'm talking pay.) Of course, there is one little requirement.
That's that huge condition that prices rise directly from our purchase price. (Prices do not pass go or collect
$200 either.)

So the nerve of us! If prices don't go straight up we "risk" beginning to pay for our "investment." Or do we?
Holding a contract that I never paid for in the first place, even after it might go down in value, never cost
me a penny unless I picked up the phone and cried "Uncle." I still have to protect my broker from my
possible foolishness but then he's such a swell guy anyhow! And we're complaining. The guy who bought
100 shares of IBM knows what it means to pay from the get-go. The market, not his account, has his
money! We've got the contracts and our money!

My heart goes out to the scale trader who wrote that he lost his butt because he couldn't tolerate the paper
losses. To him I say, "If you had only looked a little harder at your statement, your Open Positions would
have told you that you were a rich man! You owned a whole bunch of something of value that you wouldn't
even have had to pay for unless you 'bailed' (or rolled-over), and if your commodity was properly selected
in the first place, I guarantee that you look at prices now and really get sick!

Do you see yet that "they" honestly lied to you?" Perspective matters. By the way, a weekend review of
back-issues put the name on what I am really doing now -- Interval trading. Strict scale trading seems to
have been an extremely important level of learning through which I've now passed.

I hope Paul Britain doesn't think that I'm criticizing him. I just hope that he and others when developing
their "personal" strategy (the only way to succeed), will locate and trash that 4-word Cardinal Rule #1 that
has traders leaving their money behind and buys their broker's next Mercedes! I take back what I said
earlier. I must be stupid to take 13-years to "see the light!"

The Key Is Trading The System Correctly, Not Being Right Every Time

Michael B. Coleman

Commodity trading can be at best perverse. That is, the markets will do anything and everything they can
to force you out through disillusionment, boredom, and of course, losses. It's only through discipline and
cold hard adherence to system you're trading, do you even have a chance to succeed. There can be and
probably will be periods of up to 3-mos. when any system can be no better than even or in the red.

Psychological studies have shown that such periods of negative or neutral performance will cause most
people involved in speculative ventures such as commodity trading to become the aforementioned
disillusioned, disgusted or bored. This causes them to quit although they have not lost what they originally
intended to risk and usually right before a huge winning streak. All of this has happened to me, and it's only
after this kind of "hands on" experience that I am able to relate it to you.

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In summary, hang in there. Don't feel that you have to win every day or win every time. Nobody does. The
key is trading the system correctly, not being right every time. It is the end result that counts, and we intend
to win.

About The New Dow Jones & Mini-S&P Futures Contracts - Barry J. Lind

I'm writing to you to pass along two pieces of good news. One is something that I've waited about 15-years
to hear: Dow Jones and Co., after resisting the idea for that long, have licensed its Dow Jones Industrial
Average as the basis for a futures contract. With the new Dow Jones Industrial AverageÔfutures to be
traded at the Chicago Board of Trade, the Chicago Merc has countered with an innovative entry of its own
in the stock index futures arena: an electronically traded mini-S&P 500Ôfutures contract.

DJIA futures come in an affordable size (valued at $10 times the Index, or $80,000 with the Dow Jones
Avg. at 8,000), and trade during U.S. stock market hours, although there's been some talk of opening the
contract earlier so it can trade the same hours as the bonds. To make access to the contract easier, the
CBOT is also considering putting in place an electronic system that delivers orders directly to brokers in
the pit, something we've been asking the exchanges to do for many years. The Board of Trade is promising
to spend a lot of money supporting this contract, and the CBOT traders I've talked to are ready to go all out
to make sure that their latest foray into stock index futures markets does well. Dow Jones Industrial
Average is the brand name, and now it's tradable. This contract has all the marks of a huge success.

In a long-awaited response to requests for a smaller S&P 500 contract, in September the Merc is
introducing a "mini" version of the original, at one-tenth the size. The mini-S&P will be traded
electronically over the GLOBEX system (there's a limit of 50 contracts for mini-S&P orders into
GLOBEX). The mini-S&P will trade more than 23-hours a day, with only a small trading break after the
stock market closes; this means the mini-S&Ps will be open before and during important early morning
economic releases. There should be a lot of arbitrage between the mini and big S&P, which will keep the
markets pretty much in line.

But the really good part is that when the Merc makes all the electronic interfaces it plans, you'll be able to
use Lind On-Line to place your order directly into GLOBEX. Another great feature of the Mini-S&P is that
you'll see the best bid, the best offer, and the size of the best bid and offer, real-time and free, and again,
eventually this information will be available on Lind On-Line. Trading this contract through (Lind-
Waldock & Co.) Lind On-Line should bring you the best of integrated electronic trading, a first in the
futures markets.

Never before in our history have we heard more comments from customers about contracts that haven't
even started.

Some Thoughts On The Four-Year Cycle In U.S. Stocks

Raymond Merriman

It seems nearly every investor is aware of the "Presidential Election" cycle in U.S. stock market.

It goes something like this: during the U.S. presidential election campaign season, the incumbent party
wants to get re-elected. In order to do so, it is in this party's best interest to do everything possible to make
sure the economy is healthy. Conventional wisdom is that people vote primarily by their pocketbooks. They
will usually re-elect their leaders if the economy is strong, and vote them out of office if the economy is
unstable or weak. One measurement of a healthy economy is a strong stock market, which itself is
influenced by stable and/or low interest rates.

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Because of these favorable economic policies employed just prior to an election, the stock market tends to
perform very well. However, in the middle of a President's term, the leadership is more likely to adopt
policies that are not so popular, particularly with regards to the economy, such as: raise taxes and/or allow
interest rates to rise (which the President doesn't really control, but even the Federal Reserve Board wants
to avoid appearances of favoring one party over another, so they may adopt policies of credit restriction
during the mid-term of a President's tenure rather than during the election campaign season). Thus the stock
market tends to become weak - prices fall, and bottom - during the middle of Presidential term.

Since the U.S. President is elected every four years, many market analysts have reported a four-year cycle
of troughs and crests in U.S. equities. The market tops out every four years, usually within a few months of
the actual election, and it tends to bottom out every four years, usually near the middle of the President's
term. But does this really happen according to the characteristics of cycles defined in this book? In other
words, is the four-year cycle trough really a dominant cycle? And does the crest of that four-year cycle tend
to happen consistently close to the actual election?

This article will cover the first part of the question: Is there a dominant 4-year cycle in stocks that bottoms
around the median date of the middle of the U.S.A. President's term in office?

To start this study, let's begin by looking at a listing of all the probable 4-year cycle troughs in the U.S.
stock market since 1893. This list will provide the month, year and the number of months (in parentheses)
elapsed between these cycle troughs.

Probable Dates of a 4-Year Cycle

Trough in U.S. Stocks:

July 1893
August 1896 (37)*
September 1900 (49)
November 1903 (38)
November 1907 (48)
September 1911 (46)
December 1914 (39)*
December 1917 (36)
August 1921 (44)
March 1926 (55)
November 1929 (44)
July 1932 (32)*
March 1938 (68)
April 1942 (49)
October 1946 (54)
June 1949 (32)
September 1953 (51)*
October 1957 (49)
June 1962 (56)
October 1966 (52)
May 1970 (43)
December 1974 (55)*
March 1978 (39)
August 1982 (53)
October 1987 (62)*
October 1990 (36)
April 1994 (42) or November 1994 (49)

Table: Four-year cycles - trough to trough in the U.S. stock market. The asterisks represent those which
coincided with the longer-term 18-yr cycles.

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In all, there were 26 instances of the 4-year cycle since 1893 with a range of 32-68 months. The average of
these 26 cases was 46.92 months. In 22 of these 26 cases (84.6%), the four-year cycle occurred between the
36-56 month interval, with an average duration of 46.6 months. Two of these distortions coincided with the
54-year stock market cycle trough (1932 and 1987). If we count just those that would have fallen within the
normal cycle time band (38-55 months, since that range is about a 1/6 orb of 46-48 months), we would
have 19 cases (73%) that met our criteria of a "normal" cycle time band (two others missed by just one
month), with an average interval of 45.3 months.

The evidence thus supports the presence of a 4-year cycle in the U.S. stock market. However, this particular
long-term cycle requires a range which exceeds our normal cycle standards of "1/6 the median periodicity."
For our purposes, we will assume this to be a 46-month stock market cycle, with an orb of 10 months (36-
56 months). For convenience, we may frequently refer to it also as the four-year cycle in U.S. stocks.

Now what else is interesting about this cycle? Does it bottom consistently in the middle of the Presidential
term? Is there a seasonal factor present? The U.S. Presidential election happens in November of every leap
year. The middle of this election period would be November, two years afterwards. However, in studies of
these troughs, the preponderance of cases occurred before the two-year mark (i.e., in the first two years
following the election).

In fact, in 22 of the 27 lows used in this study (81.5%), the trough occurred before November of the two
year mark. In two cases (three if we use November 1994), it occurred within one month of November, two
years after the election. And in only three cases was it longer - and those were all in the early part of this
century, and in consecutive cycles (1903, 1907 and 1911).

So if we apply this study to all instances after 1911, there were no cases wherein the 46-month cycle trough
in U.S. stocks occurred after December of the mid-year of the Presidential term. In other words, all troughs
occurred within 25 months following Presidential election. Apparently, if there is a relationship between
the economy and power of the White House, the President-elect would rather see the hard times end very
early in his term - before the midway point.

Of the 21 cases since 1911, 13 of these troughs (61.8% ... Mr. Fibonacci would like this too!) occurred
between the 16-25 month period following the election. In fact, this correlation has been even more
outstanding since the election of 1960. In the nine elections since then (1960-1996), eight (89%) have
witnessed this trough between the 16-25 month after-election interval.

The seasonal distribution of these troughs is also noteworthy. In this regard, observe the total absence of
any 4-year cycle troughs unfolding in either January or February. However, in two-thirds of the cases
presented here (18), the 4-year cycle occurred between August-December. Thus there is a greater
likelihood that the 4-year cycle trough will tend to unfold 16-25 months after the Presidential election, and
between the months August-December. If it happens in the first eight months, the months of March and
April are the most likely candidates for the low.

Reprinted with permission from Raymond A. Merriman, from his forthcoming book titled "The Ultimate
Book on Stock Market Timing Vol. I: Cycles and Patterns In the Indexes," due out October 15, 1997.

What's It All About? - Peyton Morgan

The past year, we become involved with several groups of traders and investors. We attended meetings,
seminars, Internet sessions, and had conversations with folks of varying degrees of trading and investing
expertise and success. We have even had the good fortune to help start a new group.

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During that time, we also maintained our studies of the usual array of information including mailings, both
solicited and those to which we subscribe. Also did research into new trading ideas. The daily routine, of
course, also includes perusing our charts and following our methods for our next potential trade.

In all of these activities, which all good traders and investors follow, we tried to maintain a sense of
perspective about all of this. The name of the game is making money. Although we spend a great deal of
time getting ready to make money, we must not lose our focus.

We take notes at meetings, so that when we get home, later than our spouse would have liked, we can have
something to show for the several hours we spent away. Seriously, attending meetings can be great fun and
very inspirational as well as educational. It can encourage us during the tough times and inspire us to new
heights during market euphoria.

We attempt to keep good records of our activities on a daily and weekly, as well as a longer term basis. We
actually maintain a daily activity log. Sometimes it includes numerous trades, ideas to pursue, and new
things to study. Sometimes, just one sentence, but put it in the log none the less. The purpose of recordings
of any type is to be able to use them later. We also review our logs, usually weekly.

Hey folks, this is a business, like any other business. It requires systematic activity specifically designed to
make a profit.

Now the important part. If we intend to stay in business we have to put all that information to work to
create income, which will hopefully exceed our expenses plus the U.S. Treasury Bill rate and maybe an
accounting for some of the time we have spent.

Call it trading or call it investing. Whatever you call it, we're in the risk business. After all else, it's
necessary to take the risk or the profits will go to the other guy.

London Financial & Curtis Arnold Press Release "CFTC Misses the Mark, Casually Bankrupts
& Destroys American Families"

In a grab for power that should horrify liberty loving Americans, the U.S. Commodity Futures Trading
Commission recently targeted innocent do gooders in order to protect their-pork barrel existence.
Threatened with virtual extinction if a bill now in the Senate passes, the CFTC is trying hard to make press
in order to justify their existence. In order to win cases, this bureaucratic, 2000 pound gorilla has turned its
wrath on tiny family owned businesses. Instead of aiming at brokerage firms that routinely gouge
customers while hiding behind high priced law firms, the CFTC instead brings frivolous law suits against
the only professionals in the futures industry who might be able to help the trading public: experienced
trading educators who offer advice and trading approaches that can tilt the odds in the public's favor.

Of course, on the surface this seems to make no sense. But there is a method to their madness. The CFTC
hopes that, by winning small cases, they can set legal precedents which will help them in future cases as
they attempt to grab more and more political power. So far, it seems to be working: the CFTC has never
lost a case! No wonder. We small family owned business can possibly afford hundreds of thousands of
dollars in leg fees to fight a government agency? Like dominoes, each has had to succumb to the but
pressure. The stories are heartbreaking: careers abandoned, bankruptcy, mental breakdowns, families and
livelihoods destroyed by heartless and greedy federal bureaucrats.

The win/loss record compiled by the CFTC is nothing less than uncanny until you know the facts. The
facts are that the CFTC has set itself up so that they can't lose: they are the prosecutor, judge, and jury.
They even collect the award (plunder) which goes directly into their coffers. That's right, the CFTC
appoints its own judge and pays his salary. Can you imagine what the effect would be on his career
longevity if he ruled against the CFTC? Once the defendant has lost his case in front of this appointed
judge you can, of course, appeal the decision to a higher federal court. But by then, his financial resources

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have in most cases been exhausted. You can see why targeted victims, emotionally drained and financially
ruined, stand little chance of winning the way the system currently stands. We can only hope that those
representatives in Washington, we elected to protect our interests and liberties, hear our collective pleas for
action against this agency - before even more small businesses and families are destroyed.

Divided We Fall - Rick J. Ratchford

As a market analyst and a publisher, not to leave out a full-time trader of the commodities market, I must
cover about 30 markets each and every week.

The depths to which I must go prior to publishing my information is tedious and time consuming, but when
completed does not leave much left unknown for the short to intermediate term.

One would think based on all this that I would be able to take advantage of many markets at the same time,
therefore making a killing in the market. However, nothing can be further from the truth.

The problem here is that many markets divides ones attention and can actually be detrimental to trading. I
have found that after analyzing up to 30 markets a week, there are at least 10 or more opportunities to take
advantage of. Once I've entered 2 or 3 markets, I find that I have spread myself thin mentally and cannot
watch anything else till I've liquidated my current positions.

Many times, I realize that I've let several other great opportunities, all of which I know what they would do,
get away from me. I'll take profits from the markets I'm currently in, then look at entering other markets,
letting those original markets make big moves now in the other direction of which I could have taken
advantage of as well. Problem is, I've got too many markets in my basket due to the nature of my business,
and am not focused on just one or two.

Many traders do this as well when they are following a newsletter or hotline. They must get into every
market that is setting up. What happens is we never become really good at one market, but are just looking
for the next table to play.

Before I got involved in publishing market information, my focus was just on Pork Bellies. I would make a
trade on every swing because I know how to read it. An associate of mine does this with Soybeans. He can
read it pretty well like a book since he concentrates more on that market.

It is a fact, as many long-term (survivors) traders can tell you that if you can specialize in one market,
maybe two at the most, you can make a lot of money at it. Ask any question about the particular market,
and that trader can tell you what that market will most likely do. He is focused.

When you are focused on a market, year in and year out, you know its characteristics. How can you
possibly do this if you are diversified in a big way and changing your markets weekly? I have no idea about
how Pork Bellies acts from one week to the other anymore, for now I only focus at the time I create the
analysis, but then my mind will go partially blank once I've analyzed the next market and the next. Come
trading, I end up missing some very large moves in one or two markets so as to be involved in nearly 30 of
them.

My suggestion for traders, based on my experiences and that which I have discern by reading about many
trading greats is to specialize in just a couple of markets or so. Know how it sets up, ride it both ways, and
get to the point where you can recognize trouble ahead and reverse.

A trader who specializes just in Cotton can make a ton of money each and every year. It doesn't have to
make mammoth moves either. Each month you catch the predominate wave and go with it, concentrating
on your entry timing and your money management.

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If you trade in too many markets, here is what may happen.

You put your orders in for a few markets. You then transfix your attention on one or two, since much could
happen in a few minutes or hours. Meanwhile, another market just missed your entry stop and soon moves
up without you.

Where are you? Your watching carefully this and that market, and had you been watching that other
market, you could have acted in time to still enter low risk and not miss the move. Problem is, your
attention is divided.

Here is another thing to consider: If you have 2-hours to work with each night, the more markets you
consider, the less time you spend on each one. There is obviously a point where more time studying a
market will not produce any better results, but less time than necessary can cause you to fall as at trader.

Pick a very small basket of markets, say 2 or 3, and learn them well. You will always have a trading
opportunity come up at least in one of those markets almost every week. If you are a daytrader, no doubt
you may already do this. But position traders would do well to do the same.

By concentrating a just a couple of markets, you soon will not only know the best way to apply your
particular trading method or indicator to it, but you also enhance your intuition about the market and this in
itself can make you a lot of money.

Trading Tactics and Strategies - When A Market Leaves Its Range, It's Called A Break-Out - Paul Britain

Break-out! The term alone suggests something fast, furious and volatile, which a break-out usually is. A
break-out occurs when a market breaks-out of it's current trading range and heads elsewhere, sometimes it
is an acceleration in the same direction of the already existing trend, sometimes it's not. What we will show
you is one way of taking advantage of it when it happens, and what to do when it doesn't follow through
(i.e., reverses on you).

There are several different types of break-outs, bullish, bearish, short-term and long-term. We will cover a
bullish break-out on a daily chart in March Cocoa in order to demonstrate one way of taking advantage of
this type of trading opportunity. This trading method uses stop orders to not only enter the market, but to
exit the market as well.

By establishing the market's upper down trend line, we identified where to place our stops in order to enter
the market on a trend reversal type break-out. We would place a buy stop above the upper down trend line
and wait for the market to come to us. If the market kept going lower without breaking the range, we would
follow it down with our stop. Once the break-out occurred and our order was filled, we would trail a stop
loss behind the position. If the market continues to head in the direction of the break-out, our stop would
eventually become a profit protection stop. It is a good rule to always enter break-outs using a stop, the
trailing stop loss in order to manage your risk.

"There is No "Holy Grail" in trading strategies. Nothing is perfect, nothing can guarantee all winners. BLT
is not promising absolute performance, only showing traditional trading methods." Chart in Print Copy

Options - The Write Stuff!

Paul Britain

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Options on futures have received lots of attention lately, not only as way to hedge futures trades, but also as
speculation in their own right. Options on futures can offer a way to play markets from a distance, and in
some scenarios can be less risky than straight trading with futures contracts.

What are options? Options are a side-bet on the price of a futures contract. One party, the option buyer,
thinks the market is going to make a move in a direction, while the seller is willing to accept the bet. The
buyer pays money, called the premium, to the seller. In exchange, the buyer gets the right, but not the
obligation, to exercise the option at any point and take a futures contract. In addition, the buyer's risk is
limited to the premium that he pays out; if the option is not useful, it simply expires worthless.

The seller, on the other hand, collects the premium up front, but has an obligation to give the buyer a
contract whenever it is demanded up until the option's expiration date. The profit a seller can make on any
given trade is the premium he collected up front, but potential liability is unlimited.

Why would people sell options, given the theoretical possibility of unlimited loss? Because most out-of-
the-money options expire worthless. Option buyers are trying to hit home runs and score big winnings.
Option sellers are trying to take smaller wins, but win more often.

Here's an example in the gold market. Bill thinks the market, currently at $400 per ounce, is going to rise in
the next two months, buys the expiration of the next set of gold options. Ted, begs to differ, and thinks gold
will stay at $400/ounce or even go lower. Bill would like to buy a $420 call option, so that if the market
should exceed $420/ounce, he will be able to buy a gold contract at a cheap price, and offers Ted $5 per
ounce ($500 total, since the contract is for 100 ounces) to take the other side. Ted sees the trade as an easy
win, and gladly agrees to collect the money and assumes the obligation. The break-even price for each
party is $425; below that and Ted will win, above that, Bill will win. If the market goes out exactly on the
strike price, the seller (Ted) would retain all the premium he collected while the option buyer (Bill) would
lose the amount the option cost. But no matter how much the market moved against him, not more than he
invested in it.

Collection of option premium does not guarantee the retention of option premium. Option trading is risky.

Scale Trading - Trading The Range

Paul Britain

We believe that a market spends about 80% of its time trading within a defined range -- by which we mean
that the market trades back and forth between an upper and lower set of trend lines. There are both long-
term and short-term range trading techniques that can exist in a market, sometimes simultaneously.

Several components will help you to identify these opportunities. The primary tools you need are a
strategy, the right charts and technical patterns, and a highly developed sense of discipline. Many a good
trader has seen good strategy and good planning overcome by an emotional response to market movement.

The above factors are combined nicely in Scale Trading, a strategy used when a market trades within the
lower third of a ten-year range. Because goods cannot have negative prices, the system trades the long
(buying) side only.

Below is a monthly chart on coffee that goes back 10-years. In scale trading, you choose an entry price.
Next, determine a scale -- the number of points between buying contracts. In coffee, this might be 5-cents.
From the entry point, every time the market drops 5-cents, you buy another contract, and every time the
market rises 5-cents, you take profit on a contract. Continue until you're out of inventory. Rinse. Repeat.
Warning: successful scale trading usually requires at least $25,000.
Chart was published in Print CTCN only

804
 "The CFTC Wants You Off-Line"

by Scott Bullock - reprinted with the permission of The Institute for Justice

The ability to speak and publish freely is the birthright of all Americans. But not if the U.S. Commodity
Futures Trading Commission (CFTC) gets its way.

The CFTC wants to license individuals who publish about trading commodities. Anyone who for
compensation offers opinions, analysis, or even general information about this subject must register with
the CFTC as a "commodity trading advisor (CTA)." Registration involves fingerprinting, submitting to a
background check, paying fees, filing reports with the CFTC, turning over subscriber lists, and being
subject to on-demand audits. CFTC officials have the awesome force of law behind them -- anyone not
registered who publishes on commodities violates federal law, and faces $500,000 in fines and up to five
years in jail.

Institute for Justice Attorney Scott Bullock shares with the media how the CFTC tried to limit the speech
of Institute of Justice clients Frank Taucher and Steve Briese.

On July 30, the Institute filed a First Amendment lawsuit on behalf of five commodity newsletter
publishers, software developers and Internet users, and five of their subscribers, seeking to end
government-compelled registration of those who offer impersonal analysis and advice about commodities.
The suit, filed in the U.S. District Court for the District of Columbia, aims to preserve both the rights of
individuals to communicate truthful information and the ability of willing listeners to receive important
information to guide their economic decision making.

The CFTC is the federal agency charged with regulating the commodity and futures markets in the United
States. Unfortunately, rather than assume a discrete role for government regulation to protect individuals
from fraud in the marketplace, the CFTC seeks to maximize its power at every turn. Not content to simply
police individuals and firms actively managing investor accounts, in 1995 the CFTC asserted regulator
power over everyone who publishes about commodities for a fee, demanding that they register as CTA's.
The agency extended its broad reach even to persons who neither offer personalized investment advice nor
invest customer funds.

In the 1980s the Securities and Exchange Commission (SEC) attempted to do the exact same thing to
individuals who provide information on stock trading. But in 1985 the U.S. Supreme Court unanimously
held that so long as individuals merely publish about securities, rather than trade them, they cannot be
required to register with the SEC. As a result of that decision, the SEC returned to its authorized mission of
rooting out fraud rather than harassing publishers. Importantly, this precedent did not hamper the ability of
the SEC to go after the "bad guys" in the financial business, but instead led to a proliferation of new
sources of information for people interested in stock trading.

Now CFTC has expanded beyond traditional publications to regulate computer software and information
online. The CFTC has filed lawsuits to stop unregistered developers of computer software from offering
their products. Moreover, while national attention focused on the Communications Decency Act and the
government's attempt to regulate indecency on the Internet, the CFTC last year quietly attempted to
regulate the Internet with potentially damaging consequences for all of society.

The CFTC's proposed Internet rule could mark the beginning of a new chapter of government regulation
online. While the Communications Decency Act sought to regulate the content of speech online, the CFTC
wants to regulate who may provide information. The proposal spares virtually nothing on the Internet from
agency oversight and regulation - web sites, user groups, and hyperlinks come under the CFTC's assertion
of jurisdiction. Anyone who establishes one of these tools must register as a CTA, complete with all the
ramifications that entails. Although currently the CFTC has suspended enforcement of the rule pending

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further review, the proposal heralds the intrusion of the heavy hand of government into this vital emerging
technology.

At its heart, the CFTC's policy is a policy of ignorance. The agency seems to believe that the less
information people have about commodities, the better. Yet First Amendment and the tradition of open
inquiry in this country are premised on the exact opposite principle. More information, more robust debate,
and more speech create a marketplace of ideas where listeners, not government officials, choose which
information is valuable and which speakers are worthy of listening to. Through its campaign, The CFTC
stifles this marketplace and keeps consumers in the dark about valuable economic information.

With hope, the lawsuit filed by publishers and readers of commodity publications will close another sordid
chapter in government's continuing campaign against free speech. Scott Bullock is an Institute for Justice
staff attorney. Check out The Institute's web site: www.free.ij.org

Opinion On Bill Williams - Mike Cook

I am very interested in submitting a rebuttal to Don McCullough's article on how wonderful Bill Williams
is. I am a graduate of Williams' $5,000 "tutorial" and found it to be a load of crap. I have also spoken with
at least 10 other graduates who express the same conclusion. Not a single one of us has encountered
someone who truly benefited (or is making any money) from Williams' course.

My question to you is this; If I buy a subscription and then submit an article saying this, are you going to
not publish, or publish without including Bill's name for fear of a lawsuit? If this is the case, I won't waste
my time.

Editor's Note:Once again, we want to make it clear all CTCN contributions are the opinions of our writers,
and not the opinion of Commodity Traders Club News or its Editor. Under First Amendment rights you
may give your opinion, as long as it is your true opinion of the truth and not said to cause harm, trouble or
slander.

"Not Impressed With The Knowledge

& Speed Of The Advantage Trading Group Brokers" - Randy Beeman

I'm writing in response to your request in the last issue -- CTCN for information from subscribers regarding
accounts with Advantage Trading Group.

After having read several comments in the "Club News" about Advantage Trading Group and reading the
letter written by their President touting their benefits, I opened an account with $4,500 in February 1997.
Almost immediately, I was notified by letter that their introducing broker was being changed to Rosenthal
Collins from First Options.

I called them twice to place trades, but was not impressed with the knowledge or speed of their brokers. I
decided to close the account in June 1997 and currently do not have any balances with them. By the way,
when I closed the account I had to call twice to inquire why it was taking so long to receive the check.

Following the recommendations in the newsletter, I also established a BMI account and started following
the SP500 daily prices after purchasing and studying the Real Success video series. I canceled the account
after the one year commitment expired, however, because I don't really have sufficient time in my daily
schedule yet to consistently day trade. I do utilize some of the principles from the videos however in my
position trading of commodities and stocks.

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I enjoy reading about the experiences of others trying to build a successful trading business.

"New Concepts In Technical Trading Systems" - A Book Review of a Classic - Raymond F. Kohn

J. Welles Wilder Jr., is probably one of the most respected technical traders in the world. He has written
many books over the years, and has developed many technical trading indicators which most of us now use
-- and take for granted -- without ever realizing that he was the original creator. Welles Wilder is a true
legend.

His first book published in 1978, even today, it remains a "classic works" by any standard. This original
classic was titled New Concepts in Technical Trading Systems, 138 pgs - $65.00 -- represents the very
foundation of many of the technical studies which are provided as standard features in trading system
software packages.

Technical indicators like RSI (Relative Strength Index), The Parabolic Time/Price System, The Swing
Index, CSI (Commodity Selection Index), The Volatility Index, and The Directional Movement Index. All
of these, and many others are Welles' creations, and are included in this original classic work. Also
included, is all of the necessary math to duplicate the indicator, detailed signal interpretations, and real-time
trading results.

As the years have passed since this book was published, many other authors have published trading system
books, (not unlike those I have recently reviewed in past issues of CTCN). I thought it would be a
worthwhile exercise to compare the difference between this "original classic" in technical trading systems,
to what is typically being offered today.

It is my hope that such a comparison will instill in each of us a more critical attitude when we are presented
with the next "Holy-Grail" of a trading system, and we must evaluate the merits of that system, and more
importantly, the "thoroughness of its presentation." A comparison between this original "classic work,"
whose merits have withstood the test of time, and the currently available trading system books being
offered, can only enhance our level of understanding of what should be included in any worthwhile
presentation of a technical trading system. Anything less, is either just plain sloppy and incomplete, or at
worst, a deliberate misrepresentation of the potential merits of the proposed trading system.

On a personal note: It is my personal feeling that "entry systems" alone are a dime a dozen. However, a
"complete trading system" which not only includes a viable entry system, but also includes the (typically
missing) key elements that are necessary in a complete trading system, that being:

1. A very specific and well defined "exit strategy;

2. A very specific and well defined "stop-loss" strategy; and

3. Historical "back-testing" to support merits of trading system being proposed.

I have always been and will always be, very critical of any proposed trading system which is missing any
one of above essential elements. My prior book review of "Street Smarts" accurately states my position
when authors use "subjective" or vague terminology concerning an "exit strategy."

As a side note: It appears that I am not the only one who noticed the "vague" and "subjective" methods
contained in "Street Smarts." I was able to locate another writer's book review of "Street Smarts" in order to
provide CTCN readers with another point of view. In August 1996, Mr. Robert Miner, president of
Dynamic Traders Group, Inc. in Tucson, Arizona did a book review of "Street Smarts" for Futures
Magazine. In that book review Mr. Miner says: "the authors' warn the reader not to incorporate the setups
and trading strategies as a mechanical trading system, but rather exercise judgment whether to initiate the

807
trade within the context of the position or the market. No firm rules are provided as to where to take profits
once a trade is successfully moving in a profitable direction. The decision is made by the trader . . ."

It appears that Mr. Robert Miner's review of "Street Smarts" is similar to my own -- That "Street Smarts"
does not provide a complete trading plan with a well-defined exit strategy.

This brings us back to Welles Wilder. I thought it would be a worthwhile example to use Welles Wilder's
classic book, (written back in the stone-age of modern trading), as an example of exactly how a trading
system is supposed to be presented to the reading public.

Before beginning this review, it is important to realize that "New Concepts in Technical Trading Systems"
was written in 1978 -- Computers, Trading Software, Online Data Sources, Back-Testing Software, none of
that good stuff was even available to masses back then, as they are today.

To give you a perspective of just how primitive things were back in 1978 -- In his introduction Welles
suggests: "The systems in this book have been programmed for the Sharp 365-P and the Texas Instruments
TI-59 programmable calculators. For these units, I can supply the program on magnetic cards with
operating instructions for any or all systems in this book for a nominal charge."

When I first started trading I also used a TI-59. Now I'm thinking of donating it to the Smithsonian.
Compared to today's high-speed computer graphing capabilities, it's a technological antique to say the least.

It's fascinating to realize just how dramatically the technology available to traders has changed over the
past 20-years. Yet the most surprising thing about re-reading Welles' book, is that the basic trading insights
and advice that Welles also provides in his book, in addition to the technical trading systems presented, is
just as relevant and accurate today, as it was back then. The conclusion is obvious -- Even though the
markets and trading tools may have become more sophisticated over the years, "human nature," and its
impact on the markets, remains a never changing constant.

Given the age of the book, and the lack of available technology at the time it was written, I am suspending
my standard criticism regarding the absence of "long-term historical back-testing" information. In 1978,
back-testing wasn't even an available option. However, given the extraordinary detail that Welles provides
in this book, if long-term back-testing were available at the time, he surely would have provided it.
However, even back in the stone-age, when this book was written, Welles understood the importance of
"back-testing" and makes a valiant effort at providing us with an excellent substitute.

"New Concepts in Technical Trading Systems" is divided into 10-sections. Section One is a 2-page
introduction which explains the terms and definitions used throughout the book. Section 10 is a 2-page
section covering Capital Management. Both sections are direct and to the point.

The remaining eight sections each focus on a specific "Trading System." It is not necessary to read them in
order, you can select the trading system that you want to learn about and read that section alone. Each
section varies in length depending on the complexity of the trading system being discussed. The eight
technical trading systems presented are as follows:

1. The Parabolic System

2. The Volatility Index

3. The Directional Movement System

4. The Trend Balance Point System

5. The Relative Strength Index (RSI)

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6. The Reaction Trend System

7. The Swing Index

8. The Commodity Selection Index

Each section has a similar format. The section begins with a narrative, which explains the basic concept
behind the given trading system. It then details the mathematical computations which are required to create
the trading indicators. And, using a hand-drawn price chart on graph paper, he translates the calculated
trading indicator numbers to a graphical presentation.

Once the indicators are calculated and graphed, a set of very specific "Trading Rules" is included. The
importance of the "Trading Rules" are highlighted by being printed on a solid "red" page. The "Trading
Rules" are very precise and specific. There are NO subjective elements whatsoever in the trading rules. The
Trading Rules include a well-defined and precise entry point, and a well-defined and precise exit point.
When protective stop-losses are used, their exact placement, and subsequent adjustment are well-defined
and precise.

The reader's only responsibility is to "follow the rules." Now, that's a "Complete Trading System."

Following the "Trading Rules" is a "Daily Work Sheet." Since all the math is done by hand, or via a
programmable calculator, the Daily Work Sheet provides a spread-sheet format with each of the individual
calculations being entered into the various columns on a daily basis. On the far right side of the Daily Work
Sheet, spaces are provided for "Entry Price," "Exit Price" and "Profit & Loss." When a trade is indicated for
a given day, the appropriate Entry Price is written in. The calculations continue each day down the spread-
sheet until an Exit is indicated, then the Selling Price and Profit or Loss are entered for that day.

Included with the "Daily Work Sheet" is a comprehensive "day-by-day" descriptive narrative of each
spread-sheet entry, and the analysis of action taken, if any. Following the day-by-day descriptions, Welles
includes a number of personal comments which adds clarity and insights into the use of given technical
indicator. The Daily Work Sheet covers about 30 to 40-days of trading, and includes hand-drawn chart of
the daily price action with calculated trading indicator properly plotted.

Historical back-testing over long periods of time via computer was not an available option in 1978, but he
provides us with an excellent substitute. Another hand-drawn chart is provided which covers a full year of
trading. Daily prices are plotted along with the calculated trading indicator. In addition, he highlights, and
lists each and every entry and exit made during that year, indicating the position taken (long or short), the
price level, the profit or loss for that trade, and accumulated profit or loss as each of the trades were closed
out.

This last chart represents the "historical back-testing" for a year. Given the primitive technology of the
times, what more could you ask for?

Each and every technical trading system he proposes follows this same comprehensive format.

Now that's the way it's supposed to be done.

"Misguided Federal Agency Targets Trading Public's Tenured Educators While Turning a Blind Eye to
Unscrupulous Brokerage Firms"

Press Release from London Financial & Curtis M. Arnold. In an ongoing misuse of taxpayers' funds, the
CFTC has targeted the trading public's educators with frivolous lawsuits and unwarranted harassment.
Given that trading educators who write newsletters and market trading software are the only hope that the

809
public has for making a profit in the futures arena, one can only be dismayed by the CFTC's use of their
funds.

The fact is that for every 10 people who attempt to trade futures markets, 9 will lose money. This sad
statistic is the direct result of brokerage fees. The bulk of the money lost by small speculators ends up in the
pockets of futures brokers. Part of it goes to the customer's broker (commission) while the other part goes
to the floor broker (slippage). The more times a speculator trades, the more likely he will lose his capital.

Picture a sieve full of flour being shaken back and forth; eventually all the flour falls through what appear
to be tiny holes until there is none left. Liken the flour to the small speculators' capital and you have a
pretty fair analogy of how the futures industry operates.

To be complete, in addition to the brokers, there is another player in this game who capture's some of the
speculator's capital. That player is the commercials - firms whose business encompasses the production or
processing of, or who deal in the commodity or futures being traded. Commercials use the futures markets
to hedge positions which they control in the physical market.

Futures markets were designed for commercials to offset their risk; the speculators' role is to bring liquidity
to the market and absorb that risk by taking the opposite side of the "bet." Commercials, who understand
the fundamentals of their own particular market better than the speculators, generally win the bet. Their
superior knowledge of their market is only one reason why; a more important reason is the fact that
commercials are far better capitalized: they can withstand market moves against them which, because of
the high leverage in futures, speculators can not.

The trading public has about as much chance to make money in futures trading as he does at the local horse
racing track or any major gambling casino. The skinny odds is not the issue here. Regulation of those
veteran analysts who are attempting to help the public through education and the dissemination of trading
approaches designed to improve the public's odds is the question before us. When you go to a race track,
you can buy "tip sheets" advising which horses are likely to win. Those who publish such tip sheets are
veteran track analysts whose advice can improve a bettor's chance at winning. You can subscribe to
hundreds of services that will provide analysis and recommendations on all aspects of sports betting. If you
don't like their advice or systems, you simply go elsewhere. Trading analysts who sell their advice and
systems for a fee should be protected from interference by the CFTC under First Amendment rights granted
to publishers.

"Law Must Be Applied Equally or Not At All". . . Press Release from London Financial & Curtis M.
Arnold

The CFTC requires CTA'S (Commodity Trading Advisors) to be registered with their agency as such.
According to the CFTC, a CTA is defined as follows:

A CTA is any person who, for compensation or profit, directly advises others as to the advisability of
buying or selling futures contracts or commodity options. Providing advice indirectly includes exercising
trading authority over a customer's account as well as giving advice through written publications or other
media.

The wording statute is so encompassing as to bring practically anyone who breaths a word about
commodity trading under the dominion of this agency. But the CFTC has been very selective as to whom
they have targeted to prosecute based upon their new and more encompassing definition of a CTA.
Although many major financial publications such as the Wall Street Journal, Investors Business Daily, and
Barrons as well as publishers such as McGraw Hill, John Wiley and Sons, and the New York Institute of
Finance would, under this definition, all be deemed to be CTA'S. The CFTC has been reluctant to fight
opponents who can afford to defend themselves. Instead, the CFTC has chosen to pick on and prosecute the

810
weak: individual trading educators who make their living by offering teaching and advisory services to new
traders who wish to pay for market analysis and recommendations.

The arbitrary enforcement of this statute is blatantly unfair, immoral, and against the law. I cry foul.

All About The Dow Jones Industrial Average and the New DJIA Futures ContractChicago Board of Trade
Futures Contract reprinted with the permission of The Chicago Board of Trade

The Dow Jones Industrial Average really needs no introduction. First published in 1896 to help investors
identify broad stock market trends, it has since become the "Dow"-the most widely quoted and followed
benchmark for the U.S. stock market. The DJIA tracks the average price of 30 large NYSE stocks drawn
from a cross section of sectors of the U.S. economy. The stocks in the DJIA are all household names and
are heavily traded in the United States as well as in major foreign stock markets.

The DJIA portfolio consists of equal numbers of shares of each of the 30 stocks. The total market value of
DJIA stocks was $2.125 trillion, as of June 1997. This represents approximately 25% of the market value
of NYSE stocks and 20% of the market value of all U.S. stocks. Partly because of the vast value this basket
of stocks represents, it is very difficult for individual investors to exactly replicate the performance of the
Dow without owning shares of each of the 30 stocks that comprise index - a potentially exorbitant expense.

Now, by trading CBOT® DJIA futures, you can trade the exact components of the DJlA - the ultimate
proxy for the U.S. stock market-simply by buying Or selling a futures contract.

Graph 1 charts the performance of the index since 1987. Chart in Print Copy

What Are CBOT® DJIAFutures?

A CBOT® DJIA futures contract, like all futures contracts, is an obligation to buy (a long position) or sell
(a short position) a specific commodity -- in this case, the basket of stocks represented by the DJIA index.
A futures contract also specifies the date by which this transaction must occur, known as the settlement
date, and how the transaction will be fulfilled, known as delivery. The level of the futures contract closely
tracks the level of the DJIA index but may be higher or lower due to the impact of several factors to be
discussed later.

Value of the Contract - Value of the futures contract is determined by multiplying the index level of the
futures contract by $10. For example, if the futures index price is 7800, the value of the contract is 7800 x
$10=$78,000. As a buyer or seller of the futures contract, you are essentially trading approximately
$78,000 worth of stock.

Investment Applications of CBOT® DJIA Futures Options - Options are often considered the basic
building blocks of an investment strategy. Their payoff patterns and risk parameters make options quite
different from futures. Their versatility makes them the ideal instruments to adjust a portfolio to changing
expectations about stock market conditions. Moreover, these expectations can range from very general to
very specific expectations about the future direction and volatility of stock prices. There is an option
strategy suited to every set of market conditions.

Using CBOT- DJIA Options to Capture

Market Movements

Often, investors are in the position of reacting to rapid and unexpected changes in the market.

811
The transaction costs and price impact of buying or selling a portfolio's stocks on short notice precludes
many investors from reacting to market intelligence. Shorting stocks is an even less accessible option for
the average investor because of the margin and risks involved.

The flexibility that options provide can help you take advantage of the profits from market cycles quickly
and easily. A long call option on CBOT® DJIA futures profits at all levels above its strike price. A long put
option profits at all levels below its strike price. Let's examine both strategies.

Capturing Upside Profits

Scenario: In August, the DJIA is 7800 and the CBOT® DJIA September futures is 7850. You expect the
current bull market to persist for a while, and you would like to ride trend without tying up too much
capital and by taking only limited risk.

Strategy: Buy a September call option on CBOT® DJIA futures. Recall that these options expire at the
same time as Sept. futures, and the futures price equals the cash index at expiration.

You are moderately bullish, so the 8000 call (out-of-the-money strike price) is a reasonable alternative at a
premium of 101.10. You pay $1,011.00 for the call ($10 x 101.10).

Results: At September expiration, the value of the DJIA is 8,110. Now, your call is in the money, and you
exercise it and earn $89 ($1,100 - $1,011). If the DJIA stays at or below 8000, you let the call expire
worthless and simply lose the premium. This is the maximum possible loss on the call. If the DJI increases
by 101.10 points above the strike price, you break even.

Comments: An alternative to buying the call option would have been to invest $78,000 directly in the DJIA
portfolio. Given a value of the DJIA of 8110 in September, you would have had a gain of $3,100. If you
had invested directly in the stocks, however, an unexpected market decline would have led to a loss.

Taking Advantage of Market Reversals

Scenario: You expect a reversal of the bull market and would like some downside protection.

Strategy: Buy a put with a strike price of 7700 (out of the money). The premium of the put is 98.05, for a
total cost of $980.50. If the DJIA decreases to 7600, with a corresponding decrease in the futures contract
in September, the put is exercised at a value of $1,000. The maximum loss is the total premium cost, which
is lost if the DJlA stays above 7700 at expiration and breaks even when the DJIA decreases by 98.05 index
points below the strike price.

Using CBOT® DJIA Puts to Protect Profits from a Bull Market

During a sustained bull market, investors often search for ways of insulating their past gains from a
possible market break. Even when fundamental economic factors tend to support a continued market
expansion, investors have to watch out for unpredictable "technical market corrections" and market over
reaction to news.

Selling stocks to reduce downside exposure is inefficient because it sacrifices potential price gains. Also,
the transaction costs of quickly moving in and out of stocks as the market changes are exorbitant. What is
desirable in a fluctuating market environment is an inexpensive financial instrument that protects the value
of a portfolio against a market drop but does not constrain upside participation. Like previous example, this
is precisely what put options are designed to do.

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Scenario: The market is still in an uptrend in August. Signals about inflation, employment, and economic
growth continue to be generally favorable yet there is lingering uncertainty. Market participants are already
questioning whether inflation will pick up and the Federal Reserve will tighten short-term interest rates
further in the coming months. You have $78,000 invested in the DJIA portfolio, and the DJIA is at 7800.

Strategy: Purchase a put option on September futures as a way of insuring your portfolio against a possible
market downturn. The put you purchase will reflect the extent to which you believe the market may fall and
your risk tolerance if your opinion is incorrect. You decide to buy a 7600 put at a premium of 66.10. Your
cost is $10 x 66.10, or $661.00.

Results:Buying the put places a floor on the value of the portfolio at the strike price. Buying a put with a
strike price of 7600 effectively locks in the value of your portfolio at $76,000. Above its strike price, a put
is not exercised and the portfolio value is unconstrained. If you are wrong, and the market goes up, you are
out of pocket the premium paid for the put. Depending on which strike price you choose, you increase or
decrease your downside risk. You break even when the DJIA reaches a value of 7533.90 (7600 - 66.10), the
strike price less the put premium. At this point, the unprotected and put-protected portfolio are equally
profitable.

Comments: For different strike prices relative to the underlying futures, put options give partial or total
protection from possible market breaks with no need to sacrifice the profit from additional stock price
advances. You can elect to protect all or only part of your portfolio and can choose the strike price in
accordance with your market forecast and risk tolerance.
Chart in Print Copy

Achieving Low-Cost Portfolio Protection

There is a less expensive alternative than buying a put to protect the value of stocks-the collar. A collar
consists of a long put and a short call at a higher strike price than the put. The collar builds a floor at the
strike price of the put and a ceiling at the strike price of the call. In this fashion, you decrease your costs
because premium you collect on short call reduces cost of the long put.

Scenario:In August, you would like to have complete portfolio protection from the bear market you
anticipate, but you are concerned about the expense of the 7800 put. If you are wrong, and the rally
continues, you believe there is a low probability that the DJIA will rise above 8000, and you are willing to
trade off any appreciation above 8000 for this reduction in the cost of thorough portfolio protection. Chart
in Print Copy

Strategy: Sell a call at a strike price of 8000 and buy a put at a strike price of 7800. Results: With this
spread, the value of the portfolio cannot fall below $78,000. The call premium is 101.10 and the put
premium is 139.22. The net cost of portfolio protection is $10 x (139.22 - 101. 10)=$381.20, about 40%
less than the cost of the 7600 put in the previous example.

Comments: The collar has allowed you to gain some market upside while limiting your downside risk. The
"cost' of this protection is that you forego the slice of profits from increases in the DJIA above the call
strike price. Again, the choice of strike prices for the collar depends on your expectations and risk
tolerance.

Enhancing Portfolio Yields

Stock price fluctuations often seem to alternate between directional bursts of volatility and direction less
oscillations. These market phases are often called "trading range markets." When you expect the market to
continue in a trading range, you can enhance the stagnant return on your portfolio by selling calls on
CBOT® DJIA futures options.

813
Scenario: In August, the value of the DJIA is 7800. Based on your market observations, you do not believe
that the DJIA will emerge from its current trading range and increase above 8200 within the next month.

Strategy: Sell calls at a strike price of 8200. The premium of the September 8200 call is 47.65; selling an
8200 call generates an immediate $476.50. Chart in Print Copy

Results: You keep the entire premium if the index stays below 8200 by the September expiration. In return
for this immediate gain, however, you give up all price appreciation above 8200. Above 8200, the
combined value of the portfolio and short call is $82,000. The break-even point is 8,247.65, where the
DJIA is equal to the sum of the strike price and call premium. It is only above this point that the covered
call portfolio becomes less profitable than the original portfolio.

Comments: Since the short call is covered by the portfolio, this strategy has no downside risk. The only
upside risk is that you give up the price appreciation above the strike price of the call; however, the call
premium paid at the outset may compensate for this risk. The optimal strike price of the call depends on the
probabilities you have assigned to future increases of the DJIA.

How To Improve Your Trading With Knowledge On The Correlation Between Sport Betting, Wagering &
Handicapping vs. Speculation - Tom D'Angelo

This is my seventh article intended to provide readers with a coherent, disciplined money management
methodology, designed along the lines of a successful business. Refer to my previous articles in Vol. 3-8,
Vol. 4-2, Vol. 4-3, Vol. 4-4, Vol. 4-5 and Vol. 5-1.

In this article, I will attempt to correlate handicapping and money management techniques used by
professional sports and horse bettors here in Las Vegas with the world of speculation. Most of the
professional bettors here in Las Vegas use money management software I developed about 6-years ago. I
later modified the techniques utilized in that software for use by futures, stock and options traders and
eventually developed The Manager software for traders. I attempted to describe these money management
techniques and methodology in previous articles listed above.

Since a good number of traders also wager on sporting events or horse racing, I thought that the correlation
between wagering and speculation may prove to be the basis for an interesting article.

Basically, the sports or horse player is looking for "value" before placing a wager. There are two definitions
of "value." The first definition arises if you analyze a game and determine that the line offered on the game
presents a team which should be favored, or an underdog, by an amount different than the line offered by
the bookmaker.

For example, your legal bookmaker tells you that the Jets are favored to beat the Colts by 3-points. After
you analyze the game yourself by poring over prior statistics, psychological factors, injuries, etc., you
determine that the Jets should actually be favored by 10-points.

Since your legal bookmaker tells you they are favored by only 3-points, you have 7-points "value" in the
bet since you are predicting they should be 10-point favorites and you are able to bet them at only 3-point
favorites. Don't ask me how you determine your own line. Determining your own line is just like trading,
there is no "right" way to make your own line, just there is no "right" trading system. The line, and the
trading system you develop will reflect your own mental right brain/left brain makeup and your own
prejudices as to what factors to include in developing a line.

Similarly, although they don't realize it, traders perform the same task in developing a trading system. The
trading system is used to determine "value" and establish a "line."

814
For example, your bookmaker, excuse me, I mean the market, tells you that beans are currently trading at
$6.50, but your trading system says to buy the beans.

Which obviously begs the questions, why on earth would you buy beans when your bookmaker, oops,
excuse me, the market, is telling you that the current opinion of the entire universe of individuals in the
world who have an interest in the price of soybeans are telling you that beans are currently worth $6.50 . . .
no more . . . no less?

The answer is that your trading system says that you have "value," i.e., that beans should not be selling at
$6.50 but at a price higher than $6.50, possibly $6.75 or $7.00. In other words, your bookmaker, oops
again, I mean the market, is saying that beans are favored by 3 points but your handicapping says that beans
should be favored by 10 points . . . so you buy (bet) on beans.

Now you know why traders have losing trades and 95% eventually fail. Your line is not as good as the
bookmaker's, oops again, the market's line. You thought you had value but you didn't. Your line said that
beans should be higher than $6.50 so you bought beans. But your line was not as good as the bookie's line.
The bookie said that $6.50 was a fair price for beans, not $6.75 or $7.00. And the bookie was right, and you
have a losing trade.

The Jets were actually reasonably priced as 3-point favorites as the bookie said, not 10-point favorites as
you determined. The Jets do not win by more than 3-points, they don't "cover" the spread of 3-points, and
you lose the bet.

When you make a trade, you are betting against the bookmaker . . . and the bookmaker, oops, I mean the
market, is in the business of establishing the line. And the market is very good at what it does (random
walk, efficient markets, etc.) just as Las Vegas bookmakers are very good at what they do.

Most lines provide little value in Las Vegas. Since no matter which method you use to establish your own
line, your line will usually end up within 2-points of the bookie's line, affording little "value" in the bet.
This is especially true of the lines on NFL games. Making the NFL close to unbeatable in the long run and
NFL games are usually avoided by most professional bettors in Las Vegas (professional bettors call the
NFL, the National Coin Flip League).

Regardless of the trading methodology you use, stocks, options, futures, long term, short-term,
fundamental, technical, breakouts, patterns etc., the line created by your trading system must be better than
the market's line for a sufficient number of trades in order to generate a profit.

If your trading system is not capable of creating a line better than market, you'll eventually go broke. The
"value" you thought existed on your trades did not exist. . . it was an illusion.

The above discourse is the generally accepted definition of value." The second definition is one mostly of
my own creation and leans towards task of identifying and exploiting a positive expectation game, or in
other words, "value" comes about in situations where you have demonstrated that you have an "edge" in
real-time trading.

The technique I use for determining whether this "edge" or "value" exists is the Profit Center methodology
explained in my previous articles and is used in The Manager software I have developed. Refer to my
previous articles for a detailed description of this methodology.

Basically, Profit Centers are established to categorize each actual trade after the trade is closed out. After a
Profit Center contains about 30 trades, the trader will have a pretty good idea of his/her profitability
performance in that Center. Centers which show profitability indicate that the trader has demonstrated
success trading that particular technique and is enjoying "value" or an "edge" in that particular trading
methodology.

815
For instance, assume that you set up a Profit Center named SP50OP1 which will include all your SP500
trades taken off of a price pattern identified as pattern #1 (P1). After you have entered 75 actual trades into
this Center, you determine that the Profit factor is 1.82, indicating that you have a profitable Profit Center.

You have demonstrated that your line was better than the market's line when this price pattern developed.
You have discovered a positive expectation game . . . you have found an "edge." You have found "value"
since price pattern #1 for the SP500 indicates you have an advantage and an exploitable situation.

Professional bettors perform a similar task when they follow as many as 10 or 15 handicapping methods for
each sport and attempt to wager on the 4 or 5 which show early signs of becoming the methods which will
produce 57% or 58% winners for the season. Each handicapping system becomes a Profit Center which is
analyzed on a daily basis as regards to profitability and determining what % of bankroll should be bet on
each system, if a bet is called for at all.

Can this "value" disappear? Can a profitable Profit Center become less profitable, or even unprofitable? Of
course.

This is what "money management" really means . . . how do you manage your trading business? How do
you locate, hold on to and exploit situations where you have found "value." How do you lessen the negative
financial impact when you bet into a situation where you thought you had value, but instead, no value
existed? My previous articles dealt with this subject and I go into it in greater depth in book I've just
published.

As a final comparison between wagering and speculation, I will offer some comments on "the vig." The
"vig" or the "juice" as it also called, is the price you pay for being allowed to play the game. Everybody
must pay the juice if you want to play the game. No one escapes. The juice in sports betting is having to bet
$11 to win $10, providing the bookmaker 4.5% return on his investment. If you would like to win $100 on
a bet, you must bet $110. If you lose the bet, you lose $110. If you win, you win $100. In horse racing, the
juice is the 17% the track takes out of the pari-mutuel pool before winning bets are paid off.

In speculation, the juice is commissions and slippage. While deceptively small, the juice will eat you up in
the long run, whether you are a bettor or trader. Many traders eventually learn this the hard way and evolve
into trend followers which trade few trades and stay in trades a long period of time. This is the only way to
decrease the juice. There is no other way other than negotiating the smallest commissions possible and
attempting to obtain minimal slippage by trading direct to the floor. Unfortunately, no broker will let you
trade for zero commissions and attaining zero slippage is impossible, so the only true means of reducing the
juice is through less trading.

Many daytraders have a very difficult time achieving long-term profitability since they're in the worst
situation, maximum juice and limited profits. They can't let profits run since they are day traders and must
get out at the close. But the juice keeps piling up if they continually do 3 or 4 trades a day.

The juice is like being pecked to death by a thousand tiny birds, no one bird is big enough to kill you, but
the continual pecking over hundreds of bites eventually reduces you to bag of bones.

I have seen many trading systems advertised which show magnificent profitability, but there always seems
to be an asterisk somewhere that states "slippage and commissions not included in hypothetical trading
results." Put in $125 slippage and commissions per trade and the high profit trading system turns into a
marginally profitable system or even an outright loser.

For those of you who develop and test trading systems, use $125 per trade for slippage and commissions.
Anything less and you are fooling yourself. Don't be deceived by the small amount of the juice on each
trade. Bookmakers have turned a very tidy profit on this small percentage advantage over the decades. If
you do a large volume of trading, you will be juiced to death if your Profit Factor is not sufficiently high
enough to withstand the price you must pay to play the game.

816
In my next article, I will present an analysis used by The Manager which analyzes the impact of the "vig,"
commissions and slippage, on trading profits and losses.

Editor's Note: We want to thank Tom for his excellent series of money management articles. We asked
Tom to do this one on Sport Betting as we have had many requests for info on the correlation of betting and
handicapping to trading. We have also added Tom's Money Management Web Site as a link to our site. To
visit Tom's site and many other interesting web sites, please visit our links at:
www.webtrading.com/sites.htm

Tom goes on to mention he will be demonstrating The Manager software he uses for his own money
management reports at the Dow Jones Telerate Seminar in Las Vegas at the Riviera Hotel during mid-
October.

Unfortrunately, our publication was printed too late for you to get this announcement before the seminar.

Allegations About John Hill & Futures Truth" Why Are There Lawsuit Threats?

for Printing Truth" - by Kent Calhoun, KCI Seminars

Friend Dave Green, I have come to respect you more than you know. That respect will not be diminished
by your reluctance to publish the last letter I have sent you. I do think it would be to your advantage to
review the Club 3000 News issue from which every figure in my letter was derived.

There are only two figures you may not recognize, is the 44% figure which is the Bell total of $765,973
divided into the difference between his testing and Hill's of $341,266=44.55%. The second figure of 87%
which is the 14 commodities with lower total equity divided by the 16 total commodities in Hill's portfolio,
14/16=87.5%. (See these are on the chart inClub 3000.)

Dave, while anyone can sue anyone, it is not automatically accepted by a judge, who must first review the
evidence and decided if a suit is justified. If your evidence comes from previously published figures, the
suit should never be accepted. Any liability for such a suit defers to the previous publication of the figures
quoted verbatim in your article. The Club 3000 issue by coincidence contains a letter by John Hill, which
demonstrates his belief in the validity of the Club 3000 publication itself!

Still, you may want to back off. Knowing John Hill's nature and (alleged) love of money, I seriously doubt
he would ever sue you, but it is probably not worth publishing my letter to take the chance. I believe my
finances are suit proof, at least my attorneys tell me they are.

I will never forget that you were the only person, besides my dead Army buddies, to have the courage to
stand and fight against the (alleged) unethical business practices and (alleged) lies of John R. Hill. You
truly deserve a modal for being a real stand-up guy in a world of gutless wimps! Thank you Dave for all
you have done. I am proud to be considered your friend.

Quote from Hill's letter enclosed. "Can you imagine General Motors or Proctor & Gamble withholding
performance data on their products if they fail to live up to advertised expectations? Of course not! What
did Hill do by not testing all most active contracts? He withheld information on his (alleged) faulty testing
procedures.

Recently I wrote a letter (published in last issue of CTCN) reviewing the "All-Time Top 10 Trading
Systems" by "Futures Truth." Every response I received was extremely positive. To the sophisticated trader
it presented original trading system evaluation criteria that had been never seen before Dave's courageously
published it. Few people possess Dave's guts and integrity.

817
Let me just share one insight. I stated to never trade a commodity whose profits were less than the
maximum equity drawdown, since the system is producing more negative equity than positive equity.
Nowhere in any book or article has this information ever been discussed before I sent it to Dave Green. If
you trade a commodity that made $10,000 but produced a $50,000 negative drawdowns before making
$10,000, your natural question should be as a trader, "when is the next $50,000 drawdown going to
occur?" This is just one valuable insight. There were at least eight others presented.

Why is John Hill angry? Imagine you are a system developer. You have paid a testing company $13,500 in
cash, provided two complete trading manuals, two software, two seminars, and 13 meals to Mr. Hill & Mr.
(John) Fisher, to produce figures on your work. Now imagine an article is printed in a newsletter that shows
(alleged) irregular testing procedures that financially benefit a trading system owned, ranked, and sold by
the same testing company.

My telephone rung off the hook. My manual contained over 200-pages of testing results done by this
testing company and traders wanted to know if the testing was accurate. Is this logical? I think so, after all
these traders risk their money every day on these figures. I immediately wrote a letter of support for the
testing company, and suggested positive testing procedural changes. I suggested they stop rating and selling
their own trading system. I did this in the friendliest manner possible. I am told in so many words to "Go to
Hell" This is after my clients and I spent over $50,000 with testing company for testing, software, trading
systems, seminars, and books over l5-years!

My clients come first. There are dozens of incidents I could mention, but here are two that can be verified
by CTCN subscribers. One CTCN subscriber in Canada was offered a full money-back refund on software
sold more than a year ago beyond the refund time limit. Right Neil? I recently tried to save another CTCN
subscriber over $2,000 in past KCI Updates by offering to work with him at no cost. Right Chuck? My
purpose in wanting correct testing procedures was to verify the testing was accurate. I had provided over
$25,000 to receive accurate testing results. Was l entitled to get what I paid for?

Another newsletter (Club 3000) recently printed several untruths from Mr. Hill. One of these false
allegations from Mr. Hill stated, "I never made money" trading an account with Mr. Hill's brokerage testing
company. I have faxed Dave my IRS-1099 trading statement. It shows I produced a profit in 1993 with the
brokerage account. (I think my right of privacy was violated by Hill providing any personal information to
the public.) The account was closed because I was being over charged by Mr. Hill 10% over the agreed
commission rates. (Mr. Hill apologized and offered to pay the total difference, but he had ignored this fact
3-times.)
Copy of Statement in Print Copy

Mr. Hill stated there was no record I have profitably traded an account. The U.S. Commodity Futures
Trading Commission (CFTC) reads this newsletter and they know last year I traded two accounts. One
made more than twice as much money as the other one lost in 1996. George Hanley, one of my friends,
bought a trading system and testing software from Mr. H's company on my recommendation.

I am not a great trader. I am an excellent teacher, who cares a lot about his friends and clients. George
Hanley was Chairman of the Chicago Board of Trade Soybean Options Committee during the same time I
traded with Mr. H's company. I took a $25,000 account to $85,000 in six weeks of real-time trading that
excluded a $17,000 profitable trade.

This trading was mentioned to the CFTC in court May 24, 1995. Mr. Hill had to know about it since Tom
Birnam communicated these facts to Mr. Fisher, president of the testing company. (You may see George's
letter in the most recent KCI ad - October 1997 pg.-101 of Technical Analysis of Stocks & Commodities
Magazine which refers to this real-time trading demonstration.)

Mr. Hill is correct about one thing. KCI Seminars was investigated by the CFTC and I voluntarily went to
court to defend myself. The reason for the investigation was a letter Mr. Hill (allegedly) sent to the CFTC
that included false allegations about me. Mr. Hill did not know Mr. John Fisher provided KCI testing
results on which KCI advertising was based. When the CFTC investigator handed me Mr. Hill's letter in

818
court, I laughed. The CFTC had Mr. Fisher's KCI test results which proved Mr. Hill's allegations were
false. Mr. Fisher's testing results were published verbatim in KCI Seminar ads.

I will not dignify Mr. Hill's hostile remarks (allegedly) offending my patriotism and religious beliefs. I am a
veteran who volunteered to serve his country in Vietnam, and refused to accept a 25% monthly disability
check from the government for injuries sustained while I was in the service of our country. Five years after
my honorable discharge, I volunteered a second time for active duty believing my injuries had healed, but
failed to pass physical. I apologize to no one for loving my country.

I apologize to no one for my spiritual emphasis of trading, which I believe contribute to achieve trading
success. I do not proselytize any specific religious beliefs, but do emphasize only the most important
spiritual values common to all the worlds' greatest religions. I am the object of Hill's hostility for my beliefs
on these issues, but I will stand alone against the entire world and every person who holds his similar
bigoted beliefs.

I would willingly die with honor for my country and my spiritual beliefs today. I am not a hero like David
Braxton, Jimmy Davis, or Mark Thibadeux, three of my buddies who died in a rain-soaked hooch in
Vietnam. I am just an American who loves this country, like are the majority of CTCN readers. Mr. Hill's
remarks reflect his and the other newsletter editor's prejudicial value systems.

Two years ago, I sent a peace offering to the editor of the other newsletter (Club 3000 News) and Mr. Hill.
My Christmas cards and presents were returned by them without an explanation. In my heart, I have
forgiven them, yet I still believe Mr. Hill needs to explain why his testing procedures are very questionable,
why his testing irregularities tend to financially benefit his trading systems, and why no independent testing
has verified his results (as he still advises other vendors for their systems). I still have considerable doubts
about his testing.

Editor's Note: There have been threats of lawsuits over these and other controversial articles. Please note
the opinions and comments published in Commodity Traders Club News are not necessarily the opinion of
CTCN or its Editor. Frequently, negative words or statements made are allegations, not verified or proven
facts. This is true regarding everyone, and is not limited to only Kent Calhoun and John R. Hill.

Sometimes, the words "alleged" or "allegedly" are inserted by your Editor. Not only in Kent Calhoun KCI
Seminars and John R. Hill Futures truth matters, but also sometimes involving other subjects, both in this
and past/future issues. In particular, many words in italics and/or brackets are often inserted by your editor
and not the author.

Manage It While You Can! - Rick Ratchford

My experience at Futures West Conference this year was a positive one. It was a pleasure to meet many
trading personalities as well as fellow traders as myself, and discuss one of my favorite subjects . . . making
money trading futures!

If I had to come up with one main subject that underlined the jest of what most of the speakers there were
trying to convey, I would have to say that Money Management carried the greatest weight. Now, only one
speaker really went into depth on this subject, that being Larry Williams in his keynote address. But it
seemed to act as an impetus for this subject to pop up in almost every other speaker's outline.

Whether these were last minute changes prompted by their hearing Larry's keynote address, or something
they had originally intended to talk about anyway, the bottom line is that they all recognized the importance
of Money Management as a major part of one's trading plan.

It was very interesting to see the many examples that Larry and some of the other speakers were providing
to show that even with a system that is so-so, you can make money with proper management. As a matter

819
of fact, on the flip side they showed you could have an excellent system or method and not make money in
the long run if you don't exercise, not only proper risk management, but proper money management.

Let me separate the two for those who may not be familiar with these terms. Risk management is more akin
to determining how much you are willing to risk and taking steps not to lose more than that. This is usually
done by placing stop loss orders in the market when you place your entry orders or shortly after once you
are in the trade. Some may do so with mental stops, which take much more discipline, usually more than
most traders possess.

Money Management is actually performing one or more calculations based on how much is in your
account, how much you are willing to lose on a trade or how much drawdown your system is rated for, and
largest loss expected ever for that system. The results are meant to help you decide on how many contracts
you should be entering with.

The damage most traders do to themselves is over-trade. With big eyes on the pot-of-gold that is supposed
to be at the end of the rainbow, they may put on very lopsided positions which their account cannot
adequately handle for the long run. If a trader puts on more contracts than is mathematically feasible,
results are devastating!

For example, if you have a $10,000 account and your risk is set to l0%, this is $1,000. If the max. loss
allowable per contract is $500, your maximum exposure should be no more than two contracts. If you lose
the $1,000, your next trade should now have a maximum risk of $900 (10% of $9,000). Again, if your
maximum allowable loss is still $500, you now can only trade one contract.

The idea is akin to traveling from point A to point B, but each time only going halfway. In theory, you will
never reach B. For example, say the halfway point to B is C. Now we have C to B. Now, go halfway again
and call it D. Now we are at D and need to go to B. Again, go halfway. See what is happening here. If you
only go halfway, you will technically never reach B.

So, if you always use just a percentage of your account per trade, you should theoretically never reach $0.
This is part of a good money management plan.

Don't make the mistake of compounding the number of contracts you trade because you lost on the
previous trade and want to win it back. My father was a compulsive gambler and each week he would lose
his whole paycheck at the horse races trying to win what he had lost previously. Not only did he lose
everything, he was miserable and made everyone else feel just as bad.

If you do not properly use Money Management in your trading, you are in essence gambling. You are not
looking at trading as a business, which is the way you should be looking at it.

A formula was provided that works well for system traders. It goes like this: Account Balance - Risk % (ex:
2, 5, 10, 20%) divided by the largest loss rated for system. The largest loss is usually the drawdowns the
system may experience.

Now, say your account balance is $20,000. You set your risk exposure to 20%. If the drawdowns for the
system are $6,000, can you trade this system? No. Why? Take 20% of $20,000 and you get $4,000. Divide
this by $6,000 and your result is less than one. In other words, you can trade ZERO contracts! Now, say the
drawdowns of your system or method is $2,000 maximum. Divide your $4,000 by $2,000 and you can
trade two contracts.

Say you lose. Your account is now $16,000. 20% is $3200. The next trade you divide $3,200 by $2,000 and
it goes into it one time. Say you find a system where you will only risk $500 per trade. With $16,000 at
20% risk ratio, you trade six contracts for $3,000 maximum risk.

Now, you have to decide on what your risk exposure is going to be. The lower the risk, the lower profit
potential (and loss potential) you will experience. However, if you enter only trades that offer at least 2, 3

820
or more to 1-profit/loss ratio, and you win just 3 or 4 out of every ten trades, you are going to come out way
ahead! What this means is that you can trade with almost any halfway decent newsletter advice or system
and if you use proper money management, you're going to make money.

Don't think in terms of how much you can make on each trade, but rather how much you can lose. If you
keep this in mind, you are going to lose, you will be doing more to assure you stay in the game long enough
for the wins to put you ahead. Then, and only then will your account take care of itself.

Manage your account while you can!

Beliefs That Don't Support Your Goals - Dee Switzer

Trading gives me many opportunities to address myself in becoming the best that I can become. I have
learned to address each issue that surfaces because looking in the computer monitor, is like looking into my
interior self.

One of the issues I am working on is to question all my beliefs that don't support my goals. When a belief
doesn't support my goals, I ask myself as to where did that belief come from; an expert in the field,
childhood rearing, from experience, etc. I then keep de-energizing the old belief until I am convinced this is
not a belief I want to keep. I then develop a new belief that replaces the old one and will support my trading
journey.

This is an on-going process and it helps me get red of excess baggage that gets in the way of becoming a
consistently successful trader.

Factors Which Could Cause

The Market To Decline - Arden Pulley

I have observed that when the price of crude oil goes very high, the stock market goes down. I saw it
happen in 1973-74 and in 1990. I have heard that it happened in 1929. The price of oil has recently gone
above $25 per barrel and then dropped to slightly less than $20 per barrel. The discovery of crude oil
peaked in 1962 and has been declining since then. On the other hand, the consumption of crude oil has been
increasing.

At some time in the future, it will become obvious that business as usual will not continue. The price will
begin to rise and shortages will develop. It will be like the early seventies only it will not be a short-term
problem like it was then. Many will not be able to afford gasoline and their lives will change significantly
for the worse. Before this happens, the stock market will tank. Buy and hold investing in stocks will fall out
of favor for a long time. I predict that this will happen within 10-years.

The government will step in to solve the problem by holding prices down and perhaps rationing. They will
not solve the problem but will make it worse by spreading the shortage around and making it last longer.
Those who are ready will profit when the situation arises; those who are not will suffer. Some have
predicted that only the rich will be able to afford gasoline to drive their cars. There will be a problem for a
few years, but companies doing research on alternative fuels will come up with a solution when it becomes
obvious that they can make a profit by doing it.

An announcement by OPEC of a planned cutback in production sent the price of oil up and the stock
market down on one particular day. The increase of the Deutsche Mark correlates with the decline of the
stock market. The importance of following the DM was mentioned by Larry Williams in a recent interview
appearing in Technical Analysis of Stocks & Commodities.

821
A rise in the interest rate or a decline of the bond market could trigger a decline of the stock market. Other
factors which should be considered include: a rise in the price of gold, a loss of confidence in the
government to pay its heavy debt, or a general lowering of corporate profits. These indicators should help
you improve trading in the S&P 500 futures index. Some on a short-term basis, others long-term.

There are two ways to invest. One way is to study the supply and demand and then predict what will
happen. The problem is that it is very difficult to accurately predict what will happen in the future. Once
you make a prediction, you tend to stick with your prediction.

I predict that the Dow Jones Industrial Average will have a difficult time going above 8000 and staying
there. If it does not, then that information is important. If you make a prediction and then do not change
your opinion with changes in the market, then you are in when you should be out and out when you should
be in.

Another way to invest is to figure which way the market is going and then establish your position according
to what the market is doing. If you make an investment according to the prediction that I made above, I will
not be there to tell you what to buy, when to buy it, how much to buy and when to sell. If you let the market
tell you what to buy, when to buy, and when to sell; you will be more likely to be right. If you use money
management to tell you how much to buy then your decisions are more intelligently made.

"Take Your Profits While They Are Still There" - This Is What Joe Told Me

At His "Trade The Truth" Seminar Back In 1992 - Bill Donnally

In an attempt to evaluate Joe Ross' suggestion, I programmed a simple trend-following simple reversal
system that executes trades at the highest or lowest price for, say, the last 9-days trading using the
SuperCharts' system simulator. Although I tried 9-days for the breakout from highs or lows, other trials
showed that the number of days was not critical. On the charts, the breakout trade-entry signal-arrows
somehow remind me of breakouts from classic "l-2-3" chart patterns.

I used (Omega Research) Super Charts, version 4, trading-system simulator Easy Language which allowed
long or short trade entries for the next bar (tomorrow) on a stop=today's high, or on a stop=today's low.
Simulated trading costs were $20 round-trip commission plus $100 slippage per contract. I added a
protective-stop loss (money-management), plus a "%-profit-risk trailing stop" to the simple breakout
system to effectively "grab profits while they are there."

A "%-profit-risk trailing stop" triggers-on after the profit in a trade reaches a predetermined "floor," and
then the trade is exited when a certain percentage of the profit is lost (for example, exit the trade when
profit decreases, say, 50%, from a profit level ("floor") of $500 or more - therefore, the trailing stop, once
the profit "floor" is reached, exits the trade with a profit of at least $250 (50% of at least $500). Adding
those two kinds of stops "turned the sow's ear into a silk purse" -- that is, adding such %-profit-risk-trailing-
stops generally transformed the system from a marginal, often losing system, to fairly consistent
performance with big winners!

The system got the big moves. What appears to be interesting is the "% wins" rate, averaged over all tested
contracts, seems was over 50%, together with a good average $ win/loss ratio. Surprisingly, the
SuperCharts' simulation report summaries indicated the drawdowns were typically small or tolerable, due
to addition of both protective money management and "%-profit risk" trailing, stops to the basic 9-day
breakout system concept.

My initial system evaluation of more than five commodities (using still-active contracts like Gold, Corn,
U.S. Treasury Bonds, Japanese Yen, etc.), showed surprising results. However, these markets have been
trending rather well lately. Statically speaking, it's best to avoid arriving at conclusions until many more,
different contracts are tested over several year time periods. I'm sure that similar trading-system simulations

822
have been done by other traders, but some traders might want to check my initial findings and conduct
further analysis.

Trading is really this easy -- or could it?

Perhaps something more is needed. Someone once told me you can have the greatest system in the world,
but "90% of trading is psychological" you've got to conquer yourself -- have self-discipline. Resist
changing your rules when involved in a trade, etc. Of course, realistic money management is important
also. Financial reserves must be big enough to survive drawdowns.

I suppose trading a breakout system in "real-time" might involve some gut-wrenching, but highly
profitable, trades that most people simply won't do. An example might be the Commodex System which
has statistics downloadable from their web site showing an average annual profit greater than 100% over
last 30+ years (assumes $250K account, trades all major commodities in US, and less than 50% of account
was used for margin).

On an intuitive impulse, I just re-read part of the 1994 book "Winner Take All" by William Gallacher (an
important book -- I'd say it's one of the five or ten must-read all-time best futures books that I'm aware of.

In Chapter 4, "Expectations," Gallacher makes the plausible argument that, over time, system or technical
traders can hardly hope to consistently achieve returns of 25% on account; and Gallacher concludes: "any
system trader who consistently doubles his money on an annual basis has achieved the financial equivalent
of skiing to the North Pole in a bathing suit."

For the past couple of years I've been looking at results published in Futures Magazine of Commodity
Funds run by professional money managers. I got the impression that 25% average return on account over
many years (not just one great year or two) is indeed the "stuff of dream," and would be great for
practically any trader.

Editor's Note:This is a good opportunity to discuss the Futures Magazine Commodity Fund monthly
performance numbers which some of our members ask about from time-to-time. It's alleged most of these
Funds are not really interested in making profits trading their managed accounts. Most of these "funds"
have a very large amount of money under management. According to our information, the average fund
charges a ½% per month management fee, based on account month-ending balances. This equals 6% per
year gross profit to the Fund, on average.

They make this money regardless of whether they make profits or not. Since many of these managed
futures funds have millions of dollars under management, you can see 6% profit adds up to lots of money.
For example, 6% of ten-million dollars is $600,000 per year. Or a comfortable living of $60,000 a year in
fee income, based on "only" having one-million under management. Not too bad for doing little more than
basically break-even commodity trading! Also, remember, many money managers also receive significant
income from the percentage they receive of each trades brokerage commission which is paid to the
Introducing Brokers trading advisor.

Generally speaking, it seems that most successful traders I know of, also consider fundamentals in their
approach to the markets (not just technical/mechanical analysis). Market selection would be an example.

I wonder if purchasing options-on-futures to hedge futures trades is basically a good idea. I've heard that it's
better in the long run to make frequent attempts to enter a futures trade rather than buy options for
protection (options-premium is a wasting asset, etc.). Any opinions on this?

Futures Truth Did A Disservice by Showing How Well My Systems

823
 Were Doing! - Bruce Babcock of Reality Based Trading Company

Thanks for publishing Kent Calhoun's critique of John Hill's article in Futures. I wrote Futures several very
long letters back when my systems were showing very well in Hill's Futures Truth Top-Ten lists.

I told them they were doing a disservice to their readers by publishing his garbage. I also pointed out the
conflict of interest of him rating his own system! I never could understand how they fail to see through
John Hill. You are about the only person publishing the facts about what I have always called "Futures
Half-Truth."

Editor's Note: This is probably one of the most amazing happenings of all-time in the pages of
Commodity Traders Club News. Isn't it incredible how a trading system provider (Bruce Babcock's Reality
Based Trading Co.) say's Futures Truth is doing a disservice ranking their trading system, whether it's
doing well or doing poorly! Your editor never dreamed one day someone would "complain" about their
trading system performing well! Only an incredibly honest and truthful person would ever say such a thing!
What a compliment to Bruce Babcock!

Can Stress and A Poor Diet Combined With Making Money & Trading Cause Cancer? "
End Of The Trail" - Gale Paxton

August 5, 1997, I just finished the May/June issue (Vol 5-3) of CTCN and was saddened at the realization
that Jo and I are no longer a part of the world of traders. In January, Jo had major surgery for the "BIG C"
and the prognosis was extremely negative. At the time of the diagnosis she chose not to go the
chemotherapy route for a couple of reasons. First of all, we both felt that it made no sense to pump ones
self full of a toxic chemical that not only attacked the cancer cells but her immune system as well. Second,
there is no real clinical proof that chemo works against breast cancer any better than non-toxic therapies.

In fact, our research following the surgery indicated that naturopathic treatment had a better track record
than the conventional surgery/chemo/radiation therapies. So far nothing seems to be stopping the spread,
but we are hopeful that her therapies and a lot of prayer will start to take hold soon. For that reason we
closed our trading account a couple of months ago.

Why am I telling you all this? Because I would like to pass on some of the information that we have dug up
about cancer and some of the major causes. There are many factors that can bring one psychologically and
physically to a point that weakens your immune system and allows those cancer cells (which we all have to
a degree) to manifest into uncontrolled, full-blown cancer. The stress that occurs from putting too much
emphasis on making money as a trader is just one of the factors that works against our immune system. The
other major factor is our diet. The diet thing is weird because over the past 4 to 5-years we had become
almost completely vegetarian with Jo eating almost no meat at all and me very little. As it turns out, even
our attempts at trying eat a more healthy diet fell far short of our intent.

For the ladies out there, we are talking not only breast cancer as in Jo's case but vaginal and uterine cancer
as well. For you guys, you need to think about colon and prostate cancer. As it turns out, much of our
digging for information on cancer and the treatment of cancer has confirmed what I have felt all along
about the AMA, Pharmaceutical industry, American Cancer Society and the American Cancer Institute and
FDA, they are running a scam on the American public.

To retain or improve your mental and physical health, I think the best advice that we can give to all of our
friends in CTCN Land, be they new traders just starting out or old pros:

1. get on a really healthy diet;

2. make sure that you essentially have a laid back, no stress, objective mental attitude and;

824
3. last but not least, is to stop and smell the roses daily. You'll live longer, happier and healthier.

As you go through your daily routine think of Jo once in a while and if you're so inclined, say a little prayer
for her recover. We both still feel very strongly that one can make a very nice living by trading if they have
the right mental approach along with the right technical tools for them. So, if Jo beats this thing we may
just get back into the old trading game.

I firmly believe that Dr. (Van) Tharp's' course would be of great benefit for all who are thinking about
trading or just starting out, unless you have an unlimited margin account. Also, here are some books that
may also be of great help from both a mental and health approach.

The McDougall Program, "Twelve Days to Dynamic Health" by Dr. John A. McDougall, MD

The McDougall Tapes by Dr. John A. McDougall, MD.

Note: The tapes can be obtained at your local library. Dr. McDougall also has other books.

Dr. Depak Chropa, all of his books and tapes. Many can be obtained from your library.

Dr. Wayne Dyer, all of his books and tapes. Many can be obtained from your library.

Dr. Andrew Weil, all of his books and tapes. Many can be obtained from your library.

Please don't misunderstand my intent of the preceding. I write it to pass on some of the things that Jo and I
have learned in the past six months in an attempt to make you all more aware, so you will start taking better
care of yourselves. There is a lot more available at your local library, through the Internet and at you local
naturopathic clinic or doctor's office. Don't look for any honesty from a regular MD (there are some
exceptions) because they are part of the problem. But, do yourselves a big favor and learn.

Comments to the article by H. M. of Australia: I found the article very interesting and I'm with him. How
can you trade using only a single "simple" indicator? There are too many factors that can and do affect the
markets and I for one find it hard to believe that a single indicator gives the secret to good trades. I guess
my question here, to those unknown mega-billionaires traders that have discovered the "One Indicator Holy
Grail," would be; it is so simple why haven't you shared it with the CTCN family?

After trading for over three years and working with all of the standard indicators as well as some not so
standard, it is my contention that there is probably three to five indicators, when used in the right time
frame(s) that will provide the information for successful trading. However, one has to develop their own
trading system and regardless of how many or how few indicators they use, if it works then stick with it no
matter what others say.

Keith Carrs' Thoughts on Vendors: Keith writes of the fraudulent lawsuits brought by vendors as a weapon
to prevent exposure of possible scams they are perpetrating. I also wrote about this problem several months
ago and Dave wrote about the problem in the issue just prior to my article. What Dave proposed was to set
up a legal fund that would be large enough to either stave of these fraudulent suites all together or to
provide sufficient funds to fight them in court. Dave asked for subscriber comments/suggestions on their
proposal and recommendations on how the fund should/could be financed.

I don't recall reading a subsequent article or editor's comments with regard to this legal fund, so it would
appear that the CTCN subscribers are really not all that interested in taking on these vendors who may be
marketing programs etc. using false advertising. I'm really sorry to see this issue dropped because it would
have served notice to these vendors that we will continue to see published opinions from those who have
used their products and found them not as advertised. The only reason the threat of law suits works is
because of the high cost of defending ones right to their opinion. If your legal fund is large enough, your
lawyers are potent enough and you have spoken or written the truth then these frivolous lawsuits will
eventually disappear.

825
I think this legal fund should be revisited and reconsidered.

Editor's Note:The CTCN Legal Defense Fund was discontinued some time ago due to a lack of cash
contributions. We had lots of good verbal support for the concept but not monetary support. P.S.: Please
pray for Jo Paxton!

Own Perspective by R. J. Ratchford: I totally agree with R. J., there is a plethora of information that one
can avail themselves on just about any subject including trading futures. Some of it is good and some is
scam material. If one is careful to research the credentials of the person(s) offering the material they will
find some excellent help for developing their trading system and plan. However as R.J. says, when it comes
to planning and making trades you do so based on your own analysis and perspective of what your analysis
is telling you the markets are going to do, not other peoples' opinions.

Losing Money by John Bond: I thought John's article on "cuffing" was extremely interesting and it may
explain why Jo and I wondered why some of our fills, especially our exiting fills, were so bad and far from
the numbers we were seeing from our broker's real-time data stream when we placed our order. What it
shows is, that no matter how careful you are in selecting your broker or how careful the broker is when
hiring his/her people, the non-local trader is still at the mercy of the integrity of their broker's people.

As an aside to the "cuffing" problem, non-locals are also at the mercy of the locals when it comes to
running stops. I have often wondered how the locals know where all of these stops are and whether or not
they are in cahoots with the brokers' floor people. Running stops are the only good reason I can think of for
not placing stops on your order, but you better have very deep pockets.

Well friends, as they say in the newspaper movies "That's A Wrap." We wish you all the greatest success.
Remember to "Plan your trade and trade your plan" and good trading.

A Letter Sent From Tom Cruckshank to

Mr. R.S. of Advantage Trading Group<

Dear Mr. R.S.: As per our conversation this morning, you will find the account application forms enclosed.
If anything is incomplete or otherwise lacking give me a call. Please mail me copies of the completed,
approved application forms for my records.

Please remit the TradeStation system and substantiating account statements. I realize that this may be
somewhat onerous, but if you can send a complete day-by-day account record as well as the month-end
statements, it will assist me in making my determination as to the number of contracts to trade. It will also
give me a better feel for how the system performs and what to expect as to equity swings. If you can supply
contract data in TS format for the period it would be much appreciated, however I realize that's asking a
lot.

On the subject of commissions, you indicated that the $14-$15 range would be appropriate for this size
volume. How about we start with the low end figure of $14 plus costs. In the future I would like to aim for
the $12.50 and then the $9 figure that we discussed. When my volume increases, expect me to be
requesting this.

I am looking forward to a long and mutually beneficial business relationship.

"Mr. R.S. - Please Call Me To Discuss This Submission & Closing OfMy Trading Account" - Tom
Cruckshank

826
In Commodity Traders Club issue (Volume 4-5, pages 11-12), R.S., President of Advantage Group, a
discount firm, gave his views on why daytraders don't have a chance. Mr. R.S. made several arguments for
his position and why his brokerage was superior in these regards. Although the article seemed like a veiled
advertisement for his firm, I decided to give him a call and talk with him. In the call I explained that I had
tried to day trade the S&P, but found that I just couldn't do it (the Don McCullough syndrome).

I did say that I was considering trying to trade from end-of-day again. Mr. R.S. immediately launched into
a sales pitch offering me a system for Omegas Tradestation which had performed very well in a real time
account since last May. He said he would provide the system gratis as well as copies of the account
statements verifying his claims if I opened an account. At this point he also let me know that the
commission he mentioned in his article was volume related and would not apply to this account, so we
negotiated a commission slightly less than I was currently paying. This sounded pretty good, so on January
28, I mailed in my account forms. I accompanied the forms with a letter reminding Mr. R.S. of the content
of our discussion and asking for promised items soon.

Here is what has ensued since then. On 2/6, I received a call from my previous broker that the in-house
L.I.T. transfer was proceeding. The next day Friday 2/7, I put in a call to Mr. R.S. and spoke with someone
else who took my number and assured me Mr. R.S. would call back that day. No call back.

On 2/10, the same thing happened, I called, talked to someone else, left message, no call back. The next
day, Tuesday 2/11, I received a call from someone at Advantage notifying me that my account was open
and telling me what I needed to know to initiate trades. Finally on Wednesday 2/12, I reached Mr. R.S. by
phone.

He told me a story of how he had been very busy because the NFA had been in his office for the last four
days going over his operation. His next words were that unfortunately this would affect his offer to me. He
continued with his involved story of how the NFA was after Omega and that he was constrained from
offering their program and was unable to mail the account statements. He had several reasons, etc., etc.

He mentioned that another trader had developed the system and I asked if he could put me in touch with
this person if he agreed. Mr. R.S. felt this was possible and said he would check with this trader. I asked
him to please call me back that day (2/12) and let me know whether he was able to make contact with this
person or not and if he would talk with me. He assured me he would call back. It is now Friday, 2/21 and I
have not heard a word from Mr. R.S.!

I invite you to reread Mr. R.S.'s letter in the previous issue of CTCN. You will note, that although Mr. R.S.
makes some very good points as to how a broker should be selected, he omits the most important
ingredient, TRUST. I posit that he received my property filled out account statements no later than 1/31,
well before the alleged visit from the NFA; he could have remitted the promised items then. He did not. I
contend that it is important to be able to reach your broker quickly and that telephone messages are
returned promptly. It took me four days and two unreturned telephone calls to reach Mr. R.S..

Finally, given the forgoing, I say that if your broker promises to call you back on a matter that is of some
import and completely ignores you, then that broker is duplicitous at best and more likely full of excreta.
Trust, I think not!

Futures Truth's John Hill

Responds to a Critic & Offers Explanations on

Many Controversial Issues and Allegations

One severe critic of Futures Truth (Kent Calhoun of KCI Seminars) continues to spread untruths about us.
Our response to these outright lies and slander is as follows:

827
1. "50% of Futures Truth tested has one or more losing commodities . . . " This is real world performance,
without benefit of hindsight. I would like to see a system that trades a future that will not lose in the future.
I do not necessarily agree that trading a future that loses is necessarily wrong. I can show you examples
where it helps the overall equity curve and Sharpe Ratio.

His comments are criticisms of systems that have shown profits without the benefit of hindsight. Very few
systems live up to the testing done with benefit of hindsight. The small trader has been led by the "Rainbow
Sellers" to expect unrealistic profits and that is why most of them lose their funds because they can't sit
through the flat periods or else double up if they get a good profit run.

2. "Flat-Time." Most small traders lose money because they cannot sit through the flat time that a system
shows. We tracked about six of Kent Calhoun's systems and the best one had about a 3.5 years flat time.
Who knows what the flat time of any system is in the future. I can show you many systems with no flat
time in back time including some KCI systems. However, these same systems were disasters in real-time
trading.

3. "We omitted drawdown." This is the most important factor in any trading and is pointed out in all our
reports. The editors of Futures Magazine elected to delete it (not at our suggestion)

Editor's Note:Isn't it amazing how Futures Magazine somehow eliminated trading system drawdown
numbers? As pointed out by John Hill and many others traders, including your Editor, drawdown is
considered the most important statistic to be gleaned from the performance statistics of any trading system.

Some of our club members have discussed the possibility Futures Magazine allegedly does not really want
their readers to know about drawdown, since many of the Futures Truth Top-10 Systems ran expensive
advertisements in Futures Magazine and had large drawdowns.

Of course, there is little doubt far fewer traders would buy and trade many of these Top-10 Systems if the
drawdown statistics were included in the Futures Truth Report as published in Futures Magazine. Is it
possible, as has been alleged, Futures Magazine did not want potential buyers of these so called Top-10
Systems to be fully informed on this extremely important statistic.

If this is not the case, perhaps Futures Magazine will explain why they yanked the critical trading system
equity drawdown numbers but left all the other (mostly far less significant) numbers in the report.

4. "Sharpe Ratio." Kent Calhoun's comments of this are a complete lie. He obviously does not understand
Sharp Ratio.

5. One sales approach of "Rainbow Merchants" is to condemn the competition and that is what Kent
Calhoun has done. Please show me one system of his that has done as well, without benefit of hindsight.

6. "Any company that rates a "black box system" should never be regarded as a respectable member of the
professional financial community." This is outright slander. I also take strong exception to this conclusion.
The numbers we show on "black-boxes" are without benefit of hindsight and is what investor could have
expected in the real world.

I would never buy a black-box system that had no performance numbers in the real world. Black-box
system vendors make them black-box because if they revealed their logic, the "Rainbow Merchants" would
be teaching it at their next seminar. I don't blame them.

7. "Futures Truth has betrayed any ethical standards they once advocated for other vendors by clearly
demonstrating a lack of that own." This is slander. Futures Truth has always noted that we have conflicts of
interest and we would be happy to turn this business over to the National Futures Association or the
Commodity Futures Trading Commission, if they would do it. We will continue to do so as we are traders

828
and my son sells a couple of systems. We tell our clients if this bothers them they should not buy our
reports. However, our numbers are correct, as I defy anyone to show us an incorrect number.

We are registered, unlike Kent Calhoun, and would not dare publish a number to suit our own agenda or the
vendors' agenda. If we did, the National Futures Association (NFA) and CFTC would immediately put us
out of business. The vendors in our current reports are honest business people who are willing to live with
what the future holds on performance of their numbers.

8. At one time we did have Futures Truth in another address because I have been threatened with lawsuits
around 15-20 times for telling the truth about the Rainbow Merchants' products. (We still do through
private opinion letters.) If I were so wrong, why has only one actually sued (the Judge threw it out of
court). We can back up every number we have ever published.

9. "Futures Truth's inconsistent testing procedures." The NFA (National Futures Association) sent a team of
4-5 people to my office where they spent over 3-weeks checking out all aspects of our business, including
performance of systems. If we were not doing the numbers correctly and in an orderly manner, then we
would be out of business. Kent Calhoun is simply irritated because we quit showing the performance of his
systems when he wanted us to selectively show some performance, and the CFTC subpoenaed our records
relating to him and his products.

Comments on your next article:

10. "Frank Bell." It is an outright lie that we did not return his phone calls.

Editor's Note: Your Editor called Mr. Bell and verified Futures Truth did call him back but it apparently
was a delayed call. Frank also confirmed he has never spoken to Kent Calhoun, as stated by John Hill.

Kent Calhoun has never talked to Mr. Bell, so how could he fabricate such a story. We did respond to his
problem and pointed out that we used every other month in crude rather than roll over every few weeks.
This does distort the figures somewhat, particularly during the Gulf War. This is pointed out in our reports.
We standby the performance shown in our reports.

11. "Continuous Contracts vs. real world data. " This is a continuing argument over which is right. We are
in the camp of using real world data and so are most people we do or have done consulting work for such
as the World Bank and many of the big CTA's. I do know the NFA and CFTC have no argument with how
we are doing it. The continuous contracts are not the real world and do not take into account rollover costs,
which ours do.

12. "Futures Truth made three common mistakes . . ." This is a lie.

13. "Futures Truth testing reflects mistakes made by most developers - the usage of over-optimized
unstable parameters." This is a lie. We have always emphasized a system should have a broad width in
parameter selection or else the system would probably bomb. We pointed this out to Kent Calhoun when he
attended our seminar years ago. I see he now claims it as his original idea.

14. "Futures Truth uses the least accurate testing data base." This is also false. As a matter of fact we use
the best data and most accurate procedures for testing in the industry. Again, if our methods were flawed,
the regulatory authorities would put us out of business.

15. "Vendors Manipulate Trading Results." Some sure try and that is one reason we no longer show the
performance of Kent Calhoun's (KCI) systems.

16. "Futures Truth's system not independently tested." This is a lie. We send a copy to Club 3000 for their
tracking and independent verification of numbers. In addition, the NFA spent 3-weeks in our office
verifying numbers and procedures.

829
 More on (Concerns & Poor Communications) Involving Advantage Trading Group - Tom Cruckshank

This is in reference to your request for information regarding whether Commodity Traders Club News was
involved with my opening an account with Advantage Trading Group (ATG) headed by Mr. R.S.

I found the 800 number for Advantage Trading Group, via a web search, sometime in January 1997,
subsequent to reading Mr. R.S.'s article in CTCN (Volume 4-5, pages 11-12). I called Mr. R.S. and we
spoke on a couple of occasions. I explained to Mr. R.S. that I was currently not trading but was formulating
my strategy.

I also explained that it was unlikely that I would be able to day trade the S&P as you do, as I considered my
leaning was toward end-of-day trading. At this point Mr. R.S. launched into a sales pitch that included
telling me about this great system that some of his clients were following very successfully. This alleged
system was an end-of-day system called "The Tide System" developed by a Mr. Gil Castillo. (I am unsure
of the spelling of Mr. Castillo's name and if he really exists.)

Mr. R.S. told me he would provide me with the system in Omega TradeStation language. He also said he
would provide statements for me to see the system's record. All I had to do was open an account with ATG.

On the strength of Mr. R.S.'s article, and his sales pitch including the promised system, I subsequently
opened a trading account with ATG. The opening date was 2/11/97 and the account was cleared at LIT,
account #700XX.

With the opening documents I did not receive the promised system. I called Mr. R.S. and could not reach
him and my calls were not returned. Finally I reached him and he launched into this story that he had just
suffered a four-day audit by the NFA. After a lot of palaver he informed me that as a result of this audit he
couldn't supply me with the system, account statements and other information about system that he had
promised.

Editor's Note: Advantage Trading Group's President Mr. R.S. also had a problem returning the phone calls
of your Editor at the time we were trading our clients' funds with him and maintained a large managed fund
trading account at his brokerage firm. Many of our calls went unanswered. In fact, poor communications
was one of the reasons our relationship deteriorated and ended up in our having to file a lawsuit against him
and Advantage Trading Group.

He assured me that the system was real and encouraged me to put a request in your newsletter or ask on
web lists and I would get leads to Mr. Castillo and the "Tide System." So I decided to follow his suggestion
and placed the ad in the March/April issue of CTCN (Volume 5-2 pages 31-32). I did not receive one
response to my query. All this put my guard up and I vowed to myself not to place any trades with ATG
until I saw the system. Somewhere along the line my account was transferred from LIT to Rosenthal
Collins Group, retaining the same account number. When no system materialized and Mr. R.S. did not
follow up on his promise, I transferred my account away from ATG without ever executing a trade.

Mr. R.S. called me acting very surprised and asked why I was transferring my account. I explained to him
that I felt that he was less than truthful with me in the matter of the promised system and thus did not feel
comfortable having him as my broker. He seemed to hesitate and then I instructed him in no uncertain
terms to transfer my account immediately.

My account at Advantage Trading Group was closed on 5/27/97. I attest the foregoing is true.

"Bad Brokers"

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 George Famy from France

I'm sorry that you had such a bad experience with Advantage Trading Group, but I'm glad that you went
into details of your experience. That helps make us aware of the problem and is the only way to "expose"
some of the low life operators and charlatans in this business. By giving your readers all the information
available, we can make better decisions.

It's equally regrettable that you have not been able to print some of the criticism written by your readers for
fear of being sued. What's going on here, is this a free country or what? That type of behavior should tell
your readers what kind of people are "operating" in the industry. Whatever happened with doing good clean
business, adhering to previous agreements and taking care of the customer?

Nowadays, the prevailing attitude is more of the "how can we beat the customer" and "we're big enough to
intimidate you with a lawsuit so don't say anything bad about us!"

I also had a bad experience with a broker. As Dave Green has done, I'd like to recount the details of the
experience in order to inform the readers of CTCN what really can and will happen in real trading. Advise
others to pay attention to even small "signs" of problems as these will often be the precursors of a bigger
hidden danger which can later cost you money. This was my case.

I started trading a new customer account through Lind-Waldock's London, England office. I almost
immediately started to see some problems: fills with excessive slippage, phones not being picked up
promptly and late reports. My experience told me to start looking for another broker. I knew sooner or later
it would cost me money if I didn't. I continued to trade the account while I was checking elsewhere.
Because it was a small account, I couldn't put it in the same place as my institutional business.

Sure enough it happened . . . One day I had four phones going trying to get through. These were telephone
numbers supplied to me by the brokers. The lines were all ringing out (no answer) or busy. I missed my
initial stop order. Later, when I did get through, I put in a limit order hoping for a pullback.

The market came back to and traded through my price and then took off and ran to my profit taking level.
Never doubting that I was filled was ready to pull the trigger (take profits) when my partner convinced me
to wait for the fill. She said, "based on what I've seen the last two weeks I'd be careful if I were you, with
these guys you never know . . . " Boy was she right! Much later, after my insisting for a report, I was given
an "unable."

I missed a $2,500 profit for the customer in a new account where performance was critical. What was the
broker's defense? Simple, he told me the old tried and true excuses . . . "the NFA says we have 3-minutes to
fill an order" and "it's busy down there."

You know, I gave Lind-Waldock & Co. many chances to make it up to me. Even a simple "Sorry Mr.
Client, you won't pay commissions for a month" or something like that would have appeased me. No way,
the people that I spoke with were convinced that they had all their "bases" covered with their lame excuses.
They were more interested in being right than keeping me as a customer.

I took the account elsewhere and now the client is trading four times as big and has added significantly
more money to the account. He is now big enough that we deemed it worthwhile to set up an "offshore
structure" for him. Lind Waldock blew it and doesn't even know it.

Like Dave, it was their attitude which annoyed me much more than the money. This was the same firm that
2-weeks earlier, when I described the type of trading that we do, told me that they would deliver a
professional style service and that they were interested in CTA's. Guess what, actions speak louder than
words!

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This description of a real experience only confirms what many of us already know, that the vast majority of
brokers, systems sellers, etc., don't care if we make a dime or "blow out" tomorrow. They want the quick
dollar and not a long-term relationship which, ironically, would probably be more profitable to them over
time.

There's a lot more unknowing, unsuspecting, retail customers around and so there is no reason for them to
worry. There will always be more "sheep" waiting to be led to "slaughter." I just don't plan to be part of the
group.

I recommend that everyone give full details and descriptions of any problems that they might have had, so
that the readers of CTCN are better prepared for the "reality" of day-to-day trading and can perhaps avoid
some of these bad experiences. Remember, pay attention to any small telltale signs of trouble which, if left
unchecked, could mean dollars lost later. When in doubt, change brokers!

"Time To Set The Record Straight"

by A. Edward Moore

I've sat quietly by for 2-years while I've been attacked in ads and in person by John Stenberg - AST
Network, his students and even prospective students. It didn't matter until I saw John Stenberg's ads, "I
make money almost everyday trading the S&P Futures Contract, and I'll teach you how as well." (Stocks
and Commodities Jan. 1997) The John Stenberg I know does not trade anything, let alone the S&P's and
I've known John Stenberg since 1990.

I see all his materials, nightly faxes, etc. I'm currently teaching a number of his former (AST Network)
students. I know some of the students he managed money for and "JS" lost most of the money they
entrusted to him. I'm in contact with former students who took his personal course. He did NOT trade with
them.

"When you take my personal course, we make or lose money together, mostly win I might add." I've talked
with his current AST Network students. Their claim to fame is that now, they can break even, maybe make
$1,500 a week. Questionable at best? It's important to note that nearly all are rank beginners, don't trade
every day and wouldn't know a good methodology from a bad. None of whom have seen my work nor
talked to me, and take JS's word that my course similar to his, when in fact less than 5% of what I teach
today is related to Ad Step.

Who is Ed Moore? I'm 55-years old. I've been trading 35-years. I started on Wall Street with a BBA in
accounting from Notre Dame 1963. I completed my MBA in Finance from Columbia Graduate School of
Business 1967. The next 10-years were spent as an analyst/trader. Afterwards, President of Gabelli, where I
managed money and headed firm trading for 5-years. After leaving, I formed my own money management
firm - Moore, Grossman & DeRose. We managed over $200M. I compounded money at 30% a year for 10-
years. Throughout this time I made millions trading stocks, commodities and options. However, I got
caught up in the "Decade of Greed." Early 1987, I took my liquid net worth, $10 Million and tendered to
buy all the stock of an NYSE company with $400 Million in sales. Had I been successful I would have
made $150 Million. It wasn't meant to be. I lost all my money for reasons beyond my control, yet I bailed
out my friends and clients by taking over the company in a proxy contest. I succeeded, but went broke. At
this time I was saddled with huge alimony and three kids in or about to start college. I decided to test my
trading skills day trading the S&P's. By late 1988, I was making money consistently every week.

I spent over $300,000 improving my trading. Too bad I wasn't a member of CTCN (Commodity Traders
Club News) sooner, I could have saved a bundle. Enter John Stenberg, 1990. I received his flyer with my
BMI (Bonneville) bill. His program was just one of the hundreds I tried. His material was poorly presented.
To his credit, I liked his implementation of the popular Uni-channels. I called JS to share my thoughts. His
annoyance at my call was quelled when I told him I made $50,000 on an OEX day trade. That got his

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attention. He put this trade in his ads. He now considered me a "John Stenberg expert." This invited
countless calls from John's AST Network students for the next 3-years.

I was invited to one of his workshops. The first day was a disaster, nothing worked. The students demanded
a refund. None was forthcoming. Sunday morning, the students asked to hear about my thoughts and
techniques. That afternoon, Andy Armour asked to see me trade the S&P's. The next 3-hours, John
Stenberg flashed 3-minute bars, one at a time with no indicators.

I successfully called 90% of the trades ahead of time, just reading price action. Most who watched were in
awe, but attributed my success to over 30-years of trading experience. I disagreed, they too could learn.
When Joe Conway, a university professor with a Ph.D. in communications, witnessed my trading, he
offered to write a book about my methodology if I would teach him to trade like me. It was only after the
book was written and countless phone calls that I considered becoming a vendor.

Now that "Rhythm of the Markets" has been out for 3-years with "Option Magic," how have my students
fared? 50% are successful, averaging $2,000/day per contract after 1-year. Joe Conway now manages $10
million. He compounded these funds at 35% a year for 3- years trading "Rhythm" with no load funds. He
gets 20% of profits. If he's up 30%, he earns $600,000.

One of my student's trading 25 S&P's at a time caught the attention of Russell Sands. Russell wanted to
know where he learned to trade the S&P's so successfully. He referred Russell to me. I was honored when
Russell called to invite me to his NY seminar in the hopes of sharing our methodologies. I declined because
our methodologies are not compatible. Russell Sands is a breakout trader, while I trade counter-trend. I did
meet Russell in NY. He's a credit to this industry and I'm proud to know him.

30% of my students are still learning "Rhythm." The remaining 20% failed primarily for two reasons: fear
and lack of funds. My most notable failure is Todd Mitchell. I met TM at a 1992 Kent Calhoun seminar. I
worked with Todd Mitchell for 2-years, but very few breakout players succeed in the S&P's intraday. TM
did the next best thing. He became a vendor. Unfortunately, people like TM and JS, who contribute
marginally to technical analysis, make it harder for the legitimate vendors. No wonder Gary Smith hates so
many vendors.

Not only have I had a successful Wall Street career, I am recognized and endorsed by many of my peers for
the proprietary trading methods I have developed. These are people who have successfully traded and/or
taught for 25-40 years. They include John Hill, Joe DiNapoli, Larry Pesavento, Dr. Humphrey Lloyd and
Kit Webster. Joe DiNapoli recommended me in a 4-page letter to his students. That's class!

Many of you have asked the $64,000 question, "If you trade so well, why do you bother to teach?" I never
intended to become a vendor but did so by default. Yes, I got part of my $300,000 back but more
importantly, I've met some of the smartest people one could ever hope to meet. They have taught me and
continue to teach me more as a teacher than I learned as a student of the market. Today, I am a much better
trader than I was just two years ago because of this experience. Furthermore, I challenge you to find
anything negative about me. I'd like to end with just a small excerpt from Andy Armour, "From the first
meeting, I knew Ed was a winner, both as a trader and a person. I was a complete stranger to him, yet, he
invited me into his office and opened up completely to me, showing me all his techniques that obviously
took him years to formulate and master. He had nothing to sell me, he was just sharing, one trader to
another." This speaks volumes, more than any ad I could ever place.

An Advisor With A $200,000 Equity

Change In 1-Year - J. S. from California

While looking thru an issue of Commodity Traders Consumer Report, the newsletter that tracks the
performance of Commodity Newsletters and Hot Line Advisory Services, I noticed an advisor that had an

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equity change of over $200,000 in the last 12-months. Unfortunately for anyone that took all those
recommendations, that was a loss of $200,000 in one year.

Robert Prechter, Jr., of the Elliot Wave Theorist lost $200,000 for his subscribers over a 12-month period.
Now if Robert Prechter, Jr., one of the world's biggest proponents and follower of the Elliot Wave Theory
can't make money, how can anyone else make money following Elliot Wave?

I may have the solution. Subscribe to Prechter's Elliot Wave Hotline and listen carefully to his
recommendations, then do exact opposite! If he says buy, you sell. If he says sell, you buy. Will this work?
Probably, Prechter has been a consistent big loser in the markets for years.

Info Wanted on Successful

Commodity Hedging - John Boyd

The commodity market is a hedge market; however there is little information about how to successfully do
hedging.

For example:
buy 1 future and 1 put
buy 1 - 650 call and sell 1 - 655 call

At what prices? How long do you hold? How much profit is reasonable?

More articles should stress hedging techniques. The emphasis in Commodity Traders Club News on trading
methodology for using long or short positions are not sensible. Prices of all commodities change in
whatever way is necessary so that the majority of traders lose money!

If You Lose On Options, You Make Money on Mutuals - If Your Lose on Mutuals,

You Make Money on Options - What Could Be Better! - Mervin Pearson

If you are a commodity trader you probably don't have more than 10 to 20% of your total liquid net worth
in the commodity markets. If you have more than this then you're probably over extended.

One strategy I have been using for the last 10-years is to sell OEX or S&P call options against my mutual
funds holdings. This is known in the option industry as a covered write. The strike prices I use are usually
at least 500 Dow points away from the current market. Currently the OEX is at 890. The strike price I
would use is the current month - September 950 strike price. Since the cash OEX is 890, then each OEX
option carries a true value of $89,000 (890 x 100=$89,000). If a portfolio is $300,000, then sell 4 options.
The current price of the 950 calls is $5.00. Therefore, $5.00 x 4=$2,000 premium income into your
account.

My defensive strategy is if the cash OEX closes within 10 points of the strike price, I roll up ten points, i.e.,
from 950 to 960 strike price. A loss will probably be taken on this roll if there is a lot of time remaining
before option expiration. Remember though if you take a loss on the option, your mutual funds are more
than taking up the slack! This is a nice way to collect extra income on your portfolio.

The margin requirements are 15% of the cash value to the OEX. You can use T-Bills or your mutual funds
to cover the margin requirements. If you use T-Bills or U.S. Government Bonds, 90% of the value of the T-
Bills can be used to meet the margin requirements. If you use mutual funds for margin requirements then
only 50% of their value counts for margin purposes.

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I do not like to go out in time more than one month. When the current month expires, I then go to the next
month.

Hope this helps some of you out there. Remember this is not an exact science. Some months there will be
losses, but you should be profitable 10 out of 12-months of the year. You will always be 100% profitable
on either your options and/or mutual funds. If you lose on your options, you are making money on your
mutuals; if you lose on your mutuals, you are making money on your options. What could be greater?

Why Most Trading Systems Lose Money Part II by Kent Calhoun of KCI Seminars

Most trading system developers are honest individuals, but often encounter technical problems in
producing their trading system's results. Independent testing conducted by a Futures Truth client reported in
Club 3000, Futures Truth may have overstated their trading system's results by $341,266. This was
shocking. Futures Truth (FT), was a highly respected source of unbiased testing and ranking of trading
systems. KCI had paid FT $13,500 for testing plus another $15,000 in software, manuals, etc. for
independent testing. I wrote a positive letter on their behalf to Club 3000 and sent FT a letter with
suggested procedural changes. None of them were implemented.

This letter reviews the Futures Truth's trading system testing procedure as applied to their own $2,000
trading system. One ethical question is unanswered, "if Futures Truth is using questionable testing
procedures to produce results, what mistakes are other vendors making to sell their trading systems?" This
report reveals how improper testing procedures and incorrect optimization methods overstate hypothetical
results in order to sell trading systems. All figures related to Futures Truth were produced from independent
testing published in Club 3000 conducted Frank Bell, a client of Futures Truth.

Seven years before Futures Truth began, I incorporated a commodity research firm to discover a
systematized approach that would allow me to project time and price for any time interval from minutes to
years in advance. In the process of testing so many poor trading systems, I discovered many of the most
profitable trading systems, techniques and methods. This quest eventually led to the 5-VBTP a method that
predicted the S&P futures closing tick more than 10.5 months in advance, that missed by 1-tick.

When I began buying trading systems, I discovered most of them lost money. Only about 60 of over 200
systems actually showed any profits, yet 70% of the profitable systems had equity drawdowns greater than
closed cumulative profits. Traders should never trade a system that lost $50,000 to show a $10,000 profit.
When is the next $50,000 drawdown that will eliminate the temporary $10,000 profits? (See the previous
letter for trading systems guidelines.)

Most trading system developers have a poor technical understanding of risk structure and optimal
parameter selection; which may result in unintentionally produced inaccurate track records. This appears to
apply to Futures Truth's inconsistent testing procedures. A vendor's ignorance does not justify the fact most
purchasers of their systems will lose money trading them, or exonerate a vendor who improperly produces
his results. If false advertising is sent through the mail to sell a system, it is called mail fraud.

The most important goal of trading system design is not to make money, but to protect the initial account
capitalization from financial destruction. This is only accomplished from location of stable optimal
parameters. Most vendors sell their systems by over emphasizing profits, without concern a system's risk
may be beyond the psychological and financial tolerances of the potential purchaser.

When I lived in Chicago, I sold my trading systems to floor traders. I placed the amount of money they had
paid me into an escrow account without mentioning it to the purchaser before he bought a system. This had
two positive effects. It established my credibility, and provided the trader confidence to trade my $10,000
minimum priced system. When the trading system returned the original purchase price to the trader, usually
within three months, I removed the trading system purchase price from escrow.

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Floor traders were contacting me to buy my limited edition systems, which were profitable because the
Calhoun Method for Optimal Parameter Selection created stable parameters with risks beyond the
probability of financial ruin. After I taught floor traders to assume risks that guaranteed they would never
lose their total trading capital, they had the confidence to purchase and trade my systems. Every system
paid for itself.

Dr. Tushar Chande, an excellent technician, also discovered and published his work on the Probability of
Financial Ruin a decade later. Let this be your rule of thumb: if you are risking under 5% of total capital
per trade (closer to 2% preferable) -- require an expected positive return twice the amount of risk with 50%
winning trades to assume risk beyond the probability of financial ruin. If we both have $10, risk .50 cents
per binomial coin flip, and you are right 60% of the time, you will eventually win all my money 100% of
the time. Your risk assumption is beyond the probability of financial ruin.

Most Trading Systems Lose Money for the following reasons:

1. Vendors Manipulate Testing Results - There are several ways an unethical vendor may manipulate
figures to make his system look better than it will actually perform in real time trading. How did Futures
Truth produce more profits than the testing performed by Frank Bell? After Mr. Bell paid FT $2,000 for
their system, he tested it and sent the results to FT. Three weeks later, FT did not return his phone calls or
respond. Bell's testing results were published in Club 3000 and revealed FT made three common mistakes
used by many vendors to sell systems, which were often unknowingly designed to lose money.

a. Improper testing procedures - FT improperly rolled contract months on the last day of the month prior to
expiration, which resulted in trading a contract for weeks after it was no longer the active contract. FT
tested only the Feb., Apr., Jun., Aug., Oct., & Dec. contracts for crude oil. This means FT selectively
skipped six of the most actively traded contracts, which no crude oil futures trader would ever do. Correct
procedure would be to roll to all most active contracts after one or two consecutive days of higher volume
occurs in the deferred contract, which would then become the most actively traded contract.

b. Use of least accurate testing data base with inconsistent procedures - Market Wizards author Jack
Schwager wrote in the 6/27/96 issue of the Futures Technical Analyst, "continuous futures would be far
more desirable when testing trading systems since the use of the nearest futures would lead to gross
distortions." According to Mr. Schwager, Future Truth uses the least accurate testing data base to produce
system results. That is they almost used the most actively traded contracts data base.

Why did FT subjectively choose to test only 50% the most actively traded contracts for crude oil? If a most
actively traded contracts data base is used, then ALL of the most actively traded contracts must be used! FT
showed a crude oil profit of $33,950, yet using all most active contracts with correct rollovers produced a
loss of $17,420. A difference of $51,370! By not using a more accurate continuous data base, Futures
Truth's testing of their own $2,000 trading system benefited from a "gross distortion" of 44% more profits.
A difference of $341,266, according to Frank Bell's independent testing results.

2. Developers Improperly Select Over Optimized Unstable Parameters - Most developers select optimal
parameters that contain one or more statistical outliers called equity spikes, which skew the optimal
parameter set values away from the most stable parameters. Equity spikes should be eliminated since they
produce a disproportionately high percentage of the system's closed cumulative profits, over 50% in some
cases. The Calhoun Method for Optimal Parameter Selection finds the most stable parameters. Developers
who select parameters that make the most money use unstable parameters over 80% of the time, and errors
are compounded when using a least accurate data base.

All system vendors have ethical considerations testing results to sell a system. Do they select optimal
parameters to sell a system or trade them? Do they use parameters that made a $100,000 with a $35,000
maximum equity drawdown or parameters that made $50,000 with a $10,000 drawdown? What kind of
maximum risk is required to produce any system profits, greater than the total profits? FT's testing reflects

836
mistakes made by most developers - the usage of over-optimized unstable parameters to produce profits
over risk-averse parameters to protect capitalization. Is it called a reward-risk ratio?

Optimal parameter stability is the goal of the parameter selection method, but this requires flexibility to
generate profits within an optimal parameter profit zone for four distinct market phases. The accumulation
phase (bring to one) has low volume, ranges, decreased rate of change and low volatility. Orange juice at
.75 is in accumulation, and trading more than one standard deviation below its 20-year average price.
Accumulation and distribution are characterized by non-trending price action. The distribution phase (give
to many) is the technical opposite of the accumulation phase, characterized by wide daily ranges and
increased volatility price movements. Most trading systems generate rapid profits during the strong
trending Up movement, which technically links accumulation to distribution, and Down movement as price
returns to accumulation.

The Calhoun Method for Optimal Parameter Selection measures parameter stability by comparing the
percentage cumulative equity shift to the percentage of optimal parameter shift. If an optimal parameter is a
10-day close moving average that makes $100,000, then a 20% parameter shift of 8-day and 12-day
moving averages, should make $80,000 and a 10% parameter shift of 9 and 11-day moving averages,
should make $90,000 if the optimal parameter has stability. When the equity shift is greater than the
optimal parameter shift equity spikes may be responsible for testing results. Those trades should be
eliminated with optimal parameters recalculated. The optimal parameter selection process locates the set
that allows the greatest parameter shift & highest returns.

Flexibility and stability are opposite physical and metaphysical concepts. Structural design engineering
determines a building's exponential sway, up to 48" in strong winds. The engineering design must be stable
to maintain internal structure. This is accomplished by reinforced concrete designed to withstand wind
effects. Applying design engineering knowledge to trading system design, I use adaptive historical
volatility for parameter flexibility (risk) combined with scientific price action analysis for entry and exit
structure.

Stable parameters should exhibit flexibility to be profitable in all four distinct market phases since optimal
parameter values may shift 50% from extremes annually. When the equity shift percentage exceeds optimal
parameter shift percentage, parameters may be unstable depending on the shift percentages. The Calhoun
Method of Optimal Portfolio Structure will often override marginal unstable parameters for individual
commodities by lowering maximum equity drawdowns and increasing closed cumulative profits.

3. Vendors Do not Use Independent Testing to Verify System Results - How can the same system tested on
two different data bases with matched trade entries identical on both data bases to produce a $341,266
difference? The Futures Truth system appears over optimized with almost 10 parameters but worse, its
results were optimized from a data base that was the least accurate. Most of FT's commodities (87.5%)
benefited from least accurate data, and FT altered their system's parameters soon after it was sold.

If Futures Truth had their system independently tested, as FT owner John Hill has advocated to vendors,
any liability for faulty testing is the responsibility of testing company. (All KCI systems have been
independently tested for this reason.) A testing company that sells systems and rates vendors' systems has
violated professional ethics; its testing results must be beyond reproach. Mr. Hill has refused to have their
$2,000 system independently tested for over 4-years. Mr. Frank Bell's results appear most accurate.

(Futures Truth complicates testing using two rating methods. One does not "mark to market" open equity
on existing trades at the beginning or end of the year. Futures Truth ignored a $5,000 open equity profit that
existed as the year began on January 1 and a $6,000 open equity profit that existed when the year ended
December 31 to show one system had lost about $2,000 for that year. The system was actually profitable
the year it was traded, but FT testing showed a loss after they omitted $11,000 open and closed equity.)

Since FT did not use independent testing, used the least accurate data, improperly rolled contracts, and
selectively omitted contracts these questions arise:

837
1. If Futures Truth overstated their system's performance by 44%, how many other systems ranked by FT
have overstated results?

2. How many others ranked systems benefit from Futures Truth's inconsistent testing procedures?

3. Did FT select their testing procedures and misrepresent results to sell their $2,000 systems or lack the
technical knowledge to correctly test trading systems?

4. With a huge $341,266 discrepancy between FT's results and Bell's figures even though all trade entries
are matched on both data bases, how accurate is system testing from any vendor?

These are reasonable ethical questions to ask of any testing Company. Traders risk millions of dollars
buying and trading systems affected by the quality of Futures Truth's testing procedures. If FT uses
questionable testing methods, what intentional mistakes are made by dishonest vendors? Futures Truth's
testing procedures allow the possibility of a losing trading system to be ranked as a #1 system, if it
experienced good results for only a 12-month period. Two vendors of #1 ranked FT systems have been
prosecuted by the CFTC for misrepresentation of their trading systems' performance.

Summary of Part II

The goal of all ethical system developers should be to sell trading systems that accurately represent their
system's performance, as if it were traded under actual market conditions. Knowledge of how a system
loses money is just as valuable as how the same system makes money and should be provided to the
prospective buyer. By placing an informed buyer's interest first, unpleasant surprises that arise from
questionable technical testing procedures will not negatively affect reputation or integrity of seller. The
commodity industry needs a "real" Truth in Futures Company that will test systems in a statistically reliable
manner without trying to sell their own systems at the same time.

Part III will explore more advanced trading concepts like the Calhoun Optimal Portfolio Structure, and
Calhoun Profit Ratio, (I incorrectly used the Calhoun Profit Ratio values for the Sharpe Ratio value which
does not exceed 1.0 in the last letter), how trading systems lose money you do not see, and what traders can
do to improve any system's trading performance. Key concepts discussed will be how to trade beyond the
probability of financial ruin. How to capitalize on the fact that all commodity prices are mean regressive,
and the most important trading guidelines applied to trading system structure.

Again, I want to apologize to all honest systems vendors I reviewed in the previous letter. Under no
circumstances did I mean to impugn their integrity or cast aspersions upon their work. The goal of all
system developers is the same as science, to seek truth and use it to improve what exists today with higher
quality tomorrow. The only ethical problems I have with anyone are when truth is knowingly misused for
personal financial gain. When I started KCI, I offered a full money-back guarantee on every product sold
including trading systems, software, manuals. and seminars. Vendors show no respect for themselves or
others when they knowingly misrepresent truth in order to sell their products.

Opinions expressed in this letter are solely those of Kent Calhoun and do NOT express those of this
newsletter, which may be very different. I want to thank all the readers for their overwhelming positive
responses to my first letter. Thought in passing "if those who speak do not know, and those who know do
not speak," as Lao Tze has informed us in a book of 5,000 words, then why was he such a blabbermouth if
he was the one who knew? As Mark Twain wisely observed, "Truth is stranger than fiction because it does
not have to make sense." You might think he had purchased the first commodity trading system to trade
snake oil futures. While many people lack the intense love for truth that I have been blessed in my life, all
people are certainly worthy of it.

As readers analyze what Mr. Hill and I have written, they should try to separate facts from opinions. I have
cited a Futures Truth client as a credible independent third party testing source as the basis for FT's
questionable testing procedures. In Club 3000, Mr. Hill has engaged in an unsubstantiated personal attack

838
criticizing my religion and patriotism. I refused monthly disability checks for injuries received while I was
in the Army. I do believe in God. In Club 3000, Mr. Hill made many false allegations: one is that I lost
money trading and account with his firm. Dave Green has seen the 1099 statement showing my account,
traded with Mr. Hill, was profitable. Dave has also seen the letter where Mr. Bell states Hill did not contact
him for over 3-weeks. The KCI - CFTC investigation was based on figures Mr. Hill provided to the
Commodity Futures Trading Commission, which were later proven false with testing conducted by John
Fisher, then president of FT. Truth is sacred and comes from God and will be known to those who seek it.

The Mad Scientist - J. L. from Wimauma

My dad used to say, "Whenever I feel like exercising I lie down until the feeling goes away." My back-
issues never mention what may be more important than anything. Making all this money for the doctors
makes no sense at all. If any profession lent itself to sucking on cigarettes, slurping coffee or pop, junk
foods or just general inactivity while "watching the bouncing ball" all day . . . you know who you are. And
don't forget the stress most traders subject themselves to - like losing their money.

Well relax. I'm not here to recommend exercising even if Larry Williams is a handball buff! I quit
"pumping iron" lots of years ago when I figured out that I didn't really need those big muscles and that even
if I caught a girl, I couldn't afford her anyway.

Then lately I read an astounding fact. Every one of our billion or so cells (I used to know how many) must
be continuously bathed in either blood or lymph fluids! That's because every one of those guys have to eat,
breathe and do that other thing or they die! Then I imagined the miles and miles of microscopic vessels to
accomplish such a task. And then I realized how the slightest muscular tension must "pinch off" some of
those vessels and actually kill cells. Voila! There's the muscular fatigue we feel when we do exercise!

And then I discovered that, unless we're sleeping, our muscles are taut almost all of the time! Next time
you're watching TV notice that, without a conscious effort to "go limp," you are sitting off your chair, not
in it! This brings me to the most overlooked muscles of all. I daresay that most people, while awake, have
never totally relaxed their facial and scalp muscles (probably because someone might see them).

Never mind that the scalp encloses whole bunches of vessels -- those that feed those "grey cells" that are
deciding "long or short." I know this sounds crazy but try "going limp" starting with your jaw the next time
you're at your "post." You will experience a rush of blood much like I used to when I put the barbell down.
When you realize that you "tense up" even by thinking, it's no surprise that stress wrinkles and prematurely
ages people's faces.

Then there is another matter. Whenever I do this exercise, I invariably feel the need for a deep breath or
two. Could the body know that, the vessels now having been opened, the blood stream will now need more
oxygen to supply those additional "lungs?" Put that with the fact today's air has 32% less oxygen in it than
it had in prehistoric times (from deforestation and burning fossil fuels), and maybe we're onto something.

I'm convinced that today's "ills of civilization" are caused by not enough physical activity or breathing-
relaxation exercises to overcome oxygen deficiency. 80% of people being dehydrated and don't know it
(because municipal water tastes awful), poisoned and processed foods, and schedules that don't allow
enough time to slow down, get enough sleep, chew your food, or even finish going to the bathroom! Time
does not cause "old age."

Now even I admit that this next statement is weird, but I just can't "hep" myself. Thinking in this relaxed
state (meditation, maybe?), is really effective, but where it really shines is in getting to sleep! Then the
object is not to think of anything (count sheep, concentrate on your breathing, etc.). Believe it or not, I
listen to my body. I can lie in a quiet room and hear a faint rushing sound that can only be my chemical
factory at work. In fact when I first lie down I can also hear a lower pulsating frequency that is my
circulation! That goes away as I stop thinking and my blood pressure drops. (If you don't believe me, press
your ears closed and you can really hear the "rush" I am speaking of.)

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So does good health make you a better trader (or a better anything)? You be the judge. I know that if
everybody agreed with my "crazy" theories, I must be wrong. Does that sound like the market, or what?
I've been kind enough to not bring up your nutrition, but I leave you with this grim fact. "You are not what
you eat. You are what you ate a month ago" Healthy Investing!

OPTIONS & SPREADS: The Blue Max And The Silver Cup - Greg Donio

During the First World War a German fighter pilot wrote, "Hanging from the ceiling in my dugout is a
lamp I had made, as a conversation piece, from the engine of an airplane I shot down. I mounted small
lamps in the cylinders, and when I lie awake nights and let the light burn, Lord knows this chandelier looks
fantastic and weird. When I lie that way, I have much to think about. The battle now taking place on all
Fronts has become awfully serious; there is nothing left of the "lively, merry war, as our deeds were called
in the beginning."

The writer was Manfred von Richthofen, the Red Baron credited with shooting down 80 Allied planes. He
experienced depression at the time of writing because of a head wound and the fact that the war was going
against his country. He knew the war's frivolity and its seriousness, the glory and the dark night of the
souls, the blood-sacrifices and the medals.

Von Richthofen's awards included the Ehrenbecher (Victory Cup) presented to airmen after their first kill.
Regarding another prize, Frederick the Great, King of Prussia during the 1700s, favored the French
language and considered German fit only for stable boys. He instituted the award entitled the Pour le
Merite which 150-years later the Red Baron received after his 16th aerial victory. English flyers nicknamed
it the Blue Max because of its color.

The list of parallels between air combat and financial trading gets rather lengthy. Both are adversarial.
Everybody wants to win but far from everybody will. Both involve risk in no small quantities. A smart
airman and a smart trader both look for ways to reduce the risk. Newspapers during World War One
quickly turned flyers into front-page heroes. (Designating a pilot an "ace" after five kills was an invention
of the French news.) Today's news media respects traders and investors as "tycoons" while treating
horseplayers as saps, despite the existence of a few smart horse-players and plenty of stupid traders.
Taking a profit is a kind of medal and trophy experience, in terms of the feeling you get when you take one.

In their seamy depths, neither air war nor finance was ever a conflict between equals. Both milieus
abounded with the able knight versus the dodderer who could not function in a suit of armor, a smoke-
screen on half the playing field, Grandma Moses versus the Heavyweight Champ, a foot-racing track with
trenches cut through several of the lanes, one dueling pistol of normal weight and the other too heavy to
lift. Such are the disparities in the real world including the profit world. Pay dirt in the non-level playing
field.

What is the difference between gambling and speculating? One of the best explanations I ever encountered
appeared in an old tan book in Philadelphia's Mercantile Library: A speculator utilizes the risks already
inherent in a situation. A gambler participates in artificial risks; actually, he creates risks for the sake of the
gamble.

Alas, a things-must-be-equal clause tends to attach itself to that artificiality. The two football teams must
have an equal number of players, and one team cannot be forced to wear blindfolds. What good does this
"fair play" or "equality" do you when you place a bet? If you want to sink money into something lopsided
in your favor, look to either combat or the business world.

During a World War I air battle, nine British planes advanced on five better-built and better-armed German
planes. Aviation historian Richard Townshend Bickers called this "nine sheep attacking five wolves." Such
is the kind of situation that should attract your attention if you want to venture your capital smartly. The

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focus of this piece--spread strategy with equity options-will show itself to be one fine way of placing your
money on the wolves with the likelihood of your gaining quantities of mutton and wool.

Most gambling is relatively "fair," which is exactly what's wrong with it. You cannot bet on a pit-bull
fighting a peacock. Yet sometimes you can in business as in aviation. Baron von Richthofen shot down his
first 15 planes all in the latter third of 1916 and all were British craft inferior to his Albatross DII in speed,
maneuverability and fire-power. Not one athletic official stepped forth and said, "No fair. Most of your
soccer opponents are in wheelchairs." This was no "artificial risk" and could not be so easily architectured
or game-planned to "keep the sides even." When that sort of situation occurs on the ground, the ace
financial trader spots it in his gunsights. The ribbon-winning ways of options will be explored shortly.

The Germans could not expect their blue-sky picnic to last indefinitely. In 1917, the Allies flew forth in far
better Sopwiths, Spads and Nieuports armed with more powerful Vickers and Lewis machine guns.
Teutonic losses climbed but Baron von Richthofen still had ways of playing aerial checkers with more
pieces than the foe and on a non-level board. The observation planes contributed immensely to preventing
an even-money game.

With their limited bombing and strafing power, First World War planes were a minor military factor at
best. One exception: Observation planes were extremely important militarily. Spotting enemy artillery
placements, troop movements and positions, observations aircraft served as the "eyes" of the ground forces.
The typical such craft had two cockpits, the pilot in front with two machine guns mounted atop his engine
and the observer in back doubling as rear gunner with a ring-mounted rotating machine gun.

Most pilots either flew reconnaissance planes, flew fighters that guarded reconnaissance planes, or flew
fighters that attacked recon craft and their escorts. Most two-seaters tended to be slow and lumbering. An
occasional type of plane in this category was also designated a fighter but most were not fast and agile
enough to qualify. Improvements in their development lagged compared to those of the single-seat fighters.
This made them the ponderous "easy quarry" of the sky hunt. Attacked from underneath they were
unprotected, fore and aft guns not even in sight. Manfred von Richthofen knew to boost his score by
shooting the easier prey. His 80 confirmed kills included 46 two-seaters.

A ponderous craft routinely plundered. This came to mind during my recent spread activity. IBM attracted
my attention because it was on an upslope and had a conservative price/earnings ratio of 18, making it a
good candidate for a horizontal calendar spread with out-of-the-money call options. My recent profits from
IBM options were neither a plus nor a minus in my decision. The latest facts carried the significance.

With IBM just slightly above 100 a share, call options with strike priced of 110 were close enough to the
stock price to be plump but far enough not to be placed in-the-money by slight fluctuations. I did these
calculations during the third week of July. August options had already begun to undergo time-decay but
September and October were hardly touched and differed from each other only slightly price-wise. A mere
single point separated them.

I phoned the broker with my customary buy 10/sell 10 order. "Buy 10 IBM call options, October
expiration, strike price 110, to open a position. Sell 10 IBM calls, September 110, also to open. Both day
orders. With a one-point debit." The amounts of the buy and the sell could be anything but the one-point
debit fixed the difference between them to no more than $1,000, the amount that I would have to pay plus
broker's commissions.

Later that day the broker informed me that I had purchased the 10 Octobers for $4,625 and sold the 10
Septembers for $3,625. The money my account gained selling the latter paid for all but $1,000 of the
former. That was my expense or the amount of my investment plus $115 for two (buy, sell) brokerage
commissions. Anticipating a similar pair of commissions when I closed or exited the position, I figured on
a point and a quarter or slightly below ($1,250 roundly or $1,230 precisely) as the break-even amount.

Whoever bought the Septembers I sold paid $3,625. Whoever bought Octobers for the same price I did but
without spreading paid $4,625. With my one-grand investment between these bigger amounts, I felt like

841
the fighter pilot cutting open the larger, lethargic two-seaters. It was written that the speculator utilizes the
risks already inherent in a situation, as opposed to the gambler creating artificial risks. I can add that the
speculator utilizes inequalities and "unfair" advantages such as no gambler has available. No gambling hall
will permit a deck of different-sized playing cards or a roulette wheel three-quarters red and one-quarter
black. For these you must look to airplanes and option contracts.

Manfred von Richthofen enjoyed other advantages. As squadron commander, he often had his wing men at
his sides when he dove on an enemy plane. This protected him against attack and also made him more
likely to score a kill and be credited than the wing men. Precisely two weeks after I opened the above-
described IBM position, the former single-point spread reached a width of 1¾-points, a $500 advance after
commissions if I were to take profit, or a 40% gain in two weeks annualizing to 1,000%.

Then in three days, the IBM shares fell four points from 109 & a fraction to 105 & a fraction. The
September calls fell from 4½ to 3-3/8, 25% drop. The Octobers dropped from 6¼ to 5, 20% set-back. The
spread inched from 1¾ to 1-5/8, down only 7%. In such an instance I feel as though I am protected by
September and October wing men who are taking the buffeting while I keep most of my gain.

We arrive at what must have been regarded in the air wars as killing off the incompetent and the disabled
and what is known on the ground as "fleecing the suckers." This could be called the sad side of aerial
combat, gambling and financial trading, the within-limits sorrow of Sorrowful Jones the bookie and his
partner Regretful. Let us say that you and a poker opponent both have "smarts" and both steadily add to
your knowledge. You notice that he scratches his ear when bluffing. He notices that you whistle Dixie
when holding high cards. You both try diligently not to give off such signals and to gain some advantage.

Then who shows up at the poker table? A young beginning card player with penthouse dreams and dime
store abilities, and an older compulsive gambler who has been losing for years. It is in the cards that you
and your expert opponent will both shortly be blessed with fat wallets. Of course, these dupes have their
counterparts in trading and investing: The neophyte who expects vast wealth in at the most a few effortless
weeks but gets shafted and bled. The compulsive trader who keeps losing and keeps adding money to his
brokerage account. Almost inevitably their cash ends up in the hands of the smarter and more expert.

What insights can the wooden bi-planes of 1914-1918 provide? British flying ace James McCudden shot
down 57 German planes. He wrote of an artillery-spotting German observation plane he defeated: "This
crew deserved to die, because they had no notion whatever of how to defend themselves, which showed
that during their training they had been slack and lazy. They probably liked going to Berlin too often
instead of sticking to their training and learning as much as they could. I had no sympathy for those
fellows."

McCudden sounded like a prep school instructor invoking the rigor of the athletic training field. He
disregarded the fact that his own side was vulnerable to like criticism. The Royal Flying Corps was more
prone than the Luftstreitkrafte to rush hastily trained, inexperienced pilots into battle against the big boys.
The royal squadrons had many able, experienced aviators, but lots of "still greens" filled in the gaps. Von
Richthofen was an avid hunter like his nobleman father and the Kaiser himself, and in the air was less
inclined than McCudden to be judgmental toward his "quarry." How many sandlot or beginner's-slope
flyers the Red Baron shot down can only be guessed, but it must have been more than just a brace of quail.

Also, the Kaiser's War marked the infancy of military aircraft and rapid-fire weapons were in the own
Model-T stage. Not infrequently a pilot experienced engine trouble or jammed guns. Stand-procedure
consisted of heading back to base fast. Manfred von Richthofen had a particularly keen eye at spotting an
enemy plane leaving the formation or the battle in the direction of its own lines. He would pursue the lame
aircraft and imperiously send it plummeting in flames.

The Red Baron was an A-One flyer and shooter, the expert of experts on the stick and the trigger. Yet he
also had a talent for appearing in lopsided competitions--scoring kills against the "fat lady" observation
plane, the "grandmotherly" pilot new to flying, the gun and engine "cripple" of the air. This contains a
lesson regarding where to put your money if you are gunning for profits. The bookmaker "plays fair" to

842
keep down your winnings, which you must avoid. In sports and sports betting, Rocky Scapparelli cannot
box a grandmother or a man on crutches. Yet it happened aplenty in the clouds over France and it happens
daily in options-trading.

On December 28, 1917, Captain James McCudden downed three German two-seater, two-gun bombers in
20-minutes, the first of which he surprised with a rear attack. He later wrote, "I hate to shoot down a Hun
without his seeing me, for although this is in accordance with my doctrine, it is against what little sporting
instincts I have left." This did not appear to torment him too much when he was awarded the Victoria Cross
by the King of England in April 1918, and subsequently promoted to major. Nor does it usually bother
option trader when he routinely profits from financial bloodbaths.

According to widely-accepted estimates, more than 90% of all out-of-the-money options expire worthless.
Bad news to the crap-shooters and instant-wealth types who think they have "inside information" that a
stock will skyrocket or a "hunch" that it will plummet. Good news to the sellers of call options covered by
shares they own, to the sellers of naked puts and calls, and to spread strategists who buy long-end options
and sell short-end ones. The latter three face risk but it is casino or horse parlor risk, the money-goes-into-
the-cashbox-and-the-wagerer-usually-loses kind of risk. A casino or bookmaker can go broke but they
certainly do so far less often than the gambler.

What goes up must come down, but when two objects descend at different rates, the spread strategist
profits. Time-decay pulls down the value of all options, but not all descend at the same speed. Let us say
that one airplane is flying at 10,000 feet and another at 8,000 feet. Obviously, both aircraft are burning fuel
and both will have to descend to ground zero eventually. However, it is known that the 8,000-feet plane has
used up more of its gasoline then the 10,000-feet one and will give up altitude faster. So what is the spread
strategist's role in all this and what does he do?

He invents his money in the 2,000-foot difference or "spread" between those two planes. As time passes,
both continue burning fuel and both lose altitude. The higher one has descended to 9,000 feet and the lower
one to 6,000 feet. So what? The one on top is still on top and both are still losing altitude. What's the big
deal? The distance between them has widened from 2,000 feet to 3,000 feet, 50% increase on the
investment! This explains why the spread strategist is perpetually conscious of "the distance between." It is
the widening ore-field to which most of mankind pays little attention.

I make it a point not to launch a second spread until the first is more than slightly ahead. Anything is
possible. If you launch two option spreads at the same time, you are exposed to the possibility of two
losses. If the first is ahead when you launch the second, the one counter-balances if the other disappoints.
Intel was on an upslope and had a price/earnings ratio of 23, certainly better than the other NASDAQ
technology leaders (Microsoft P/E 53, Dell P/E 46). The common shares fluctuated in the high 80s and had
gone no higher than 90 in the previous year (adjusted for a split) so call options with strike prices of 95
seemed far enough/close enough.

Near the end of July, I bought 10 October 95s and sold 10 September 95s (calls) with a spread of a point
and a half plus commissions, resulting in a break-even figure of 1¾ points. Specifically, I bought 10 for
$4,375 and sold 10 for $2,875, paying the $1,500 difference plus commissions. In the next few days the
amount of the spread fell a sliver to 1-3/8 then inched up to the 1-5/8 - 1¾ area as the shares moved above
90.

I had wanted Intel stock to climb, but not that much that fast as what happened August 4. It rose above the
95 strike price to 96¾. I tolerate short-end options being in-the-money only fractionally and only overnight.
This was more than a fraction and I anticipated the shares would keep rising (which they did in subsequent
days). A continued climb could "squeeze" or narrow the spread, which it started to do already. I wanted out,
but of course with as small a loss as possible.

In the early afternoon, the September calls posted a bid/ask of- 6-1/8 to 6½ and the Octobers 7¾ to 8¼.
What if I told the broker to "Close out the position at the market?" At worst I would buy back/close out the
Septembers at 6½ (the high figure in the bid/ask) and sell the Octobers at the bid/ask low of 7¾. That meant

843
a spread of 1¼. Allowing ¼ point for entering and exiting commissions, I would emerge with just one
point or $1,000 on approximately a $1,750 investment.

Another corker was the wide gap in the October bid/ask (7¾ to 8¼), a half-point or $500 difference on 10
contracts. A quarter of a point would have been more normal. How does one calculate intelligently with
such a broad-range "maybe?" Your cavalry force might be 600 men or it might be 30. Now make a battle
plan. If the sale of the Octobers occurred in the high portion of that $500 range (8 or above) -- good. If at
the low end (7¾) -- bad. Such were the broad-ranged possibilities if I told the broker to close me out "at the
market."

In the past, I had said "at the market" when exiting a spread only if the short end's high figure (the ask) and
the long end's low figure (the bid) were farther apart. Now, that was not worth considering and I had to do
better. I had to buy back the short-end Septembers at less than their high figure and sell the long-end
Octobers for more than their low figure. I decided that such precision shooting was better done in person
than over the phone, so at the start of the last hour of trading on August 4, I arrived at the York Securities
brokerage office on Broadway near Wall Street.

With a short (option-selling) position, in-the-money options carry the danger of an exercise. If the Intel
September calls I sold were exercised, I would be obligated to deliver 1,000 shares and to obtain them I
would have to exercise the 10 October calls that I bought or "longed." That would wipe out my $1,000
investment and would also require that I pay commissions on the stock-buy and the stock-sale. Clearly the
option-seller or taker-of-a-short-position must always be exercise-conscious, including the spreader who
buys a long end and sells a short end.

Options are "assigned overnight," i.e., exercise orders are matched up with in-the-money puts and calls
after the close of trading. So there is zero chance of the option-seller getting "assigned" or "exercised"
during the trading day. Thus I arrived at the discount broker's with an hour left to trade and with a precise
task: A tactical withdrawal without the abandonment of artillery and supplies.

I sat next to broker Bill Meehan at his desk, he with his computer screen and I with my out-of-pocket note
paper. "Usually when I go into or out of an option spread," I explained to Bill, "I enter the two orders
together--short-end, long-end--each dependent on the other. This time, I want to buy back the short-end
Septembers and, I want to sell the long-end Octobers to close the position, but as separate orders. Each
order going in by itself."

The adage "Buy low, sell high" now had a special meaning. I had to buy back the September options for as
low a price as possible and sell the Octobers for as hefty a price. I asked Bill Meehan for a quote on Intel
September 95 calls. His computer screen showed 6-3/8 bid, 6¾ ask, last trade 6-5/8. The 6¾ ask was the
high figure indeed to beat by getting below it. Since 6-5/8 was the current trading price, it offered the
likelihood of a transaction. I told Bill, "I want to sell 10 Intel September 95 calls at 6-5/8."

The computer's real-time quote showed October 95 calls at 8 bid, 8½ ask, last trade 8¼. That half-point gap
between the bid and ask again! I needed to sell for more than that low figure, the 8 bid. The latest trade was
8¼ so I said, "I want to sell 10 Intel October 95 calls at 8¼." Rising and strolling the office, I stood ready to
wait perhaps 15-minutes and ready to move either the buy or sell offer an eighth of a point in a less
favorable direction if one or another transaction failed to materialize.

I could have timed the wait with a sprint-track stopwatch. Bill Meehan approached me with penned
confirmations in hand, the news good as well as rapid. He said, "You bought the 10 Septembers at 6-5/8
and you sold the 10 Octobers at 8¼." I jotted this on my note paper. A spread of 1-5/8 points. A gain of an
eighth without commissions but a loss of an eighth with. Nevertheless, far better than the single-point exit
which had threatened. A loss of $125 instead of almost $750. I gave Bill the heartiest of handshakes. His
actions as well as mine were to thank for the minimal loss of artillery.

Days later, action on the IBM front. The stock declined from a day's-ago high of 109 & a fraction past 105
& a fraction to 103. The September 110 calls slid from 4¾ to 2-5/8. The October 110s fell from 6½ to 4_.

844
My outright-buy or long-buy wing men were certainly catching the bullets. Glance again at those figures,
however, and you will note that the spread between September and October remained at 1¾. It has wobbled
occasionally (1-5/8, 1-13/16) but has nonetheless shown commendable steadiness under fire.

Let us pause for field briefing about one's learning and self-development, more crucial in speculating than
most other places. Of course, people should be wise and informed within any financial specialty. Yet if a
market wizard and an elderly widow who confuses easily both hold Bank of Boston common shares, both
will receive the cash dividend such as the stock has paid every year since 1784. Options, futures, casino
junk bonds, initial public offerings from cold-calling brokers all carry the possibility of profit, but lack
kindness of heart.

In their book, All About Options, Wasendorf & McCafferty wrote of losers. "They are usually attracted to
options for wrong reasons -- to make a lot of money fast without exerting much effort. Therefore, they don't
spend the time required to learn some of the more complicated, strategies that are more-conservative by
comparisons." An excellent statement, it nevertheless detours around one gloomy, unyielding fact: Losers
are essential. The trader's aim is not to abolish them but to stay out of their ranks.

To say that option-trading or other forms of trading is "adversarial" or "hardball" understates the case. It is
gladiatorial. Someone must lose a pound of flesh for everyone who gains a pound of flesh. On the
capability hierarchy, the new, borderline competent pilots and stodgy planes were the fodder, providing
many of the wrecks and corpses that resulted in Von Richthofen's Blue Max and McCudden's Victoria
Cross. Losing horse-players subsidize bookmaker and winners.

In zero-sum games where losses precisely match wins, losers pay for everything. Yet nobody wants to be in
their category. Yet plenty of people always are. If your reading chair is your flying school and your practice
battle-line, put in championship-grade time and effort at that crucial stage. Remember the graves in
Flanders and the "How I lost my Citizens Bank passbook" barstool stories off those who did not.

Wasendorf & McCafferty also said in their highly-recommended book, "It's sad to see the number of
traders we've seen over the years who have waffled from one approach to another without any clearly-
stated plan. They wander in and out of the market, often making the same mistakes over and over. Your
written plan need not be fancy."

As already suggested, calendar spreads with stock options will provide a fine strategy and written plan.
However, let us focus on that other phrase "making the same mistakes over and over." To many traders, a
"switch to a new approach" is like the casino gambler who says, "Gee. Maybe if I change tables it will
improve my luck."

We all like to think that we improve with time and experience, but that does not always happen even with
the intelligent and the educated. If you are over 35 you may remember the Groucho Marx quiz show "You
Bet Your Life" on radio in the late 1940s and on TV from 1950-61, still on the rerun circuit. Groucho's side
man was college math whiz, George Fenneman serving as score-keeper and courtly announcer. Both are
now deceased.

According to one book on TV history, Fenneman also served as a "reality figure." As Groucho clowned,
George's gentlemanly presence reminded everyone that this was a real quiz show. However, to label him a
"straight man" or "half a comedy team" as some journalists did miss the target. Whenever Marx threw some
humor at him, he became flustered and embarrassed. Fenneman had little if any comedic knack and
absolutely no sense of uptake. Years later he said in an interview, "I ad-libbed out of terror. How that man
could embarrass me!"

Some viewers wrote angry letters criticizing Groucho for "picking on" George. However, one could also
fault Fenneman for never developing or "growing into" the role of comedy partner. 15- years as a fake
doctor you're going to learn something! But no, George Fenneman never learned comedic repartee just as
Ed Sullivan never learned posture or pronunciation. So face it. Not everybody develops. Even in the most
challenging or inviting circumstances. Not even off the trading floor or on it.

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In trading and elsewhere, growing and developing as a person means doing research. The supposed menace
of it keeps many would-be "great authors" at the daydream stage. Utterances about creativity and visions
of renown flee at the prospect of such a sweaty, chancy job of work. Also, neophyte traders anticipating
"fast and easy wealth" skip fact-finding as easily as they skip basic training and strategic planning. In his
book Renaissance in Italy: The Fine Arts, John Addington Symonds wrote of Leonardo Da Vinci:

"Through long days he would follow up and down the streets of Florence or of Milan beautiful unknown
faces, learning them by heart, interpreting their changes of expressions, reading the thoughts through the
features. These he afterwards committed to paper. We possess many such sketches -- a series of ideal
portraits, containing each an unsolved riddle that the master read; . . . In some of them his fancy seems to
be imprisoned in the labyrinths of hair; in others the eyes deep with feeling or hard with gemlike brilliancy
have caught it, or the lips that tell and hide so much, or the nostrils quivering with momentary emotion."

Whoever said, "God is in the details" may have spoken for DaVinci. Yet the would-be novelist and the
"instant wealth" trader count it beneath them to do some pavement-pounding, eye-work and paperwork.
Macabre humor abounds when self-trained-between-pilsners optioneers go into battle as the nine sheep
attacking five wolves. They exchange shots with speculator, Major McCuddens who said, "This crew
deserved to die."

It is great being able to bet on a pit-bull fighting a peacock, but to make sure you are not the one with the
feathers requires professional-strength, self-training, preparedness and research. Yet the latter need not
always be voluminous. In the library, poring over Standard & Poor's large volumes, I scrutinize the detail
cogs and foundation stones of optionable companies, condensed in these pages. Book value is a factor.
Also, the up-ramp or down-ramp of earnings in years immediately preceding.

An earnings sob-story could bode well for a put spread. Statements by optimistic executives and
projections of good future tallies require a skeptical eye. Malcolm Forbes said it best "Anybody who thinks
businessmen deal in facts and not fiction has never read old projection reports." The researcher separates
the wheat from the chaff and the baronial estate ad from the fire-trap by the swamp. Research will not
entirely erase risk and unknown factors, but reduce them it does. Baron von Richthofen and the clumsy
newly-arrived pilot and the flyer in the unmaneuverable plane and the one with his guns jammed all faced
risks and unknown factors. But one flew with them reduced.

While in the library, I also read parts of Georgio Vasari's Lives of the Painters and Sir Joshua Reynolds'
Treatises on Art. It remains my long-time wish that each trader also be "a gentleman and a scholar" and that
a woman trader be a Catherine De Medici or "Lady of the Renaissance." Sadly, others are advancing a like
notion but as part of a poisonous sales-pitch.

There is a cigar brand called "DaVinci" with the Mona Lisa reproduced in miniature on the box and the
band. You may have seen the piece on the financial cable channel about cigar stocks ("in danger of being a
passing fad") which also covered the trendy "cigar bars" with their British gentlemen's club atmosphere,
mahogany leather chairs and copies of paintings by Gainsborough and Watteau. The glossy, bi-monthly
Cigar Aficionado makes pretensions to gentility that would rival Town & Country Magazine.

Unfortunately, the closest many "gentlemen" will ever come to Old-world elegance and style are in these
adjuncts to cancer-peddling. Cigar boxes carry illustrations of the English manor-house, the Italian villa,
the Spanish hacienda. Some people will read John Ruskin's writings on traditional architecture. Others will
buy a tape and hear the strum of a Spanish guitar under hacienda moonlight or the songs of the Italian
vineyard and olive grove. Still, others just puff the panatella. The first two groups make better traders as
well as better actuarial cases.

Without smokescreen or jeweled-crown insignia cigar band, please peruse the following by H. A. Taine,
the French art historian who spend much time in Italy. In his 1869 book Italy: Rome and Naples, he wrote
of two Venetian artists some of whose paintings were on display in Rome:

846
"Titian stands in the centre, equally strong on the side of sensuality and on that of energy. In a beautiful
Italian landscape, fading away in blue distance, and near a fountain whose waters are disbursed by a little
Cupid, his Callisto has fallen, violently stripped by her nymphs. No mere prettiness or epicureanism exists
in this bold composition. The nymphs do their office brutally, like common women with vigorous arms.
One, especially, erect and with a superb, almost masculine, torso, is a virago capable of giving a man a
drubbing. Another, with the cruel malice of an experienced hand, bends the back of the poor culprit, in
order the sooner to detect the signs of her misfortune."

"But in Titian's other picture, 'Vanity' naked on a white bed with a scepter and crown, a waving and elegant
figure so seductively soft, is the most alluring mistress that a patrician could dock with his purple, and
make use of at evening to feed his practiced eyes with exquisite sensuality."

"Finally comes Paul Veronese. He is a decorator, free of the virile gigantic lustiness which often carries
Titian away; the most skillful of all in the art of distilling and combining those pleasures which pure color
in its contrasts, gradations and harmonies, affords the eye."

"His picture represents a woman occupied it arranging her hair before a mirror held by a little Cupid. A
violet curtain enlivens with its faded tints the beautiful flesh framed in by white linen. A small plaited
border rests its delicate frill on the amber softness of the breast. The auburn hair is gathered in curls over
the brow on the edge of the temples. You see the forms of the thigh and breasts beneath the chemise. With
that vague vinous blush on those mingled faded darks of dead leaves, the entire flesh, permeated with
inward light, palpitates, and its round pulpy forms seem to be trembling and if with a caress."

If your only contact with such as this is from a fancy humidor or a cigar box decorated with gilded
epaulets, please be advised that you can do better. You must do better. A class-act trader, a gentleman and a
scholar, needs fine arts, vintage music and literature to help him avoid bad company. Alright, you already
avoid skid row and seedy pool hall, which is wise. Those folks chance of dragging you down may be small,
but it is much bigger than your chance of pulling them up.

Something similar is true of the suit and tie "Who's Rachmaninoff? Who's Bernini?" types: Rush
Limbaugh, Pat Buchanan, Judge Robert Bork, Reverend Pat Robertson and their Right Wing reactionary
devotees. You have as much chance of transforming them into gentlemen of culture and real tradition as
you have of transforming goose liver into gold. If you want to avoid them, figure that you have a one-
percent chance of meeting them in a pornography shop and something like a zero-percent chance of
meeting them in an opera house or an exhibit of Florentine and Venetian art. There is always the possibility
of their straying but do they ever stray into anything cultural?

Their vision of "tradition" is not only dime storeish but involves a continual remake of the past. In his 1996
book, Slouching Towards Gomorrah, Judge Robert Bork hatcheted rock and rap music and while doing so
he praised reverentially the old-time orchestras of Benny Goodman and Duke Ellington. He also honored
the old movie-censoring Hays Office which he misspelled "Hayes." Will Hays' key subordinate was
Catholic publisher Joseph L. Breen.

In 1934 before he moved to Hollywood, Joe Breen published the New World periodical which declared
"whether indecencies be staged under the direction of unscrupulous directors of Hollywood or by command
of the pagan kings of Babylon; . . . whether theme music echo the debauchery of Jezebel or reek with the
jungle vulgarity of Duke Ellington, they all belong to the same category of filth."

The Duke sure had a mixed-reputation among "old-fashioned" types. Maybe one lover of "sweet
yesterdays" does not like to think of his six-decades-past brethren as too much of a witch-hunter. So Bork
said-nothing of Breen's evaluation. Is "witch-hunt" too strong a phrase? I shall let the evidence speak for
itself. The state of Pennsylvania formed a film censorship board in 1911. One of its early decisions was to
ban a silent film scene which showed a woman knitting clothes for her unborn child.

Under the 1930s Production Code, censorial movie scissors routinely snipped: Hula-dances in grass skirts.
Any glimpse of a cow's or goat's udders. Any scene with a toilet or chamber pot visible in the background.

847
The words "bathroom," "pregnant" and "diaper." The phrases "alley cat," "traveling salesman," "hold onto
your hat" and "farmer's daughter jokes." In 1952, Cecil B. DeMille's circus epic The Greatest Show on
Earth passed the censors only after much argument and debate because of the abbreviated costumes that
women performers routinely wore under big top.

You must expect this with "old long ago" sorts who think that Correggio and Tintoretto drove a Capone
rum truck. If you drink in the cobalt skies and rosy flesh-tones and swan-white linen under a gold chalice
from the brush of Titian or Veronese, the gulf will widen between you and those who went to go back to
censoring grass skirts and cows' udders. You will be as unblendable as oil and water with the folks whose
vision of their cherished past jumps from Biblical times to the Coney Island songs and the illustration of the
old farm house with no phone booth in the back yard.

That will keep you away from bad company as well as any minister blocking the doorway of a pool hall.
Their fluttery thinking should not clutter or clog your trader's knack, which you must continually fine-tune.
You can do that better without any cigars. The enemy plane you face may be good or mediocre, and
fortunately for you there are plenty of the latter. But if you want a one-sided contest in your favor, leave the
lagging and laxness to somebody else.

Let the other flyers be guilty of "going to Berlin too often instead of sticking to their training and learning
as much as they could." Then the silver Victory Cup that all think they deserve will gravitate toward your
hands.

UPDATE: At the time of this writing, the IBM September/October call spread stands at 1-7/8. Still in
flight: No profit taking yet.

Is It Possible To Make A Living Trading? Doug Bowersox

My question is "How many S&P contracts have you been able to place At-The-Market without having very
much slippage." Certainly there must be a point where one starts running the market against themselves.
How many contracts do you think this occurs at?

Editor's Note:During my experience trading managed accounts on an off-and-on basis over the past year
or so I have observed thru real-time trading five or less S&P 500 contracts enjoyed overall good fills and
minimal slippage. However, when I exceeded five contracts on a trade, the slippage and fill price seemed to
deteriorate by a fairly significant degree, including getting occasional so called "split-fills."

These comments are not based on a scientific study I have done but are based on my (somewhat subjective)
personal opinion. However, I feel confident in the accuracy of this opinion, but can not guaranty the magic
number for slippage or fill problems is in fact five contracts. I have also noticed this number of five
contracts seemingly being important in some other markets, such as Eurodollar, Meats, etc. Have our
members any comments on this? If so, please reply for our next issue.

Second question: I became interested in Commodity Speculating in January 1996. Since then, I have spent
about $1,000 for data feeds, computers, TradeStation, Real Success Method, etc. I have also devoted about
40-hours a week to this. Live trading results are -$4,000 (all systems). "Paper-traded" Real Success
(methodology) results have been -$7,600. You have a long career as a commodity trader and I respect your
opinions.

Have you made your living during that time trading or has it been marketing trade related paraphernalia?
Do you really believe that a person can make money trading? I would like to quit farming and do this.
However, my farm business is suffering because of the time I've put into this. Also, I am becoming
physically exhausted from working two jobs.

848
Editor's Note:Of course, so-called "paper trading" can not be compared to real-time trading. Actual real-
time and also hypothetical real-time trading is much more telling than paper trading could ever be,
especially involving a non-fully mechanical trading methodology.

For example, some of our Real Success traders report making money with the method and some losing
money, in both real-time and hypothetical real-time trading. It's difficult, if not impossible to say the "Real
Success" methodology (which is approximately 80% mechanical), or any other non-mechanical system,
made or lost money involving paper trading.

There really is no way to say with complete certainty any method, which is not fully mechanical is either
good or bad. This is impossible to say since its trading success is dependent to a very large degree on all
important Trade Selection, Target and Stop-Losses used, Trade and Money Management issues. Also, a
major issue is which entry signals are taken and which entries are bypassed, for perhaps arbitrary and non-
mechanical reasons.

About your other questions. As stated so well by Kent Calhoun in an earlier article of his, I am also not "a
great trader . . . but am an excellent teacher." Though I have been trading commodities since April 1982, I
have never traded continuously for an extended time period. I have for the most part traded on-and-off over
the past 15½ -years.

I will be the first to admit I have not made a living from my own personal trading. This does not preclude
my being able to do it now (trading regularly and profitably for my own account), if I devoted complete
attention and full-time to trading. By the way, being involved with Commodity Traders Club News is a
full-time job and allows little spare time for personal trading.

In answer to your last question. Yes, I believe a person can make a living trading. However, as mentioned
in our Real Success Disclosure Agreement, trading successfully is "simple but not easy," and you can not
buy the "Holy Grail" trading method as some traders seem to expect! It's a sad fact an estimated 90% of
commodity futures traders lose money.

However, what I about to say may seem alarming, but this losing statistic is actually "good news" in one
very important way. Which is, if 90% or more lose money trading futures, it means the small numbers who
make money trading commodities can make much of the money (excluding broker commissions and fees,
etc.) lost by the losing 90% or so.

This is what makes trading futures so attractive. For a fairly "small" margin deposit you have a chance
(albeit small) of making lots of money by getting some of the money the other 90% of traders have lost!

Keep Commenting On Systems - Doug Cragoe

Please keep publishing reviews and comments on systems. With the recent controversy, I'm not sure we can
trust Futures Truth to honestly test systems. Is anyone else doing this?

"Saga Of Lawsuits" - Trevor Byatt from Australia

I am sorry, but I just have to say it: I, and I suspect many others, just do not want to hear about your (Dave
Green and CTC's) legal squabbles. They may well seem all important to you, but I have my own priorities.
If you have to help finance that set of parasites called lawyers then please just get on with it in private. Last
year it was "The Anonymous Houston trader," this year Advantage Trading Group and BMI. Enough is
enough! By all means communicate privately with others involved, but please do not use Commodity
Traders Club News as a forum to air your personal and/or business grievances. Admittedly you are the
proprietor, but without us, your subscribers, I surely do not have to remind you that you just would not
have such a forum.

849
Now on a more positive note - you are otherwise, doing a grand job which I thoroughly appreciate and I
would not want to be without CTCN even if I had to continue being fed your ongoing saga of lawsuits!

Editor's Note: Thanks for your opinion and comments, Trevor. We can appreciate the fact both yourself
and likely some other members do not want to hear about our unfortunate legal problems and lawsuits. By
the way, please don't think we are overly litigious. That's not correct. Your editor is now in his early 50's
and has rarely been involved in lawsuits (with two minor exceptions - non-trading related) until very
recently, 1996/1997.

Member Comments & Requests

Bill Taaffe would like to know whether there is a member who wishes to sell his Omega Research
Tradestation program, either version 3.5 or 4.0. Also, the CSI software product called "Trader's Money
Manager." Feel free to call me at 770-953-3348 (home number), or e-mail: taaffe@mindspring.com
"Great Spirits have always encountered violent opposition from mediocre minds." (Albert Einstein)

Woody Painter would like to know of any courses in selling options and information on doing it. Call 918-
542-3747

I am just starting the futures. I would like to buy software that would give me the past few years charts on
when the price is right to sell. Right now I am in oats. I may want to get into other futures, but without the
graphs and charts of the past I am in the dark. Leon Keeley - e-mail butchl6@ipa.net

Per some requests, Avid Trading Co. web site address is: www.avidtrader.com

Editor's Comments

This issue marks our 40th issue of Commodity Traders Club News since our first issue was published
during May of 1993. This is our largest issue ever, with 50 or so articles and contributions jam-packed into
48-pages of knowledge for our club members.

As time goes by, we like to feel we have been improving our newsletter with each passing issue. However,
there is always room for improvement, like almost everything else in life. Therefore, let us know what you
like or don't like about CTCN and we will try to enhance it.

About our knowledge based website: www.webtrading.com We have added lots of new material to it. This
includes giving you the new ability to do a keyword or phrase search of our entire web site yourself, using
our new integrated individual web site Excite Search Engine. This engine will look at every file within our
site and return search results in a flash. It's real nifty and can be valuable and informative to our web surfers
and visitors who are looking for specific information.

For example, you can type the word "Keltner", as in Keltner Bands or Keltner Channels, and instantly find
every reference to Keltner in some of our online back-issues and elsewhere within the many files on the
site. You can also type names, such as Kent Calhoun and see where his name is mentioned (by the way, a
surprising number of times) within our site and also within some of our back-issues. At the present time
only nine of our Commodity Traders Club back-issues are online. However, we will be putting more of our
older issues online in the near future.

We have also added real-time intra-day S&P and Dow Jones charts, courtesy of CNN/fn. The charts will
update from time-to-time during the trading day.

Be sure to press your reload or refresh button frequently when visiting our web site. This is said because
not only do the free real-time online charts update regularly, but our webtrading web site itself is being
updated or enhanced on a continuing basis, frequently on a daily basis.

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 Some web surfers may not know this but if you do not press your reload or refresh buttons when visiting a
web site your web browser will sometimes use its cache memory to display a website, based on an earlier
visit.

The browsers do this in the interest of speed because stored PC cache memory is much faster than having to
read the web site using significantly slower modem speeds. As a result, modifications and site
enhancements may not be displayed resulting from your computers cache memory containing an older site
visit.

Other new features and enhancements have been made to our ever-growing and comprehensive web site,
including a number of new links to other helpful and interesting web sites.

Issue 41.

I Just Don't Get It - J. L. from Wimauma

I mean Dave Green and his fellow "merchants" being hassled by the "government." At first blush, it would
seem that the CFTC is trying to remove known felons from the commodities business. We shouldn't have a
problem with that, but what has that to do with subscriber lists and audits AFTER said licensing - audits of
what - how many "systems" were sold? Is the gov asking if the information sold is correct and makes
money? I think not. Dave and company might have no problem with paying more fees if they were used to
remove the charlatans from the business.

On the other hand, do we deny every person with some mistake in their past (maybe a teenage drug
experience) from ever at least trying to make an honest living? Talk about creating a permanent criminal
class! It's sort of like, "When guns are outlawed, only outlaws will have them!" Shouldn't the public be
informed, but make up their own minds whom they wish to deal with (the way we now handle convicted
child molesters in the neighborhood)?

I know that we license the instructors of barbers so that we can also license the barber! But I can't
remember if my college professors (or my grade school nuns) had a "license." Would it be a professor's
license or an English professor's license? Would I then need a "license" to charge money for teaching (or
speaking) English (or, for that matter, to give piano lessons in my home)? Can you see us doing
fingerprints on all attorneys and doctors (not a bad idea)? Whatever happened to credentials? It sounds like
if I told an Elk brother that some commodities are traded in Chicago and then he bought me a drink, I'd
need a license!

Correct me if I'm wrong. We're not talking about a "business license" for a particular location. Sounds like
we're talking about government's PERMISSION to make a living teaching our particular expertise. When
the gov provides me the public) with accurate info on whether what's being sold is honest, accurate, and in
the case of commodities, makes money, then I'll be for the vendor paying a nominal fee for the gov's stamp
of approval (even if he does just "pass it on" to me), but don't hold your breath. Until then, as usual,
"Caveat Emptor" and "Big Brother, Back Off!"

Have the Bureaucrats Been Sleeping with One Another?

M. K. Davidson

After reading the London Financial (Curtis Arnold) Press Release in your Oct/Nov issue, I have to wonder
if the CFTC and the IRS share the same DNA. It seems both have been cavorting with Orwell's "Big
Brother." If the CFTC was truly concerned about our welfare, perhaps the trading public would best be
served if they would pattern themselves after the Better Business Bureau. A simple department within their
agency to allow a person who is considering using a vendor to request any complaints made against any
specific vendor.

851
We traders are not idiots. We all receive information on classes, books, systems, etc., in the mail almost
everyday. Much of this information would like you to believe you can make a $5,000 account grow to a
million dollars in less time than it takes to pay off your car loan.

Most of us deposit these solicitations in the "circular file." For those who are tempted to partake in these
ventures, a simple request of past performance, complaints or reviews would allow them to make an
educated decision.

We have all had negative experiences concerning vendors at some point in time during the course of
learning to trade. Does this not also hold true, with other products and services in our lives? Do we need a
"Big Brother" to control what auto repairman or contractor we use? The truth is, those who give value for
your investment will survive; those who do not will fall by the wayside.

Valuable publications like CTCN give us a forum to discuss and share with our fellow traders our
experiences, good or bad. The CFTC, through proposed regulation, would diminish our choices and quite
possibly eliminate many other good vendors who can not, or will not bow to the unrealistic demands of a
governmental agency.

Freedom of speech and freedom to sell our knowledge and expertise, are two of the aspects this country
was built upon. To allow the CFTC to continue the "witch hunt" would be a travesty. We will all lose if this
precedent is established. Final words -- The people at the CFTC think they're more important than they
actually are.

Learning How to Trade Futures - or - A Journey into

"The Pits" Part 2 - M. K. Davidson

When I was first introduced to technical trading, many positive aspects were presented to me. The great
profits to be made, was of course, the most appealing. But, working from my home ran a close second.
Having all that spare time to do the things I wanted during the course of a day. I could read a book,
exercise, spend some time with a friend, and still make money. After all, I didn't have travel time, grooming
for a job, overtime, etc. What a great life I'd planned for myself. Well, fellow traders come on in and share
a day in the life of this day trader.

The day starts at 6:45 CST. I get up, don my robe and fuzzy slippers, brush my teeth, kiss my husband
good-bye, pour myself a cup of coffee and head for my "in home office." I turn on the screen to see what
havoc the night markets have produced. The day progresses; sell a Swissy here, buy a cow there. Hey, this
isn't as easy as they said it would be. After all the classes I've taken and systems I've back-tested, certainly I
should, at least, be able to break even after expenses. Oh well, some days are diamonds, some days are
stone.

The phone rings. "Hello, Mrs. D. How are you today? I'm calling for Acme Siding and we're going to be in
your neighborhood next we____." I cut 'him off in mid sentence. I tell him I own a brick home and slam the
receiver down. Gee, doesn't he know I'm a trader? I don't have time for his nonsense. I'm busy watching the
screen and going to make big money with all my knowledge. I guess I should feel sorry for him. He's still
getting up and traveling to work each day.

Time to place another trade. Oh no, it's starting to rain. I hope the storm doesn't knock out my satellite
again. The screen shows no signs of price changes. The satellite's down. Prudence requires I call and get
out of my position. Well, there's another loss. Call my broker to see if any new highs or lows were set while
I was down.

The doorbell rings. It's UPS. I answer the door looking like a poster for the "Crusade for Mercy."
Embarrassed, I tell him the woman of the house isn't home but I'll sign for the package. I sign my name Liz
Taylor. He looks at the signature, then looks back at me and says, "Yeah right lady." Oh, what does he
know. I'm a trader. He's still delivering packages in the rain. Back to the screen. Damn. I missed the trade I

852
was waiting 3-hours to set up. It looks like congestion forming and the markets will be closing soon. Time
to call it a day. I get dressed, make the bed, shop for dinner and do a few necessary chores.

Where's all the big money I'm suppose to be making? Those many classes I took all but promised I'd be
successful. What happen to all that spare time I had anticipated? My unread book still sits on the table. My
butts getting bigger from sitting in front of the screen all day. The friends I looked forward to spending
time with know not to call when I'm trading. I need to get a life. Maybe I'll get a job as a greeter at Wal-
Mart.

The Traders' Evolution

For some years I have set out a simple process which all traders seem to encounter on the road to success.
This is set out below and after that I expand this in a way which I feel will be useful for those who want to
tread this path.

Starts off "Greed Orientated"

Loses because:

1. Market problems
a. Not zero-sum game, "very negative" sum game
b. Market Psychology - doing wrong thing at wrong time
c. Majority always wrong
d. Market Exists on Chaos and Confusion.

2. Own problems
a. Over-trading
b. No knowledge
c. No discipline
d. No protection against market psychology.
e. Random action thru uncertainty, brokers' advice, for example.
f. Market Views

RESULT: The "Greed Orientated" trader gets a good kicking and becomes 'Fear Orientated'

Loses because:
1. Market Problems as above

2. Scared Money never Wins

3. Own Problems
a. Still Over-trading - derivatives
b. Fear brings on what it fears
c. Tries to cut losses too tight creating bigger losses
d. Still no real understanding of what it takes

RESULT: If trader perseveres he "travels through the tunnel" and becomes "Risk Orientated." This is when
he starts to make money because:
1. He develops a methodology which gives him an edge.

2. He uses an effective Money Management system.

3. He develops the discipline to follow his methodology.

853
4. He erases "harmful" personality traits.

This sets out the bare bones and you will note that there are three basic stages. It is curious that many things
come in threes in the markets. Major trends can be sub-divided into three, there are three key trading rules,
etc. The three key trading rules in fact equate to the three stages through which traders must pass.

The three stages have been labelled "Greed Orientated," "Fear Orientated," and "Risk Orientated."
However these labels are not meant to be too literal, they are merely an attempt to approximate to the three
key stages.

The first stage is characterized by ignorance and the thought that the markets will provide "easy money'.
The actual emotion driving the new trader may not be greed, indeed it is often something else. A successful
business-person or professional may be seeking a new challenge. A similar individual may just be a little
bored with his life-style and want something to spice it up. Others may be compulsive gamblers.

One of the first problems facing a new trader is the very motivation to trade. Most people do most things
emotionally. The decision about which car to buy, which holiday to go on, etc. is usually based on
emotional criteria. Just think why you own the car you do, why you married (or did not) the person you did
(or did not).

It is no surprise we come to the market and continue to make emotional decisions. But these will not work
in the market because it is an emotional animal itself and when the emotion is screaming Sell, the
successful trader is more likely to be buying. If we think about the trader who is in the market to relive
boredom, it becomes clear that the strongest impulse to trade will come when he is most bored. There is no
reason why this emotional point should correspond with a good time to trade the markets. Other traders
suffer from self esteem problems, indeed I think we all do from time to time. If so an argument with
another person can again set the trader up for taking a position, to counterbalance the low self esteem.

All these problems have to be dealt with before a trader can find success. In my opinion, the only way in
which the trader can "see" himself/herself is by using a fairly mechanical "system" so that he/she knows
what he/she should be doing. In this way the trader can begin to see when his/her actions do not correspond
to the system and start to question why this should be. It is through this process that we can begin to
understand ourselves. I believe that this is a key requirement for trading success.

Because of these and other problems, as outlined above, the beginning traders lose a sufficient amount of
cash to cause pain, many lose all their cash. The key point is that they become fearful as a result. At the
same time, they begin to realize the first secret of trading, cut your losses. It is this concept which marks the
move to Fear Orientation.

At this point stops are used, but they are generally placed too tight. The trader has realized that trading is
not easy and that much hard work is required. Many fall by the wayside around this point. But those who
persevere do show the necessary commitment for success. But greater tests may still come and that
commitment is not always enough.

Fear orientation is inevitable given the nature of the beast, i.e., the human being. The market is not
terrifying, or bad, or difficult. It just is what it is, and it gets on with its own business. It is how we perceive
the market and how we act that causes the problems. We must realize that we are responsible for our
results, nobody else, least of all the market itself. It is only when we accept responsibility that we can start
to win.

If our losses are someone else's fault then we are in effect saying that we have no control. If we have no
control how can we win? This stage can last a long time as we work out our various problems. Fear is not
helpful in the markets because scared money never wins. We cut losers too quickly and we take profits too
quickly. Our trading is characterized by nervous over quick action.

854
To become risk orientated we must make progress on all fronts. Knowing ourselves, changing as need be,
understanding the trading process better, adjusting our trading methodology to suit ourselves, learning to
relax when trading, are a few of the necessary requirements. Most people should immediately at least halve
their trading size and that can bring immediate relaxation.

Risk Orientation gets its name from the point that you need to understand risk in order to win. Trading is a
risk business. When you become risk orientated your orientation is right for the market.

The key trading secret is Letting Profits Run. It is at this point that you may start to make consistent profits
in the market. Before you reach that stage you should never trade more than the minimum size, i.e., one
contract. Why pay more in tuition fees than you need?

Once risk orientated you may learn the final trading secret, Trade Selectivity. Once you have that down pat,
I understand it can all become rather boring. I make money consistently, but I still find myself taking too
many trades. To master trade selectivity you have to become an expert in your chosen approach. The key
aspect of your approach is that you filter out a vast amount of market information and just focus on those
factors which you need to know. It is a lot easier becoming expert in a narrow field than a wide one.

The various sources of market information are so vast that it is not possible to take it all in. Let alone
become an expert in it. You must decide what information you want, design your approach and then use it.
Become an expert and you will find that you become intuitive, that is when you can select only the best
trading positions, the low risk ones. Then it will all go the right way.

Thought for the Week: Here is the truth about the news. You may have played a game called "follow the
leader" in your earlier days. Trading following the news is an adult version of this game, no more.
Certainly the vast majority of traders have no idea how to interpret the news, some don't even bother to
know what it was (myself included).

The Most Comprehensive Guide Ever For Using Technical Analysis ??? A Book Review - Raymond
F. Kohn

I just finished reading Jack Schwager's most recent book, "Schwager on Futures, Technical Analysis,"
1996, $60.00, and at 775 pages it's a real "door-stop." The fly-leaf describes it "as the most comprehensive
guide ever for using technical analysis for futures trading." Please forgive the length of this review, it's a
big book and it couldn't be helped.

Jack Schwager has authored three prior books, "A Complete Guide to the Futures Markets," "Market
Wizards" and "The New Market Wizards." I have the Market Wizard series, and they are excellently
written, and do an excellent job of giving you a peek into the mind-set of the professional trader.

Jack Schwager is a very respected investment professional. He is CEO of Wizard Trading (a CTA firm
managing over $75 million). He is the director of Futures Research for Prudential Securities, and has
headed up futures research departments for the past 22-years. This guy is in the business, and is no slouch. I
have a great deal of respect for this man. All of which combine to make this one of the more difficult book
reviews I have ever written. After reading this tome, I'm left with a strange sense of experiencing
"information overload," yet questioning the value of most of the information provided.

Jack's most recent book is a strange combination of chart reading and pattern recognition techniques that
are presented in a fashion typically associated with the style of a discretionary trader, combined with an
odd mix of technical research studies and random historical testing results. In addition, he presents a variety
of other ideas which he goes out of his way to prove how they "don't work," or of "limited value" to the
trading process.

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This book contains a strange mix of trading styles, techniques and philosophies which are individually
interesting, but collectively seem to be a random collection of unrelated thoughts and ideas with some very
questionable conclusions. This book lacks a cohesive common thread, or a consistent theme and thought
process. I am left with a strange sense that the book was trying to be everything to everyone, a "Jack of all
trades" (no pun intended), yet, in reality, tends to miss the mark on all counts. I'm just not sure what Jack
was going for?

The book is divided into 5 parts:

"Part One: Chart Analysis" has 13 chapters beginning with a basic discussion of the various types of charts
such as "bar charts," "point and figure charts," candlestick charts," etc. Followed by several chapters on
how to analyze a myriad of chart formations and patterns that can appear on these charts beginning with
"One-Day Patterns" such as "Gaps," "Spikes," "Reversal Days," etc. And, then he moves on to discuss
"Continuation Patterns" such as "Triangles," "Flags" and "Pennants." Finally, he discusses "Top and
Bottom Formations" such as "V Tops and Bottoms," Double Tops and Bottoms," "Head and Shoulders,"
etc. Each chapter provides the basic information necessary to identify each of the chart patterns and
discusses how each of these patterns is interpreted in an effort to anticipate future market action.

Part One of Jack's book tries to provide some of the classic chart reading and pattern recognition techniques
that had been previously provided by Edwards and Magee, in their classic work, "Technical Analysis of
Stock Trends," originally copyrighted in 1948, (and since reprinted numerous times). However, Jack fails
to provide the details necessary in properly evaluating the various chart pattern formations that Edwards
and Magee had included in their work. So, right off the bat my antenna goes up. "The most comprehensive
guide ever" -- I'm not so sure!

The last chapter of Part One was written by Steve Nison and details "Candlestick Charting Techniques and
Analysis." An "Afterword," written by Jack Schwager, is included at the end of this chapter which provides
some very comprehensive historical test information concerning the predictive value of candlestick
patterns. In that "Afterword" Jack concludes by making the following comments regarding candlestick
charting techniques: "The results ... were not encouraging. Only a small minority of pattern/market
combinations tested showed profitability in a five-year test. Even the profitable combinations were not
good enough to trade, as the drawdowns were much too large in relation to profits. The implied lesson is
that blindly following candlestick patterns is not an effective methodology."

On a personal note: I have read a number of other articles and research papers in the past whereby other
very notable analysts have also done historical testing to determine the Merits of candlestick trading
methods, all of them had the same negative results. I guess totally ineffective "Holy Grail" systems existed
even in ancient times. (As a side note: Candlesticks is an American Name for this trading technique which
was originally developed by a Japanese rice trader in the 1600's. The Japanese name for this trading
technique, as translated from the original Japanese, was actually "Footsteps" and not "Candlesticks.")

The first thing that came to my mind upon completing Jack's "Afterward," (which tested the predictive
value of candlesticks), is Why Didn't Jack Do this Same Testing Procedure on the More Conventional
Western Chart Patterns Discussed Throughout Part One of this Book? As a reader, I was left wondering if a
"Flag" or "Pennant" formation, or any other chart pattern for that matter, has any more of a predictive value
than the candlestick patterns he chose to test?

I'm also left wondering if this is a case of "selective debunking," thus implying that the Western trading
patterns presented by the author somehow have more merit, even though no supporting back-testing is
provided to prove it?

Naturally any author can find examples of market action which are "text book examples" of a given chart
pattern which actually worked as it was supposed to. But, if on balance over a long test period, the chart
pattern has no more predictive capability than sheer chance, why bother wasting ink and paper discussing
the subtleties of its interpretation? Interestingly enough, Jack discusses this exact topic in Chapter 20 where
he does a great hatchet job on unscrupulous system promoters. To quote Jack: "The moral is simple: Don't

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draw any conclusions about a system (or indicator) on the basis of isolated examples. The only way you
can determine if a system has any value is by testing it (without benefit of hindsight) over an extended time
period for a broad range of markets." It would have been nice if Jack had taken his own advice.

"Part Two: Real-World Chart Analysis" is one chapter long and spans 214 pages and has over 200 futures
charts displayed throughout. It's one of the more interesting chapters in the book. The basic structure of the
chapter is to first show a price chart which spans a time period ranging from 5 to 10 months (referred to as
chart A). Below the chart, Jack analyzes the various chart patterns which had been recently forming as the
months had passed, and in turn recommends a trade with specific protective stop points. He also gives his
reasons for taking the trade. At the bottom of the page he asks the reader if you "agree or disagree with the
analysis before turning the page?"

On the next page the same chart is shown again, (referred to as chart B), but with the next several months
of market activity shown since the trade was initiated. He gives you the reason for the trade exit, and a
commentary which highlights the success or failure of the trade, and what went right or wrong with that
particular trade.

This long chapter represented almost one third of the book, and provided an interesting insight into the
thinking processes that Jack used in analyzing a given price chart as he attempted to discern the possible
future direction of the price activity. This chapter is a very risky thing for Jack, or any trader, to do. When a
trader puts themselves on the line by letting others review their thinking processes in making a given trade,
they ultimately are displaying their "competence," or "incompetence" for all to see.

The focus of this chapter was specifically oriented towards "chart reading," and DID NOT provide the
supplemental technical input that would have been provided if other supporting indicators were used, such
as RSI, Stochastics, MACD, etc. These additional indicators would no doubt have been quite helpful in
evaluating the current position of the contract, and thus provide additional information to help in evaluating
the subsequent merits of the trade given the technical position of these supplemental indicators.

Given that the focus of the chapter was "chart reading," the one thing I found strangely missing, was the
"50% Retracement Rule." Any chart reader worth his salt is aware of this time worn theory regarding price
retracernents which typically follow a price advance or decline. To forget this meaningful bit of chart
reading technique is a bit like forgetting to put your pants on before you go to work in the morning.

I went through this chapter a second time looking for examples of the "50% Retracement Rule" -- and there
wasn't a single chart in all of his examples that didn't have at least one text book example of this rule, and
in most cases each chart contained numerous excellent examples of this rule. Most of which, if heeded,
would have provided far superior entry and exit points than the ones he chose.

After a while it actually became quite funny. Here we have this book, which is supposed to be as thorough
a treatise on technical analysis and chart reading techniques as you can get, and he "misses the obvious."

Edward Dobson's book, first written in 1979, with two subsequent re-printings in '85 and '95 entitled "The
Trading Rule That Can Make You Rich," 67 pages, has as its entire focus a study of the "50% retracement
rule" and its variations. Ed Dobson shows countless examples of this rule in action, and highlights its
effectiveness as a trading technique.

These retracements are all over the place. And, Jack Schwager misses all of them. After reviewing this 200
page chapter, I was tempted to re-title this article "Missing the Obvious."

"Part Three: Oscillators and Cycles" contains two chapters. The first is a short 34 page chapter which
briefly discusses basic oscillator concepts and then highlights: "The Momentum Oscillator," "Rate of
Change," "MACD," "RSI," "Stochastic" and the "Moving Average Channel." Nothing earth-shattering
here, pretty much just the basics.

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The second chapter of Part Three covers "Cycle Analysis." It was jointly written by Richard Mogey and
Jack Schwager. After wading through this difficult, academic, theoretical study of cycle analysis, I am left
with the feeling that cycle analysis is like trying to fit a square peg into a round hole. These academic
theories may be interesting, but the implication is that the realities of the market make applying rigid
theories almost impossible. Jack's conclusion at the end of this chapter conveys his thoughts: "Moreover,
even the most consistent cycles will deviate from their mathematical representations. Therefore, the rigid
application of cycle projections in making trading decisions (to the exclusion of other methods and
considerations) is a recipe for disaster."

This conclusion may be accurate given a strict "rigid application" of the theory. However, that conclusion
and the information provided is not helpful to traders wanting to "pragmatically" use cycle analysis
techniques as part of their overall trading methodology.

Once again, I felt that Jack's academic approach to evaluating cycle analysis was very narrow in scope, and
once again, "misses the obvious." Whatever happened to the "Ehrlich Cycle Finder." Stan Ehrlich invented
this ingenious device in the late 70's, and its empirical and pragmatic methodology is simple, and easy to
understand. And, most importantly it is surprisingly effective. In fact, Stan continues to trade successfully
using his cycle finder device as one of his primary methods for making investment decisions.

Welles Wilder's "Delta Phenomenon" is an entire investment concept based exclusively on "Cycle
Analysis" -- And, it too is not even given a mention in this chapter.

"Part Four: Trading Systems and Performance Measurement" is divided into 5 Chapters. The first of which
discusses the merits of "mechanical trading systems" over "discretionary systems" and then goes on to
discuss several very basic systems which are used as examples to explain the development process and
application of a mechanical trading system. In the chapter conclusion Jack states: "In this chapter we have
introduced some original systems. Although these systems are viable as described, readers may wish to
experiment with modifications. The ultimate goal of this chapter, however, was not to present specific
trading systems, but to illustrate how basic chart concepts can be transformed into trading systems."

Once again, Jack fails to provide the necessary "historical back-testing" as part of the mechanical system
development process, and fails to verify the "viability" of the presented systems. Are we supposed to just
assume that the presented systems have merit as being viable trading systems?

The next chapter in Part Four is devoted to selecting the proper futures price series for computer testing. It's
another one of those drawn out academic treatises. You can skip the whole chapter and just read the
"Conclusion." Jack's conclusion can be distilled down to just five words: "Use Continuous Futures Price
Series."

The next chapter (20), has some very interesting information, along with some very questionable
information. The first three pages of this chapter begins with Jack literally pulling the covers off of the very
nasty business of selling "trading systems" and "trading seminars." In just three short pages, he does an
excellent job of showing the reader exactly how disreputable system sellers actually go about "faking" and
"distorting" their trading results.

He spends the next nine pages discussing system testing methodology, which is well done, but a bit
incomplete. The next section of this chapter is titled "The Myth of Optimization." This was an interesting
study for the beginner trader who still feels that optimization is the key to success! This section begins with
Jack asking this basic question:

"It is ironic that optimization receives so much attention while its underlying premise is rarely considered.
In other words, do the better performing parameter sets of the past continue to exhibit above-average
performance in the future?"

Now that's an interesting question! (At least to the beginner who doesn't understand the pitfalls of
optimization.) Jack does a great deal of historical back-testing using a simple "break-out" system (which is

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one of his so-called "viable" trading methods that he described earlier in his book). He tested this basic
system using a wide range of parameters over a wide range of different markets.

Basically, I will distill all of this data and information down to his final conclusion which is as follows:
Extensive back-testing to locate that perfect and finite parameter set for your trading system, which will
perform well year after year, is a "waste of time."

Jack's testing results indicates that certain parameter sets at the extreme fringes of the total range of
parameter sets will tend to perform very badly on a consistent basis. However, the enormous range of
parameters that fall between these extreme fringes DO NOT have a consistent performance record from
one year to the next when trading a given commodity.

The trading characteristics of the commodity can change from one year to the next to such an extent that a
totally different set of parameters, which had previously performed at the low end of the scale in a prior
year, is now the top performing parameter set for the current year. The problem is that you never know in
advance which parameter set is going to be the top performer during the coming year.

Well, DUH, Jack has just re-discovered the wheel. This is what we have all come to know, and dread, as
the extended periodic "draw-down" period, with its tell-tale numerous consecutive losses, or that period of
time which is characterized by "under performance." Every system has them. It's that unsettling time period
when our systems "just don't seem to work anymore." However, once this unusual time period passes, our
systems once again begin to work as anticipated, and we are once again back in synch with the markets.

If we only knew in advance that an "out-of-synch "period was approaching, we would naturally shift our
parameter set to match this shift in market character, or stay out of the market until it passes. But, none of
us has a crystal ball, so we live through, and accept the inevitable draw-downs and occasional under
performance as a necessary evil of trading.

Jack tries to offer some potential solutions to this dilemma. But, the evidence is compelling and the
difficulties presented by this phenomenon are overwhelming.

On a personal note: I do a lot of system testing and analysis. I have for years. And, I've run into the same
problem that Jack experienced when market characteristics change from one year to the next. However, it
has been my experience that the "parameter set" that is actually used, is far "less important" than the
"design characteristics of the trading system itself".

It has been my experience that if the "trading system "is well designed and is a robust trading system, the
parameter set becomes "almost" irrelevant (within reason) to the effectiveness of the trading system. It may
be highly likely that if Jack used a different and more robust "trading system" as the vehicle for his
parameter testing, that he may have avoided the erratic performance results that he experienced.

In reality, Jack' s primitive methodology in testing parameter sets was doomed to fail at the onset, to the
point of being "junk science." His erratic results were very predictable. The tragedy is that he should have
known all of this before writing this chapter. More importantly, at no time did Jack ever question the lack
of robustness within the trading system itself. He just assumed the problem to be the parameter set in
relation to the changing market environment.

At the end of this chapter, Jack talks about the many pit-falls of relying on "simulated trading results,"
which naturally lead to exposing more of the sleazy tactics used by unscrupulous "trading system sellers."
A very insightful chapter to say the least.

Part Four ends with Chapter 21, which discusses "Measuring Trading Performance". It's another one of
those complex academic research pieces that takes up a lot of space and is of questionable value. It's one of
those topics which can be made very complex, and is almost deliberately designed to create the impression
that investing is a "professional and complex science." It's one of those academic thesis' that makes the
investment manager "look professional" in front his clients and bosses.

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Personally, I take a pretty pragmatic point of view about investment performance. "I know how much I
started with -- I know how much I ended up with -- I know how long it took me to get there -- And, I know
what my equity curve looks like. In the real world, who really cares about the nuances of the "Sharpe
Ratio" anyway? For me, its basic, short, and sweet.

"Part Five: Practical Trading Guidelines" Finally, the book earns its keep. Part Five gives us 3 great
chapters, consisting of 33 pages of great information. Chapter 22 begins with the basics, such as
establishing your basic trading philosophy, and suggests the use of a trading notebook and diary. Chapter
23 provides us with "82 Trading Rules And Market Observations". This was a great chapter. There is a lot
of "personal insights" and "in the trenches" experience that Jack shares with us. I got a lot out of this
chapter. The last chapter (24) is titled "Market Wiz(ar)dom" and is adapted from his prior book "The New
Market Wizards." It examines the broad principles and psychological factors that he believes are crucial to
trading success. Jack provides a list of 42 observations regarding "success in trading." It too is a great
chapter, with lots of insights that can help us all.

I have always said that if a book can provide me with just one good trading idea that can ultimately help me
be a better trader, it has earned its keep.

* For those of you out there who still think candlestick trading is a viable investment technique, this book
will help you put those fanciful ideas to rest.

* For those of you who are hung up on finding that perfect parameter set for your trading system, this book
will help put some perspective on that fruitless effort. (However, this book will not help you design a
"robust trading system," which is the ultimate objective.)

* For those of you who still are enticed into spending "big bucks" for the next 200% per year trading
system or seminar that comes down the pike, this book will save you a fortune.

* For those of you who haven't understood the importance of finding a trading system that "suits your
personality," this book might help you reach that final realization.

* For those of you who have the ability to take the advice of others, Part Five of this book is a gold mine of
information that only could have been written by someone with real-time experience and market wisdom.

Jack Schwager DID NOT do a good job with this book. Given his reputation, experience, and the fact that
he manages $75 Million, I expected so much more. It was a real disappointment to say the least. However,
the occasional pearls of wisdom and periodic helpful information might cause you to occasionally pick this
book up off the floor, (replacing it with another suitable door-stop), and re-read a couple of "selected"
topics and chapters.

Technical Indicators Doing "eerily" Well This Year - Marc Fett

Also wanted to tell you I have come up with some indicators that have been doing eerily well this year.

I've been applying these to markets and presenting them on the Internet. I know you're a tremendously busy
guy, but if you have access to the net I wanted to extend a guest invitation to you to check it out sometime.
I think you'll find it an interesting little site.

The site is http://www.fettnet.com/compass1.htm

Once there, just select the "members" button and enter these:

User ID: scout

Password: 135203

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If you do visit sometime, love to hear any comments you may have.

Forecasting - For Certain - Rick J. Ratchford

There is one thing for certain about what the markets will do, and that is we will never know for sure.

Many traders love forecasts. In hopes of knowing what the future will bear, their ears will perk up and their
eyes will focus on anything that may provide a window into the future. The problem here is that they do not
truly understand what a 'forecast' truly is.

Let me first tell you what a market 'forecast' isn't. It isn't what will happen in the future. Nobody knows for
a certainty what will happen. And for anyone to expect a forecast to pan out exactly as laid out each and
every time is doing nothing but fooling themselves.

A market forecast is actually an expected scenario based on an educated guess. Some make better educated
guesses than others.

This may be the product of any number of methods available today. Due to the desires of many traders, to
find an easy way to trade the markets by some mysterious, mystical portal into the future, many have
become quite soured about forecasts after having lost money due to one not panning out. From this point
on, they are convinced that the markets cannot be adequately forecasted for profit.

Yet, the problem doesn't necessarily lie with the forecasts themselves, although there are a lot of bad ones.
The problem lies on ones expectations and understanding as to what a forecast truly is.

As mentioned earlier, forecasts are the result of using some technique or method to derive at a fairly good
idea of what the market may do. Even those who may say they do not like forecasts, if they truly are
traders, are making a forecast every time they put on a trade!

Why else would you put your hard earned money on the line to go long or short unless you believed you
were going to make money because you think or believe the market is going to move in your favor. This is
a forecast, even if you do not share it with others.

Now whether you do share it or not, the fact remains that not only is it a forecast, it is not for certain going
to happen as we expect it to. No, rather we can only hope it turns out as expected because we did our due
diligence and took every shred of data and information we had on the market to come up with our forecast.

If at anytime someone says to you that they do not like forecasts, asked them if they live in suspended
animation. Because each day when we make a decision, we are basing our decisions on what we think will
happen in the future. This is a forecast, although concealed in our own minds and only made manifests by
our actions based on that forecast.

There is nothing wrong with trying to discern what will happen in the future short of breaking some laws
(such as religious). What is wrong is expecting too much from a forecast originating from an imperfect man
or woman.

Know that the only thing for certain about a forecast is that its outcome is not. There are some excellent
ways to forecast the market with a very high degree of probability. Note the word, probability.

By learning certain trading techniques, such as Fibonacci, Gann, cycles, and possibly some others, a skilled
market technician can soon achieve a very high degree of accuracy in forecasting future market events.

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As long as we keep it in mind that forecasts can be an excellent tool to use in profiting from the markets,
but that it requires making preparations in the event of not occurring as expected, we can then do quite
well.

For those interested, my forecasts are based on Fibonacci and Gann ratios, as well as some very complex
cycle analysis. Many have recognized that my forecasts are very reliable, although not 100%. Yet they
provide many excellent opportunities to profit, which is what a serious trader wants in the first place.

Many times a forecast can be partially good, as when most of the individual elements have indeed occurred,
with some minor differences. One example of a multi-faceted forecast is when it is dealing with more than
one event, such as what will happen next week on this day, then the following week on that day.

The forecast may involve not only time, but price, and the time part occurs but the price is off. Whether a
forecast partially correct is worth anything or not depends on each individual who is using that information
for their own decisions. If the price element plays little in your trading, then of course the time portion has
provided some kind of valuable service.

My personal belief about using other peoples' forecasts is that whether they agree with my assessment of
the market or not. If not, I look at their argument in case they present something I did not think about. As
long as the final decision is mine alone, this information can be useful.

So whether you wish to learn to forecast the markets in the scope of days, weeks or months ahead, or just in
time to make a trade, keep in mind its limitations and go from there.

Never expect a forecast to be more than ones opinion of a high probability event yet to occur. If you have
blindly followed a forecast that was produced by someone other than yourself and possibly lost money
doing so, don't blame those who are merely offering their educated guesses.

Blame yourself for looking for something that does not exist, because one thing about trading that is for
certain . . . it is your responsibility to act based on your own belief of the future.

Albert Einstein Once Said . . . J. L. from Wimauma

"It takes a genius to see the obvious." Sort of reminds me of the woman who had two unwanted children
before she figured out what was causing it. Not to be out-done, it took me 13-years to figure out that I lost
money because I offset positions after they had gone down in value! Obviously we can't always prevent a
position from sometimes depreciating, so doing something about that "bailing out" part is all that's left!
How about "Just Say No?" (I wish I'd thought of that.)

A local broker told me that the average balance in his 120 customer accounts was $4,300! Holy Cow! It's
no wonder that so many "tap out." I can see it now. The new-comer figures that, since he doesn't have the
foggiest notion of how to trade, he'll trust this persuasive broker with the minimum "to see if this thing
might work." Mr. Broker can't turn down new business (his boss simply wouldn't understand), so how can
he tell this neophyte that with four thousand dollars he's got about a snowball's chance in Hell? That's when
"Cut Your losses short" takes on new meaning!

This may be far too obvious for many, but one of the beauties of commodities is that prices will always
eventually reverse! Can you think of some things you might be doing in the market to make money while
you are waiting for the inevitable? And can these "things" also eliminate most of any drawdown by letting
you regularly pocket a terrific return on your investment? And can they at the same time be reducing
Margin requirements, sometimes by about 75%? Well if they can, what are you waiting for?

With enough dedication and practice, I believe that even an average "Joe" can make "pie-in-the-sky" about
50% of the time -, i.e., a trade that never closes "in the red." It's the other 50% that is the rub. That's when I
change hats. Is there a law against investing in commodities vs. trading them? When my second "hat"

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produces 5X what most other investments would make (like stocks or bonds) with less actual risk, what's
the problem? Can I help it if even my favorite uncle (Sam) insists that I deduct all of my "investment" from
my income! The nerve of that guy! Try that with IBM stock! Bottom line - with commodities being not
only the premier trading vehicle but also the finest investment alive, what are you waiting for?

On another subject, it must have been coincidence that both Gale Paxton and I spoke of health matters in
the last issue. I realize that his present emergency motivated him as do my personal experiences in that
area. A beauty of this publication is that many readers must feel a kinship with the Paxton's through their
well-written contributions. I can only add that "I don't accept the belief that commodities must be that
stressful." It truly makes no sense to formulate a plan that kills you in the process! It's no surprise that
successful trading is simple when you know how (thank you, Anonymous Trader) and darn near impossible
when you don't! Good Health and Investing to all!

Get A System That Works, Suits You & Stick To It Like Glue
Bill Oliver

I am a new trader, highly intelligent (gained entrance to Mensa), have degree in finance and computing and
love numerical computing. Technical Analysis fascinates me.

I am part of the ATAA - Australian Technical Analysis Association. After taking an account for $5,000 to
$8,000 and back to $5,500 in 9- months, I then quit to do much study and develop my system. I have taken
note of who is really successful among people I know personally and, found out that:

1. All three extremely successful trader hand chart and when they look at a chart they get a 'feel' for the
market.

2. Two happen to be Gann people. They say that their fundamentals are so simple that they could write out
the basic system that makes most of their money from in a few lines!

3. I have come to the conclusion that the most important thing is not to have the "perfect system" but rather,
have one that works (and many work! - and also suits our personality) and stick to it like glue - NO
Variation!

One of the three - an ex-car dealer - looked me in the eye recently and said: "Bill - your main trouble is that
you know too much!" I.e., I am trying to look for a complicated system! I got the message and am looking
at simple systems!

P.P.S.: I happened to use David Bowden's "Smarter Starter Pack" costing $A995. It took 100-hours to do
the course at home, including 60-hours paper trading on 3-yrs data and was based on hand-charted bar and
swing charts, retracements and ranges, i.e., as per your #1 freebie! I got frustrated at some aspects, started
applying it to everything that moved without back-testing (how could I be so dumb!) and lost MOST of my
capital! (I could not program it into a computer and it took about 20-hrs to back-test a year's data!) It uses a
pivot point type stop loss followed by trailing stop loss based on steps of a range. The system is not very
good for markets that are only slightly trending! It does keep users out of choppy markets, however. Like
nearly every other system, it is great for strongly trending markets! It is the only course I know that
includes money management + psychology + a fully defined system + substantial paper trading exercises
with checkable answers. Despite its shortcomings, (the system does go through its bad patches!) I think it is
an excellent pack for a new trader or an experienced one that had lost heavily and feels like giving up!

For your interest, you may like to check out David Bowden on http://www.sitm.com.au

He teaches Gann and was extra ordinarily successful between 1986 & 1991 or so (shows his trading
statements for that era openly) and is famous in Australia for picking the 1987 crash and a number of other
tops and bottoms. He sells a video series for about $A6,000 and has 5-day trading congresses at about
$Al2,000 per throw that he packs out to about 60 - 70 people per time. He offers a free info kit on

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http://www.sitm.com.au/info.htm No-one I know have seen his trading statements for 1996-97 so I don't
know if he is still an exceptionally successful trader! (Obviously he'd be way ahead of me, so when he
speaks I listen!)

The Extension Objective - Rick Ratchford

The market has just broken past a previous major top or bottom. You want to figure out how far it my
continue going before making a correction. Is there a simple way to do this?

The answer is yes. With just a few tips as I'll mention here, you can easily solve for a price objective when
a market is extending.

Consider that prices have previously made a range from a top of 250 to a bottom of 200 and is now moving
up. Let's assume that now it has surpassed the previous top of 250. What we want to try to solve for is
where it might find resistance.

By taking the previous range it had just broken out of, which was 50 points (250 - 200), we can easily
multiply a few ratios to use as extension objectives.

The ratios that are easy to remember are 25%, 38%, 50%, 62%, 75% and 100%. Starting with 25% of 50,
we end up with 12.5. Since it was the top we have extended past, we just add 12.5 to the top of 250 for
262.50. Continuing on, we do the same with 38%, 50% which would be 25 points or 275, 62% and so on to
100% which would make the resistance price 300.

Of course, prices can continue higher even still, such as at 125% etc., but not usually without a correction.
Since we are looking for when the correction will likely start (to either get out of a trade and take profits, or
get ready for the end of the correction) these ratios should do quite well.

Some may ask, "how do we know which one will actually start the correction?" Good question. If you are
only dealing with prices, this will take some extra work. One way is to note if any of those extension prices
match a top or bottom made some time in the past. Those would help isolate a few from the bunch. Another
technique is if you can draw a trendline off previous tops and note if when prices hit one of your extension
prices if it also hits close to the trendline.

The technique I use is to note which extension price it hits on my time day. The time days I use are Fdates
coupled with cycle analysis. A less precise but quite effective method is to count the bars from the previous
250 top to the 200 bottom from our previous example. If it took 7 bars to drop, you can reasonably expect
near 7 bars to top again. Not real accurate, but close enough to get a fix on a price many times.

Another method is to take a previous top to top and multiply by .618 and 1.618. If you have TTC, it can do
this for you automatically. Enter the number of bars between the tops and multiply by those Fibonacci
ratios, then extend them out from the second top. Do the same with previous bottoms as well. If you find
the result will lead you to the area where it is close to the 7 bars (or whatever the previous drop was) from
my earlier mentioned method, you have a good chance of the price at that time period, if from one of the
ratios above, as falling on that time period. This increases your probability immensely.

Let Freedom Write - Publishers take on CFTC

Every American has the right to free speech, but the CFTC is trampling on this first Amendment
entitlement, so state five commodity newsletter publishers and several subscribers who have filed a civil
complaint in U.S. District Court in Washington saying the CFTC should not require them to register as
commodity trading advisors (CTA).

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"We would like the CFTC to restrict registration authority to those who actually manage customer accounts
or give person-to-person consultation," says Scott Bullock, an attorney at the Institute for Justice
representing the publishers, which include Bruce Babcock, Stephen Briese, Robert Miner, Frank Taucher
and Bo Thunman.

Miner, publisher of Dynamic Trader Analysis Report, says he renewed his registration because he felt
threatened by legal ramifications. The Institute for Justice says that an unregistered commodity publisher
could be subject to $500,000 in fines and up to five years in jail.

"The CFTC has no right to impede on my business, when all I am providing is information," Miner says.

The publishers contend it was the CFTC's proposal released last year on the regulation of commodity
information over the Internet that motivated them to go to court.

"After seeing the CFTC proposal, I was outraged," Miner says. "How can an agency believe they can have
this sort of control and influence?"

However, last December the CFTC suspended the release, declaring it not effective. Instead, the CFTC will
continue to rely on the CTA registration provision of the Commodity Exchange Act (CEA) to determine
what Internet activity requires registration. The CEA defines a CTA as any person who "for compensation
or profit, engages in the business of advising others, either directly or through publications, writings or
electronic media . . . " It excludes banks, news reporters, attorneys, accountants, teachers, floor brokers,
FCM's and publishers of print or electronic data of "general and regular dissemination."

When Dealing With Many Traders, Not Everyone Will Be Pleased

or Profitable - Bill Williams

First of all, let me say that I totally support your efforts at protecting all of our rights to free speech. I will
support you with letters, in person, time, and/or money.

That is the first reason for this letter. The second reason is to reply to the complaint about me from Mike
Cook which was published in your Sept/Oct issue.

Mike attended a four-day tutorial when our offices were in Mobile, Alabama in June of 1995.

During the beginning interview he said that he had quit his job twice before to trade commodities full-time
and the results were "disastrous" [his words]. The first time he quit trading a mechanical system and stated
the reason it was "disastrous" was that he always has "had trouble applying the rules" (again, his words).
He further stated that his reason for attending the tutorial was that he "felt he needed direction."

I do not have any problem that someone doesn't like me, but when false statements are made, I feel the
obligation to speak the truth from my point of view. He evaluates our approach as a "load of crap." That is
his opinion based on his inability to use our methodology profitably. Personally, I liked Mike when he
attended the tutorial and I still do. Being an ex-engineer, I found his background and expertise in concrete
retrofitting after the California earthquakes fascinating. However, when he says that he can find no one
who has benefited from our services, I must disagree strongly. We have trained over 700 traders in these
tutorials over the past 10-years. Today well over 90% of our attendees come from referrals and our waiting
list is six months. From those we have trained, we have over 600 unsolicited letters of appreciation for our
contribution to their lives and their trading. Less than three months up we were audited by the NFA and
they examined, inspected, and confirmed the quantity and quality of these letters. It is also important to
note that we also showed the NFA the few letters we received from 'less than happy' attendees.

No matter what you do, when you deal with that number of traders, not everyone will be pleased nor end up
profitable traders. Remember Mike had, by his own admission, already struck out twice. He did call me and
requested a meeting the next time I came to California. I agreed to meet him in person (I was conducting

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an all day workshop for Futures Magazine and invited him to attend and I would meet him there) but he
never showed.

In addition, Mike signed an agreement that said for him to get his tuition back he would have to justify that
he was using our approach the way it was taught. I requested that he send me copies of his trades and
statements showing that he had taken the proper trades as taught in the tutorials. He never did this.

Unfortunately, Dave, whenever you open an avenue for free speech you welcome anything that comes,
justified or not. I have no need or intention to get into a name-calling contest with anyone. Life and our
trading are just too good for that. What I might suggest for anyone interested in seeing where the truth
really lies is to download and examine our entire Profitunity approach to trading.

All you need to do is to go to www.internationaltrading.com and download FREE our entire trading
approach. It is not a 'black box' system and everything is there. If it asks for a password - it is "bill." If you
have any problems call our office during office hours at (409) 945-8880 and we will walk you through the
process. Once installed - it takes just over 4-megs - go through the Guided Tour which will show you how
to use the program and will show you every signal that we use and how we use it. We are real traders and
trade every day and always trade in front of those attending the tutorials.

The program will even give you the exact wording to tell your broker. To check to see if this method is
indeed profitable, may I suggest that you download the fully functioning system and read the Broker's
instruction for Coffee dailies during April and May of this year. In those two months you will see a
$500,000 profit. Also, look at the S&P 500 from April 17 through July 31 of this year. Granted this is
hindsight and hypothetical now and it was a spectacular run for the S&P.

But again, following only the Broker's instruction which prints the instructions for the following day (no
intra-day trading) and by trading one contract per signal you would have over $2,000,000. Even if you
allowed a whopping $10,000 deduction for each trade for slippage and gap openings you would still have
approximately $1,850,000+. Now, if that is crap, I'll take a couple of loads of it. Don't take my word for it -
try it yourself. And this is not a sales pitch because you don't have to spend one red cent.

I am doing this for two reasons: 1. I believe in our approach and demonstrate it daily in our own trading; 2.
I also believe you come out better by 'casting your bread upon the water' than by closely guarding a "black
box," and; 3. How can I possibly get hurt by you trading well and profitably?

In closing I wish you all good trades, good energy, and good life and especially you, Mike Cook.

Editor’s Note: The Headline of This Article is very true. No matter how good you are you will always have
some unhappy clients. This is true with every company, be it involving trading or investing or any other
business. This is what makes the CFTC investigation of Dave Green & Commodity Traders Club so
maddening and upsetting. For example, they are sending requests asking our trading methodology clients to
complete an 18-page Questionnaire. We have been told this may be the most longest and most extensive
questionnaire ever sent to someone's clients.

A number of our clients have called us and said things like "due to the complexity, intrusiveness,
magnitude and great detail of the CFTC questionnaire, it's almost impossible to answer the many questions
without some things possibly being construed as negatives." They have also said the 18-pg Questionnaire is
a perfect example of a blatant "fishing expedition" and "witch hunt" by this uncooperative, unfriendly,
powerful and strong-armed government agency.

We have heard the CFTC has about 200 attorneys on their payroll who need things to do to justify their
good government jobs. This is a large government agency which we understand has been threatened with
extinction if a bill now before Congress is approved. This bill will apparently eliminate the CFTC and
mandate the US Securities Exchange Commission to assume their duties. A number of vendors have told us
this is why the CFTC seems to be engaged in a war with many commodity firms. Apparently the more
notches they can get on their gun will be used as evidence to Congress to justify their existence.

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Another very troubling aspect of the the CFTC 18-pg Questionnaire is the fact most satisfied clients will
not answer and return it due to its amazing length, time involved in completing it and the fact its quite
intimidating. However, the comparatively few clients who have complaints, failed to learn our method for
various reasons, or perhaps lost their money trading will be much more likely to take the extensive time
required to complete it and return it to the CFTC. In other words, due to the Questionnaire's magnitude and
size they will get a significantly larger response from a small number of unhappy clients. This will easily
overshadow the replies they will get from the vast majority of satisfied clients. This is very unfair and
invites a seriously twisted picture and a false percentage of complaints.

Another Question for Greg Donio - Patrick Smith

I guess you did not see our question in the "other" newsletter as to whether you actually did those option
spread trades or if you were "advertising" to become a vender. No matter. Your ad answered that question.
We are still puzzled, however.

During my years as a derivative's broker, I learned that there was no faster way to convert investment
capital to commissions than option spread strategies. Of course, I have no personal experience but some of
my associates claimed that they could generate commissions of $1,000 monthly out of a $5,000 account by
putting their customers into option spread trades.

So, the question is: If you can talk people into doing option spread trades, why not become a broker and
make some real money instead of piddling around with $70 per customer?

Tradestation Was So Powerful I Had To Return It - Al Castro

There is a great software program on the market that can test securities and is comparable with Tradestation
at a much lower price. Let me tell you about that program later.

Tradestation allows you to try their program for 30-days and if you like the program you pay $199 per
month for 12 months. That's $2,388. Well I decided to try Tradestation for 30-days and boy was it a
powerful program. It was so powerful that I had to send it back.

Their program allows you to historically test any kind of security (stocks or commodities) with any kind of
trading system you have. However, you have to program the system into the program. This takes time and
effort learning how to use their so called "EasyLanguage."

For instance, lets take an easy example of programming their system. Let us say that you wanted to buy
long when the high of today was higher than yesterday's high, today's close would be in the upper 60%
range, and yesterday's low was higher than two bars ago by 10%. You would program the following:

Today's High>Yesterday's High

Today's close in upper 66.00% of range
Yesterday's Low> 2 bars ago low by 10.00%

This is an example of an easy system to program via "EasyLanguage." However, it gets much more
difficult as you expand on your trading ideas and systems. I viewed their videos to learn how to use the
program and also learn how to use EasyLanguage. I was totally lost even though I have been trading for 2-
years and have 5-years of computer knowledge. Their attempt to make "EasyLanguage" easier to use has
failed at least for me. The only person it can benefit is one who loves details such as an accountant or an
actuary. What about the rest of us who are interested only in trading.

Well as a trader, it is important that you test your system to see if it worked in the past before trying it the
future. If your system did not make any money in the past, you can be assured that it will not work in the

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future. Of course, even if your system worked in the past, there is no guarantee that it will work in the
future but it has better odds than a system that did not work in the past. Testing a system that has worked in
the past certainly gives you confidence which is one of the characteristic of a successful trader.

As I was reading the Stocks & Commodities magazine, I found an advertisement for Investigator 2.0. This
was a program for testing systems without programming. Isn't it amazing?

From trying to learn programming with "EasyLanguage" to using a program without programming. Well, I
got the program and it was everything they said it would be. I was able to create patterns and systems very
easily and it is fun. You simply drag the bars (high, low or close) to where you want it to be. The computer
will actually write the program for you.

The program also has its own pre-defined patterns for testing indicators and oscillators. It will historically
trade all of your securities for any system that you have. It will keep a record of your systems and it will
test all your securities every day if you want to. It will tell you when there is a buy or sell signal. It will tell
you if you have bad data that needs to be removed. And much more for a price of only $495. I highly
recommend that all serious traders test their systems and use Investigator 2.0 as their program for testing.

One more thing, the support was personable and excellent. And they are going to improve the program by
adding new systems which will be free for the first year. For more information about this program call Jeff
at 1-888-474-6764.

More on the Futures Truth Controversy & Club 3000 - Kent Calhoun of KCI Seminars

"The difference between Truth and knowledge is infinite," and can be measured in the difference between
individuals and newsletters. The difference between CTCN and Club 3000 parallel those between me and
John Hill. This could not have been better illustrated than in the previous issue. Dave forwarded my letters
to John Hill, as I requested, allowing him to respond in CTCN to specific testing procedures I objectively
outlined in a business-like manner. l made no personal statements concerning John Hill.

Club 3000 did not contact me with Mr. Hill's two letters that contained several false statements and
personal attack on my religion and patriotism. They printed them without trying to find out if they were
true! This has been Club 3000's policy for several years, print whatever allegations are sent, so long as it
agrees with the editor's personal biased beliefs.

One message should be clear to every CTCN reader: Unless you want false trading results published about
your trading account, or want personal account information published in Club 3000 News and sent to over
1,000 of their subscribers, do not open accounts with any broker who is a Club 3000 subscriber! Club 3000
may choose to publish false information about you without notifying you!

Once Club 3000 was going to publish false allegations that alleged I used a vendor's endorsement without
his permission. The vendor had given me handwritten permission to use his testimonial as an endorsement,
which I faxed to Club 3000, who faxed it to the vendor. The vendor recanted and wrote another negative
letter printed in Club 3000 without contacting me. Club 3000 is so desperate for letters to their anorexic
newsletter, which has equal ad space to information, he is willing to publish anything! Dave Green's last
issue contained more trading information than a year of Club3000 personal diatribe.

Unlike Club 3000, which freely prints John Hill's lies without confirming their veracity, Dave Green
demonstrated his integrity by presenting a fair open format of the issues separating John Hill and myself. I
would have provided my 1099 confirming my profits to Club 3000 had they desired to seek the real Truth.
Instead they chose to print over a dozen Hill lies and false allegations without verifying them. My does
Club 3000 choose to print lies? Club 3000 does not understand the meaning of integrity nor are they
interested in printing the Truth, or they would have allowed me a response to Hill's false allegations.

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Integrity is more than just telling the Truth, or being honest. Integrity is a choice that must be made for
each individual from the foundation of a belief system which governs how they are going to live their life.
Integrity is how much an individual means to himself, and is a sign of self-respect. Apparently Club 3000
and John Hill have similar narrow-minded value systems based on ignorance, vengeance and greed. Do
these guys even like themselves?

Bo Thunman defended his belief that astrology was a science by stating to me, when he went to school
teachers believed there was "a man who lived on the moon." Can you image how this sounded to a person
who has taught Newtonian mechanics, and Einstein's Theory of Relativity to high school physics teachers?
I blew Thunman's stone age beliefs away with a Socratic syllogism. 1. Is there a seller for every
commodity buyer? Yes! 2. Is price determined by the action of buyers and sellers? Yes! 3. Then can
astrological trading affect only the buyers without sellers, or only the sellers and not the buyers to affect
prices? Silence. Obviously, if astrology had any effect it would have to impact both buyers and sellers, and
not one without the other.

Dave Green and I are barred from having any letters printed in Club 3000. Mr. Hill & Mr. Bo Thunman
will not allow Dave Green or me to even subscribe to his Club 3000 News's slime green pages to be
informed with the latest batch of personal attacks on Dave or myself. So how does Dave Green respond to
their hatred and ignorance? With integrity! Dave sent his last issue to Hill for free, after he allowed Hill a
forum to respond to my objections of this unethical business practices and improper testing procedures.

Mr. Hill misled (I will not use the word lied since it implies intent to misrepresent Truth while misled
implies he may be simply ignorant of the Truth) all CTCN subscribers in his responses. He would like you
to believe the NFA spent 5-days verifying his trading system's results. Not true! The NFA does not test
trading systems, nor would they even look at Hill's $2,000 system performance, unless complaints were
filed about it, (according to Brian Dempsey and Patricia Welter of the NFA in a 11/17/97 phone
conversation.)

"The National Futures Association"' may check client complaints about a trading system if a trader's
account is not being traded according to its instructions. Traders may call the NFA to verify Hill's false
statements at 1-800-621-3570. I called the NFA to file complaints against Club 3000 and John Hill for
printing, private and false information concerning my account performance traded with Hill's company.
Civil damages may be sought against both. The NFA was probably more concerned with the $175 million
Hill Financial has under management.

Club 3000 does not pay Dave Green for his newsletter, but allegedly receives illegal copies of it and they
allegedly forward an illegal copy to John Hill, who allegedly stated this to Dave Green. (Mr. Thunman
once commented to me about letters in CTCN before I even received my issues.) Imagine that. Is an FBI
matter, violation of copyrighted materials, $250,000 per offense and 5-years in jail? These guys know copy
machines.

Editor’s Note: This is correct. John R. Hill himself told your Editor last month he has received copies of
CTCN in the mail forwarded by B. A. Thunman (Bo) of Club 3000 News. Club 3000 is not a subscriber
and we resent them somehow getting our newsletter and then mailing it to another party without our
consent. What makes this even more annoying is the fact we wanted to legally subscribe to Club 3000 but
Bo refused to let us subscribe and rejected our payment attempt. They not only get our publication but even
send it to a third party depriving us of much needed revenue and not even allowing us to see the content of
their own publication, even on a paid for basis! How’s that for an unfair situation!

Ever wonder what John Hill did before starting his Gibraltar-based Futures Truth? Mr. Hill had a library
whereby he would allegedly make copies of the most popular newest trading systems of the day, by Larry
Williams, Welles Wilder, etc., then he would mail you these systems without the vendors' permission to do
so. All you had to do was become a member of what I called Hill's Library Scam Club. (I knew several
subscribers, who tried to give me copies systems from Hill to test, but I refused to do so.) Hill's
membership fee was about $500 per year that allowed 3-systems per month to be checked out. The vendor
got zilch.

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Does this sound like an honest enterprise to you? Can you imagine someone doing this today with FT's
"Top Ten." How would John Hill feel about someone sending his $2,000 system to be distributed in the
public? What if you were the author of one of these systems, and had worked months to develop it and
incurred financial expenses to do so? What if your non-disclosure documents had been violated by
someone making illegal copies and sending them to someone else? Is this ethical? It is according to John
Hill, who runs FT with the same lack of business ethics. No integrity. No honesty. Anything to make a
dollar.

After several vendor lawsuit threats, Mr. Hill's newest scam was Futures Truth, (many professionals call
"Futures Trash"). Hill would still get free trading systems from traders who bought them and violated non-
disclosure agreements, or dishonest traders who received them without paying for them. What is receipt of
stolen property? What about receipt of stolen intellectual property rights for software or hardware chip
design? Hill tested systems, sold results, sold reports about how the system worked, and everything except
the parameters. No integrity. No honesty. Anything to make a dollar.

Of course the actual vendor would never be paid from Hill. In the process, Hill would allegedly be able to
"borrow" their systems' ideas and allegedly tweak them into "his" systems to sell them, while he could trade
markets from others' work. My Ull volatility stop for S&P's was allegedly adopted into Hill's system after
he tested my Ull. The difference? 1-tick! Bruce Babcock deserves the honesty award for his Hill's Half
Truth system testing comment. Dave Green could tell you about when he supplied his monthly figures
printed by FT, who refused to verify Dave's figures for themselves. How many vendor's do this now?

When Mr. Hill announced to me he would be rating my 5VBTP Method as a system, he never asked or
paid for my work. I invited him to my seminar based on Hill's promise I could examine his 5VBTP testing
results before he published them. Hill's promise was false. He sent out false 5VBTP test results in a manner
the 5VBTP was never taught at my seminar before he sent me the results to approve. FT's President
admitted FT's improper 5VBTP testing in a Club 3000 letter. I was advised by an attorney to sue Club 3000
and Hill Financial. Any other vendors treated in a similar manner may want to contact me.

Mr. Hill may think by admitting FT has a "conflict of interest" by rating and selling their own system
makes it right for him to do so. It does not! Last week, Yale University stated "a conflict of interest exists
when teachers have sexual intercourse with students they teach." Makes you wonder what it would be like
to attend a FT seminar doesn't it? No matter how FT defines a conflict of interest - the customer really gets
stuck in the end!

Gil Castillo attended a KCI Seminar, with Lou Mangini, as a charity case because he stated he could not
afford to pay the admission price. He presented himself as a beginner who knew little about technical
analysis. Tom Cruickshank, a real nice guy, was also a kci seminar attendee and asked about Gil in the last
issue. When Tom forgot some of the KCI trading materials, I allowed him to also attend a KCI Seminar for
free. The world is a very small place sometimes. Kindness knows no shame. My wealth lies in those I have
helped.

OPTIONS & SPREADS: Occam's Razor, Tombs & Rattlesnakes

Greg Donio

The fellow on the barstool said, "I invented a method to bet the horses that had to succeed, that couldn't
possibly fail."

"So what happened?" his buddy asked. "The track opened."

His answer was another way of saying, "Reality intruded." So often the strategy plan of the would-be
millionaire looks great on the map table but fails on the financial battlefield. But where else can gains be
made except on that field?

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Of course, reality can be a nuisance, but it is the mine with the paydirt and the vault with the hard cash. Let
us recall the old comedy routine: The swindler tries to sell somebody an invisible horse but refuses to
accept invisible money. The "realm of imagination" he hawks is supposedly great . . . until pay-off time.
The con-man dishes out nonsense but demands cash not nonsense as payment. So does everybody else at
the pay-off end.

Everybody from the computer wizard calculating the Dow to the busboy poring over the Daily Racing
Form has plans and calculations for making a fortune, and one need not be Einstein to tend toward
excessive theorizing. It helps if the calculations stick as close to hard reality as the tangible profits being
sought. In the early 1300s, English philosopher and Franciscan monk William of Occam opposed the
excessive theorizing of the Thomistic scholasticists.

His axiom, "Entities are not to be multiplied beyond necessity," became known as Occam's Razor, a
trimming down of what was thought up when the mind creations became more than was necessary to
explain reality. For example, if an assassination could have committed by one man, it probably was. If
someone formulates a 10-man conspiracy theory, those other nine men are what William of Occam would
call "entities multiplied beyond necessity." Occam's Razor would trim off all but the trigger-man unless
there was compelling evidence for more.

Many people need a shave with that edge, such as the fellow with pad and pencil seeking numerical
patterns at the roulette wheel. "Number 34 has to come up. It's due!" Did you know that the horse with the
longest name usually wins the race? Stocks and futures contracts allegedly rise and fall in accordance with
sunspots, or patterns in the Old Testament's Book of Numbers, or the lengths of women's skirts, or a
number concealed in the Nancy Sluggo comic strip.

Spread strategies with put or call options do not bear the fingerprints of Rube Goldberg. They have no link
with magnetic healing or the seven heavens of Islam and the Cabala. When I leave the Metropolitan Opera
House after having seen Gounod's Faust, I carry with me not only rapturous melodies but a fascination for
the centuries-past alchemy lab recreated on stage. Yet I would not think of using anything from the locked
laboratory book in my trading calculations. And do not think that just because the data is on software
instead of parchment that it is necessarily more scientific.

Ponder the words "practical, feasible, instrumental and functional." Option spreads apply well to this set of
inter-related terms--instrumental when the function is profit. (Another word "pragmatism" is a tangled
octopus to be dealt with later.) Woe and slack, both those words and the profits are so easily lost sight of in
speculating and investing. You will not see Mr. Necktie consult Simon Magus or a carnival swami, and yet
...

In his excellent book Winning in the Futures Market, George Angell wrote that from 85 to 90 percent of all
futures traders have been known to end up on the minus side over the long haul. Then he added these
"despite all the dead bodies" words of encouragement: "These percentages should not sound as
discouraging as they seem. Many traders, despite their protestations to the contrary, are not serious about
making money in the market. Rather, they enjoy the excitement of buying and selling, watching price ticks
in the boardroom, and the risk-taking involved in trading commodities. Some of these traders are inveterate
gamblers . . ."

What he describes is pathological, like the horse-player consciously wanting to make money but
unconsciously feeding the excitement and suspense that electrify his nervous system, no matter how much
he loses. Also, such behavior is unscientific for a very specific reason. In addition to Occam's Razor,
another traditional scientific axiom exists that a theory or belief should be dropped if the evidence keeps
repeatedly failing to support it. An example of what violates this is astrology. No amount of incorrect
predictions will cause avid astrology buffs to drop their belief that theirs is a valid science. They admit to
some errors and miscalculations but the system itself is sound!

For centuries, many quack cures thrived and survived from generation to generation no matter how many
cemeteries they filled. Similarly, many horse-gamblers, futures traders and option traders have come out on

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the minus side consistently for years without ever discarding or even questioning their conviction that "This
is a money-maker." For dedication and devotion that will not quit, the crap-shoot futures traders and option
traders match any old-time bloodletter or leech doctor.

So as an option trader, how do I manage to pull in profits year after year? How do portions of the "licensed
crap-shoot" money keep landing in my bank account? During World War One, with its trench warfare and
its frontal attacks on machine guns (spaced side by side to enjoy "overlapping fields of fire") the custom
was to send out three waves of infantry one after another, let them get devoured, then figure that the fourth
wave would reach its objective. The success rate in options, futures and "initial public offering" stocks adds
up something like that. So how do I keep placing in the fourth wave, not risk-free but alive and with the
loot again and again?

To answer, I would like to quote George Angell again. What he wrote in Winning in the Futures Market
about spreads refers mainly to strategies with futures contracts, but applies quite well to futures options and
equity or stock options, my own vein of ore.

"Long-side" chances are probably about 50-50 of winning or losing on any single trade. You can, of course,
improve the odds in your favor by trading only limited-risk spreads . . ." (page 28)

"Professionals, who make their living from the markets, are enthusiastic spread traders. This should give
you an indication of the value of this form of trading." (page 53)

"Spreads can be very profitable on a consistent basis. Just remember that you have a trade-off when you
undertake a spread position. You are willing to give up some potential gain in exchange for safety." (pages
63-64)

Angell's above-titled book deserves much recommending, even for traders like myself who handle only
equity options and do not touch futures or futures options. Its writings on trend-following and charting fit
well into the movements of stocks as well as futures contracts. A spread trader whether in futures or futures
options or stock options must also be a trend-follower. Another, must read is George Angell's earlier
strong-in-the-basics work Sure Thing Options Trading which several years ago helped get me started in
option spreads.

The "trend" aspect deserves special mention. Since last writing for this publication, I have taken two profits
with spreads using IBM call options. I chose IBM calls because the stock was trending upward and had a
strong, conservative price/earnings ratio of 18. With the first, I bought 10 IBM call options with a strike
price of 110 and an expiration date of October, and sold 10 IBM calls with the same strike price but a
September expiration. The money I received from the latter paid for more than three quarters of the former
and the rest came out of my capital.

Of course, this is the "horizontal" variety of the "time spread" or "calendar spread." I pulled out several
weeks later with a profit of 54% annualizing to 378%. Subsequently I bought 10 IBM 110 January (1998)
calls and sold 10 November (1997) ones with the same strike price. Note the one-month gap this time
between the Novembers and the Januarys. Later I closed out the position with just a 5% profit annualizing
to nearly 40%.

I pulled out for a significant reason and despite a significant temptation. At the time I concluded it, the
Novembers were worth just over half a point, the Decembers just over two points and the Januarys slightly
over three points. Buying back the Novembers and selling the Januarys to close the position brought me
some profit. Please note, however, that after buying back the Novembers I could have held on to the
Januarys and sold the Decembers.

The Januarys had already been paid for--mostly by the sale of the Novembers when I opened the position
and partly by my own capital at that same time -- so I could have held on to 10 Januarys worth a little over
$3,000 and sold 10 Decembers worth just over $2,000, minus a bit over $500 to buy back the Novembers.
Why, then, did I not simply pick up the phone and plunk $1,500 net cash into my brokerage account?

872
Because of the trend, friend. By this time, IBM shares had lost upward momentum and kept shilly-shallying
in the high 90s and low 100s. As for its options, those 10 January calls were worth $6,375 when I opened
the spread position and only $3,125 when I closed it. Fortunately, my sale of the Novembers had paid for
nearly two-thirds the cost of the Januarys, shielding me from subsequent loss and allowing me some profit.
Yet only a timely exit could prevent further melt-down.

Those Novembers I sold for $4,125 shrunk to $562 as of when I pulled out and at the time of this writing
are expiring worthless. Bad stories all around me! My role as spread strategist kept me out of the first three
waves of attacking infantry. Had I sold those Decembers, that would have obligated me to hold on to the
Januarys for a few more weeks while the Decembers shrank in value, since the long (January) end of a
spread covers the short (December) end. What if IBM stock remained lethargic and the related call options
kept dwindling? Would a $1,500 gain on short Decembers be such a comfort if much of the $3,125 melted
off the long Januarys? I ended the party when the stock trend drowsed. Worth repeating: A spreader must
also be a trend-tracker.

When one speaks of "investment psychology," one is merging to somewhat "iffy" sciences. In the 1920s,
arch-skeptic H.L. Mencken wrote, "The psychologist today could be like the pathologist but is closer to the
osteopath." During the 1920s, osteopathic medicine was part science and part cult, though the former facet
was expanding and the latter diminishing. The first school of osteopathy began in 1892, teaching a system
of therapeutic bone-manipulation which any farm-hand not a dullard could master in a few weeks.

However, osteopathic medicine proved strongly eclectic, continually borrowing from conventional
medicine. As its schools began teaching about endocrinology and enteropathy and ectopic pregnancy, the
flunk-out rate increased alarmingly. It was losing its "old friends" or their next-generation counterparts. By
the 20s decade it had ceased to be an easy road to a doctor's degree for ushers and bellhops, farm-hands and
hospital orderlies.

Today the training for a D.O. (Doctor of Osteopathy), is the same as for an M.D. except that the D.O. also
receives instruction in bone-manipulation. Yet how easily mankind steps back in time at the futures
exchanges and options exchanges. The tractor driver or the livery driver brings out his checkbook and plays
hunches. The grandmother trades after a smattering of relevant reading. The minister prays for bond futures
to rise, completely forgetting that the short-seller prays just as devoutly the other way.

This is a return to 1890s osteopathy, or Ragtime Era chiropractic by correspondence, or homeopathic herbal
medicine on the frontier. Wisdom is what fits into a saddlebag next to a charm to ward off rattlesnakes. If
Arch Crawford tried to revive 1910 astrological medicine he would face arrest for quackery. However, his
stars & planets' newsletter aims at your bankroll and not your vital organs so he is safe.

Admittedly, not all "esoterica" is necessarily hogwash. Despite controversies over theory, many people past
and present have experienced physical relief via osteopathic manipulations. In trading, W.D. Gann may be
compared to the years-ago doctor of osteopathy after he began borrowing extensively from conventional
medicine. Gann's non-numerology and non-bibliomancy writings are to a substantial extent a re-write of
Charles Dow Theory. Nevertheless the two W.D. Gann books in one The Truth of the Stock Tape & The
Wall Street Stock Selector provides powerful trend-oriented ammunition for spread traders in stock options
no matter where he obtained his information.

The spiral number-map from the Gann arcanum, the Square of Nine, was said by Halliker to derive from
classical Greece's Pythagorean Cube and by R.J. Flower to be based on "the ancient Mesopotamian chart."
Skeptics may dismiss it except that it contains a delightful Practicality Clause. What if a stock is falling
when Square of Nine doctrine and theory say that it should be rising or vice versa?

Chris Kakasuleff in the first issue of Gann & Elliot Wave (now Trader's World) wrote about "what I call
psychological inversions. You will be expecting a low, as predicted on a particular (Square of Nine) angle
in the last cycle, but instead on the same angle in this (current) cycle you get a high. What you do here is
invert or reverse all the highs and lows from the last cycle. . . . In overcoming this aspect of the Square of

873
Nine in trading it's fairly simple to just watch the trend between the angles. If the market action is the
opposite from what it was doing in the prior cycle, the trend may be reversing."

In other words, it is nice that you have your eyes when the map says desert sands and you find yourself
facing an expanse of sea. "It's fairly simple to just watch the trend between the angles." Yes, and perhaps
more anchored in reality than the quasi-Cabalistic spiral of numbers. How about Occam's Razor between
the Nine and the Trend? In a modern observatory, you will not find a perpetual motion machine next to a
radio-telescope. In trading, they perennially exist side by side and plenty of people choose the wrong item.

Mentally and psychologically, people are still people, easily bridging the gulf between the computer chips
and the root-sorcerer's wigwam. Schools of osteopathy have become far more choosy in accepting
applicants but brokerage firms have not. If you show up at the broker's office dressed as Julius Caesar, the
folks there might hesitate. Otherwise, no warm body with a checkbook flunks out.

A young man was considering opening a shop. His brother arranged a meeting for him with two partners
who owned a three-story property with store-front for rent. He failed to appear. Later he told his brother. "I
overslept. But that's okay. I've been thinking that I might buy the building."

"Bill, with your credit history, who's going to give you a mortgage?"

However, another hurdle exists before that one. He will not even get out of bed for a business appointment.
Yet he talks about buying buildings! A pathetic gap between aspirations and actions. The daydream climber
of the snowy Matterhorn who stays home on cold days. The armchair jungle explorer who fears
Dalmatians. Someone once said, "We judge others by what they have achieved. We judge ourselves by
what we feel capable of achieving." Of course, we should believe in ourselves, our abilities and futures,
but that "feel capable" can be quite a self-deceiver. Every saloon has its "feel capable" Andrew Carnegies
hiding from the bill collector.

My parents owned a guest house in pre-casino family-resort Atlantic City. One family who rented
mentioned in conversation that they had invited an uncle to join them at the shore, but he refused because
he had heard that there were no bars in Atlantic City. Several miles down the New Jersey coast, Ocean City
is a "dry" community with no bars or liquor stores. The shot & beer hearsay that had reached that uncle
apparently misinformed him as to which shore point practiced Prohibition. He was determined to preserve
and protect his barfly life-style but not at all determined to get his facts straight.

About a block from my parents' guest house, a grocery store was owned by a Jewish man who worked it
long hours and stocked it so extensively that it was practically a miniature supermarket. Within sight of
there, another grocery store was owned by an Italian who stocked it poorly and sometimes opened for
business, sometimes did not.

After shopping elsewhere, my sister was passing the latter place when she realized that she had forgotten to
buy an item. She went into the store and asked him. The grocer pointed to the brown bag she was carrying
and said, "Get it where you got all the other stuff." His lousy business sense and lousier manners are beside
the point right now. The key item is the "casual glance" essence of his knowledge. Could you imagine him
going to the microfilm department of a library to dig for facts? Or phoning Canada to get information? He
would have little knowledge beyond what he could gain from a "casual glance."

The amusing thing is, I can imagine all three of these characters taking up trading. Other potentialities
exist. They could gamble at the track or casino. They could borrow from a loan shark who has a human
gorilla sidekick. Still, the possibility persists that they could start trading futures or options as "the no-effort
path to wealth" or the "don't-strain-your-brain bridge to easy street."

I call this "amusing" because their losses are my gains. When you purchase Chrysler shares, your
investment capital forms some linkage with cash of people buying cars. With options and futures contracts,
the only profits you can make come from the treasuries of other traders in these wasting-asset securities.
Centuries ago there was a belief that crocodiles wept while eating their victims. Hence the expression

874
"crocodile tears." Gee, it breaks my heart to do this but I'm still doing it. I do not cry false tears. Yet every
time I take a profit, I wonder which would-be millionaires lost the buffalo I roast or salt away.

In my most recent venture, I watched Dell Computer stock for a time, with its beefy, multi-point options.
However, I stayed away as long as it either rose or stayed at the same altitude. With its inflated (over 100)
price/earnings ratio, it seemed a prime candidate for a decline, but I held back until it ebbed and ebbed
again. Finally it fluctuated within the low to mid 80s, from a week's-earlier high of 103-7/8. The downward
trend plus the weak P/E ratio made Dell appear a good prospect for a spread with put options. (Stock
symbol DELL; option symbol DLQ)

For put options to be out-of-the-money, of course, the strike price must be lower than the share price. With
a spread position, the strike price should be close enough to the share price to make the options plump but
far enough that a slight fluctuation of the stock will not place the options in-the-money. 75 seemed about
right. During the first week of November, options with November expirations were shriveled but
Decembers and Januarys had girth. More exacting than at some times previous, I look for short-end options
(Decembers in this case) with 2-½ to 3 points or better and a spread or gap of 1-½points or less.

I entered an order to buy 10 options/sell 10 options with debit spread of I-¼ points, the already existing gap
according to the latest quotes. I bought 10 DELL/DLQ puts January 75 for 6-¼ points and sold 10 puts
December 75 for 5 points, the difference being 1-¼ points as ordered. Stated it dollars, I bought the
Januarys for $6,250, sold the Decembers for $5,000 which paid off most of the Januarys, and paid the
$1,250 difference or debit spread plus commissions out of my own capital. Anticipating exiting
commissions at pull-out time, the break-even point would be a gap or spread of 1-½ points or $1,500.

As I enter the battle with four parts other people's money and one part my own under my banner, I cannot
help but wonder who paid the $5,000 (the December puts) that formed the protective phalanx around my
$1,250 or $1,500. Was it the young "businessman" who talks about buying buildings but stays in bed? The
barfly seeing the broker's pink slip through Canadian Mist? The gambler who hopes the system that failed
with keno will work with options? The ballpark hunch-player or the casual glance shop-keeper? The
esotericist who thinks that stock fluctuations are coded in the Bible?

Of course, part or all of the money may have come from intelligent traders more daring than myself.
Nevertheless, you cannot help but be a philosopher about human nature when you make a profit off the
man who bets the store on his mother-in-law's inmate number. I do not advocate trading for revenge
purposes but the market's despotic indifference must be faced. The spread strategist makes money from
financial hangings and burials.

A week after I opened the spread position, Dell stock plunged and placed in-the-money the December 75
Puts which comprised the short end. Toward the close of the November 12 trading day, the December 75s
were 2-¾ points into the money and trading for 5-¾ points. This meant the option's price consisted of 2-¾
points "intrinsic value" and 3 points "time value." When shorted options are in-the-money the trader must
consider pulling out to avoid an exercise. However, the option-holder or long-player is discouraged from
exercising by the fact that he would take intrinsic value but lose time value, substantial in this case.

In-the-money options, when exercised, are assigned overnight, so the figures in the final hour or half-hour
of the trading day are the key ones. The day closed with my short Decembers in-the money but the "time
value" appeared sufficient protection against an exercise. However, my standing rule is, "One night okay
but not two." I prepared to pull out if the puts remained in-the-money at the close of the next trading day.

For much of the next day, they were in-the-money. How would I pull out, if necessary? At one point, the
Decembers were bid 7-1/8, ask 7-5/8, last traded 7-¼. The Januarys were bid 8-5/8, ask 9-1/8, last traded 8-
¾. If I told the broker, "Buy back the Decembers at the market. Sell the Januarys at the market. Both to
close the position," what is the worst that could happen? A buy-back at the ask of 7-5/8 and a sale at the bid
of 8-5/8, for a spread of just a single point and less than that after commissions. I needed 1-½ points to
break even.

875
I would have entered the transactions separately, one right after the other, instead of together. Also, I would
have targeted the "last traded" figures to get away from the "worst" figures. When a spread is dismantled in
two stages, the short end customarily goes first. I would have entered a bid to buy back the Decembers at 7-
¼ and then offered the Januarys for sale at 8-¾. If nothing happened, i.e., no transactions soon, I would
have compromised 1/8 point on either end for a slight loss for the sake of expediting.

So what happened? Early in the trading day's last hour, Dell rose to 75-¾, nearly a point out-of-the-money.
Then the shares climbed further to close at 77-1/16. Back in business. In the nine trading days since then,
time-decay has eaten at both the December and January options but more rapidly at the former, the standard
process which gradually unearths the gold nuggets by widening the gap or spread.

George Angell wrote in his Winning in the Futures Market book "Although spread trading has been likened
to 'watching the paint dry' -- boring, yet predictable -- there are risks involved. For this reason, you'll want
to monitor at least the closing prices daily." Of course, I agree that risks are involved and that the prices
should be monitored daily, especially the closing ones. However, I find nothing particularly boring about
either risk shields or one profit following another. Speculating in options, futures or high-flyer stocks can
be as exciting as a crap game but also as wallet-emptying. Spreads are like the jewelry store, experiencing
slow periods but usually producing steady gains.

It is one day short of three weeks since I began the Dell spread. Today's closing prices: The Decembers last
traded at 1-3/16, the Januarys last at 3-1/8. A spread of 1-15/16 for an after-commissions paper profit of
$437.50, a 29% gain annualizing to 493%. Granted, these are graveyard profits. As you can see, the
Decembers that people paid $5,000 for are now worth not quite a quarter of that. Also, folks who bought
Januarys at the same price I did but without spreading are minus precisely half, from $6,250 to $3,125.
Smith's "Am I Blue?" is Jones' "Many-Splendored Thing."

One must be practical. When I looked up the term "pragmatic," it turned out to be a word that took funny
bounces. Merriam-Webster linked it to "practical" and the verb "to do," but in formulating opposites . . .
well, judge for yourself from these definitions: "relating to matters of fact or practical affairs often to the
exclusion of intellectual or artistic matters; practical as opposed to idealistic." Example cited: "Pragmatic
men of power have had no time or inclination to deal with . . . social morality." K. B. Clark.

Must this be? Must practical men and women of finance be obtuse regarding fine arts and the good of
society. Please, dear trader, let yourself be irrefutable proof to the contrary. Nearly everyone has heard
about the cyclone-force controversy that surrounded Clark Gable saying the word "damn" in the 1939 film
classic Gone With The Wind. Yet few people have heard of another controversy surrounding that same
motion picture, a censorial dispute probably far more significant.

One-time Catholic publisher, Joseph L. Breen became the right hand of arch film-censor Will Hays. During
the production of Gone With The Wind, Joe Breen had a dispute with producer David 0. Selznick. Frank
Walsh wrote in his book Sin and Censorship, "Always fearful that any hint of discomfort connected to the
birth process might dissuade some women from embracing motherhood, Breen insisted that shot of Melanie
Wilkes gripping a towel, wincing in pain, and perspiring had to be eliminated. He finally grudgingly
allowed Selznick to show a few beads of perspiration on her face and shoot the scene in silhouette."

Was that Joe's real reason? Another film, RKO's Little Men, showed actress Kay Francis milking a cow. A
Breen subordinate speaking for him told the studio, "At no time should there be any shots of actual milking,
and there cannot be any showing of the udders of the cow." Did he fear that seeing that would discourage
people from drinking homogenized grade A? Or were wombs and mammaries difficult for Joe Breen to
deal with once he became attached to what might be called the "bathrooms without toilets" notion of screen
decency?

Breen was no lone saint. Several years later, David 0. Selznick produced Duel in the Sun, a bloated western
which brought cries of "Filth": from many and "Tedious": from many more. The director of chaplains'
services in Boston, Father John Sheehy wrote a piece published in Variety in which he said he anticipated

876
"thousands of priests detained years longer in the confessionals seeking to dispel the evil images born of
witnessing this alleged entertainment."

Anyone who rents the video to see what the fuss was about will end up scratching his head if not falling
asleep. Everything being relative, though, Duel in the Sun was stronger than those singing cowboy movies
in which the female lead appears briefly at the start to say good-bye and briefly at the end to say hello. Also
stronger than those World War Two movies in which the soldier never smells perfume except on a letter
from the hometown sweetheart. Pro-censorship "traditionalists" are never at a loss when you ask, "As
compared to what?" They simply show the western guitar and the soldier in chapel "like in the good old
days.

What if Mr. Joe Breen and Father John Sheehy beheld some classical art? In other words, what if they were
more deserving of the word "traditionalist" which they freely applied to themselves? Bernard Berenson
wrote in The Italian Painters of the Renaissance.

"In the figure, also, Correggio's command of light and shade, the exquisite coolness yet sunny transparency
of his shadows, discovered new sources of beauty. . . . he remains among the very best who have attempted
to paint the surface of the human skin. . . . the skin too has its importance; and its pearliness, its sunny
iridescences, as in the 'Antiope, ' are a source of vivid yet refined pleasure. Without attention to all its
aspects, no one could have attained to such a supreme achievement as the 'Danae, ' where we watch a
shiver of sensation passing over the nude like a breeze over still waters. Correggio's mastery of light
explains his colour."

Reactions? Father Sheehy probably would have noticed that viewing this frescoer sensuality did not cause
people to collapse into quivering blobs of desire and then crowd the confessionals "to dispel the evil images
born of witnessing." As for Breen, it is a Seabiscuit bet that he would have continued censoring milk pail
scenes.

One can speculate on how they would have reacted to Piero di Cosimo's Magdalene which Richard Muther
described in The History of Painting as "the portrait of a richly dressed young lady. But this lady stands at
the window, through which the sunlight floods the room, enveloping the figure in bright light; gleaming
upon her cheeks, skipping over her hair, glimmering upon pearls and rubies, and refracting in a thousand
colours upon her dark green dress. Other Flemish traits are the use of the three-quarter instead of the Italian
profile view, and the still-life, consisting of salve-box, paper and book, which he has grouped upon the
window sill."

Probably still too luscious and luxuriant for a fellow who only grudgingly tolerated a childbirth-in-
silhouette film scene. This "more than the guy can stand" theme struck near my roots a few years ago when
my old neighborhood, the Italian community of South Philadelphia, sponsored an Italy Renaissance
Festival. The official emblem of the festival -- imprinted on posters, newspaper ads, shopping bags -- was
the top half of the Michelangelo David.

This symbolized more than the festival's organizers intended: A sticky mis-blending of more than one
tradition: 50% Michelangelo and 50% Will Hays; Italian culture out in half by Disney TV tradition; Old
World cuisine on the lasagna tray and "Those were the days!" Archie Bunker-ism in the armchair. So some
of my paisans have fumbled. I ask you, dear trader, to do better at carrying the ball. Apply the word
"tradition" to yourself and let it be worthy of the name. Guard society against its "guardians."

Also, the trader without more than one area of interest carries an extra hazard. Speculating can be fine as
business but is lethal as "entertainment." Oscar Wilde wrote, "This suspense is terrible. I hope it will last."
Use trading for thrills and suspense and, like the horse-player, you will gain excitement while emptying
your bank account. It is less expensive to be fascinated by the wry wit and moral laxity of British
Restoration drama, the atmospheric intricacies of Alhambra architecture, or the clouded-in-centuries
mystery of Etruscan tombs.

877
Be the practical trader, of course, but do not be "pragmatic" in the dictionary sense. Fine arts and the good
of society are also your domains. Nevertheless, success in trading means lawfully picking the pockets of
other traders. Josh Billings wrote, "A wise man profits by his own experience, but a good deal wiser one
lets the rattlesnake bite the other fellow."

RECOMMENDATIONS: W.D. Gann's two books in one bound volume The Truth of the Stock Tape &
The Wall Street Stock Selector are available from L & S Trading, phone 970-586-6262. George Angell's
Winning in the Futures Market is available at major bookstore chains.

Web Surfing - Rodney Lim

Here are some web pages that I tend to visist on a regular barsis. Hope you find some useful information
here. Anyone want to share any others?

CME Real-Time Quotes

www.cme.com/cgi-bin/flash.cgi

CME Globex Quotes

www.cme.com/cgi-bin/flash.cgi

Allendale's Oopening Calls and Comments -- Grains and Meats

www.agriculture.com/markets/allendale/avpagef.htm

STA's Opening Calls -- Agricultural & Financial Markets

stafutures.com/research/acall.gif
stafutures.com/research/ecall.gif

Robert Miner's Sample Market Anaylsis

www.dynamictraders.com/curtrec.htm

Agriculture Online Daily Overview

www.agriculture.com/markets/mktindex.html

Ipso Facto's Blue Plate Special Daily Recommendations

www.ipso-facto.com/fm_char5.htm

Dean Keller's Sample Report

www.caymanhome.net/sample.htm

Moore Research Seasonal Trade Review

www.mrci.com/seastat.htm

Jake Berstein's Weekly Futures Market Commentary

www.trade-futures.com/reports.html

Advanced GET: Sample Market Analyses

www.tradingtech.com/markets/markets.html

Futures Magazine Online

www.futuresmag.com

About the CFTC & Keeping Us Posted About Lawsuits!

Richard Bearse

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Sorry, Trevor Byatt from Australia, but I just have to say it. You're being selfish by requesting CTCN
(issue 40, Vol. 5-5) to suspend their reporting of commodity related lawsuits. As an American citizen I'm
madder than hell that my government is trampling on my First Amendment right to read, write or
disseminate information. How dare them tell me that I can only read about commodity trading if the author
has paid them a fee to be registered by them? I want to read everything I can get my hands on and I will be
the judge of what is beneficial to my trading and what is worthless. I don't need the government doing my
thinking for me.

If my government wants to play big brother, then let them require that anything written or disseminated
about futures and options have a disclaimer such as, "The author/publisher is not a registered CTA," but
that's as far as it should go.

I am keenly interested in knowing everything there is to know about this industry. If you don't care to read
about the regulatory problems, then so be it, but please do not ask that this information be kept from me. I
want to know what is going on! You may not have these bureaucratic problems in Australia, but I bet that if
your right to free speech were threatened you would be the first to yell and scream. Being silent about the
abuses will only encourage the CFTC to be more abusive. You may want to be spoon-fed only trading
strategies and money-making ideas, but if you turn a deaf ear to the very serious freedom of information
problems commodity traders now face in this country, your source of information coming from the United
States will dry up.

You say you would not want to be without CTCN, but unless you encourage reporting on the legal
problems this industry now faces, you may not have the opportunity to read CTCN if the CFTC has their
way. I would encourage you to join our fight for freedom of the press from down under and to get involved.
Write letters, send donations to the Institute for Justice, and just bang the drums.

And, to Dave Green, I ask that you keep us posted within the pages of CTCN and not hide the information
about litigation on the internet. I suspect many traders still do not have internet access. Besides, it's often
too time consuming and inconvenient to dig out information from cyberspace. I like the printed (paper)
form because I can pick it up from my coffee table whenever I want, or take it with me on my commute to
work. Dave, don't let the CFTC make you back off. Don't let Trevor Byatt from Australia make you back
off. Don't let anyone make you back off. You're doing an excellent job reporting on ALL aspects of the
commodity trading industry. Thus, keep giving me all the news about all the various aspects of this
business. If bickering turns someone off they can skip over that article.

Scale trading turns me off, but I know others would devour every thing written about it.

Editor’s Note: Sorry Trevor, you have been out-voted but in an admittedly non-scientific and possibly not
accurate small feedback of our readers. We have changed our mind about writing about legal issues
because all the clients who called or wrote wanted to read about legal problems and law suits. However, in
part you have won, as we plan to limit most of it to the CFTC issues and avoid as much as possible
discussing the other legal matters.

Member Comments & Requests

Mid-America Commodity Exchange Seat Rental - I'm curious if many of the members out there have ever
rented a seat either on the CBOT, CME or especially the MACE. I'm interested in doing so as a way of
lowering the transaction costs associated with day-trading. Will anyone out there in CTCN-land please give
me a jingle at jsalisb218@aol.com

Does anyone have intraday data on advances and declines on the NYSE? If so, please call Howard at 800-
484-1052 (press 4314 after tone).

Editor's Comments

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We have received a number of calls from traders asking us if we know what happened to Mr. B.A.
Thunman (Bo) of Club 3000 News. According to unnamed but reliable sources, it seems Bo Thunman has
sold Club 3000 to his wife’s cousin. We have also been told the cousin has never traded commodity futures
(but has traded stocks) and therefore assumably is not familiar with commodity trading. A couple mutual
clients told us due to its editor not being experienced with commodities it has allegedly already detracted
and assumably will continue to detract from the value of its publication. About Mr. Thunman, we have also
heard he has been busy daytrading the S&P 500 market since he sold Club 3000. He sure will need lots of
luck to be successful at it!

We have several complaints over the past several years about this unfriendly rival. Of major importance is
their allegedly not allowing some articles the editor did not approve of. In addition, they have also allowed
negative articles to be published about a vendor but subsequently forbidden a positive article about the
same vendor. This can be said by first-hand knowledge. Another problem is their disallowing certain
parties to subscribe for no valid reason.

Perhaps the major problem with Club 3000 is their routine recommendation to inquiring traders who ask
for a trading system recommendation that they contact Futures Truth and acquire one of the Futures truths
"Top-10" Systems. They also maintain a strong association and very close link to the Futures Truth web
site from their own site, virtually assuring web site visitors also end-up also visiting the Futures Truth site.

On the surface this arrangement may seem all right. However, it’s alleged by many parties the performance
of the top-ranked trading systems listed in the Futures Truth Master Performance Tables rarely seem to
perform as well as indicated once the unsuspecting trader gets the top-ranked trading system.

We have heard about many unsuspecting traders who have routinely purchased a trading system based
mostly (or even solely) on its high ranking by Futures Truth. Once they start trading the system, it’s alleged
the trading results are usually vastly inferior to the performance statistics published by Futures Truth. As
mentioned before, John Hill and George Pruitt of Futures Truth have been asked a number of times to write
an article on this apparent oddity but for unknown reasons it seems like they don't want to address this
important issue.

Our battle with the U.S. Commodity Futures Trading Commission is an ongoing event. They continue to
ask for more and more info as time goes by. "The CFTC's "strong-arm" tactics may eventually eliminate
your Constitutional Rights to get our products & services!" A Press Release from Commodity Traders Club
News. The following discussion about the CFTC was for the most part written by Curtis M. Arnold of
London Financial, who is threatened with extinction due to the CFTC's investigation of them:

"The win and loss record compiled by the CFTC in actions or so called "formal orders of investigations"
against commodity futures product and service providers is nothing less than uncanny, until you know all
the facts. The facts are the U.S. Commodity Futures Trading Commission is set-up so that they can't lose,
as it appears they are the prosecutor, judge, and jury.

They even collect the award (the plunder), which goes directly into their coffers. That's right, the CFTC
appoints its own judge and pays his salary. Can you imagine what the effect would be on his career
longevity if he ruled against the CFTC?

Once the defendant has lost his case in front of this appointed judge can, of course, appeal the decision to a
higher federal court. But by then, his financial resources have in most cases been exhausted. You can see
why targeted victims, emotionally drained and financially ruined, stand little chance of winning the way the
system currently stands."

We can only hope that those representatives in Washington, who we elected to protect our interests and
liberties, hear our collective pleas for action against this agency, before we decide to leave the commodity
futures business. Our leaving this business would be a direct result of the CFTC. Sincerely, Curtis Arnold,
London Financial.

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Editor's Comments: The CFTC’s powerful investigative tactics include things they have done like getting
individual and company bank records from seven different banks in two states, going back many years,
involving many different bank accounts maintained over the years at these many banks (both business and
personal), and them demanding copies of every deposit and check for over $200. They even demand info
on Bank Signature Cards, Loans, Safe Deposit Boxes and other totally private matters. One bank illegally
(apparently in error) sent all the bank records of the spouse (not a party to the investigation) to the CFTC.
In spite of the apparent error the CFTC said they intend to use the spouse's bank records, deposits and
checks. The CFTC even filed Motions to defeat the attempt to Quash those illegally obtained records. This
was in spite of the fact the CFTC admitted in writing they were not entitled to receive these third party
bank records

The amazing thing about this entire matter is the CFTC refuses to say why they want this private
information and does not have to give the banks or court any reason for this gross seemingly totally
unconstitutional invasion of privacy and apparent violation of the Right to Financial Privacy Act! How can
this occur in America? Seems impossible doesn't it? But it's not! The U.S. Commodity Futures Trading
Commission's power and authority is more akin to Communism than America! The CFTC has unbelievable
and amazing power. More power than the Police. More powerthan any other government agency, including
the I.R.S. It's beleived the CFTC has more power than anyone in America!

We can't understand why they are investigating. Perhaps it’s because of not being registered as a CTA.
However, the National Futures Assn (NFA) has been called a number of times in the past and the NFA was
always non-committal on the question about the requirements which demand CTA registration. Sometimes
they have said things like "it’s a grey area," or "it’s up to the caller to figure it out, etc." They have been
vague on this question in the past. In fact, a friend recently called the NFA are asked if he needs to register
as a Commodity Trading Advisor and say's he got the runaround and non-committal response.

Perhaps they investigated because a mean-spirited person may have said trading profits were promised (not
true). Perhaps they don't like the verbiage used in trading methodology advertising materials. However, the
advertising included an offer for a very rare full 1-year money-back guaranty if anyone was dissatisfied for
any reason. Subsequently, refunds or credits were provided to everyone who qualified for a refund under
the terms of the money-back guaranty made in 1996.

Only about 15% of the trading method clients of CTCN requested a refund by the end of the 1-year
guaranty time period. This means the vast majority (about 85%) of trading method clients were well
satisfied with the product. We also have a continuous pro-rata money-back guaranty offer covering
Commodity Traders Club News publication. It's very rare CTC ever gets newsletter refund requests. On
the odd occasion there is one, a prompt and courteous pro-rata refund is given.

It's hard to imagine why the U.S. Commodity Futures Trading Commission is so interested in investigating
to such extreme lengths, like mailing an 18-page Questionnaire to clients. Even allegedly checking Internal
Revenue Service Reports and/or doing a Credit Report on the investigated party. However, how in the
world did they find out the name and address of the seven banks they sent subpoenas to?

A note to any commodity product or service suppliers who may be reading this. Rather than fight the
CFTC, as most do, regarding them demanding your mailing list or client list via their subpoena power,
simply give it to them! At first we regretted doing this but some time later realized it actually helped us!
They used this list to send their 18-Pg Questionnaire. Thanks to it, the CFTC ended-up getting lots of
positive comments and testimonials about CTCN, which helped the CFTC in determining the scope of it
all.

We did not like the idea of giving them our mailing list but in the long run it was most beneficial to all
parties. We normally would refuse to turn this information over but had to do it to comply with the CFTC's
"Subpoena Duces Tecum.@quot; It turned-out their subpoena duces tecum was only an Administrative
Order, and a non-self-enforcing subpoena, but nevertheless something which would prove very difficult to
fight.

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 Unfortunately, the CFTC is an example of the amazing power and authority a United States Government
agency can have. Financial Privacy, Personal Privacy, Privacy Acts, First Amendment, U.S. Constitution,
these are all things the CFTC allegedly ends-up violating, but we are sure not intentionally. We are
convinced the CFTC does not willfully want to violate these privacy issues but in effect they do due to their
amazing power. This is happening right now involving a number of financial publishers and trading
products and service providers. As the Institute for Justice say's, it seems the U.S. government sometimes
acts in ways which indicate you should not be allowed to obtain knowledge on futures. This sometimes is a
factor in putting some commodity futures businesses out of business or stopping others from entering the
business.

However, if the trading product author or supplier will register with the U.S. Government, subject
themselves to fingerprinting, FBI background checks, costly, extensive and time consuming applications,
payment of sizable fees and costs, including ongoing and considerable accounting expenses, be subject to
unannounced audits, subject their website and advertising to constant scrutiny, and pre-authorize payment
of large fines or license suspension with no due process of law, then the CFTC will let you register and
produce commodity trading information.

Talk about "Big Brother" and a "Police State!" Unfortunately, this scenario is quite un-democratic and un-
american! This is happening to many firms and individuals in the futures business. It seems the CFTC's
scrutiny and rules go to extremes, as witnessed by sending hundreds of 18-Page Questionnaires to clients
and the issuance of the many subpoena-duces-tenums.

Subsequent Editor's Note dated December, 1998. Good News! A Settlement Agreement has been signed
and the matter is concluded. Click-here for more details.

It would be extremely supportive of you if you would do CTCN and your Editor a huge favor by giving a
testimonial type of letter. It may be handwritten or typed, short or long, informal or formal. Please write
CTCN with a testimonial, or expressing your support of both myself and Commodity Traders Club,
including any of our products or services you are familiar with.

Note: If we select what you had to say for reprinting, you may be assured we will never use your address,
phone number or reveal any personal information, other than your name. In fact, even your name may be
withheld if your desire. Let us know if you only want your initials used.

You may mail us a letter for any comments you have, including testimonial you elect to give about your
satisfaction with any of our products, including our Real Success S&P Video Tape Educational Training
Course, any of our other trading products and services you are familiar with, including Software Programs,
the Commodity Traders Club News publication, and of course, very importantly, any personal opinion you
may have on myself, Dave Green.

Still another alternative is to write to Senator Tom Harkin of Iowa, who we understand is the primary U.S.
Senator involved in a Bill now before the U.S. Senate involving pending CFTC legislation. Write to Sen.
Harkin at the U.S. Senate Office Bldg., Washington, DC.

Issue 42.

Winners And Losers, The Difference Between Those Who Make It & Those Who Bomb Out -
Anonymous Author

How do you account for the difference between those who "make it" and those who "bomb out" in any
effort in life? Talent isn't the whole answer. Nor is luck. There is another element that separates winners
from losers.

When a winner makes a mistake he/she says, "I was wrong." When a loser makes a mistake he/she says, "It
wasn't my fault."

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A winner goes through a problem. A loser goes around and never gets past it.

A winner says, "I'm good, and I can be better." A loser says, "I'm not as bad as a lot of people."

A winner says, "I'll be glad to do it." A loser says, "That's not my job."

A winner listens. A loser just waits for his/her time to talk.

A winner takes responsibility for his/her actions. A loser blames others for his/her problems.

Greg Donio's Response to Patrick Smith

Several months ago, Patrick Smith wrote me a letter that was printed in Club 3000 News. He asked if I
"really" made those option spread trades described in my CTCN articles. Asked also if I were a broker or a
systems-vendor or a money manager trading other people's cash or a huckster of penny shares for Sloppy
Joe's Eating Emporium. Well, maybe not the latter.

I sent a reply to Club 3000, but they neither printed it nor forwarded it to Mr. Smith. Whether that outfit's
recent "change of command" resulted in a canceling of scheduled jousts I do not know. Anyway my Pony
Express message was lost in the cactus.

I, hereby restate my reply: I am an independent trader and a free-lance writer. Period. The transactions
detailed in my articles are quite real and also appear on Form 1040 Schedule D. My advertisings were and
are for the sale of federally-copyrighted free-lance manuscripts on finance that I wrote. People who phone
Dave Green and want to contact me are informed by him that I am a financial writer, not a financial advisor
or a manager of other people's money. I independently trade my own capital.

As for "systems-vendors" who charge immense amounts, I am a hide-bound skeptic. When someone writes
a "break the bank" book on dice or roulette, the question persists of why the writer does not continually
scoop up fortunes at the gaming tables, why he has to sell these books to make money. The absurdity
reaches elephantine proportions when systems-vendors charge $3,000 or so. If that system will take you to
the financial moon rapidly and easily, what is its vendor doing in Peoria glad-handing check-writers?

Pat Smith mentioned commissions. Admittedly, spread strategies are commission-heavy, with two
commissions going in and two going out. However, I find that not much of a problem because of that
potent ingredient native to spreads: Other people's money.

In the November/December issue of CTCN, I told of buying $6,250 worth of Dell January options and
paying for most of it by selling $5,000 worth of Dell Decembers. I paid the difference of $1,250 plus about
$250 in entering and exiting commissions. Other people's money totaled four times my capital and 20 times
my commissions. I should weep?

Spreads are an alchemy formula welded to bookie tactics: It works thanks to the influx of other people's
gold. One need not be a broker to "take bets" from other traders. The "short end" of the strategy includes
that. Also, there is no better axiom than, "Handle speculation like a business, not like a gamble." Buying 10
options and selling 10 amounts to a nice Cartier-gems-in-the-satchel way to do business. Gems, not
rhinestones, Mr. Smith.

All businesses must tolerate a certain amount of risk and a certain amount of overhead. I have found that
spreading with options transforms the crap game risk inherent in puts or calls to a business risk. As for
overhead, I live in Manhattan where shops and firms pay foundation-straining rents. A quarter of a point
($250 an 10 & 10) is far from a bone-breaker, especially since it usually comes off the optioning profits.

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If Patrick Smith also wonders whether I am "really" a free lance writer, I shall mail him a copy of my
article "Ghosts & Demons of Old New Jersey" from the Atlantic City Press, sections of which appeared on
the front page of a Wall Street Journal Halloween issue. One night near the Absecon salt marshes will make
a believer out of Patrick!

More Book Ideas for Eager Readers - Buzz M. Ross

I recently discovered some interesting reading that I want to share. In particular, I'm currently delving into
three books that address different areas of trading, investing and business.

The first one that I am most fascinated with, is "SOROS: The Unauthorized Biography -- The Life, Times,
& Trading Secrets of the World's Greatest Investor" by Robert Slater (softcover, 1996, McGraw-Hill,
$14.95). There have been other books written by and about this most successful trader, but this is a very
fascinating read.

You can learn a great deal about the background and experiences of George Soros and the general
philosophy that helped make him so successful in the financial markets. Although, you won't be given
specific "systems" for trading, there are many valuable insights about markets and trading that can be
learned, and if truly understood, can be used by any of us to improve our trading strategies and help us
develop better systems.

It certainly doesn't hurt to learn from the "best" and "most successful" role models in our endeavors, and
Soros is definitely amongst the best! I highly recommend reading and studying this book for valuable
guiding insights.

The second book that should be of interest to those who want to gain an understanding of how various
industries affect each other and the economy is "Bound For Growth -- How to Pick Winning Stocks Using
Industry Analysis" by David Wanetick (hardcover, 1997, Irwin books, $27.95). Although directed more
toward stock investors, futures traders can profit from using much of the info in this book for assessing the
various commodities that are used by the many manufacturing and producing industry groups that are
analyzed here.

If you use stock group analysis and ranking to help evaluate stock and/or commodity market strengths, then
this book could be a good reference for your trading vehicle selections. I find it interesting reading to see
how all the different business sectors in the economy relate to each other and seasonally function.

Finally, the third book that I strongly recommend is "Mark Bunting's Virtual Power -- Using Your PC to
Realize the Life of Your Dreams" by Mark Bunting (hardcover, 1997, Simon & Schuster, $23.00). The
author makes a great case for becoming involved with the computer as a very powerful tool for business
and personal endeavors.

He cites his own experiences and how he, at age 28, quit a $100,000-a-year job (having no computer
expertise), learned how to use the Internet and then pursuing his passion, wound up starting and having a
$20-million company within a few years. He describes cases of people from many walks of life and various
situations who have used computers to significantly improve their lives, both business-wise and personally.

The book contains many terrific ideas, a huge dose of inspiration, and much wisdom, For anyone reading
this work, the message is clear -- get involved with, and learn to use, our modern marvels of technology:
the personal computer and the World Wide Web Internet system. For those of you who have been reluctant
to use the computer, this book could open up a whole new world of possibilities. For the rest of us, the
book encourages exploring ideas that can help us do even more with what we are already familiar.

Dave, again thanks for using my submissions and requests, and especially all the wonderful work you're
doing with CTCN! I am very angered that the CFTC has been hassling you and others, who are really the

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only people in this industry that have the Integrity that this field sorely lacks! CTCN is one of the few
forums we have that can provide some semblance of sanity and truthful information for the "little guy" in
this treacherous business. Thank you so much!

"Buyer Beware!" - Marc Mitchell

About various trading systems by David L. Wright, PO Box 611741, Port Huron, MI 48061 and also of 33
Fourwinds Road, London, ON, Canada, N6K 3L1. And: Grant Bloomfield of 443 Exeter Road, London,
Ontario N6E-2Z3.

In December 1994, I purchased David Wright's S&P system called CHERRY PICKER for US $895.00,
also purchased Trade Station for approx. $1,800 and invested in a real-time quote service for about $500 so
I could trade the system. I paper traded only. I called mid-December various times to clarify questions,
David was on vacation but his trading associate Grant Bloomfield answered.

I noticed he didn't have clear answers so I asked him point blank if he trades the Cherry Picker. He hemmed
and hawed and finally said no. David has such great results on his promo, one winning month after the
other, no losers, I said why in the world wouldn't you trade it since you're working with him and could
learn first hand? His answer was, he has his own system. Make sense? No, not when you see David's promo
piece - spectacular returns!

Trading one unit

May 1994: + 530 points=$ 2,150
June 1994: +2900 points=$14,500
July 1994: +1740 points=$ 8,700
August 1994: + 725 points=$ 3,625

I wanted to trade successfully. So when David came back from vacation I called him daily, going over
every signal that occurred to make sure I was doing everything right. I continued tracking every trade.
When there were losers (of which there were more than winners) I pointed this out to him. David's answer:
"Well, yeah, I don't really trade every day, let me see...." But on every winner his response was pretty
much: "Yep, that's the Cherry Picker alright, made good money today."

Once he spoke about how one could make 6-digit figures. I got fed up with this so I got an S&P tick by tick
database for 1994 and went back to his daily track record on the promo, comparing every trade the system
gave with his track record. Nothing matched.

He must have totally arbitrarily thrown numbers next to each day and given it to the printer. Luckily I never
traded it with real money, so I never lost money trading it.

I then put an ad in a futures newsletter asking for other's experience with the Cherry Picker. About 15
people called who had the system or knew someone who did and not one had been able to use the system
profitably.

I also found out from these traders in the previous years to my trading he has promoted and sold at least one
Bond system, Pork Belly system, another S&P daytrading system called Dual Cross, then he came out with
the "better" Cherry Picker, then the "Mid Day Pop Star for S&P," "Pop Star for T-Bonds and Currencies"
and "Wonderbar Custom Indicator for S&P." The last one he's selling due to the "many requests lately from
folks who would like to become profitable full-time day traders." This was early 1997. All of these have on
the promo back side astoundingly profitable track records.

David Wright has been selling one system after the other for at least ten years. After he's covered mailing
lists with one system, he creates another system and another and another, each worthless. So buyer beware,
he's getting your money and you're getting next to nothing of value in return.

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Then there's Mr. Grant Bloomfield, 443 Exeter Road, London, Ontario N6E-2Z3, the earlier mentioned
trading associate of David Wright. In October of 1994 I received his promo piece, made up just like David's
but selling his currency trading system, called the Little Gapper.

The Swiss Franc results:

April 1993 $867 May $1,227
June $1,263 July $423

August $1,375, and so on, not one losing month. Looks great, doesn't it? Too bad, it doesn't work.

He has a special offer of course, generous as he is, for $310.00. Totally mechanical. So I called him for his
Real-Time track record since I had been already been conned by David Wright. Grant's answer: "If I got
involved in sending all that information out to everybody, I wouldn't make anything on the system, at the
price I sell it." I guess he takes me for an idiot. The reason he won't send the real-time track record is
because he has none.

Late 1996, I received Grant Bloomfield's promo on SP4, an S&P Daytrading system for an offering price
for limited time of $595.00. Again he has printed on the back the hypothetical trading results, looks
fantastic, results tested with Trade Station.

I've done the same thing within a few hours with TradeStation, looking for bar combinations that would
give good results and kept fine tuning it as I back-tested it. It's child's play, but means nothing for making
money in the markets.

So folks, don't be a victim to these guys. If you are contemplating buying a system because the results look
so tempting -- any system for that matter -- call Futures Truth and see if they tested it in real-time and what
the results are -- they'll give you the facts.

Good trading to all of you from a fellow trader.

Electronic Order Entry on the Internet with LFG's ZapFutures - Mark Byrd

First, I would like to thank CTCN for providing an excellent vehicle for the free exchange of ideas and
opinions (both good and bad). As a new member to CTCN, I have enjoyed reading the back-issues and
reading about the trials and tribulations of other traders.

Before I describe my experience with ZapFutures (Zap) I need to give you a brief background on myself so
you will understand what by biases are.

I have been in the technology business for 25-years and attended a training class in 1973 at a little unknown
company in California called Intel. I started out as an engineer and used to design microcomputers. In the
early days, the designers were also the programmers. I eventually decided I preferred programming to
hardware design so in 1981 I started a software company that catered to the real estate industry. I grew the
company to a multimillion dollar company and sold out to one of our competitors in 1996.

I believe one of the major reasons for my success with this company was that I paid careful attention to the
small details, both as they applied to our product and to our company.

So with that little bit of background, if I told you I was a techno-junkie you might understand why. I have
seven screens on my desk, 5 computers and 2 TVs, all of them providing a specific function. I use
TradeStation and BMI real-time data feed and some of my own software to monitor the markets and my
trades.

I began trading futures about a year ago and was extraordinarily lucky to meet a broker here in Dallas
named Ray Flowers at Dillon-Gage. I was relatively new to commodity trading but not to trading in

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general. I opened a managed account with him and while I let him call the shots I monitored every trade at
my desk. I would normally speak with him 2 to 3 times a day. Ray would call or fax me any time he had
entered or exited a trade. I would enter all the information into an Excel spreadsheet, plus monitor the trade
in TradeStation. Having Ray as a mentor was worth every penny of the extra commission I was paying. As
everyone knows, the commissions are one of the biggest costs of doing business. After about 6-months we
were trading quite a few contracts per day and I had taken over most of the trading decisions by this time. I
used Ray for advice and to place orders. I (like many others) had settled into daytrading the S&P. After
reading what I should be paying for commissions, I asked Ray if we could adjust the commission since I
was making my own trading decisions.

While I knew he wanted to keep my business, he was caught in a trap. He had a cost that he had to cover by
being a broker for Dillon-Gage. He was able to lower the commissions slightly, but it was nowhere near
where I thought it should be. For reference, I was paying $70 RT and he reduced it to $60.

In doing my research I found a company called LFG which was marketing their Internet based trading
program called ZapFutures (actually the program is called LeoWeb but they market it as ZapFutures so I
will call it Zap here). We were able to negotiate an RT rate of $22.54 for the S&P (this includes all fees).
So I regretfully switched from Ray to LFG.

The rest of this article describes my experience with ZapFutures. First, I will tell you that if you don't feel
comfortable with technology then don't use Zap. When things don't operate as they should (which can
happen) you need to be quick on your feet. I use a dial-up ISBN Internet account. While ISDN is certainly
not required, it does come in handy when the connection is broken. Reconnecting takes 5-seconds, not the
15 to 30 seconds required for a modem to dial and negotiate a connection.

I was trading using Zap as LFG went through some of their development efforts. Zap has not always had all
of the features that they have today. The process basically involves typing in an order on an Order screen
and pressing Enter Order. This does not actually Send the order but simply moves the order from the Order
screen to what Zap calls the Pending Orders screen.

This screen resembles a spreadsheet and each order is listed. You can go back and Edit an order at this
point or press Send. This will send all of the orders (with one exception which I will cover in a moment)
over the Internet and print an order ticket on your printer which has the Order Number and a Date/Time
stamp that you can use to challenge an order in the event of a problem.

The two newest features that have been added to the program recently is the ability to receive the fills back
(via the net) on the screen and the ability to place (they call it Park) orders on the Pending screen with a
"check box" next to it. If the box is checked, it means that this order is parked and will Not be transmitted
when the Send button is pressed. This is one of the best improvements that they have made in my opinion.

You can have several different orders pending (or Parked) for how you might want to enter the trade. It
might be a market order or a limit order. Since I can see the real time data on my screen, many times I will
place a limit order (typically and/or Better order) close to the market. Once the order is filled, you can
begin to enter your exit strategies in the pending screen.

Naturally, I always enter a market order opposite of what I used to get in plus a reversing order that would
reverse the trade. The market order is my Stop. I never place physical stop orders. Why should I? I am
sitting in front of a real time data feed and have an order already entered on the screen, so with one simple
mouse click I transmit an "at the market" order and I am out.

If I were going to leave the office for an extended period of time I could enter a stop order. The only order
type that Zap doesn't support is OCO (Order-Cancels-order). So far this hasn't been an issue.

LFG faxes confirmation of the fills, but the faxes can lag the trade by minutes to hours. LFG uses a service
for this. It is not a big deal since I already have the fill on the screen. The fills generally take about 10 to 20
seconds from the time I press the button (or on limit orders from the time I see the market go through my

887
price) until I hear an alert sound on my computer indicating a fill has been received. One mouse click and I
can check the fill.

LFG transmits the preliminary equity runs and the final equity run via fax or e-mail. I prefer e-mail. I can
say that while there is still a possibility of human error, in the 8-months I have been using LFG and Zap I
have not had one single error on the statements. This was not my experience with Dillon-Gage who used
Rosenthall-Collins as their clearing firm. I keep track of my own equity on an Excel spreadsheet so I
simply open the e-mail and verify that my account balance matches LFG's.

A few of the details as I have been given them is that LFG is hooked up electronically to the pits with S&P
being the most advanced. S&P orders go straight from my screen to an electronic card deck in the S&P pit.
In other markets, the order is printed out next to the broker in the pit and he has it in seconds after pressing
the Send button.

I have to say that when everything is working, this is a great way to trade. But as they say "Stuff Happens"
and you need to be prepared for it. LFG has an "Emergency Order Desk" that you can use if your Internet
connection goes down. You can place orders or check on fills. I have had a couple of times that the
connection was broken and because of where I was in a trade I wanted to know the fill price. This was
before LFG started sending back the fills on the screen. I used to have to wait for a fax which could take
from 2-minutes to 45 minutes.

My only complaint is that the account rep that I have is not nearly as knowledgeable as Ray was. I
generally circumvent him and go straight to the president's office which I hate doing. I have complained
about this rep but the president simply says to call him. But then again, for a discount broker I guess you
get what you pay for.

I have looked at several other companies that offer a similar service but the ability to Park an order is so
important to me that unless they have that feature I am probably unwilling to consider them. The last thing
you want is to try and type an order when you don't have a stop in place and the market falls out of bed.
While I consider myself a fairly high speed typist (I should be after 25-years), I would rather be able to
enter all of my possible exit orders ahead of time in a nice relaxed state of mind and then choose the one
that fits the trade best at the moment in time that I want to exit.

Since I currently don't trade any market with Zap other than the S&P, I can't respond to how well the
system works with them. LFG claims it works best with the S&P, bonds, currencies and grains. While you
can place orders before the market opens, this system is not well suited to an "If - Then" type of trading.
What I mean by that is, if you are following a system that requires you to place an entry order if the market
trades at a certain price then you will need to be in front of a screen and watching the price action. That is
the benefit of a live broker. You can give him a set of instructions and he can follow them.

As a software designer, I have spent some time on the phone with LFG's technical staff describing features
that I believe would make the software more usable without changing the underlying design. Believe me,
not all programmers have the ability to sit in the user's chair. They program what is easiest for them, not
necessarily what the user needs. The order entry screen could be made a lot more user friendly.

I will also tell you that the first time you trade with Zap you will be a nervous wreck. There is no manual.
LFG relies on the help files. If you are not comfortable with calling a broker and placing an order don't let
Zap be your first exposure to this world. However, if you are familiar with the different order types, you
call your own shots and you have a reasonable amount of technical knowledge, then Zap may be right for
you. LFG operates two separate web sites. One is www.zapfutures.com and the other is www.lfgllc.com.
You can download a demo of zap from either site.

The first thing most people want to know when I tell them I use the Internet to trade is how well did the
system hold up during the October 97 crash. Unfortunately, for you and fortunately for me I was out of the
country for two weeks during that time and frankly because of where I was (on the USS Vicksburg with my
son in the Caribbean) I didn't even know what was going on. I wasn't in the market and didn't care. So I

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can't tell you how well it performed during that period. Once I got back, I read all the e-mail that LFG had
sent to its customers telling them to either NOT trade or be very careful. I didn't hear anything about
whether the system had any problems during that time.

If anyone would like more information than what I have provided here feel free to call me at my office in
Dallas at 972-699-7788 or e-mail at markb@mbyrd.com. I will be happy to try and answer your questions
and tell you what my experiences have been with this new way of using the Internet to place orders. I guess
I should put in the standard disclaimer that I'm not affiliated with LFG in any way.

Patterns Taught in Ken Roberts Course Wrong 70% of Time but I Am Winning
More Than in the Past - Edward Lord

I enrolled in Ken's course more than two-years ago and have been trading about two-years with real money.
Of course, the course material convinced me all I had to do was what he said and I would be rich in no
time.

What I did not know then was that you could not do it on a $1,000 margin account, as your chances of
"picking" the right commodity or right 1, 2, 3 or sideways channel or option is impossible. Nor did I know
that the technical patterns he teaches are not correct 70% of the time.

I have learned since in order to be successful with his course you would need a huge margin account, so
that you could go in every market that was forming one of his formations as well as to buy/sell every
option he recommends. The odds are than with you that you will hit that market that will make up for all
that you loose.

I have also learned that you need to read a great deal more on controlling your emotions and treating this
business as a business. Read more on what others have to offer and teach yourself how to slow down and
look for those opportunities that meet all the requirements of a good technical formation.

I lost the first year about $4,000. The first half of the second year about $3,000. But now I have more
experience in the markets. Read a lot about formations and management, have a goal of increasing my
margin account, so I will be able to play more markets, and I don't get in every market that is in a pattern. I
place my orders a little higher or lower than is recommended and my stops where I think is resistance or
support.

I have been winning more trades than in the past and amaze myself sometimes with my ability to take
profits. Recently I took profits on hogs 24-hours before the market dumped. I am learning more as each day
goes by and am still very excited with this new knowledge and the markets.

I hope to learn more by reading, subscribing to publications like yours and getting the hands-on-experience
in the market to reach my goal of trading full-time in five-years.

Request: I would like to hear from other Ken Roberts course members and how they are doing. Also, from
other traders who took other simple courses and how they are doing. I would like to learn of books and
courses that would help me at this stage of my development. Please write via CTCN or E-mail me at
mrblue@pcnet.com

"Oh No, Not Again!" - J.L. from Wimauma

I think that's what my "significant other" meant when I announced my latest "breakthrough" and she just
covered her face with her hands! Could she be saying that she's heard all of that before? You guys know
what I mean. Rare is the mate who wants to hear anything about commodities! That's not surprising since
rare is the person who will even recognize the #1 business in the world. A good analogy is sailing a
sailboat.

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When I owned my sailboats, I had many "landlubbers" aboard. 95% of them thought it was "peaceful and
quiet." That other 5% wanted to sail the boat and above all, demanded to know how we could be sailing
almost directly into the wind! Now that 5% would make good commodity traders!

This brings me back to my title. We all hear about the latest mechanical, back-tested system and how after
you buy it, it might only work for a while, if at all. Since the market is the ultimate living, breathing animal,
how could we expect a mechanical system to always work? But there's more to it than that. It's no surprise
that few of us can sit thru the inevitable losing periods and still keep executing such a system. You may not
like to hear it, but I believe I have the answer.

It ain't the money! After 15-years, I've discovered the source of all human joy is accomplishment! I'm
reminded of when I first started trading, didn't know a chart from a fart, and got my trades from copying
another trader's trades at Merrill Lynch. When silver went limit down I made $5,000 and I felt nothing.
Years later when I perfectly executed a trade and made $400, I was on top of the world! So much for
mechanicals. Even when you make money, the human animal in us is flat unfulfilled. Ask me how I trade
now and again in a week, and you'll probably get a different answer!

Warning! Lend me your eyes! I've touted scale trading in many of my articles, at least as a fine learning
level. Now I'm forced to say "Never again" -- at least as an individual trader. I am forced by a sudden
incident.

Last Friday, a gentleman for whom I traded quite a bit of money, fell dead from a heart attack - four hours
after our usual phone conversation! Little had I realized that such an occurrence automatically closes all
open positions. Had we been deep into OJ as we were two months earlier, a great investment would have
become a huge loss! I'm sure that Robert Wiest, the scale trading guru, has faced that problem with his
limited partnerships, but individuals Beware! (Could this be another argument for not taking losses home
with you?)

In closing, who would have guessed that "M.K." was a "girl?" I didn't until she kissed her husband good-
bye. (The fuzzy slippers didn't tip me because I used to have fuzzy slippers.) She says it well with her
sympathy for the "go to work each day" crowd. (Do you think she includes her husband in that number?)
After all, we are commodity traders! I just have to say it: she's almost as clever as I am! M.K., keep those
cards and letters coming'. We love 'em! (And after you kick the day-trading habit you'll probably start
making money, or at least give yourself a fat raise by going to delayed quotes. I couldn't resist that.) So,
fellow readers, let's all accomplish!

Trading Systems - "Secrets of the Masters" A Book Review - Raymond Kohn

Joe Krutsinger is one of my favorite people. His first book, "The Trading System Toolkit" was absolutely
fabulous, it will no doubt become one of the great trading classics of all time, if it is not already. When I
heard that Joe had written another book, I knew I had to have it.

Joe really knows what he's talking about. And he won't waste your time with a lot of "BS" and
"meaningless fill." His personal qualities of character and integrity come through loud and clear in
everything he does. When Joe tells you something, you know it's the absolute truth, and he'll never "fake it"
just to pad his responses, or his writings.

"Trading Systems - Secrets of the Masters" is no exception. 246 Pages, McGraw Hill, 1997, $50.00. The
premise of the book is just fascinating. Go out and interview some of the best traders in the country. Let
these traders talk about themselves, how they got started, and what they are doing today. Get some of their
personal trading insights -- And then, ask them for their "very best trading systems and ideas" (getting as
much information out of them as they will give you) so the reader can understand how these guys think and
trade. And then, to top it all off, provide the reader with the necessary "TradeStation" code to actually run
their trading systems. And, if that wasn't enough, "back-test" the code over the past 10-years and give the

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reader a complete "TradeStation Performance Summary" in order to evaluate the trading systems provided
by these "master traders.

"Now that's a book!

Joe sent out a series of 31 questions and a blank audio tape to 15 system developers/traders. These traders
shared their knowledge, experience, and understanding of how the markets work. Naturally the traders were
a bit reluctant to share every detail of their best trading systems, but that's where Joe's knowledge and
insights of the entire trading process comes in. Because of Joe's experience as a "master systems
developer/trader" himself, he was able to fill-in the occasional blanks and ultimately provide us with the
necessary TradeStation code in order to back-test these systems and actually trade them. (Please note some
of the systems currently being used by the master traders were "expert systems," and therefore so complex
that it was impossible to consider such a conversion. In those cases, the master traders suggested alternative
systems which were more basic, but still in keeping with their trading styles.)

I have to admit I have never heard of some of the people interviewed for this book. However, no one has
ever heard of me, and I've been a systems' developer trading successfully for almost 20-years.

The format of the book is quite simple. The book is divided into two parts. Part One contains 15 interviews
with the "master system developers/ traders," and represents 85% of the book. Part Two contains the
trading system code and performance results in TradeStation format. The 15 interviews are all structured in
the same fashion. Each system developer is given his own Chapter which is referred to as "Interview One,"
"Two," "Three," etc. Each interviewee was given the same list of 31 questions to answer. Both the
questions and the trader's answers are reprinted in the book.

Below is list (paraphrased for brevity) of questions asked. As you read them, try and imagine how great it
would be to have these questions answered for us by some of the greatest traders in the country:

1) Tell me about yourself. Give me a brief biography.

2) Tell me about your technique . . . How did you develop it?

3) Tell me about your best current trading system. What makes it tick?

4) How long ago did you write your first trading system?

5) Tell us the rules for that first trading system.

6) What caused you to abandon or modify that first trading system?

7) When you look at another person's trading system, what is the first thing you look for to tell if it's a good
or bad system?

8) What is the least important aspect of a trading system?

9) Do you use a mechanical approach, or is judgment involved?

10) Do you use TradeStation or SystemWriter? Or, something else?

11) Is your current trading system for sale?

12) Can you share the concept behind your current trading system?

13) What advice would you give system developers who are starting out?

14) Who do you think is the best system developer, other than yourself?

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15) What time frames do you use?

16) Which is your favorite commodity?

17) Which is your least favorite commodity?

18) Where do you get your ideas for your systems? What is your favorite technique for coming up with
trading system ideas?

19) I want you to write a trading system for me. It doesn't have to be a great system, just something that
you would look at and test out.

20) What is your typical day like?

21) What is the ideal way to run your system? Would you have someone else run it for you?

22) If you could only select one book, what book would you recommend. What information source would
you avoid?

23) Is it necessary for a developer/trader to have tick-by-tick real-time quotes?

24) What kind of quotes and software do you have? What would you avoid?

25) How much data is necessary to properly test your trading systems?

26) Why do some systems consistently perform year after year, and other systems fail or need to be
continually optimized?

27) How important are draw-downs, or average trade size in your research?

28) Do you do portfolio management, or pyramiding?

29) If you died and left a sealed letter to your heirs, which contained the secret of your fortune which would
allow them to continue their lifestyle, what one sentence would be in that letter.

30) How would you write an imitation of your system in two lines or less in TradeStation language? (Note:
Some responses were longer than two lines.)

31) Give us an example of some of your work, and put it into an English-type language for a system.

Below is the list of 15 Master Traders interviewed for this book: Michael Conner, Joseph DiNapoli, Stan
Ehrlich, David Fox, Nelson Freeburg, Lee Gettess, Cynthia Kase, Joe Krutsinger, Glenn Neely, Jeffrey
Roy, Richard Saidenberg, Randy Stuckey, Gary Wagner, Bill Williams, and Larry Williams.

As I look back over the entire book, one of the most fascinating aspects is the relationship that exists
between the trader's biography and their style of trading. You can see how the trader integrated his life's
experience into the trading approach he had developed. This is what made their trading approach and styles
individually unique to each of them.

Yet, despite their highly individualistic trading styles, there remained a common thread which connects
each of them together -- They all have a deep understanding and personal belief as to "how the markets
actually work" -- And what becomes the unique difference, is how each of them has learned to tap into that
universal market understanding.

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The types of traders interviewed range from Corporate Consultants putting together trading systems for
major corporations, so they might better manage their proprietary trading operations -- To the guy working
out of the house trading his own account. And everything in between.

Every single interview provides the reader with valuable information, and it was easy for the reader to find
a common ground with each interviewee. However, I personally felt a kindred spirit with one trader in
particular, Randy Stuckey. His emphasis on developing a "robust trading system" which literally becomes
"one with the market," has also been my personal focus for the past 10-years. (It was nice seeing the
concept in print.)

The one missing element that would have been a nice addition, would be a brief statement from each of the
interviewee's regarding their typical annual performance and the amount of money they trade, both
personally and under management. It would also be nice to know what percentage of their annual income
comes from trading their personal accounts, and what percentage of their income comes from "other
sources and activities." This would have been a very helpful perspective for the reader.

Part Two, "The Systems," was also fascinating. I don't know how many of you are familiar with the
TradeStation or the SystemWriter "Performance Summary," but there is nothing like it for giving you a
"feel" for how a system trades. If you read Joe's first book, "The Trading System Toolkit," it would give
you some important insights into evaluating the "Performance Summaries" provided in this book.

(On a Personal Note: It is essential that you understand how to interpret the "Performance Summary," and
understand some of the qualities which are considered to be desirable in an ideal trading system. Some of
the trading systems provided in Part Two may be considered "unacceptable" by certain standards of
evaluation. Therefore, I would suggest that you skip forward, and carefully read the "Performance
Summaries" provided for Joe Krutsinger's two trading systems, and use these system results as a "standard
of comparison," before reviewing other test results.)

We have all read the "over hyped" exaggerated advertisements for the next "Holy Grail" trading system
which promises phenomenal triple-digit returns in as little as 5-minutes a day. Well, if you ever needed a
"hit up-side the head" combined with a "cold splash of reality" for you to finally get the message
concerning these fraudulent advertising claims, just review the "Performance Summaries" in Part Two of
this book. The traders interviewed for this book are professionals. They make their living trading. Many of
them are up at the crack-of-dawn and work late into the night. So when you review the performance results
over the 10-year test period, and see: Irregular returns; Heavy drawdowns; Large numbers of consecutive
losses; A single large profit dominating overall returns; And, a low percentage of profitable trades. That's
reality folks . . . And it doesn't get much better than that . . . So the next time the "Holy Grail Seminar
Company" comes to town, ignore the promises of unlimited wealth, and save yourself a lot of money and
aggravation -- Instead of going to these get-rich-quick seminars, rent yourself a video of "Trading Places,"
and have a pizza.

This book is another fine example of Joe's commitment to "telling it like it is." And, providing solid
information and usable trading techniques that traders like you and I can actually use as part of our regular
trading methods. Congratulations Joe, on another job well done.

On a personal note: As you read through each of the Master Trader biographies, I am struck by how often
each of the traders has "other sources of income outside their actual trading accounts. Some Master Traders
are brokers, others actively market their systems, or offer seminars, or newsletters, and others have regular
pay checks or are consultants. Now, I have no doubt that for many of the traders interviewed, their personal
trading profits represent the lions' share of their annual income.

(It would have been nice if Joe had included personal financial information on each of the interviewee's.)
But, I have a feeling the more stable and predictable flow of income, from these "other sources," can be
psychologically quite supportive and beneficial. The reason I say this is because I had a personal
experience that I'd like to share with you when I stopped "working," and began trading full time. In the past

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I had always viewed my regular "steady income" as "real money," and my trading profits and losses as just
numbers that I used for keeping score as I played the game.

It was very easy for me to separate and detach myself from the daily trading profits and losses. It was never
real money to me and I was totally insensitive to the daily fluctuations. A $50,000 daily drawdown meant
nothing to me, it was nothing more than just a negative number for that day's gaming activities, and had no
lasting impact on the grand scheme of things. When l stopped "working" and the steady flow of "real
money" stopped, I lost my perspective for awhile and began to think of my trading profits and losses as
"real money" instead of just numbers for the purpose of keeping score as I played the game.

My psychological attitude briefly changed, I no longer was as detached as I had been in the past -- I began
"holding on too tight" and I was "losing the edge." I began making poor investment decisions which were
motivated by the fear of losing. Once I realized what was happening, I had to make a conscious effort to
regain the previous detachment that I once had. The entire process took me almost a year to complete. But
now, I'm back again.

With the wisdom of hindsight, I can see where it would have been far easier to just replace the lost flow of
steady income with another source of steady income, and avoid having to deal with the problem altogether.
I have a feeling that these Master Traders deliberately maintained their steady flow of "real money"
income, so they could keep their "edge," and maintain that very necessary detachment and perspective
regarding their trading capital. It is my hope that this personal story may help some of you make the
transition to "full-time trader" a bit easier).

A Hard Look At Daytrading

Reprinted with permission of Technical Traders Bulletin

We receive more requests for articles and advice on daytrading than on any other topic. Beginning traders
are especially interested, particularly those that have been attracted by the glamour and intensity of the pit
traders who seem to be constantly jumping in and out of the markets and reaping enormous profits. It seems
like almost all traders have tried daytrading at one time or another. After all, it is very tempting to try and
slug it out with the pit traders. Every tick is exciting. Every rumor or news item that affects the market
either creates euphoria or is another nail in the coffin. When you have a position on, you can't stand the
pressure, but if you're not in the market you tear your hair out every time prices act the way you predicted.
Your heart pumps fast, your adrenaline surges, and you feel like you've finally arrived in the wild and
woolly world of fast-paced futures trading.

All this sounds like fun, but as you might imagine, there are many pitfalls along the way. We've come to
realize, after talking to numerous traders who have attempted or are about to begin daytrading, that most
traders who start are not fully aware of the scope of the problems they face. To some readers the following
discussion may be redundant, but we suspect that many of our subscribers may be embarking on a venture
with only a limited grasp of the basics.

Cost of Doing Business is High

The day trader enters and exits trades during the same market session, normally a period of only four to six
hours from opening to close. The very short term nature of daytrading presents both advantages and
disadvantages. The major advantages are the lower margin requirements and the absence of overnight risk.
The disadvantages are the bad odds, time and effort required, the limited profit potential, and the
burdensome costs of frequent transactions.

The transaction costs consist of both commissions and slippage. The commissions are a large and obvious
cost of doing business. However the slippage is much more difficult to quantify. The trader might have a
mental image of trading at the prices shown on a computer screen, but in reality he must continuously buy
at the offered price and sell at the bid price. The spread between the bid and offer becomes a very

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substantial but hidden cost of doing business. In addition, as most of us have learned many times over, it is
unrealistic to expect stop orders to be filled at our stop prices.

In the meantime, to offset these unavoidable costs, the day trader is limited to very small profits when he is
correct in his analysis and completes a winning trade. Under even the most optimistic scenario, the day
trader's potential profits are limited to a portion of the price range that is likely to occur within a few hours
of trading.

Let us assume that our day trader has negotiated a discounted rate on his day trades and is paying twenty
dollars per trade. Next let's be optimistic and assume that the spread between the bid and offer amounts to
ten dollars buying and ten dollars selling. In order for the trader to complete a trade that nets $100 he must
be smart enough to identify a move of $140 according to the prices on the screen he watches.

On the other hand, when his timing is wrong by only $140 he is going to lose $180. It doesn't take a Ph.D.
in mathematics or an M.B.A. from Harvard to figure out that this is far from an ideal business environment.
In fact, even the professionals on the exchange floors must be intelligent, highly disciplined traders just to
survive.

The public doesn't realize how many of these professionals fail in spite of the advantage of being on the
floor and paying only minimal costs per trade. Imagine how small the odds for success must be for an off-
the-floor trader faced with the costs we have described.

To have any hope of success, the day trader must strive to maximize the profits on the winning trades so
that he can overcome the tremendous disadvantage of both the obvious and the hidden transaction costs.
Unfortunately, the day trader has very little control of the potential profit to be obtained because the extent
of the price range during the day absolutely limits the maximum profit that can be realized.

No trader can reasonably expect to buy at exact bottoms or sell at exact tops. A very good trader might
hope to be able to capture the middle third of an infra-day price swing. That means that to make $180, the
total price swing must be three times this amount or $540. How many futures markets have a daily price
range of $540 or more? Very few. How many futures markets can produce a $180 net loss? Almost any of
them.

Don't forget, the trader that is smart enough to find markets with $540 price swings and then smart enough
to trade them correctly so that he nets $180 is only going to break even unless he has more winners than
losers. To make money in the long run, the day trader must have a percentage of winning trades that is far
better than 50% or he must somehow figure out how to make more than $180 on a $540 price swing. (or
best of all, do both) This also assumes that the trader is smart and disciplined enough to harness his
instincts and emotions and carefully limit the size of the losses.

Beating Tough Odds

As you can see, the day trader is faced with an almost impossible task. We would venture a very educated
guess that less than one out of a thousand day traders make money over any sustained period of time. Our
best advice is to not even attempt it unless you are one of the many traders who is actually trading for the
recreation and mental stimulation rather than the money.

If you are serious about making money, your time and energy will be much better spent perfecting your
longer term trading skills. Even if you should succeed at daytrading, it is difficult to reinvest the profits and
continue to compound them. Day traders can only operate efficiently in very small size so don't expect to
make your fortune at it, it's only a very enjoyable but hard earned living at best.

In spite of our sincere warning, we know many of our readers will attempt to beat the odds and become day
traders for a while. Fortunately the lessons learned while daytrading can be applied to more serious and

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productive trading later on. In the meantime, we will do our best to explain as much as we can about
daytrading and hopefully make the learning process less costly.

Obviously, we don't have all the answers ourselves or we wouldn't have such a negative outlook on the
probability of success. We certainly have learned a great deal about this subject over many years of trading
and the fact that we have elected to no longer play this game simply demonstrates our personal preferences
in the allocation of our productive time. We hope whatever hard-earned information we can pass along
proves helpful.

Selecting Best Markets For Daytrading

As we pointed out earlier, there are very few markets that have wide enough infra-day price swings to make
them suitable candidates for daytrading. Because they must monitor the prices so closely, day traders
generally prefer to concentrate their efforts on only one or two markets. In addition to the fact that the
prices must be watched continuously, there are very few markets that are suitable even if we had the
capacity to follow more of them. Presently, day traders seem to have given up on pork bellies and tend to
favor the stock indexes, bonds, currencies, and energy markets. From time to time other markets may
become candidates for daytrading because of temporary periods of high volatility.

We ran a test (several years ago) to see what percentage of the time various markets had a total daily range
of $500 or more between the high of the day and the low. There were only five markets that had a $500
range at least two days a week or 40% of the time.

In addition to looking for a wide daily range, liquidity and the size of the minimum spread should also be
factors to consider when selecting suitable markets for daytrading. Our previous example of costs included
paying a spread of only $10 on each side of a trade.

In the S&P market a minimum spread would be $25 each side while in the bond market a 1/32 spread is
$31.25. If you are daytrading bonds with $20 commissions, you must overcome total costs of $82.50 added
to losses and subtracted from gains. Your average winning trade must run $165 farther than your average
loss just to break even. This assumes a one tick spread which is the best case possible.

The element of liquidity comes in to play in determining the number of ticks in the spread between bid and
offer. A one tick spread is the best you can hope for and most markets have a wider spread than that.

You can usually assume that the higher the average daily volume, the tighter the spread. For that reason,
you will want to concentrate your daytrading in only those markets with very high volume. Otherwise, you
can be making good timing decisions and still be assured of losing money.

How I Consistently Make Money Daytrading...A Very Positive & Contrary Response to Last
Month's Negative Article About Daytrading - by "S.A.T." (the "Successful Anonymous Trader")

I am writing in response to the article "A Hard Look at Daytrading." I'm a professional trader for seven plus
years and a daytrader to be exact.

I get so disgusted with the experts on trading methods, systems, etc. If I had listened to all these opinions
about how difficult daytrading is and how it is almost impossible to make money, I probably would have
believed it and quit many years ago.

I make excellent money daytrading most every day. I find it exciting, enjoyable, challenging and very
profitable.

There are many advantages to daytrading:

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 1. No overnight exposure on a regular basis - occasionally I'll hold a profitable day trade overnight to get
an extra pop at the beginning of the next day's session, where as a position trader will hold losers overnight
regularly.

2. My risk is very small per trade.

3. I can multiply my money many times over during a day or week than the position trader.

One thing I must say though, is that daytrading (like the article said) must be done in a liquid and volatile
market. Which in my mind only makes daytrading feasible in the S&P and possibly the currencies. I only
trade the S&P.

There is more than enough money to be made in this market every day than a human can want. Why look at
anything else? You get a tremendous bang for your dollar and risk reward.

Face it, S&P's daily ranges average regularly $1,500 - $2,500+ per day. The average five minute bars
(which I trade) have a range of $200 - $300. That's almost as much as most markets' daily bars.

If a trader is disciplined, trades with the trend, uses stops and lets profits run, he can make excellent money
daytrading the S&P. I only risk $250 per trade and regularly take profits of $500 - $750 - $1,000 per trade,
sometimes larger. But on general, I'm not greedy and when I have a good profit, I look to take it. I love it,
and I get to do this 2-5 times a day. Sure, I have losses, but they are few and small.

As far as all this mathematical babble and analysis on more transaction costs and slippage - who cares? A
trade is, a trade, is a trade! If a trader makes 10 trades a year and I make 10 trades a week, there is no
difference in slippage or costs. All that counts is if you made money.

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

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

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

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

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

(On the date I wrote this), I made $1,800 per contract on three trades in the S&P for about 5-hours work.
How many long-term traders made that much in one day on a one lot - very few on very few days, I'd
venture to say. I do this at least once a week in S&P.

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

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

Technical Analysis Deemed Fraud by U.S. Government - Frank A. Taucher

Sometimes our leviathan government strikes a decisive blow before its opponents even realize the fight has
begun.

Such a blow appears to have been delivered against the study of technical analysis in several recent
government decisions culminating in CFTC vs. R & W TECHNICAL SERVICES INC. In this case,
government concluded that those who engage in the practice of technical analysis perpetuate fraud when
they market their knowledge.

According to the government, "[R}espected scholars are virtually unified in their recognition that even the
most legitimate technical systems (with their hypothetical and retroactive foundations) are incapable of
providing the trader with any significant market advantage." (Note 75, p 41)

"The efficient market capital model emphatically contests the notion that financial markets are so
inefficient that speculators can exploit these markets' inability to adjust to all types of information.
Although the limits of the efficient capital market model, and its implications for regulatory policy, are a
dependable source for endless debate, few dispute the model's general predictive powers. In fact, many
important regulatory policies are predicated on the model's accuracy. See, e.g., Basic, Inc. v. Levinson, 485
U.S. 224 (1988) ("fraud on the market" action for a violation of Securities Exchange Commission Rule
10b-5); In re LTV Securities Litigation, 88 F.R.D. 134 (N.D. Texas 1980)." (Note 74, p 41)

"Virtually the entire economic community is in agreement, however, that the efficiency of the market is
sufficiently strong so that all publicly available information is rapidly disseminated and is then almost
instantaneously reflected in the price for any widely traded investment contract. As a consequence, investor
analysis of specific investment contracts will not lead to superior gains, since it will require an analyst to
predict value better than the market as a whole. Thus, while some traders will profit while others will lose
the outcome of speculative investment is unlikely to significantly outperform chance.

See Dennis, Materiality And The Efficient Capital Market Model: A Recipe For The Total Mix, 25 Wm. &
Mary L. Rev. 371 (1984); Posner, Economic Analysis of Law, Ch. 15 (4th ed. 1992); Comment, The
Efficient Capital Market Hypothesis, Economic Theory and the Regulation of the Securities Industry, 29
Stan. L. Rev. 1031 (1977); Fischel, Use of Modern Finance Theory in Securities Fraud Cases Involving
Actively Traded Securities, 38 Bus. Law. 1 (1982); Lorie & Hamilton, The Stock Market: Theories and
Evidence (1973); Fama (1970)." (note 75, page 41)

Judge Lhevine relied primarily on past precedent, the book "Futures and Options Contracting" by Marshall
(1989), pp 416-422, "The McGraw-Hill Handbook of Commodities and Futures" by Martin J. Pring (1985),
pp 36-8, and "Declaration of [NFA employee] Daniel Driscoll" in discussing the "generally recognized
deficiencies of technical modeling." (p 14) (It should be noted that the NFA was not a disinterested party
since it proposed to administer R&W's restitution fund).

"Technical analysts . . . first make a deterministic (one might say spiritual) leap of faith that non-random
price patterns exist. They then illogically posit that these patterns, once revealed to the few (or indeed --
through marketing -- to the many), may be successfully exploited in trading. To accomplish this, of course,
the 'pattern' must remain undetected by others (otherwise the increased market activity defeats the 'pattern'
by driving the price to a point where speculation is no longer profitable). See Marshall (1989) at 263-264.

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Public policy presumes that markets are not so witless. 'The presumption is [] supported by common sense
and probability [as] recent empirical studies have tended to confirm Congress' premise that the market price
of shares traded on well-developed markets reflects all publicly available information . . . Basic, 485 U.S. at
246." (Note 75, page 41)

Government has further concluded that the fraud perpetrated by technical analysts extends to "registrants
and non-registrants alike' (p 27) and to those who are not even involved in the opening of a trading account
(see note 56 and Hirk v. Aqri-Research Council, Inc., 561 F.2d 96, 104 (7th Cir. 1977) pp 30-31). "[A]ny
solicitation fraud is consummated without a showing of actual trading or injury" (p 31). "A finding of
intentional wrongdoing may be supported by inferences from circumstantial evidence." (p 34)

Think your honest intentions provide a defense? Then consider that "no amount of honest belief that the
enterprise would ultimately make money [could] justify baseless, false or reckless misrepresentation or
promises." (p 36 and United States v. Boyer, 694 F.2d 58, 60 (3d Cir. 1982). In fact, "intent to injure [the]
customer [is] not [even] required" for the government to prove fraud (p 36 and Haltimer v. CFTC, 554 F.2d
556, 562 (2d Cir. 1977). "[P]roof of actual injury is not required. [Government] need not show that
customers actually relied to their financial detriment on respondents' misrepresentations." (Note 70, P 38)

Furthermore, don't plan on relying on the success of your product, either. In the R&W matter, for instance,
government's own witness, Prudential Bache broker, Thomas Otten, testified that he "generated $60,000
profit, and that he generally likes the product." (p 16) Such testimony was dismissed by the government,
however, as "gossamer" and of "no weight" since the profits "could easily have been result of chance." (p
16)

"[A]ny marketers' claim of increased profitability or reduced risk through the use of these systems is likely
to be fraudulent." (Note 75, page 41) Hence, the standard government has established as precedent is that
the technical analyst is defined as a per SE fraud before the technical analyst even walks through the
courthouse doors.

It thus becomes the function of government to but spin the wheel and identify the targeted analyst -- sort of
a "fraudulent technical analyst of the month" club.

Sound like something out of the Russian Archipelago? It gets worse! Judge Lhevine admitted that
Constitutional protection such as the First Amendment need not even be considered in such actions. (p 46)

Government has conveniently failed to incorporate existing controvertible evidence in its conclusion, such
as how the two greatest trading achievements of our era, Larry Williams' 1987 increase of a $10,000
account to over $1,000,000 in less than one year and "The Seasonal Trade Portfolio's First Place finish in
"The $40 million Investment Challenge" for having established the highest non-retroactive ROI from 1980
to 1993, were both accomplished by using pure technical analysis.

Nor is allowance made for the use of technical analysis as the primary investment tool in most futures
funds and in many stock mutual funds such as momentum funds.

Nor are the accomplishments of the investment sources the government relies upon anywhere cited in its
conclusion.

For example, what investment successes might that well-known trader and author of the "Declaration of
Daniel Driscoll" and the other authors claim that would justify government's reliance on these people's
opinion to the exclusion of all others? Or do their investment credentials consist solely of academic,
Hypothetical studies and sales of books? Are these not pertinent questions since public policy is being
determined on the basis of these "experts"' knowledge?

If Mr. Driscoll and the other authors have no noteworthy investment results of which to speak, then is
government's conclusion regarding the value of technical analysis not unfounded, maybe even
Hypothetical? If Hypothetical, did the government include its famous disclosure statement regarding the

899
value of Hypothetical information when it rendered its conclusion? If government's conclusion is
unfounded, then is government's technical analysis standard not intentionally meant to deceive and mislead
the public as to the value of technical analysis? Is such deception not fraud?

Are we to condone fraud which is perpetrated by government?

If this standard is extended to other professions, will coaches be labeled as frauds when their players do not
develop into Barry Sanders?

Look through your favorite publication. How many of the authors are to be thrown into government's
dungeons because of their willingness to share their knowledge of technical analysis with the rest of us?

How many will continue to share their insights with the public after learning of government's new technical
analysis standard?

Is government's standard not a prima facie example of First Amendment prior restraint?

Will I have to share a jail cell with Louis Rukheiser and his elves?

Will Abbey Joseph Cohen, Bob Farrell and George Soros be thrown in prison with me?

'Must I declare to my friends and acquaintances that my lifelong profession is "Technician," or should I
print "Charlatan" on my business card? Which does government prefer?

Who's next? Astrologers? Psychologists? Gardeners? Priests? Jews? Republicans? Democrats? Slovenians?

YOU?

A Qualified Apology - Trevor Byatt

In reply to Richard Bearse's letter (CTCN Nov/Dec 97 - Vol 5-No 6). I most sincerely apologize if it was
construed from my letter in the previous CTCN that I was critical of attempts to stop the CFTC effectively
stifling free speech and the dissemination of information within the futures industry. This was most
definitely not my intention. On the contrary I heartily applaud your resentment of this unbelievably
outrageous behavior of lazy, pompous government officials using taxpayers money (much of it 'stolen'
from members of the futures industry in order to use it against them!!) to protect their cushy jobs.

Go for them fellows, as hard as you can, with my strongest encouragement from afar for what it's worth. It
is of course so unfortunate and unfair that these slime-bags have infinite financial resources (yours!!!) to
use against you.

Now for my qualification. I was in fact referring to the relatively private fights and, if you re-read my letter,
you will see my references to "The Anonymous Trader," Advantage Trading Group and BMI - but no
reference to the CFTC.

However, I can now see why Richard assumed this implication of my including the CFTC and I do not
criticize him in any way for this.

OPTIONS & SPREADS: Devon Cream & A Fine Piece of Armor - Greg Donio

England. 1921. The writing desk of Logan Pearsall Smith: "I found it not difficult to revive with a certain
vividness the memory of those cold and rainy November weeks that I had happened to spend alone, some
years ago, in Venice, and of the churches which I had so frequently haunted. Especially I remembered the

900
great dreary church in the campo near my lodgings, into which I would often go on my way to my rooms in
the twilight.

It was the season when all the Venice churches are draped in black, and services for the dead are held in
them at dawn and twilight; and when I entered this Baroque interior, with its twisted columns and volutes
and high-piled, hideous tombs, adorned with skeletons and allegorical figures and angels blowing trumpets
-- all so agitated, and yet all so dead and empty and frigid -- I would find the fantastic darkness filled with
glimmering candles, and kneeling figures, and the discordant noise of chanting.

There I would sit, while outside night fell with the rain on Venice; the palaces and green canals faded into
darkness, and the great bells, swinging against the low sky, sent the melancholy sound of their voices far
over the lagoons. It was there, in this church, that I used to see Sir Eustace Carr; would generally find him
in the same corner when I entered, and would sometimes watch his face, until the ceremonious
extinguishing of the candles, one by one, left us in shadowy night.

It was a handsome and thoughtful face, and I remember more than once wondering what had brought him
to Venice in that unseasonable month, and why he came so regularly to this monotonous service. It was as
if some spell had drawn him; and now, with my curiosity newly awakened, I asked myself what had been
that spell?"

What prompted these writing desk recollections and the "curiosity newly awakened," was the suicide of Sir
Eustace Carr, a scholar noted for his explorations in the East and his discovery of tombs in the Nile Valley.

Pearsall Smith continued, "For I now sensed that the spell which had been on us both at that time in Venice
had been nothing but the spell and tremendous incantation of the Thought of Death. The dreary city with its
decaying palaces and great tomb-encrusted churches had really seemed, in those dark and desolate weeks,
to be the home and metropolis of the King of Terrors. . . . Might not this be the clue to a history like that of
Sir Eustace Carr's -- not only his interest in the buried East, his presence at that time in Venice, but also his
unexplained and mysterious end?"

Unfortunately, Logan Pearsall Smith lent his Oxford scholasticism and creative writing flair to a British
alehouse fallacy. Wherever tankards foamed, stories issued forth of Egyptologists struck down by "death
curses" for invading the tomb of one or another pharaoh. Actually, the life expectancies of university
archaeologists were no shorter than those of their counterparts in the Cambridge mathematics and literature
departments. Nor does viewing Venetian twilights, rainfalls and candle-lit sarcophagi predispose one
toward self-destruction.

Pearsall could be viewed as an object lesson regarding lack of skepticism, and financial traders need
skepticism. Yet he deserved credit for addressing the "Where were you yesterday?" question and, relevant
to that, the influence of context or milieu, whether crypt or saloon or pinball arcade or paneled clubrooms.
The composition of a bowling team may not affect a singer's vocal cords but could affect a speculator's
mental fine-tuning.

On New York TV after dark, a spot message appears asking "Do you know where your children are?" It
never asks, "Where is the option trader or the stock trader or the futures trader, and what nefarious elements
are influencing him?" Someone might say, "They are grown people and can take care of themselves."
However, the 80 to 90 percent casualty rate among futures traders and the over 90 percent of out-of-money
options expiring worthless indicate quite otherwise.

As an option spread strategist, I have been cautioned to stay out of dark places adorned with stone
skeletons. Patrick Smith expressed doubt in prent whether it were even possible to profit from option
spreads with any consistency. Warren Buffet declared that options should be outlawed! Carefully these men
have avoided the pharaoh's curse and death's messenger in the darkening cathedral. Still I go forth with map
and lantern.

901
Nevertheless, environment figures significantly enough that where you have a highball can be hazardous to
your wealth. Classroom folklore at a New York University course in finance told of a man, the son of
Italian immigrants. He took his degree in engineering, converted to Protestantism, and joined an all-white,
all-gentile country club. On repeated occasions, he would return home, buy stocks and curse out minorities,
both actions reflective of the talk he absorbed near the club's cocktail shaker.

He would invest in companies that had good strings of quarterly earnings, nice rises in share price,
increasingly fine reputations -- all before he bought. He would purchase stock in companies that had just
moved to larger headquarters, also thus-far successful retail and restaurant chains opening new units. An
occasional club-member was an "insider," i.e., a corporate executive paid to say only good things about his
employer.

What beatings that engineer took! He repeatedly -- in fact, systematically -- "bought at the top" to use the
standard stock market phrase, and plunged along one downslope after another. In Biblical terminology he
kept buying near the end of the "seven years of plenty" and suffering the "seven lean years." After enduring
such plague and pox through 1992/93, he turned to bonds and became a devout coupon-clipper.

One could blame the tendency of many Italian-Americans to be "more Establishment than the
Establishment." He swallowed whole the official optimism; predict only sunshine over the tennis court
tomorrow. Another factor could be the loss of immigrant boat savvy. Sure, plenty of immigrants got
suckered via three-card monte, and shell games in dives along the waterfront. Yet often money in a sock
provided the down payment for a store. So whether the credentials are "first papers" or a degree, whether
the surroundings are Duncan Phyfe and Waterford crystal or clam-shell ash trays, a wine barrel and
sawdust on the floor, ways have been found to lose money or make it.

Like most independent traders, I am more than a tobacco can dollar-saver and less than a portfolio manager
for Tiffany. Also, I am fallible. As mentioned in previous articles, my standard strategy is to position a call
option spread (a horizontal calendar spread) above a stock that is trending upward and has a conservative
price/earnings ratio or a put option spread under a stock that is trending downward and has an inflated
price/earnings ratio.

In late December of 1997, Microsoft (stock symbol MSFT; option symbol MSQ) hovered around 119 and
120, down from a high of 150, with the price/earnings ratio in the 40s as opposed to the average market PE
around 18. MSQ "110" put options appeared close enough to the share price to be plump, but far enough
not to go "into the money" on a slight fluctuation. I phoned the broker and said, "Buy 10 MSQ put options,
March expiration date with a strike price of 110. Sell 10 MSQ puts, February, strike-price 110. With a debit
of 1-_ points. The two orders going in together, each contingent on the other, with the "sell" covered by the
"buy."

That closing statement is in fact a definition of this type of spread order. The "sell" cannot happen unless
the "buy" happens and vice-versa. The bought options covering the sold ones make the latter a "covered
sale" as opposed to a "naked sale." That the bought options have a different month as expiration date than
the sold (buy March, sell February) makes this a "calendar spread." That the bought and the sold have the
same strike-price (110) earns it the name "horizontal calendar spread." Also, since the bought Marches cost
more than the sold Februarys bring in (the nearer expiration date, the less time resulting in less value), this
classifies as a "debit spread," the debit being the difference that trader must pay. My telling the broker "a
debit of 1-_ points" limits my cost on 10 bought/10 sold to $1,375 or less plus commissions.

The above is stated strictly for instructional purposes because the tandem buy/sell transactions did not
occur. At the end of the trading day the broker said, "Nothing done." The next day, Microsoft shares rose
nearly five points to 125 and a fraction. A temporary fluctuation, I told myself. Surely the stock is trending
down. I moved my strategy up the map to the put options with the strike-prices of 115. Buy 10 Marches,
sell 10 Februarys, I instructed the broker, this time with a debit of 1-½ Another "Nothing done."

That turned out to be most fortunate. Microsoft kept rising. At the time of this end-of-January writing, the
shares are pushing 150, shrinking the February 110 and 115 puts to fractions and the Marches to not much

902
more. The $1,375 or $1,500 plus commissions I almost paid would have been worth under a thousand and
sinking. Didn't I say I was fallible? Also in previous articles that spread strategies are loss-resistant but not
loss-proof? And that too large a portion of one's capital should not be floated on any one venture?

If luck was one factor in turning me away at the door from a losing game, another was my stinginess. Here
may be the time to explain how I choose my "debit" figure when applying to open (begin) a spread
position. On December 26, 1997, Microsoft's February 110 puts were priced at bid 3-¼; ask 3-_. The April
110s were bid 4-_; ask 5. The gap between the two bids was 1-_, same as the gap between the two asks. So
1-_ served as the debit figure I gave the broker.

The bid gap does not always match the ask one. Often the former is smaller so that is the one I choose.
Stingy--remember? The next day, when Microsoft shares rose and I switched my focus to the puts with the
115 strike-prices, the February 115s were bid 3; ask 3-_. The April bid 4-½; ask 4-_. A 1-½ point bid gap
but a 1-¾ point chasm in the ask. "A debit of 1-½ points," said the trader to the broker.

An option spreader who does not get at least some occasional "Nothing done" reports is probably paying
too much at the "opening a position" stage. Not only does this risk a larger chunk of capital. It makes
making a profit more difficult by setting a higher "figure to beat." Also, in my recent near-experience with
Microsoft, the stingy size of the debit left too small a door for a bad deal to enter. Swindler George 0.
Parker, the original "Brooklyn Bridge seller" of the 1880s, had a knack for estimating the financial capacity
of his dupes before he formulated an asking price. Yet within the limits of their available capital, it was the
insignia suckers NOT to say, "It's too expensive." If a mark had $10,000, then 10 grand was a "reasonable
price." Smart money keeps the bets low.

The game is afoot, Watson! After the second "Nothing done," Microsoft shares kept rising and I abandoned
any thought of a put option position around that stock. Despite my previous limited-time satisfaction with
Dell Computer, that stock seemed to whipsaw volatile and hard to anticipate in its movements for a careful
put or call strategy. A couple of New York bank shares caught my eye. Meaty multi-point options. Limited
volatility.

During early and mid-January, Citicorp shares (CCI) moved between 132-¼ and 110 -_, gradually
narrowing its range to the teens, with a price/earnings ratio of 17. Chase Manhattan Bank (CMB) swam
between 98 -9/16 and 112-11/16 before floating in the lower middle part of that range, with a P/E of 13. I
focused on Chase Manhattan because of its narrower range. I usually do not position puts under a stock
with such a conservative P/E, but Chase appeared to suffer from substantial lethargy in terms of upward
motion, more so than Citicorp.

On January 14, 1998, Chase's February 100 put options were priced at bid 2-_; ask 3. The March 100s were
bid 3-_; ask 4. The bid gap and ask gap were the same, a single point. I entered an order to buy 10 Marches
and sell 10 Februarys with one-point debit. Same order to "open a position" the next day. Two "Nothing
dones." The problem? Low volume in terms of the number of options traded. On January 14, only 34 CMB
February 100 puts traded, all early in the day. 80 March 100s traded early in the day and two more later.
Contrast this to the hundreds or thousands of puts and calls traded daily on many other stocks. For an
option trader, low volume means the deer are spread too far apart in the forest.

IBM had and still has at the time of this writing a fairly conservative P/E of 18. Yet after hitting an all-time
high of 113-½ it returned to the same pond it had been swimming in, between approximately 96 and
approximately 108. On January 6 and 7, the shares hovered around 106 and 104, dipping a bit, climbing a
bit. Appearing lethargic on the upside, it seemed a good candidate for a put spread. IBM's February 100
puts and April 100 puts were 1-½ in the bid gap and 1-_ in the ask gap. Stingily I entered a buy 10
Aprils/sell 10 Februarys order with a 1-½ point debit. Nothing done.

Subsequently, though gaps remained approximately the same, I raised the debit to 1-_ while entering an
otherwise duplicate order to open a spread position. For a tightwad trader, an eighth of a point is a hefty
boost of the ante and a quarter point raise is unthinkable. Finally the sweet words cometh: "You bought 10

903
April 100s at 5-_ and you sold 10 February 100s at 3-¾." I was in the game for a debit or "spread" between
those two batches at 1-_ points, or $1,625 of my own capital plus commissions.

In the trading days that followed, IBM stock twice dipped "into the money" (99 & a fraction) but pulled
"out of the money" before the close of trading. Since "in the money" options are "assigned overnight," there
is no danger of an exercise during the trading day. Then the shares climbed to 108-_ in anticipation of the
quarterly earnings report. The earnings were approximately on target, a couple of cents below some
estimates, a penny above others. The next day (January 21) the stock fell to 100 and a fraction. Many
stockholders believe that even if the earnings report is all right, it is the zenith and time to bail out.

The next day, the shares again dipped fractionally "into the money." During the final hour of trading, I saw
that my options were going to close slightly in the money, but I chose to stand pat rather than pull out. My
"short end" February puts or "obligation" options on the short end of the spread were bid 3-¾; ask 3-_. The
"long end" April puts or "mine alone" options on the long end of the spread, were bid 5-_; ask 6. The
chasm with my money in it had widened somewhat.

The value of the short-end options are a stopgap protection against exercise, which could wipe out the long
end. If specific put options are one point into the money and trade on the market for 3-½ points, a put-
holder could gain $1,000 by exercising 10 of them, i.e., selling stock shares for $1,000 more than their
market value. In doing so, however, he would turn $3,500 worth of options he owns into spent cartridges
completely worthless. The put-holder would do 250% better by selling those options.

As I have written previously, it is a protection I use for only one night because of another danger that the
trend-follower in me guards against. If the shares continue in that direction and push the options deeper into
the money, that tends to squeeze or reduce the size of the spread, a minus for the spread strategist.

Options that are deep in the money vary only slightly in price from one month (one expiration date) to the
next, and that is precisely where the spreader wants mucho difference.

Less than an hour before the close of the next trading day, IBM shares inched up to 99-_. Wonderful! I
anticipated them closing at or above the 100 mark -- out of the money. Then during the last half hour I
phoned the broker repeatedly for quotes. 99-_! 99-1/16! No. Bail-out time. My Februarys were bid 3-½ ;
ask 3-_; last traded at 3-_. My Aprils were bid 5-_; ask 5-_; last traded at 5-_. The best thing would be my
offering to buy back the Februarys at a fraction under their high figure and offering to sell the Aprils at a
fraction over their low figure. But there was not time.

With minutes to go in the trading day, I told the broker, "Buy back the Februarys at the market. Sell the
Aprils at the market. Both to close the position." Although I hoped for the best, the worst happened,
although the worst was still on the plus side. I bought back the Februarys at their worst or higher figure, the
3-_ ask, and sold the Aprils at their worst or lower figure, the 5_ bid. An even two-point "spread" at exiting.
A profit after commissions of $167. A 9.6% gain on $l,740 (with commissions). Although I had hoped for
better, a 9.6% profit in two and a half weeks annualizes to over 190%.

During the next two trading days, IBM continued downward to 95-_, squeezing the spread between the
Februarys and the Aprils to l-_. While I certainly did not "break the bank," nevertheless I could enjoy
pocketing some winnings and tipping the croupier a chip. This carafe or this half-decanter is some nice
contrast to Warren Buffett and the buffeting of Berkshire Hathaway or the "Soros Funds Take A Bath"
financial page headline or Victor Niederhoffer galloping like a financial Custer-knows-he-can't-lose.

One knows that one is doing something right when counting profit dollars while Elaine Garzarelli weeps on
her manicotti (or growls over her beef Stroganoff, lest I be accused of sexual or ethnic stereotyping) about
the liquidation of her slow-at-the-starting-gate mutual fund. After the "Red Baron" Manfred Von
Richthofen shot down an enemy plane, he would have a Berlin jeweler make a two-inch-tall silver trophy-
type cup as a shelf commemorative. Etched on the silver were the number in the Baron's sequence of
victories and an abbreviation of the plane type that lost. For example, "36 B2" meant "36th kill, Bristol
two-seater," a British craft. I do something a bit similar after taking a profit.

904
Following a win, I buy some permanent item for the drawer or the shelf. Recently I went to the Strand
second-hand book store near Manhattan's South Street Seaport and bought the hardcover Book of Crowns
and Cottages (dated 1925) by Robert P. Tristram Coffin who, like Logan Pearsall Smith, was an American
who went to England, studied at Oxford, and became a noted essayist. Afterward I happened to stroll
through the busy ground floor mall of the World Trade Center, New York City's tallest pair of buildings.

The Schwab discount brokers have an office near heavy pedestrian traffic there. Above the display
windows, a horizontal-band electric sign showed current stock quotes in lighted letters and numbers
moving from left to right. More than a dozen men had gathered to watch. A voice inside told me to keep
walking and reminded me of the bagged book I was carrying. Always I have been adamantly against letting
speculations or investments be a gambling-style addiction. That scene bore an uncomfortable resemblance
to excited horse-players gathered around a radio. "Around the turn, Bluegrass Hank is gaining on Royal
Sword!"

I sat at one of the metal tables on the Trade Center's giant outdoor veranda on the sunny but chilly
afternoon. The cold lured me to the spring-ish writings in the Tristram Coffin book, particularly, "Saints &
Creams & Devon Things." Coastal Devon or Devonshire constitutes the southwest corner of England,
bordered on the south by the English Channel and on the north by the Bristol Channel. The population
includes Anglo Saxons, Celts and some Danish ancestry from Viking days.

The resulting folklore includes English heroes, Irish Catholic saints and ghosts of Norsemen. Robert
Tristram Coffin found just as noteworthy a certain delicacy from the region's cottage kitchens: "I shall
never be able to describe Devon cream . . . I know now that it is all the work of the Devon saints and the
Devon fairies. The cream will not rise into that thick foam of sheer delight in an alien place. Perhaps the
virtue lies partly in the homemade crockery of Devon clay.

"But more certainly it is the witching marriage of the sweet savors of the sea with the matchless tang of
thyme and odor of Devon orchards and meadows that makes the food of the angels going by the name of
clotted cream. And to such things as these the fairies attend. Whoever has not heard of the Devon saints, or
at least felt his religion to be something like apple blossoms or first humble bluets of a young year, full of
the grace of simplicity--he has yet to find a real religion. The man who has never eaten his June
strawberries with clotted cream has never known the taste of strawberries at all, has never found how
closely Eden borders on our earth."

A delightful hillside of red and yellow marigolds for a winter's day! Elsewhere in the volume he wrote of a
"spot in England where May comes with miles of bluebells until they look like smoke under the trees" and
of the "angel down that is the English morning clouds over the elms."

"Mr. Donio?" I looked up from the pages. I recognized the 30-something woman as one of the assistants at
the discount brokerage house that had my retirement account. She heeded my gesture to be seated. "I saw
your name on our records," she said, "and the same day I happened to see your name in a Film Flubs book."

It was Film Flubs -- The Sequel by Bill Givens. Givens had printed my name in the book along with an
"anonymous authorship" verse I had sent him, an old four-liner that joked about the lack of historical
accuracy in Cecil B. DeMille movies: "Cecil B. DeMille/Much against his will/Was persuaded to keep
Moses/Out of the Wars of the Roses."

She asked, "Why would a stocks & options man be interested in film flubs?"

"For one thing, I'm a staunch believer that traders should have other areas of interest. Too many of them
pace the floor nervous horse-players. It's better to be like the diamond dealer who's also interested in chess
or antique bronze." I fingered the hardcover. "Or my reading British essayists."

"Also, a trader needs power of observation and sense of detail, and screen foul-ups are one way to test this.
The fellow who watches Paul Revere's ride on screen and doesn't spot the telephone poles in the distance

905
probably won't spot the flaws in a speculative strategy. Somebody in a Wild West movie boards a train to
go back east, and the train chugs off into the sunset. The trader who overlooks that could overlook a sly
trend in one of the markets."

She responded by talking about an item from the Givens book--The Babe Ruth Story starring William
Bendix, set mostly in the 1920s but filmed in the late 1940s. In 1927 the Babe hits his landmark 60th home
run, and runs the bases in Yankee Stadium past billboards for Calvert's Whiskey and Ballantine Beer. In
1927 the Prohibition police would not have liked that.

"I remember that movie," I replied. "The film makers were so busy trying to mechanically jerk tears with
the boy in the wheelchair and the boy in the hospital bed that they overlooked things like the famous
southpaw autographing baseballs after a game with his right hand, just after swatting lefty on the field yet!
Didn't Bendix or the director have some tiny memory of the batter's box? A trader has to think more deeply
than that and catch more details."

As armchair philosopher in an outdoor metal chair I continued, "I really hate to use that overused phrase
'contrary to popular belief' but a lot of what 'everybody knows' just isn't so, whether they get it from the
movies or elsewhere, and a speculator should be one whose knowledge goes deeper than most, even for
practice in other areas. There's no evidence that Christians were ever persecuted in the Roman Colosseum.
There's no evidence that pirates ever made anybody "walk the plank." Vikings never wore horned helmets
except in Wagnerian opera and on screen."

I added that the "quick draw" face-offs between cowboys were strictly a movie and TV invention. Firearms'
experts say that if that were ever tried in real life, whoever started to draw first would have such an
advantage that it would be no contest. And the Trojan War fallacies!

"There is evidence that the Trojan War really happened," she interjected.

"Yes, but it was Bronze Age, with tools that couldn't cut hard stone or marble. Brick buildings with wood
columns. The carved stone temples with the grooved marble columns in the Technicolor movies -- that was
Periclean Greece, Iron Age, five centuries later. Five centuries. Hector and Achilles with that background
were like Columbus at a shopping mall. Then there's goddess Aphrodite with the vaccination marks."

She smiled. "Well, the set designer was ahead of his time. And the actress set a good example for kids
getting their shots. That's one way of serving the community."

Serving the community. The woman and I both happened to be letter-writers to the congressman, senator,
governor, editor, and were voters and once-each prospective jurors. I also wrote to a state legislator and a
couple of city elected officials.

Home again. During the next three trading days and the early part of the fourth, IBM shares moved within
the high 90s. I saw no reason to emend my calculations that the stock swam between the high 90s and mid
100s. I figured that a call option spread at the 105 level would be a good position if the shares showed a
sign of pointing upward. Having 96-ed and 97-ed for a couple of trading days, early on that fourth day IBM
rose two points to 99 and a fraction. The March 105 calls were bid 2-3/16; ask 2-5/16. The April 105 calls
were bid 3-_; ask 3-½. The bid gap and ask gap were both a sliver under 1-¼, so that seemed a good debit
with which to enter a spread position.

A pointed warning is in order here. "Keeping pets" or "having favorites" can be dangerous for investors and
speculators. To think that such-and-such a stock "has" to do what I expect or "can't possibly" go the wrong
way or "can't possibly" pull surprises -- beliefs like that create shortcuts to the financial graveyard. I do not
claim that IBM is "perfect" or "infallible" or a "sure win" roulette number game after game. I only claim
that step by step it has produced -- so far. Currently I decided that it fit my requirements after I looked at
other fleshy or meat-on-the-bone options.

906
After giving the broker a buy 10/sell 10 order with a 1-¼ point debit, I bought 10 IBM call options April
105 at 3-_ points ($3,375) and sold 10 IBM calls March 105 at 2-_ points ($2,125) paying 1-¼ points
($1,250) plus commissions out of my own capital. What rules-hammered-out-by-experience was I
following? The short-end options (the sell side of the spread) must be worth more than half of the long-end
(buy side) ones, and preferably something like two-thirds. The March's 2-_ point value is almost two-thirds
of the April's 3-_. Also, the value of the short-end options should be at least two solid points and preferably
more. Less than that is too thin a slab of beef. Hence the March at 2-_.

For the spread strategist, shrinkage (time-decay) potential on the short end means profit potential. So it
needs some kind of bulk to start, like a couple of points minimum.

A few days after opening the March/April spread position, I glanced at some Xerox pages I had of excerpts
from the book Italy--Rome and Naples--dated 1869--by French art critic and historian H.A. Taine.
Scribbled on the title page was a tiny notation I had made a couple of months earlier, "Views and Films
Index. 1906. Art Museums." I reread what Taine had written about the art work in the Monte Casino
Chapel south of Rome, work by a leader of the Neapolitan art tradition.

"Paintings adorn the cupola ceiling, extend through the nave, overflow into the chapel, take possession of
every corner, and display themselves in enormous compositions over the portals and arches. Colour is as
flattering to the eye as a ball-dress. A charming 'Truth' by Luca Giordano, has scarcely any drapery but her
blonde hair, and another figure, 'Benevolence' is, they say, a portrait of his wife.

"The other Virtues, so graceful, are the gay amorous ladies of an age buried in ignorance and resigned to
despotism, one no longer concerned with aught but sonnets and gallantry. The painter rumples and tosses
about his silks and stuffs, hangs pearls in dainty ears, puts glittering gold necklaces on fresh satiny
shoulders, and so pursues the brilliant and agreeable that his fresco at the entrance, 'The Consecration of the
Church' resembles a sumptuous and tumultuous scene at the opera."

My ballpoint "Films Index" notation referred to a passage in Frank Walsh's book Sin and Censorship. The
dawn of mass-audience silent movies was also the dawn of film censorship and relevant controversies.
Walsh cited both sides, starting with the 1906 editor of the very first movie magazine Views and Films
Index:

". . . To those who claimed that the movies were undermining the country's morals, he pointed out that,
when compared to the fully clothed actresses on the screen, the undraped statues in public museums were
far more likely to 'arouse prurient thoughts.' But the nickelodeon's enemies knew that no one had ever gone
wrong in a museum. Reformers had always viewed the city as a difficult place in which to raise children;
these fears were now exacerbated by the sight of boys and girls lining up to enter the dimly lit theaters.

" . . . According to the Illinois Supreme Court, the city's right to ensure decency and morals were especially
clear in the area of movies because the low admission price attracted children and the lower classes."

The lower classes? Interestingly, those shabbily-dressed immigrants had, while in the Old Country, seen
Giordano's cathedral nudes and Verdi's operas about regicides and soiled virtue, all without it ripping their
morals apart. In the past I have criticized Middle American "born agains" of the Rush Limbaugh/Pat
Robertson stripe. Yet their bucket of blame is not the whole five gallons.

When I was a boy in Catholic school during the 1950s, those nuns said the words "nude" and "naked" with
even more disgust than they said "sin" and "evil." You can imagine how well they knew the works of the
Venetian colorists! If Illinois high court judges of Methodist and Baptist persuasions did not swarm through
the art museum or the opera house, then neither did the Dominican blackfriars or the Franciscan nuns or the
Knights of Columbus. So what happens when people who think like censors attempt to think like artists?

What occurs when the fellow who puts the fig leaf on Apollo tries to sculpt? The film-art equivalent of this
actually happened. After World War One, anti-Catholic bigotry became an increasing problem, with the
rapid growths of the Ku Klux Klan and Protestant revivalism adding to already-existing anti-immigrant

907
prejudice. Catholic groups and individuals thus far intent on censoring films tried making them, aiming for
a "better image" for American Catholics with the help of the big screen. Among the organizations was the
National Catholic Welfare Conference, which had a Motion Picture Committee (a de facto "ban the filth"
arm) bossed by Charles McMahon. Frank Walsh wrote:

"McMahon himself talked grandly of enlisting the best Catholic writers in the country to tell the real story
of the Church in America: stories of the Catholic founding of California, the Jesuit missionaries in the
Mississippi Valley, and the Catholic soldiers of the American Revolution. Yet the few movies the Church
did turn out, including a four-reeler documenting the work of the New York Archdiocese's charities, had
little appeal beyond parish recreation halls.

"The National Catholic Welfare Conference's own effort was a five-reel film in 1919 entitled American
Catholics in War and Reconstruction, which it hoped would silence anti-Catholic bigotry forever by
documenting the church's role on the battlefield, the home front, and the revitalization of Europe.
Unfortunately, a preview at the annual bishops' meeting in Washington indicated that the film itself was in
desperate need of revitalization."

Of course, those decent, devout film makers would never corrupt their eyes by going to an art museum,
never look at the huntress Diana covered by only a bow-string or the martyred Saint Sebastian, his naked
body riddled with arrows, or a bacchanal mural by Rubens or Titian. This left them with only the faultiest
sense of the visually vivid, and a notion of tradition very dog-act vaudeville rather than Veronese. The
intention was to push the DeMille orgies off the screen and replace them with Catholics doing good works.
The results were films with all the artistry and verve of the City Sanitation Code.

Famed director Vincente Minnelli had wanted to be a painter and it showed. So many of his sumptuously-
composed movie scenes look like they belong in picture frames. How he must have beheld the art works
and trained his eye, developed his power of observation and sense of detail. He would have made a good
trader. In your thinking and your touchstones, please be a Vincente Minnelli and not a Charles McMahon.
In serving your community, be an enemy to bigotry, of course, but be not a friend to paint-by-numbers
thinking in fine arts or finance or any other area of earthly existence.

Option Strategy Update: IBM shares are still in the high 90s. March 105 call options have slipped from 2-_
to 1-¾. April 105s have slipped from 3-_ to 3. Negative news for non-spreading long players in both of
these. But for the spreader? Notice that the gap between these figures is still 1-¾ points. No profit yet, but a
fine layer of armor. (Written February 6th)

Van Drivers, Hairbraiders, At-home Entrepreneurs Say to Government: "Give Me A Break"

Institute for Justice Clients

Washington, D.C. - Demonstrating the stupidity and pervasive nature of government regulations that keep
would-be entrepreneurs from earning an honest living, various Institute for Justice clients were featured on
ABC News "20/20" (aired 2-9-98) in a segment titled, "Give Me A break." Among those who will
demonstrate that consequence of government standing in the way of opportunity are: New York City dollar
van drivers, African Hairbraiders and home-based Entrepreneurs, all of whom the Institute for Justice
continues to assist in their quest for economic liberty.

The program showed the Institute for Justice in action and the people at the very heart of their litigation.

Editor's Note: The U.S. Government allegedly wants to license and regulate everything. The ABC
Entrepreneurs included elderly women that sewed quilts & misc. to sell at craft shows. A black woman who
baked and sold her baked goods in her neighborhood. She did this so she wouldn't have to go on welfare
after losing her job. Soon everything we do, will be regulated by the government. Our freedoms are
disappearing constantly with government's interference in our daily lives.

908
 The Value of CTCN - R. L. Smith

Just a brief note to tell you how much I appreciate the great value of the very useful information in CTCN's
collection of back-issues. As a beginner, I have already spent well over $1,000 on most of the popular
books that a beginner should have. Although I have received a lot of good ideas from these other sources,
the amount of helpful info in your newsletter far exceeds these other sources.

I find the first-hand accounts of the successes and failures of your wide range of members to be particularly
instructive and even inspiring. I am presently re-reading many of the issues, because I find that as my own
education increases, I get even more info from them the second time around.

Looking for Used Videotapes - Buzz

Buzz Ross would like to hear from anyone who has any of the following videotapes that they no longer
need:

1. Curtis Arnold's PPS system;

2. Ryan Jones's conference presentation on Money Management.

Call 303-443-7131 or send e-mail to buzzmr@juno.com

Entry and Stop-Loss Methods - James Fu

I am using Larry Williams' basic approach. I follow his video course, his books, and his short-term entry
techniques. I subscribe to his "Larry Live" hot line, 3-times a week without a miss.

I am currently trying to decide on a better entry and stop-loss methodology in addition to LW's
observations. I would like very much to talk to:

1. Members who are experienced in using Dr. Alex Elder's 3-Screen method and particularly, his entry and
stop-loss points - they are very close.

2. Members who are experienced in using R&W Technical Services' MasterSuite entry and stop-loss
method.

3. Members who have experience using Linda Raschke's "Street Smarts" method.

The preferred way of communication is for club members to leave me with their telephone numbers so I
can call them at my expense. My telephone number is 818-998-3970. Please leave a message. The next
choice, of course, is the e-mail. My e-mail address is JFu6472212@aol.com

Member Hans Brost has found what he thinks is probably the greatest commodities charting site on the web
- www.tfc-charts.w2d.com . . . check it out . . . plus it's free.

Editor's Comments

As you know, our normal publishing schedule is to mail out CTCN toward the end of the issue month. For
example, the Jan/Feb issue would normally be sent by the last week of Feb. Unfortunately, for some odd
reason a last minute software bug developed on the day before we were taking CTCN to our printer, in our
Word Perfect 6.0. This mysterious bug changed many of the numerals referenced by our contributors to
some odd hexadecimal characters. This bug resulted in having to copy everything to a different computer
and correct the numerical errors. Sorry for the delay with this issue being so late.

909
 Our next issue will mark the end of our 5th year of continuous publication of CTCN. It has been a
successful but also a difficult 5-years, what with lawsuits, U.S. Government CFTC involvement in our
activities, threats of suits from places like the Lind-Waldock brokerage firm if we publish a negatively
construed letter about them, etc. However, at the same time we feel like we have accomplished a lot as far
as providing knowledge and information is concerned to our members.

We had lots of excellent contributions during these 42-issues of CTCN. A number of contributions were
particularly good, but may have been missed by many of our newer members unless they ordered and read
all of our back-issues.

Therefore, starting with this issue we are republishing an occasional past article or two that was extremely
noteworthy and valuable. In addition to the benefit to our newer members, some of our long time members
may also benefit from occasionally reading an article they may not have read or paid much attention to.

Issue 43.

Is Daytrading For You? Ned Gandevani, MBA

The following article is written with the intent of highlighting what I consider to be important elements
specific to daytrading. The eight points which I expand upon give an overview of the daytrading process
and its requirements, to aid you in deciding whether daytrading as a profession is right for you or not.

1. Markets -- The first and foremost consideration for daytrading is market selection. Not all futures
markets provide an opportunity for daytrading. Markets with low intraday volatility do not generate enough
price movement to justify commission costs and potential profits. A daytrader needs to seek markets with
high intraday price volatility and change. Based on previous research of market volatility the financial
markets such as the S&P 500, Treasury Bonds and Currencies present best vehicles for daytrading.

When discussing volatility, we need to consider a few different concepts carefully. Without getting bogged
down with too many technicalities, I call your attention to the following: Volatility refers to the rate of
change on an intraday or daily basis. As a daytrader, your interest lies in which market offers the widest
price swings in a day. The following example demonstrates how high levels of volatility can also be a
"two-edged sword."

The S&P 500 futures market on average moves between 16 to 25 points per day. This is based on research
of S&P daily price ranges from 1994 to 1997. The data shows us that if we have the right methodology and
systematic approach, we can certainly make a considerable amount of money in this particular arena.
However, the very same market is also capable of exhibiting wild, extreme and violent intraday swings.

As an example, examine small time frame bar charts (1 through 5-minute) and observe how much price can
change in so little time. Three point moves ($750) can be found on 3-minute bars at times -- which is great
for profit, but must also be

viewed as potential risk. This volatility translates into the fact that we are capable of losing $750 to $1250
in minutes - which is way too risky for my equity capital. In short, we must learn to distinguish and clarify
what we mean by acceptable volatility. Gauging volatility in a market helps us to maximize our profit
potential and minimize our risk.

Based on research, markets like the S&P 500, Bonds and Currencies offer the best conditions for
daytrading with regards to volatility, liquidity and access. Of the three groups, the S&P’s have gained the
reputation and recognition as being a true daytraders market. It is composed of approximately 85%
daytraders and 15% position traders. The following points discuss the distinct differences between day and
position trading.

910
2. Technical vs. Fundamental -- Daytraders rely heavily upon technical indicators - as a contrast to the
position trader who makes use of fundamental leading indicators. Tricks of the trade for daytraders include
specific chart formations, intraday support and resistance points as well as opening and closing prices of the
day. For the position trader however, intraday activity of a market has less significance than overall market
activity and direction. The daytrader is more of a Technician -- while his counterpart, the position trader is
more like a Fundamentalist.

The daytrader may choose to utilize a variety of technical indicators for the decision process of entering
and exiting trades. There are over 100 indicators available for all the charting programs marketed. The
intention of these lagging indicators is to help you determine whether a market is in a trend or about to
reverse its direction. There are two types of indicators available: Static and Dynamic (also referred to as
Adaptive). Static indicators have a fixed input for the variable and its settings are based upon the notion
that the market will repeat its past price history and movement identically and repeatedly.

Adaptive indicators attempt to take into account new market conditions and make corresponding changes to
input values accordingly. Overall, a typical daytrader relies upon his/her selected indicators for trading
decisions -- which therefore implies that they reject the Efficient Market Hypothesis and its implication of
the Random Walk Theory. (We will expand upon these concepts in future articles.)

3. Profit Target -- It’s very unlikely that one will make a "killing" on any particular intraday trade.
Daytraders look for relatively smaller profits and fewer losses. Position traders on the other hand, get in and
out of many trades, with the hopes of eventually getting in on a meaningful and sustained trend. This means
more losses of small value with a lower percentage of winning trades overall - but significant profits on
winning trades to offset the costs of "finding" the best entry point. Overall, the mathematics for each of
these trading styles are quite different. When you evaluate a daytrader or daytrading methodology, you
need to see a higher percentage of winning trades with relatively small losses. The position trader will
typically have a higher frequency of losers that are small, but much larger profits on winning trades.

4. Capital -- The capital required for daytrading is substantially less than for position trading. For every
contract you take on as a position trader, you need to post margin in your account, as required by the
exchanges. Trading the same market and assuming the same strategy on an intraday day trade will typically
require much less capital for margin.

For example, a position trader needs to have a minimum of $12,600 per contract to trade the S&P with
overnight positions. The daytrader is able to post half that amount (and sometimes even less) for his
intraday trades. This means that as a daytrader, you are able to more effectively utilize your capital than the
position trader since your equity can work in more trades at the same time, bringing increased profits to the
successful trader.

5. Time Required -- Daytrading requires more time and attention than position trading. You need to
monitor your trades constantly until all positions are closed out. Position trading requires much less time
and day -- today attention. With proper money management, long term traders can leave their positions
unattended for days or even weeks. By contrast, in daytrading you will need to watch, evaluate, adjust and
change your positions many times during the day. The very nature of daytrading and its associated
conditions and intensity will preclude the majority of investors from being able to participate due to their
regular jobs and commitments.

Although some commercially available systems and tutors boast the ability to day trade markets with little
to no intraday monitoring, they should be viewed with caution and suspicion due to the nature and
character of the markets. Daytrading is a full time profession and must be treated as such if you want to
succeed. Ask yourself the following when you consider the possibility of daytrading for a career: can you
make enough profit after commission costs, data feed costs, program/educational costs to justify your new
endeavor as a trader? Does the potential profit justify your time? The decision to day trade full time
requires serious consideration before committing yourself. Daytrading is a career and occupation - not a
hobby or amusement.

911
6. Commission Costs -- It will cost you more in commissions daytrading than in position trading. In
daytrading, you might have to enter and exit positions a few times in a given day, whereas with position
trading you enter and exit trades with much less frequency. You therefore need to look at the cost of "doing
business" when evaluating a trading methodology and system. There are many ways to reduce the
commission costs incurred when daytrading. These include but are not limited to: Online trading via the
Internet, Discount trading and negotiating with potential brokers when shopping around for a suitable
candidate.

As a daytrader, you need to get quick and accurate fills. Brokers and their respective clearing firms (FCMs)
usually specialize in a few markets, so be sure to select a firm that will cater to your needs. There is no
sense in trying to trade the S&P’s successfully through a firm that specializes in agricultural products. Deal
with a firm that will be well suited to the trade execution requirements a daytrader has. Try to shop around
and get floor access - real floor access, as opposed to a trade desk situated somewhere on the floor that
can’t even "arb" in your trades with a hand signal during fast market conditions. Some may argue the
quality of fills may not be a crucial factor in the overall success of a trading methodology. I agree - but it
helps a lot in the long run and makes your trading seem easier.

7. Equipment Requirements -- In daytrading, active participation in the trading process requires a real-time
data feed and charting program. The cost of these essential components can be quite substantial. In
position trading, you don’t need access to real-time data -- and in some cases delayed data is even
unnecessary. You may be able to obtain your information from one of the financial newspapers like the
Wall Street Journal or Investor’s Business Daily.

When considering which of the real-time data vendors to chose as your source, do your homework and
shop around for the fastest, most reliable and affordable. Depending on which market you trade, you might
be able to access your data through the Internet at a cheaper price than the satellite or cable alternatives. Be
sure to check for compatibility between your data vendor and the charting program you choose. There are a
wide variety of charting programs available to daytraders and their cost will correspond to their
sophistication. Some of the real-time vendors even provide you with their own "in-house" charting
program. Regardless of developer, they all have a multitude of STATIC indicators to choose from.

8. Personality -- More important than anything else mentioned above, the personality of the trader plays an
important and crucial role in successful trading. You need to have a deep and insightful understanding of
your character and personality traits. Is your makeup best suited to position or daytrading? Are you even
suited to be a trader at all? The reality of the trading world is that you don’t just trade the market -- you
trade yourself in the market. If you don’t know yourself well enough to identify your strengths and
weaknesses, trading will assist you - but at an expensive price. It would therefore make sense to try a few
of the popular personality tests to identify and become more conscious about your strong and weak points.

We all have positive and not-so-positive traits in our personalities. Like everything else in life, the key to
success is building on our strengths -- not fighting against who we are by trying to change our undesired
traits. For example, if fast decision making is problematic for you, then you should consider position
trading to be more suitable that daytrading. Or if you’re a great procrastinator, you must make sure that
your entry order is accompanied by a protective stop loss order, to ensure that a losing trade is not
compounded by your natural reluctance to "put off" the proper decision. This is a personality trait that can
run you out of trading -- and your equity -- very quickly.

You might also find out (possibly through one of the personality tests if you are currently unaware) that
you are the type of person who constantly strives to be the best and most perfect at your trading. Lets label
this type of person as the Perfectionist. This type of trait can cause a lot of problems and big losses for a
trader.

The Perfectionist tries extra hard to not have any losing trades. Unfortunately for him, this only means
more disastrous losses. Multiple consecutive losing trades handicap the Perfectionist from taking the next
trade because he’s now gun shy and scared to pull the trigger again. The result - more lost opportunities.

912
A crucial factor in being a successful trader is to recognize and believe with your heart that trading is a
game of probabilities. Sometimes you win and sometimes you lose. You can separate yourself from the
losers by formulating a trading plan that helps you reduce losses while maximizing gains. Proper stop loss
placement and optimal management of winning trades are keys to winning at the probabilities game.

Most of the time we tend to forget that we make our decisions with our emotions and then justify with our
logic. The assumption of rational investors in the Efficient Market Hypothesis couldn’t be further from the
Truth. On the contrary, when it comes to trading we all become quite irrational. In behavioral finance, the
notion of the irrational investor is the norm.

In trading, more than anything else in life, we rely heavily on our emotions, either through unrealistic and
ultra-optimistic profit and fortune goals - or pessimistic and hopeless expectations based on our previous
experiences. Rather than thinking in the Present, we often think in the Past (with our past experience
associations) or in the Future (with a desirable and idealistic outcome perception). To remain focused in the
Present and judge our trade as it unfolds Now, requires practice. But more important than practice, you
must know who you are and understand your personality first.

Trading is like a clear mirror that reflects our inner personality and character. It is not only capable of
bringing us great financial rewards -- it can also help us to know ourselves better. This benefit can greatly
contribute towards our evolution as better individuals and human beings. This is one of the most important
reasons I have cultivated a love for trading. It is the ultimate endeavor for a free and beautiful life.

For the past few years, I have developed my own non-mechanical trading methodology, The Winning Edge
S&P System. This system is the resulting product of research for my doctorate degree in International
Finance. If you are interested, you may be eligible to receive a free one week trial. I only teach the System
to qualified S&P daytraders selected by myself. Please - no brokers or CTA’s. For details, please contact
me at 516-423-8402 or e-mail at Gandevani@worldnet.att.net

S&P Trading Tips - Dr. Paul E. Diehl

I really enjoy getting CTCN and read and study every issue. I hope that you can continue in spite of the
bureaucracy. I have been trading for over 20 years using both full service and discount brokers. I have
purchased your Real Success Videos and found them useful, although I do not trade the system exactly the
way it is presented. This is what I believe that I have learned in the 20-years that I spent in the school of
hard knocks.

1. Specialize -- I stick with the S&P 500. Plenty of action, good liquidity, lots of technical data to support
decisions. I read about traders all the time that follow 8 or 10 markets. I just can't do that and I don't know
many people that can. Maybe that's one reason why there are 85% losers.

2. Live Data Feed -- For years I tried to trade based on frequent phone calls to a broker (this was before
CNBC). I finally broke loose and bought a Quotrek (hand held portable data receiver). Now I can get S&P
and other prices almost as soon as the floor does. (10 to 20 seconds lag) Even with the new S&P size you
can lose a lot of money if you aren't right up to date.

3. Be Independent -- Don't let anyone else do this for you. I lost $20,000 while on a seven-day cruise ship
holiday, because I was holding several S&P contracts and had told the broker to get me out in if the market
went against us. This was 12 years ago and I was really green.

4. Use Mental Stops -- I broke this rule recently. I was short the S&P at 1119.30 and it dropped to 1117.50.
l was really busy so I told the broker to place a stop where we would not let a profit turn to a loss. He was
too busy to use a mental stop so he placed one with the exchange at 1119.20. The market ran to 1119.50
10-minutes later and then made a low later in the day at 1105.40. I would never have sold with a mental
stop because the trip was so fast you wouldn't have finished dialing the phone before seeing the market
back down to 1118.50. Mark it down. They will gun your stops if you give them the chance.

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5. K.I.S.S. (Keep It Simple Stupid) -- Bill Oliver pointed this out in CTCN sometime ago and I agree
100%. I believe that each trader has to develop his own system based on his own personality. You have to
know yourself. I day trade, but some people would rather hold overnight and take a longer time frame with
wider (mental) stops.

6. Keep Working - - This is not a lazy man's game. You have to crunch the numbers every day. I hand draw
my charts from the Quotrek data even though my broker faxes me a computer chart two to four times a day.
I get a much better feel with my hand drawn charts than I do sitting in front of my PC screen. Bill Oliver
also mentioned this. This is another reason why I follow only one market.

7. Be Flexible -- The S&P market of today is totally different from the 80's market or even the early 90's.
The average daily range is now 10 to 15 points where is used to be 5 to 10. Bull markets are different from
bears and choppy (digestion phases) are different still. The bear can take away in one day what you earned
in two weeks if you aren't on the right side of things.

I could go one for pages, but instead I would recommend the reader to buy any book written by Joe Ross,
Larry Williams or George Angell. I did write George a letter about a month ago with a question on his
latest book, but have yet to receive an answer. Just too busy daytrading I guess. Keep working, keep
learning and "just do it."

Lind-Waldock's Lind Online vs. LFG's Zap On-Line - D. Powell

First some background. I have had an account with Lind-Waldock since 1989. I started as a position trader
but evolved into being an S&P day trader. After a couple years of learning and testing I ended up doing
well trading one to five S&P contracts intraday using mechanical breakout systems. Then I stopped trading
for a couple years to build a new home.

When I was ready to start trading again I tested my systems for the period that I had not been trading and
found that they had stopped working. For the last year I have been working at discretionary S&P day
trading. I'm not trading profitably yet so I have very recently started "practicing" with the E-Mini (Yes, the
commission to contract size is out of whack but for my purposes that is OK).

Now back to trading on the Internet. I have gotten fairly good at identifying entry opportunities but quite
often don't "pull the trigger" when I need to. I realized a couple months ago that having to place my orders
by telephone often adds enough mental resistance to keep me from "pulling the trigger." I had gotten to the
point where I simply did not like giving phone orders and this was working against me. So, I stopped
placing telephone orders and started using Lind Online.

Before I go on let me say that I have had a very good experience with Lind-Waldock. I intend to keep my
account with them. I was enthused at the prospect of electronic trading. But I was soon disappointed in
Lind Online. The program reminds me of a 10-year old DOS program. It doesn't look and feel right (to me).
It's sluggish. The Internet fill reporting is no faster than with orders placed by telephone. And with S&P
market orders fills are not immediate given like they are with phone orders. I tried a few trades with the E-
Mini. Forget it! Lind-Waldock allows stop orders for exiting an E-Mini position but the reaction time is
way too slow. On one order my fill was made 38 ticks after the stop was hit! However, even with my
disappointment I still prefer placing my orders with Lind Online to placing them verbally. Lind Online is a
step in the right direction (and there is a $3.00 discount per RT).

Then I read Mark Byrd's article "Electronic Order Entry on the Internet with LFG's ZapFutures" in the
Jan/Feb 98 issue of CTCN. I called LFG to set up a small account so that I could test Zap On-Line. I was
quoted a rate of $45 RT and so I moaned and groaned because I pay $15.04 RT with Lind Online. I
mentioned the $22.54 RT rate that I had seen in CTCN. I ended up with an RT rate of $27.04. Is it worth it
to me to pay an additional $12.00 per trade? For now -- yes.

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A few things that I like about Zap On-Line: Orders can be set up and "parked," ready for instant
transmission. Fills are reported very quickly (via the Internet).

E-mini orders are transmitted and filled almost instantly. Market, stop and limit S&P orders are transmitted
to a broker operated workstation (CUBS) in the middle of the pit. This yields quick order entry and fill
reporting. The broker using the CUBS unit does not see a stop order until it is converted into a market
order. Because of this you can move a trailing stop as often as you like (the computer doesn't care).

Zap doesn't disconnect as frequently as Lind Online. Refer to Mark Byrd's letter for more details about Zap
On-Line. (http://www.zapfutures.com/)

I checked with another company Xpresstrade. Based on only a quick examination my impression is that
their service would be similar to that of Zap Futures with the exception of having a CUBS unit for S&P
trading.

They quoted a Round-Turn rate of "approximately" $25.84 to daytrade the S&P and "approximately"
$26.84 to daytrade the E-Mini. (http://www.xpresstrade.com/)

I'm hoping that Lind-Waldock will eventually improve Lind Online because as I said earlier. In the
meantime I will be using my Zap Futures account.

Trader' s Tax Survival Guide & Tax Strategies for Traders - A Book,
Video & Tape Review by Raymond Kohn - Part 1

Some CTCN subscribers may recall that I had previously referenced Mr. Ted Tesser's original book
"Trader's Tax Survival Guide" copyrighted 1995 in a prior commentary on Federal Taxes. Ted has recently
come out with his "Revised Edition" of the "Trader's Tax Survival Guide" copyrighted 1997, 290 pages
($75.00). A special promotional offer by Future's Learning Center, packaged this book along with one of
Ted's seminar videos titled "Tax Strategies for Traders" ($69.00), and an audio cassette titled "How to Turn
$30,000 into $1,000,000 (and get the IRS to Foot the Bill)," all three items were packaged together for a
special price of $119.00.

This review will cover only the book. The other two items will be covered individually in a future issue of
CTCN.

Before beginning this review it is important for me to provide you with an insight into my own perspective.
Please keep this perspective in mind as you read this review. To begin, I have been a student of the "Tax
Laws" for over 30-years. I subscribe to many of the professional "Tax Manuals & Guides" used by CPA's
which Ted references in his book. And, though I am not a CPA, I consider myself an "expert" on Tax Law.
As a result, I consider most of what is contained in his "book" pretty standard stuff.

However, the video tape was exceptionally well done and contained the necessary "Legal Precedents" and
other information not typically found in the IRS Tax Code. (The Video Tape will be reviewed for a future
issue of CTCN.)

Important: Even though this book is copyrighted 1997, it is not updated to include the 1997 Tax Reform
Act just recently passed by congress. However, in-of-itself, is not a major problem. It is just something that
you should be aware of as you read this book. Several references made in the book no longer apply, or are
significantly altered by the 1997 Reform Act.

(Special Note: In general, ALL tax books have a very short life span. Congress changes the tax code with
such frequency that it is impossible for a book, like Ted's, to retain much value from one year to the next.
However, the area of the Tax Code which specifically concerns "Trader Status" is unique, and has been
established more by "legal precedent" than by actual "tax code." Therefore, Ted's references to the "legal
precedents" continue to have value to the reader.)

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As the title implies, the focus of the book is to define "Trader Status" for tax filing purposes. Most of the
important information you need to know to qualify for "Trader Status" is contained in Chapter 13, which
begins on page 219 and concludes on page 236. Everything else falls into one of the following four general
categories:

"Historical Information" -- Which highlights key tax issues contained within the various tax reform acts
previously passed, and how they evolved from one tax reform act to another, beginning with the tax reform
act of 1986.

"Political Commentary" -- Ted just hates Bill Clinton and does not disguise his total disgust for the man.
(Who can blame him, what's not to hate.) There are numerous references to Clinton's sneaky, and nasty tax
provisions. Including Clinton's authorship of the biggest tax increase this nation has ever seen in its entire
history.

"Tax Increase Politics" -- This is interesting. It details the hidden techniques used by politicians to raise
your taxes through subtle changes in the tax code. Thus, politicians can keep the tax rates unchanged, yet
via subtle exclusionary rules buried deep within the code, they can effectively "raise your taxes" and you'd
never know it. You just seem to be paying more and more taxes each year.

"General Fill Stuff" -- there are numerous personal anecdotes, real life stories, tax audit ideas, sample tax
forms with completion instructions, and various tax saving considerations and techniques that the reader
might find both interesting and enjoyable.

If you prepare your own tax returns, and subscribe to various professional tax publications, (in order to
keep abreast of recent changes and rulings concerning current tax laws), you will find this book to be
already "out-of-date," and of little help -- With the exception of Chapter 13 of course. If however, your
knowledge of tax law is just average, or nonexistent, then this book will be a real eye-opener for you, and a
must read.

For many of you, preparing your taxes means transferring all those loose papers and receipts, that have
been accumulating in the dresser drawer, into a cardboard box and trekking them down to the local H&R
Block office. Considering the complexity of the tax code, who could blame you for not wanting to waste
your time learning tax law just to fill out your basic 1040 and all of the supporting schedules.

However, given that the average individual pays more in "taxes" than he does for "food," "shelter,"
"transportation" and "clothing" combined, it is important to realize that H&R Block, along with many other
tax preparers, are not financial planners. They could care less how much you actually have to pay in taxes
each year. Their only concern is completing your tax returns based on the information that you give them.

Ted makes a solid argument that if you want to save money on your taxes, you, and only you, have to take
responsibility for learning the specific areas of the tax code that are relative to your lifestyle and profession.
And then, you must take the necessary action to model your lifestyle in a tax advantaged fashion, while
maintaining a solid record keeping system. It is an unfortunate fact of life, but, in order to save money on
taxes, you have to live each day with an understanding of how that day's activities are affected by the tax
code. And, always keeping a constant eye on making "tax wise" decisions throughout the year.

(Special Note: You no doubt have heard the term "Social Engineering." Politicians use the tax code to
"reward desirable behavior" via tax incentives, and "punish undesirable behavior" via the loss of tax
benefits. Therefore, if you want to take advantage of a given tax break, you have to "do" and "act" in a
manner that politicians deem appropriate. If you somehow expected "free choice" in a supposedly "free
society," you might be able to have it, but it will cost you big-time when you pay your taxes.)

This book gives you a great historical perspective of how politicians have manipulated the tax laws to serve
their own interests, and how they use the "complexity of the tax code" to hide their insatiable greed for your
hard earned money. You come away from this book not only hating the tax code, but also hating the

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politicians that created it. (And, the biggest joke of all, is that this book doesn't even include the 1997 Tax
Reform Act, which is the single most extensive and complex alteration to our tax system in the entire
history of this nation. The 1997 Tax Act contains over 1,000 complex changes to an already burdensome
and complex tax code.)

Ted touches on the benefits of pension plans, IRA's, 401K's, Keogh's, etc., however, given the dramatic
pension plan changes contained in the 1997 Tax Reform Act, this area is interesting, but of marginal value.
In fact, I found his discussion regarding "pension plan distributions" to be surprisingly incomplete for a
book like this. He never made mention of "penalty free periodic withdrawals prior to age 59½" (annualizing
your IRA) as a viable distribution alternative. (Frankly, the "annuity exception" as a distribution method,
can be a gold mine for a trader managing his own self-directed IRA. And, he fails to even mention it.
Shame on you Ted! This is a major faux-pau for a book like this.)

He touched on Estate Planning, and other related "wealth transfer planning techniques." These areas are
very complex, and would take a library of books to cover the topic in depth, but, he does a pretty fair job of
it. However, Clinton is already discussing making major changes in the Estate wealth transfer laws for
1998 which could have a significant impact on everything contained under this topic.

The one "Tax Benefit" that politicians have still left us, are the tax benefits derived by setting ourselves up
as a business enterprise. Once you begin operating as a business, many expenses that were previously
nondeductible (paid with after tax dollars), all of the sudden can be transformed into tax deductible
expenses, thus reducing your taxable income.

If you are not familiar with the term "Schedule C," then this book is well worth its modest cost. The
"Schedule C" is the IRS tax form which is used by "sole-proprietors" to report their business income and
business related expenses. (Other supporting forms typically accompany the Schedule C to support certain
expenses like depreciation, etc.)

The one unpleasant aspect of reporting a "net profit" on a Schedule C is that 15.3% of your net income is
immediately lost to Social Security (and you can't shelter or offset the Social Security tax with offsetting
itemized Schedule 'A' deductions). And then, to top it all off, you have to add your Federal Income Tax
liability on top of the Social Security taxes. The combination of Federal Income Taxes and Social Security
taxes can add up too as much as 5O% or more of your total earned income. What a joke.

(Special Note: Social Security Tax is a very significant element that cannot be ignored. The fact is, 75% of
all taxpayers pay more in Social Security Taxes than they do in Federal Income Taxes.)

Electing "Trader Status" (although not an easy thing to do) can reap many rewards. When you call yourself
a "Trader," you're basically saying that the intensity and frequency of your trading activity qualifies as a
business enterprise. Therefore, you are entitled to be treated as a business enterprise and entitled to deduct
all of the necessary business expenses related to that business activity. However, being a professional
"Trader" is not like any other business enterprise out there. It is unique. Here are a few highlights:

1. All profits and losses from your trading activities are not reported on your Schedule 'C' as "income." But
instead, your trading transactions retain their "capital" nature and are reported on your "Schedule 'D'" -- In
the same manner as if you were a private "investor." Therefore, your Schedule 'C' shows no income. Thus,
with no income to report, there is no Social Security Taxes due on this unique type of "self-employment."
(That's a very big bonus.)

(Special Note: Since you have no "earned income" to report on your Schedule C, you cannot make a
contribution to your pension plan (IRA or Keogh). However, if you have other sources of income from
teaching investment seminars, or providing an investment advisory newsletter, these types of income are
also reported on a Schedule C, and any net profits are subject to Social Security self-employment taxes, and
thus, any net profits can be used to qualify for pension plan contributions.)

917
2. All expenses related to maintaining your trading activities become deductible as business expenses on
the Schedule C, (including margin interest expenses). Thus, your Schedule C will always show a significant
loss, which is fully deductible against other sources of income reported on your 1040.

(Special Note: There is no 2% of AGI (Adjusted Gross Income) limits on these investment related
expenses, as is the case when you itemize on Schedule A. Therefore, you cannot only deduct 100% of your
"Trading" related expenses on Schedule C. But, you can also take the full "Standard Deduction" which is
available to you when you don't itemize.)

3. You can have more than one business activity. And, if so, each business activity would be reported
separately on its own Schedule C.

4. You can be both a "Trader" and an "Investor" at the same time. However, only your expenses associated
with your "Trading Activities" can be reported on your Schedule C. You must keep track of, and separately
allocate, all "Investor" related expenses. These "Investor" related expenses can only be deducted as an
itemized expense on Schedule A, and are subject to the 2% of AGI limitations.

In an article in the April 11, 1997 issue of the Wall Street Journal in the "Your Money Matters" column,
Accounting and Tax Professor, Philip Storrer states:

"Short-term securities traders trying to catch daily market swings qualify for a rare tax break. A trader
reports short-term capital gains and losses as usual, on Schedule D, but he can put all his expenses on
Schedule C because he's self-employed in the business of being a trader. With no income shown on
Schedule C, the expenses produce a fully deductible business loss -- a plum denied to ordinary investors.
Lacking Schedule C income, a trader isn't subject to the 15.3% self-employment tax either. To be a regular
short-term trader and use Schedule C, court decisions say, you must buy and sell "with reasonable
frequency" in search of short-term profits from daily market movements."

As you can probably tell, the key to electing "Trader Status" is not established by the "tax code," but is
established by numerous "Legal Precedents" that has been set via various court cases on the subject.
Therefore, you must become familiar with the various court cases which have established the legal
precedents that define "Trader Status." This is no simple task, and represents the primary benefit of Ted's
book and tape series.

Ted's companion video entitled "Tax Strategies for Traders" focuses on many "Legal Precedents" that a
"Trader" must rely on when defining, and defending his "Trader Status." If you are audited by the IRS, it is
highly probable that your auditor will not understand, nor be aware of, the unique tax environment that
exists for the professional "Trader." Therefore, you have to be prepared to define and defend your "trader
status."

The video will be the focus of a future article for CTCN. Watch for it, it'll be a good one.

On a Personal Note: Every investor/trader should always focus in on "After Tax Returns." The 1997 Tax
Reform Act reduced "Long Term Capital Gains Tax Rates" down to 20%. This compares to "Normal Tax
Rates" as high as 39.7%. As an equity "Trader" all of your income would be subject to "Normal Tax
Rates," which are now twice as high as "Long Term Rates," (with the exception of Futures Contracts which
provide partial Long Term treatment). That means for every $100,000 you earn as a "Trader" your going to
pay twice as much in taxes than you would have to pay if you were a Long Term Investor. (This adds up to
an additional $20,000 more in taxes for every $100,000 of taxable profits.) This is such a significant change
in the tax code that it could turn us all into Long Term Investors.

If you carefully evaluate the tax savings achieved when investing "long term" as opposed to "short term,"
you may find that all the hassles associated with being a "short term trader" just aren't worth it. You may
find that the tax savings associated with "long term investing" more than offset any potential rewards and
deductions associated with electing "Trader Status." Give it some thought.

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 Trading Discipline - Andrew Abraham

As traders we constantly hear about Discipline. One of the problems is the actual definition of what it really
means. It is almost illusory. This is where the problem begins and ends. Most traders don't put enough
emphasis on this subject. They rather put all their time on developing systems and trying to find new and
exotic indicators. Traders that haven't developed the necessary skills of discipline are doomed to fail. They
might succeed for a period, but that is just luck.

Trade Discipline is the most important aspect of trading. A good system without discipline is not capable of
success and ironically a poor system with discipline is more capable of success. Funny!

Now that maybe we are beginning to see the importance of discipline, how do we put it into practice?
Discipline can be learned and enhanced. There are levels and a structure to discipline. These levels mesh
together and form a matrix. To put it in a format easily digestible is:

1. One must be diligent in keeping his data up-to-date. This way you will generate valid signals. This
doesn't mean the trades will work but they will be a valid signal. There are many corollaries to this . . . what
if the trader is too busy to keep his system up-to-date . . . then he/she must figure out a way that works for
them or not trade that system. As a broker I have seen so many traders make this simple flaw . . . or even
traders who don't even have to maintain a system that receives signals from either a trading advisor or an
advisory service and can't follow the instructions. They try to override the signals and second guess the
advisor they are paying a huge sum. The difficulty comes for them when they are in a drawdown. After
three losing trades on to the next advisor or system. The only answer I have to this is let someone not
connected to the financial or emotions of your system trade it for you. They will be objective and follow
the rules the way they were meant to be traded.

2. Pulling the Trigger . . . seeing an opportunity and actually taking the signal is two complete and separate
issues. Maybe the trader can keep his system up-to-date, but seizing an opportunity is a different story.
Maybe it is fear, whether it is fear of a loss or even a fear of a win. Either of these two will prohibit action.
Once one has experienced a loss they will try to avoid it. The same goes for the trader who really doesn't
want to succeed. They might feel they don't deserve the success. This is a much harder issue to address than
one who is afraid of a loss.

Simple ways to overcome these phobias. One way is find a trading partner -- someone who will make you
honest with yourself and be introspective or have someone else trade your system for you.

This is a quick test of Discipline . . . ask yourself these questions:

1. Are you losing money when your system says you should be making money?

2. Is your performance identical to your systems?

3. You made money and your system lost money?

Be introspective. Look deeply at your wins and losses. Study the reasons of the losses. Was it because of
emotion? An error? Lack of capital? Disorganization? How about your wins.

Another idea is to have a trade diary . . . write down how you feel after you put on a trade (special
situations before you put the trade on -problems with the kids or spouse). The time, date and the reasons for
entry. Be specific about the time and date the trade was closed, reasons for exit. Examine this information a
week later and look for patterns. It could be that you had a fight with someone and were nervous or even
that you listened to someone while you were trading.

Discipline can be as easy as following your signals or as complex as you want to make it. Keep it simple.
Be easy on yourself once you have taken this step of realizing success is not too far out of hand. With

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discipline comes the potential for success in trading. Risk is reduced -- profits are possible and drawdowns
might be reduced.

Angus Jackson is a Futures broker who is dedicated to helping traders trade to the best of their abilities. We
can attempt to help traders with the issues discussed on Discipline. We can maintain and operate your
system or any commercial system on the market. We try to present a total strategy for traders encompassing
money management, risk management and a system or a method a trader is confident to trade. Our top
executives have studied with leading market systems' providers as well as trading psychologists. Our
success as a firm is contingent on the success of our clients.

"Tis Easier For A Camel . . . J. L. from Wimauma

To pass thru the eye of a needle, than for a rich man to enter the kingdom of Heaven." How many of you
parochial school products remember that one? Tough enough to hear that today, but for them to lay that on
a five-year-old boy was cruel and inhuman punishment! Is it any wonder I can make money for my friends,
but refuse to do the same for myself? It's murder to know how to make unlimited money but to
subconsciously be afraid to! (Yeah, I still want to go to Heaven, darn it.)

Well, having covered that subject, on to the only subject which might be more important than commodities
(I said might). That, of course, must be the health of the trader. Just call me Dr. Water. Since last issue, I'm
forming another conclusion. I am concluding that chronic dehydration of the population is the root cause of
all degenerative diseases and the strongest ally of the infectious ones. Is it any wonder? Despite what the
"gov" says, our municipal water supplies are recycled Pee (and worse)! The water is not even tested for 50
to 60 known contaminants, not to mention how awful it tastes from the cancer-causing treatment! Consider
what you yourself also flush down the drain - garbage, cleaning solvent, bug sprays, old paint, etc., etc.,
and that's not even starting to tally up industry's wastes!

So what to do? Answer. Own a healthy well (if you can find one). If not, drink distilled water -- distilled
because I don't entirely trust "spring" water, and carbon filters are breeding grounds for more trouble.
Distilled because it takes the water from the contaminants, and not the other way around.

How long have we heard: six to eight glasses a day? Consider what probably happens with less. For starters
our "river of life," our blood stream, has to thicken. Nothing gets in or out of our cells without the blood
stream. All of the vitamins, minerals, (and yes, oxygen from your exercising) are wasted if the "delivery
system" is all "sludged up." Don't you suppose alone, "thicker" blood must have more difficulty getting
thru the miles of minuscule vessels that make up most of our system -- most especially the brains that we
need to figure this all out?

Add the muscular tension that accompanies today's stress, and we've got at the least, capillaries that aren't
carrying much of anything! I'm not forgetting the increased deposition of calcium and cholesterol in artery
walls (heart attack and stroke) or the failure to flush "civilization's" toxins out of us (the big "C"), or that
whole second circulatory system (the lymph system). No space here to discuss allergens, diabetes, etc., etc.,
but now, arthritis . . . "A" started it all. When I couldn't scrub my own back anymore without pain, I started
taking glucosamine sulfate (it's even on TV). It started working! Then I accidentally discovered how it
worked! Lo and behold, it attracts water to the sac of synovial fluid which should have cushioned the bone
ends in the first place! Osteo-arthritis probably is dehydrated synovial sacs! The proof? I tried the water
without the supplement and it worked even better! No more arthritis! (Tip . . . You have to look for it, but
Glucosamine Hydrochloride is much cheaper and works even faster, but now you shouldn't even need it!)

Or maybe you might. What has this got to do with trading? I'll bet you a soybean trade that 98% of you
readers have never in your life, purposefully drunk eight 8-oz glasses of water in one day. So how could
you know how many times you're in the john when you drink eight glasses of water a day (usually earlier in
the day so that you can sleep at night)? Try that on an 8-5 job! Even if you had the right water, what boss
(or customer) would understand? Enter commodity trading to save the day. Who's going to tell us that we
can't drink all the water we want? (When your urine is clear, the job is done.) For the above reasons, is it

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any wonder that our hospitals are full of prematurely old and sick people? Today's "schedules" don't even
allow enough time for proper sleep much less a good daily "flushing out."

Just one more water item. What's the first thing we "older gentlemen" do when our prostate "signals?" You
know what I mean, guys. Why, we stop drinking water! At least for me, drinking more water has me
"thinking" like a teenager again!

Also, amen to Raymond Kohn's conclusions about detachment and perspective. It's like going from paper
trading to the real thing. Talk about the game changing! Check his last issue's advice to keep a little "hard"
money still coming in from outside. I think it works. (Tip. Don't forget -- as I often do -- that marvelous
tool called an "intra-day break-even stop." It can often make a difficult decision a lot easier. After all, isn't
this game about learning how to minimize losses?) Good trading and go accomplishment!

Trading Systems, Risk Management and "Stops" -- by C. C.

Many traders use "stops" -- a risk management approach which reverses (or gets out of) a trade once the
trade loses more than a given amount. In general, stops are a "good thing." They help to control risk and
reduce exposure during adverse market moves.

The use of stops is often a function of a trading system's time-frame or approach. For instance, if the stop is
placed relatively close to the market, smaller movements will cause the position to be stopped out. Close
stops might imply a shorter-term time-frame, stops which are further away from the market price imply a
longer-term time-frame (or an attempt to capture larger moves).

The use of stops can often improve a system's risk-adjusted performance. However, stops are not the "see-
all" and "be-all" that some might imagine. For example, the table below shows the negative impact of stops
which are "too close to the market price" (for a longer-term trend-following system, trading a basket of
commodities). Chart in Print Copy

Many traders use stops. However, it is important to note that stops are not the only way of managing risk;
they are just one of the design parameters for trading systems. In general, most successful traders do seem
to cut their losses if markets move against them. Their methods might include stops, support/resistance
levels, or money management techniques.

In addition, besides trading system design, there are many others ways of monitoring and managing risk. I
study risk on a variety of levels, ranging from methods as simple as monitoring recent portfolio volatility,
to using value-at-risk techniques, to stress testing (where I study the portfolio's performance in various
extreme cases). Whatever methods you prefer, you must find a systematic approach with which you are
comfortable. Good luck with your trading!

Using Candlestick Patterns to Your Advantage

By Steven R. & Lawrence J. Hohenhorst

Candlestick patterns can be a very useful tool for the technician when used properly and when put into
perspective. By themselves they can merely indicate very short term price movement, but when employed
with other technicaIs such as Elliott wave analysis they become powerful signals that can predict important
trend changes.

If we turn our attention to the April 98 contract of Platinum we can see that the contract low appeared on
December 16, 1997. Shortly after this a new wave pattern started to form when the high of impulse wave 1
broke out above the former downward trend. Look at Figure 1. On Jan. 7, 1998 a bullish Piercing Candle
pattern formed and completed the corrective wave 2. This candlestick pattern by itself would not be a
reason to enter the market long, but when found near the end of wave 2 this will often signal a completion
to the corrective wave and the beginning of the new impulse wave. Chart in Print Copy

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We ran this data on Professional TradeAdvisorÔ98 and a buy signal was generated on Jan. 7th as shown in
Figure 1. The market surged shortly thereafter above the projected level of 382.80 confirming our buy
signal on the 7th of January. On the 15th a Star forms just above the normal trading channel signaling a
possible trend change. TradeAdvisor98 instructs us to place a stop around 378.60 where we get stopped out
picking up a gain of around 16 points.

Many technicians still use indicators like stochastics, moving averages and MACD for trigger signals to
enter into long or short positions in the market. The problem with using these type of indicators is that the
lag time is much too slow. Often the projected move is almost over by the time they give a confirmation.
This is where using candlestick patterns as your trigger signal can give you a remarkable trading edge.

In Figure 2 you can see that on the 7th of January a buy signal was generated by a Piercing Candle pattern
on the March '98 contract of Orange Juice. Notice how on Jan. 12th Orange Juice prices broke out to the
upside while the MACD indicator still had not confirmed. By the time that the MACD had confirmed the
move the price of Orange Juice had surged so high that the risk out weighed the reward. This again is a
major drawback when using slow moving indicators to trigger an entry into a long or short position. Chart
in Print Copy

Candlestick pattern recognition can be a very helpful tool in many ways. Often, traders will enter a long or
short position wondering when they should exit. The age old question is: Should I take my profits now or
should I remain in and hope the trend continues? By recognizing these patterns we can get clues to what
may happen.

For example, let's say the market has been trending upward for a few days, but we're a little short of where
we have projected prices to go. Now, let's say a Harami candlestick pattern forms today. What should we
do?

In this case a Harami pattern is formed when the previous day is a long white candlestick that is followed
by a smaller black candlestick that remains between the open and close of the white candlestick. Harami
means pregnant in Japanese. It signifies that a birth of a new direction may be coming soon. Now if you
add an overbought Momentum indicator or a find a divergence in the MACD indicator at the same time
that this Harami is being formed you may consider moving your stop much closer or exiting your position.
There is no sense in losing back the profit that you have already gained. Chart in Print Copy

Look at Figure 3, here a Harami formed on the 24th of November in this March '98 contract of silver. The
momentum indicator was overbought but had turned downward. This would be a good time to move your
protective stop much closer adhering to the warning of the Harami.

Traders need every edge that they can get when trading and candlestick patterns when understood and used
properly can give many insights into short-term trend directions. Candlestick patterns when collaborated
with other sound technical analysis can provide the trader with an important tool to add to his or her
arsenal.

For further information Stelar International, the authors of Professional TradeAdvisor which incorporates
Elliott Waves and Candlestick patterns can be reached at stelar.com or 719-266-8710.

Grains Quoted In Contracts Rather Than Bushels - CFTC Should Mandate Computer Matching
Rather Than Outcry & Other Subjects - J. B . - Texas

Recently the Chicago Board of Trade took the daring action to start calling grains in terms of contracts
instead of bushels. I say daring because this stodgy old bunch of stuffed shirts can't see beyond the end of
their noses. It's a wonder they don't have futures contracts for buggy whips.

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Do You think that just someday they might start quoting bonds in decimals instead of 32nds? Probably not.
It would take an act of Congress and the Pharaoh's army to accomplish anything as drastic as that.

And how about some real reforms, like allowing MIT and OCO orders? Ah, perchance to dream, there's the
rub!

While we are talking about reforms, if the CFTC wants to make some genuine reforms to justify their
existence, instead of picking upon those who disseminate information about trading, how about mandating
the exchanges to go to computerized systems of matching orders on a first come first served basis instead
of the open outcry? Such a system should allow equal access of any information to all parties, retail
customers as well as floor traders and brokers.

Now let's talk about government reporting. The rule is to never hold a position through a government
report. Unfortunately that makes daytraders out of all of us. The various government reporting agencies
need to coordinate their reporting. One day you can have a producer price index, the next day a trade
balance, and a day or so later a consumer prize index, leading economic indicators, ad nauseam.

It's much the same in the agricultural complex. One day there is a cold storage report, a few days later hogs
and pigs, then a cattle on feed or a crop production report. Why can't they get together and put out the
information all on the same day? Better yet, why don't they close down and let private enterprise decide if
these reports are really necessary, or just something to disrupt normal market movement?

If you have SuperCharts you already know there is a problem with the verify error box that appears when
you are writing formulas. The error messages are practically useless because what they say the problem is
or what is needed is almost always wrong.

To overcome this problem, I suggest the following: When you are writing formulas and are using studies or
user functions, always paste the functions in. This way you will have all the parenthesis and commas in the
right place for at least that part of the formula.

As you start to add code and if you get an error message, go ahead and make the correction according to
what the error message tells you. However, be prepared to be shocked if it actually works. So what do you
do now? The best course of action is to go by the premise that 9 times out of 10, the problem will be in the
placement of the parenthesis. It is even likely, not to be in the place where the error is shown, but
somewhere ahead of that. It might even be at the beginning of the formula. You'll just have to experiment
and be sure you understand what you are expressing from a math standpoint as you insert parenthesis.

Evolution of Trading The Trend - Andrew Abraham

I am sure as traders we all have heard all the sayings the trend is your friend, let your profits run and cut
your losses quickly. I am also sure many of us have said easier said than done. What we need is an exact
definition what a trend is and where it begins and ends.

From here we can only hope we have the mental discipline to be able to jump on and off the trend and its
waves and profit. This is where discipline and a precise methodology gives us the ability to differentiate
between knowing and following fixed miles or only guessing. Basically differentiating between success or
failure. Chart in Print Copy

We nor anyone else developed a Holy Grail system or an infallible trend indicator, but through
diversification of non-correlated trading vehicles and also a diversification of time frames, success can be
obtained.

First lets delineate what a trend is. Simply up- trends are made up of waves of higher highs and higher lows
and conversely for down trends waves of lower highs and lower lows. In theory, in up- trends up waves
should be larger than down waves and in down-trends down waves should be larger. Now we start to see

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how we are filling the tenets of good trading. We are trading with the trend and in a trend locking in profits.
Chart in Print Copy

In the example of an up trend, it is intact up until the previous down wave in the uptrend is surpassed. In a
down trend the previous upwave surpasses the prior upwave. This is just an alert that possibly the trend
might change. We would still take the next trade in the direction of trend (in an confirmed up-trend we take
all upwaves and in a down trend all downwaves). This is just a clue that the situation has changed.

Our next step is to confirm whether the trend has ended. This is confirmed on our next wave. If we are in
an up trend our last down wave went below the prior down wave. We are on alert as said above, and if the
next up wave surpasses the prior up wave and our trend is intact and our alert is turned off. If it doesn't, this
is called a failure swing and our fun has ended for the time being.

Lets review -- we identified what a trend is, where it begins and also where it ends. We discussed the
mental discipline to follow every signal and also to diversify our time frames as well as various markets.
Now all we need to do is count our profits. Good luck trading!

BOOK REVIEW: DiNapoli Levels - Ray Barros

Introductio -- I first met Joe DiNapoli in the early 90s when he and I participated in an S-E Asian speaking
tour sponsored by Reuters Asia. At the time, Joe struck me as a trader who walked his talked. What was
particularly impressive was he kept complicated concepts simple.

This book reflects Joe's personality and approach to trading.

Review -- In the first section, it starts by drawing a distinction between:

1. mechanical and discretionary trading
2. position versus daytrading

It continues by defining the essential terms Joe uses, e.g., trend, movement etc. Finally it sets out what Joe
considers essential factors for trading success. Ultimately however, this is a "how to" trading book. Usually
"how to" trading books can be separated in to types:
a) ones containing a series of techniques e.g. "Street Smarts"
The only way I know adequately to review these is to test the methods.

b) ones that contain total "total trading plans."

These I review by comparison to the "successful trading model."

DiNapoli Levels looks to introduce a total plan. The other elements of successful trading, winning
psychology and effective money management, only rate a short mention .

I believe all successful plans have certain common elements.

1. delineate time-frames as well as identifying trends and changes and trend.
2. identify low risk entry.
3. manage a trade once it is initiated.

How does Joe's work compare? He delineates time-frames and identifies trends and changes and trend by
reference to displaced moving averages. This is true for all data from daily upwards. For intraday data, he
uses the MACD to identify the trend and stochastics to identify end of intraday corrections.

For daily (and higher) changes in trend, Joe introduces the concept of Double Repo. He also uses the
detrend oscillator to identify changes in trend in the daily time-frame. For intraday changes in trend, he
uses the MACD signal. I give him full marks for this requirements.

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Once a trader has identified a trend, he has his strategy, he has decided to be either a buyer/seller/to stand
aside. The trader now looks to enter a trade in circumstances where his risk is lowest.

Low risk entry has 3 components:

1. zones i.e., support and resistance areas that a trader can fade.
2. setups - chart patterns that indicate that zone is likely to hold.
3. triggers and initial stops - closely allied to setups, these patterns tell the trader "now is the time to enter"
and where the initial stop should be placed.

To determine zones, Joe introduces his DiNapoli Levels. At these zones, he looks for a number of setups:
e.g., single penetration, failures, "railroad track". . . to name but a few.

Joe does look at oscillators and goes to great lengths to explain which ones he believes work and which
ones do not. He fully explains the use of the detrend oscillator for daily and above and stochastics for
intraday.

Each setup is accompanied by the corresponding trigger. Entry techniques can also be filtered using the
detrend.

In this section I again would give him a perfect score. Once a trader is in a trade, he needs to manage it.
Joe's approach is straightforward. Each trade has a reason (context in his terms). Every trade has a profit
objective. The initial remains fixed until the price objective is reached or the context disappears. Again, I
would give Joe high marks for trade management.

Conclusion -- This book is good value for money for those that don't have a trading plan with an edge, I
have no doubts that if the plan I followed with reasonable consistency, it will make money. The more
experienced trader who uses moving averages and oscillators may get some new ideas. I would rate the
book 9.3 out of 10.

"How I Successfully Day Trade the S&P 500" by "S.A.T."

(the "Successful Anonymous Trader")

In trading, I would recommend trading with the trend. I know it sounds cliché, but I have found it is the
most rewarding (I found this out - like everything else - the hard way).

Selling tops and buying bottoms is like being a salmon. You are always swimming upstream against the
trend. You may get a good trade now and then, but a market will wear you out in the process. I have always
found these trades looked great going back on a chart. In trading real-time from the hard right side of the
chart without the benefit of hindsight make these trades difficult to not only see, but see through to the
profitable end.

So trade the trend. Enter on pullbacks, use reversal bars that make pivot lows/highs and close back in the
direction of trend. Move stops quickly. Take reasonable profits from the markets trading that day. If market
is slow and in a trading range mode, go for less. How do you know what to go for? Your experience will
tell you. There are no hard and fast rules, sometimes I get out way too soon.

Sometimes I stay in too long, but in general I do OK and get my share.

I hate to say it, but good trading is not 100% mechanical. I wish sometimes it was, but that's what your
there for. I find that good trading will be 80% mechanical or/so and 20% will give you the flexibility. To
use your experience and feel for the market to enhance your method and make it comfortable.

I'm not saying you can't be 100% mechanical. I believe your most profitable trading will be a system that
allows you some input on entries and exits. I use a 3 and 5-minute chart, side by side and take the first
signal. I get in the direction I want to trade. Sometimes a 3 will get me in and a 5 won't give me the

925
reversal bar, and vice versa. This way I don't have many moves pass me by. One of these usually will get
me in.

I have been told that many people have called Dave Green wanting to share my system. So I will, but I told
Dave it's ridiculous. I know these people are thinking, If I can find out what and how this guy is trading, I'll
use it and I will start making money. I'll be rich. All I need is a good system. It sounds like this guy has
something really hot! If he will just divulge it. Well, if you really look at what I'm doing, it's waiting for a
trend to begin and getting in on pullbacks that usually come into a 38 - 50 - 62% Retracement of the last
swing and reverse out of there back in the trend direction. Very simple.

This was probably being done before 1900 - you can do this. So why are most people losing money daily?
read on...

Editor's Note: Some of S.A.T.'s methodology is depicted on his chart, reprinted here: (Chart is in the Print
Copy only)

By the way, this simple method is the best way I've ever seen to trade. I just put my own little wrinkle in it
with common sense money-management. I'm not doing anything new or secret. My method is very simple
and easy to trade. I hope this gives CTCN readers some ideas. However, I want to make some caveats and
warnings for all the wanna-be-traders who want to trade for a living and/or think they can.

I'm no market wizard. I still trade mostly one and two-lots and I don't live in a $500,000 home or drive a
Rolls Royce. My trading has become very consistent and profitable and continues to get a little better every
month. My method is my tool. It's an excellent tool and works extremely well when I use it the way it
should be used. If more money is lost than normal, if stupid or random trades are taken, it's not my system
or my method that has failed, it's me, myself, and I, (Yes, I take stupid trades now and then) I'm human. I
try to keep them at a minimum and allow for them. My first 8-years of trading results would probably make
you throw-up. Lord knows my wife did!

The point I'm trying to make is that learning how to trade profitably is very difficult. Once learned, it
becomes simple and fun, like I mentioned in (previous) CTCN article.

I feel sorry for the people who write to these newsletters or forums. Most of you are missing the boat (just
like I did my first 8-years). I see you squabbling over data vendors, system vendors, methods, hotlines, new
and old systems. People who made false statements about their product.

You are too concerned with continuous data or the other kind of data (I forgot what it's called).
Optimization, back-testing, percentage of wins, maximum drawdowns, broker problems, new software
programs, books, articles, seminars. (Oh, I just remembered the other data is called perpetual, I think) etc.,
etc.

This stuff is all secondary in nature to success. All this is crap. It will not make you money and is a
complete waste of time. Believe me, I know. People need to work on what's inside them. Your
psychological makeup, how you interact with the market and how you deal with fear, greed, anxiety, etc.
It's you against you every day. Not you against the market. Not you against another trader.

The market is going to do what it's going to do every day. Whether you're in or not. The only thing that
determines if you make money or not, is how you react to market action. Only you can give yourself
money or lose money trading. Not the market, not the system, not the data, not the software package you
use, not the hotline, book or seminar you purchased. Just you!

Do you would-be or aspiring traders finally get it? Most of you are looking in all the wrong places as the
song goes. A perfect example, is in a CTCN article by Robert Edwards. He wants to improve his trading
and I'm sure he is trying very hard. But as I read his article, Robert has missed the boat and will never truly
succeed until he works on his psychological flaws. For example, he continues to let fear and greed ruin his
trading. He's afraid to let a profit run, for fear of giving back a small profit (greed).

926
These are serious problems and deep rotted in his psyche. However, he's not seriously dealing with it. How
do I know? Robert made the statement "I may lose next year. If I do, it must be, it will be, because a better
team beat me. It will not be because I beat myself." Now Robert, what kind of stupid statement is that.

It shows you take no responsibility for your losing, some other team or guys beat you! Robert, if you lose
next year, it will be because you traded poorly. You didn't react well to market action. Nobody or no
market is out to get you. They don't even know or care that you exist.

Your assumptions are not quite right on what it will take to turn your trading around. You say you must
change your patterns - get some guts - you believe as you stated "If you trade you will error" and "Trading
is like throwing a knife in the air and catching it in one's hand and getting bloodied pretty good." That's a
real positive view of trading, isn't it!

It is no wonder you're having trouble. You truly view trading as a very negative thing. You really do! You
must work on changing your views into a positive attitude. Can you be honest to yourself to do it? You
must, if you are to succeed.

I trade 2-5 times a day. If I felt as you do, I'd probably blow my brains out in a week. I look forward to each
new trade. I can't wait for the next signal. I'm confident enough to know I'll make money 6 to 7 out of 10
times. That's the attitude to have -- positive with confidence.

I don't mean to pick on you, but your case is typical (I was there once). I hope you will take this in a
constructive way. It will change you. It will take sometime, but you can do it. I'm writing this letter for
therapy to keep my concept in the front of my mind, as well as helping others. I speak from real feelings
and experience. I started writing a short letter, which has turned into a lengthy dissertation. I hope I have
awaken some of you.

It makes me sick to look back at my horrendous years. I went to all the seminars, bought systems, books,
tapes, software. None of them made me money, because I had some real psychological issues to resolve
that only manifested themselves in trading. If you have any personality flaws, trading will bring them out.

Do you really want to trade for a living and enjoy the kind of lifestyle it affords? One of freedom and
money. Then you better be prepared to deal with your dark side and confront your psychological
weaknesses and be honest with yourself (painfully so) be willing to change. It's not easy, but can be done. I
have come far enough to turn my trading around - but I work on it every day.

Do you have problems with placing stops and taking a loss? Do you get mad at the broker or the market
when you lose? The market doesn't do what you thought it would do. Do you get mad at that stupid system
you bought? The system went into its largest drawdown the day you started trading it.

The list of questions goes on and on and yes I've done all this and more. Resolve to turn your quest for
trading excellence and profits inward -- yourself. Learn to expose all your weaknesses and then work on
them. Be very honest with yourself and humble. Get rid of your ego. You want to be right on a trade
attitude. Risk 2% or less of your equity on any one trade.

Do this and you'll make money with any system. You will be in control, not the markets or the Holy Grail
Gizmo's associated with it.

I wish everyone the best and hope you don't have to go through what I did to succeed. Cheer up, because it
can be done and it's worth the price when you have success.

P.S. -- I've said my piece - got it off my back and hopefully helped some. I'm not one for much interaction
and have made myself somewhat of a hermit with trading (It helps to not talk with traders) to be successful.
Too much B. S. gets in the way.

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So I will leave you all to ponder my thoughts. I don't care if people don't believe I'm right, because I know I
am. I speak with experience, conviction and compassion for those on this journey. I will not be writing
again and will now disappear into trading obscurity to enjoy trading for a living!

OPTIONS & SPREADS: The Jewel Box Guarded by the Cobra - Greg Donio

Editor's Note: Greg's consistent long contributions to CTCN indicate he is perhaps our most articulate and
educated long time article contributor. We have received a number of letters about Greg's many lengthy
articles. Both positive and negative comments have been made.

A number of members greatly enjoy his articles. Some negative feedback has been received, mostly stating
Greg spends too much time on non-trading related subjects. One member said a recent long contribution
contained 50% non-trading related writings. Therefore, we have asked Greg if he would spend significantly
more time to trading than the other diverse subjects Greg is so well versed on and enjoys writing about.

Starting with this issue Greg has indeed honored our request, as he displays his extensive trading and
investment knowledge throughout this long but very educational article.

When a medical quack -- whether a jungle witch doctor or a Grub Street magnetic healer--tells of all the
wondrous cures he has effected, you suspect the stories are fictional but you cannot see the trails of corpses.
But every gambler and trade sees many losers, many monetary corpses. Yet he gazes into the eyes of Lady
Luck and says, "You'll be true to me, won't you?" or perhaps, "You conquered and destroyed them, but I'll
make you my kitten," or maybe even, "You bankrupted all of them so it's only logical that you'll enrich
me."

According to an old joke, "Second marriages symbolize the triumph of hope over experience." So does
much of the trading that goes on. Any experience at all with The Exchanges reveals Lady Luck behaving
like Delilah or Mata Hari, poisoning men like Lucrezia or stabbing them in the manner of Tosca. Every
opera-goer knows the phrases "as cold as the heart of Musetta, as deadly as Tosca's kiss." Speculators
should also know these, so they will not keep expecting Lady Bountiful and getting the knife. Dame
Fortune can be subdued but the jewel box guarded by the cobra attracts too many dabblers, picnic forty-
niners, and this-amulet-will -protect-me types.

Despite all the Delilah's haircut symbolism in the above paragraph, it is not my intention to be anti-female.
The murders committed by Lucrezia Borgia on the dramatic stage and Floria Tosca on the operatic stage
were apocryphal. The trading losses suffered by the fellows in the sports bar or the hunter's den could not
be more real. Female speculators have their hits and misses but are far outnumbered by men who go too
abruptly from the boy scout handbook and the tent-pitching to the financial trenches and artillery.

Yes, Dame Fortune can be subdued -- one man's one-man technique to appear shortly -- but what a victim
list she has! Week-end warriors. Fresh water sailors. Tenderfoot scouts with rifles. In Iowa, the RA
Investment Club was formed to trade purely in futures and futures options. The RA stands for "resident
advisors" -- the members are all employed as resident advisors in halfway houses of the Iowa Department
of Corrections, helping newly-released inmates return to society.

Those members could have used a halfway house between insured deposits and dicey risk. The New York
Times quoted the club secretary Craig DeMaris as saying, "We were always hearing those commercials on
the radio that said, "Turn $5,000 into $25,000!" They ventured into unleaded gas, then wheat, then
soybeans, during which time they turned $6,000 into $400. Subsequent investment only in grains brought a
fractional recoup. (February 1, 1998)

The radio commercials carried an obligatory warning, "Risk Is Involved." The broker-advertisers keep that
brief and the venturers give it about as much attention as bikers and their chicks give a sermon on celibacy.
If options and futures appeared in the pages of an elementary school reader, it would say, "Zero sum game.

928
Dick must lose a dollar for Jane to gain a dollar. Each must lose another nickel to pay Spot a commission.
The kiddies who played the game last week don't anymore. Empty pockets."

One wonders if those resident advisors would have joined the fracas if the radio commercials had said,
"This game robs Peter to pay Paul. Sign up and maybe you'll be Paul if you're not Peter." Okay, nobody
expects travel bureau ads to mention shark attacks or trouble with the natives. But if the tourist wipe-out
rates were anything like the 80 to 90% losses suffered in options and futures, would anybody get on an
airliner? Would anybody be satisfied with a mere fine-print warning?

Samuel Johnson wrote, "There is no occupation in which a man can be more innocently engaged than the
making of money." Granted, profit-taking is more innocent and virtuous than murder or adultery. Back in
the 1700s, though, Dr. Johnson never saw motion pictures on late night TV. In the 1930s movie musical
Swingtime, Fred Astaire visits a dancing school where Ginger Rogers teaches. He asks another instructress
the price of lessons. She replies, "Lessons are $45 but first we give you a try-out to see if you have any
talent. That's why this school is so successful. We never turn down $45. I mean, uh--"

Switch channels to the Errol Flynn film They Died With Their Boots On. The baddy is a Golden West
profiteer who claims to sell rifles only to friendly Indians. His working definition of a "friendly" turns out
to be any Indian with $75. A commercial interrupts. A brokerage firm proclaims fantastic profit potential
and quests after "suitable clients:" Suitable. You must breathe and have a bank account and not practice
cannibalism. Think of all the Titanic passengers and Zulu tribesmen who would not qualify.

The TV and radio commercials abound because they anxiously need speculator recruits to fill the vacancies
created by last month's Verdun campaign or expedition against Sitting Bull. Yes, Dame Fortune can be
subdued, and you can become paid Paul rather than robbed Peter. It can be done regularly, consistently,
without calculus or computer or degree. But do not take to the air with just shooting-gallery skill and
judgment, as many do, and then attack the bloody baron's 80 fighter planes, as many do. Improved skill and
judgment and smaller squadrons for quarries can make you the winner again and again.

Nobody likes to think of himself as Peter being pick-pocketed, yet millions of pockets get picked. Your
sense of judgment connects intricately to the clockwork of your personality and your thinking. Whether it
also connects with the realities of trading is another question. Too many timepieces point to 6:30 and ring
4:00 at the stroke of noon. Plethoras of bankruptcies attest to that.

Nearly everyone likes his or her own sense of judgment, or at least is comfortable with it, because it is part
of "the real me." But does it steer a financial ship through the shoals? A fervent much length in print and
broadcasting, giving a three-ring circus exhibition of how his mind works. Yet should he or you or anybody
else invest large monies on ventures that rise or fall based on arrival of a UFO? Clearly, the intelligent
investor must adjust his thinking to the financial realities rather than expecting the other way around.

Yet the picnic forty-niner expects huge, shiny nuggets to place themselves along a path that will not tire his
tootsies and will not require more than a paltry amount of time to walk. The tenderfoot scouts at the
battlefront expect a medal before they get bored with it all. The broker enlists them readily because a
human punching bag's commission dollar spends as well as a champion's. Brokers' "inactive client" files
overflow with people who were sensible according to most measuring sticks but who were no more willing
than the flying saucer fanatic to alter their thinking or overhaul their judgment or learn something
substantial.

The New York Times told of Lynda Bryson's experiences after joining the High Peaks Investment Club, a
Colorado coterie: "Over the next few months, at least as Ms. Bryson saw it, many members showed little
willingness to learn investing concepts. She said they joined "to get very, very rich. I don't think the hard-
work part really got through to them." They did little research and figured their stock portfolio would ride
with the bull market. After about a year they disbanded with a 20% loss of principal. (February 1, 1998)

The shares were bona fide securities but the atmosphere and approach resembled a pyramid scheme.
Dollars would multiply and profits would pour in! No, I do not stereotype the members as mountain dew or

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biddies with their brains in their knitting baskets. Quite the contrary. Presumably they knew the effort
required in studying for a real estate licensing exam or an insurance agenting license or learning the cogs
and gears of any business. Yet they ventured much cash and apparently with less diligence than they used
to give their childhood piano lessons.

It happens far more often with individuals than with investment clubs, most of which at least try for a
semblance of fine-tuned management. W. D. Gann's Golden Maxim was and is, "Handle speculation like a
business, not like a gamble." Who could disagree with such wise words? Yet it is one of the most shunned
of all aphorisms and, in its way, one of the most menacing. Menacing like an issue of Popular Electronics
to a "Flick the switch and forget it" type.

Like a business, not like a gamble. An expedition-with-maps is a challenge more demanding than a
barroom bet. Wholesale merchanting is more complicated than poker or roulette. Back office diligence
lacks the ease of hunch bets at Hialeah. Is it any wonder that gamblers overflow the land despite the
resulting crop of empty-pocketed suckers? Or that so many people turn trading and investing into a bingo
game instead of a business?

Ruckelshaus said, "Mention economics and everybody is bored. Mention money and their eyes light up."
My statement is a half-variation on that: "Mention making more money and people's eyes light up. Mention
learning a new business and they react like kids to a doctor's needle or a pound of spinach." Do you really
think that only children bristle at doing homework? Watch the adult speculator reach for his checkbook
while bypassing the "trader's techniques" schoolbooks of George Angell, Lawrence G. McMillan, Courtney
Smith and Dave Caplan. "Learn a new business at my age? I feel inside I have a 'gift.' Besides, a friend of
mine, a bank janitor, feeds me inside information."

In my specialty of equity option spreads, precisely how does one "handle it like a business" as opposed to
like chips in a casino? One key item is the element of time, or stated more practically, patience and good
timing. I may wait a few days or a week until what I consider a good position avails itself and I enter an
opening or starting transaction. What's the opposite? A, gambler's antsy itch to get a bet down.

There also arises the element of time after the spread strategist has opened the position. How much time is
involved, and compared to what? Welded to that is the question of how much profit is a "good" profit. Ben
Franklin's Axiom "Time is money!" could not be truer in trading, My previous article in CTCN ended with
a still-cooking spread in IBM call options which has since concluded and will serve to illustrate.

On January 29, 1998, I bought 10 IBM April 105 calls at 3-3/8 and sold 10 March 105 calls at 2-1/8,
paying the "spread" or difference between them of 1¼ points or $1,250 plus commissions. This was a
"debit spread" because I had to pay the minus amount and a "calendar spread" because I bought the far-in-
time options and sold the near-in-time ones and a "horizontal spread" because the bought calls and the sold
ones had the same strike price --105 points.

So what did the calendar bring? In late February, the price of IBM shares inched upward and extended its
toes over the options' strike price. On February 25th, the stock closed at 105¼. Since the calls were just a
small fraction into-the-money, I let the position stand overnight. The shares could dip the next day and
more time-decay on the short end of the spread (the March options) would be advantageous to me. The next
day, however, IBM stock fluctuated within various fractions over the 105 mark. Late in the February 26th
trading day I "closed the position" (pulled out, in plain English) by buying back the Marches at 2-15/16 and
selling the Aprils at 4¾.

The spread of 1¼ points at the opening grew to 1-13/16 at the close. An investment of $1,350 with
commissions yielded a profit after commissions of $350 in precisely four weeks. That profit of 25-and-a-
fraction percent in four weeks annualizes to better than 335%. (25.8% times 13) Time is money?
Obviously, I want bigger profits and faster profits than the "long bond" (federal 30-year bond) investor now
receiving under six percent annually.

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However, comparisons can work both ways. Handling a 28-day venture, I am plainly more patient than a
dice-shooter or a poker player or a daytrader with his unwritten rule, "Never hold a position overnight."
Horse racing became a gambler's sport because it is fast--once around the track, very little waiting--and
many traders want stocks, options and futures to wear horse-shoes. A spreader buys options at the long end
of the spread and sells other options at the short end, just as a dealer in watches or a haberdasher buys a
business and sells wares. Financially, to think in terms of more than a week is more entrepreneurial.

Regarding how large a profit should be called "worth it," I considered 25% in four weeks a weighty
prospector's nugget and a fine buffalo hunt. Obviously, I did not expect $1,000 to grow into $10,000
between the Monday pizza and the Saturday veal parmagean. Those who do are the ones who start out for
the gold fields and end up in the Chief Thunderbird scalp collection. Taking a business-like approach
means aiming for realistic profits and gaining consistently, not trying to be a millionaire overnight and
getting massacred with thousands of others who grab for the same million.

I do not wish to portray brokers as fiends. Many of them are quite ethical, but too many reach out to the
roulette-player rather than the adroit business-person in people. You have probably seen the TV
commercials for a large brokerage chain aimed at, "Those with a passion for trading!" Using the words
"obsessed" and "addictive," it flagrantly courts those who cannot keep their fingers off the PC keyboard
i.e., folks with an antsy itch to get a bet down. Plenty of commissions there. Those commercials do not say,
"Learn the nuts and bolts of a new business and handle it intelligently." Nor do they say, "Give the self-
training at least as much effort as a bar-owner does in learning how to mix drinks."

Some insightful people might say, "Did you ever try to enroll horse-players in a university finance course?
If a lot of traders or potential traders won't strain their brains with anything as complicated as a drink-
mixing manual or a 'wines of the world' book, well, that is the level that they gravitate toward and operate
on. Getting crap-shooters interested in U.S. Savings Bonds is next to impossible, and that doesn't even put a
demand on their brains. There's such a thing as expecting mental gymnastics from the wrong people."

Granted, but business requirements are business requirements. Every enterprise, occupation and activity
demands specific skills and know-how, and levels of competency whether explicit or implicit, achieved or
fallen short of. Slot machines require no skill but are a sucker's game. Self-deception sets in when a pad &
pencil roulette-player seeks patterns and thinks he can make a "science" or a "business" of the wheel. Film
makers and photographers, beauticians and antique-restorers and electrical engineers all have their skills
and levels of competency.

Investing, trading and brokerage can be business-like but, in practice, too often drop to the slot machine
level of zombie-like forking over or the pad & pencil roulette level of barstool science. The Wall Street
Journal (March 11, 1998) reported that the Commodity Futures Trading Commission has redoubled its
efforts against "commodity investment telemarketers who promise quick profits through so-called seasonal
trades."

"The CFTC's enforcement division says Hanover Trading Corp. took advantage of a number of
unsuspecting elderly investors in the case . . . Individuals should be skeptical of high-pressure phone sales
and promises of high profits with little risk. . . Furthermore, many of the elderly had no previous experience
investing in commodities, they added."

CFTC deputy director of enforcement Dan Nathan spoke negatively of electronic media hard-sell of futures
and options: "Anyone who turns on late-night cable or the radio will hear these solicitations. . . . We want
to devote resource where we see a lot of people preyed on" through TV and radio.

Sure, the CFTC is a clanky and questionable Sir Galahad. Nevertheless, where in these high-pressure
pitches does one hear, "Handle it like a business" or "Develop a head for this kind of thing" or "Study the
manual before you fly?" No. After the tiniest risk-warning the law will allow, they dangle forth the
possibilities of palatial wealth. This is on the level of street-corner huckstering and the hard-sell of deeds
for swamp or desert and highway billboards from Atlantic City casinos proclaiming "Slot Machine
Paradise." Happily, however, one need not pick pockets at a retirement home to have success in business.

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God is in the details. One, subscriber to Commodity Traders Club News, a gentleman in Hawaii, wrote to
me and asked how I chose which stock options to spread from those long newspaper lists. One begins
simply by understanding which month is "near in time" and which "far in time." Usually the "near in time"
is the month after the expiration date immediately ahead. Let us say, for example, that "right now" is late
March or the beginning of April. Options with April expiration dates still exist but tend to be scrawny in
price from having so little time-value remaining.

Therefore, you look to the May options as the potential "near in time" end of the calendar spread. Then you
limit yourself to the ones with strike prices no nearer than four and a fraction to the prices of the respective
underlying stocks. Within those, you further limit yourself to those having at least two or two and a fraction
points in value. That should eliminate all but a handful from the semi-finals of your consideration.

For example, near the close of January, I bypassed options with February expiration dates as too meatless
and focused on March and April for the potential near-in-time short end and far-in-time long end of the
spread. IBM stock fluctuated around 98 & a fraction/99 & a fraction and seemed to have found a floor in
the upper 90s. This meant that IBM call options with strike prices of 105 were sufficiently out-of-the-
money and a call-value-sapping fall of the share-price seemed unlikely. Best news of all: The March calls
traded at 2-3/16 bid; 2-5/16 ask, last at 2¼. The Aprils 3-3/8 bid; 3½ ask, last changing hands at 3-3/8.

On other stocks in Jan., most March options that far out of the money sold for less than two points, many
for less than one. That is why finding a near-in-time option with at least two points of meat on it takes some
searching and eliminates many. That large newspaper page of put & call listings will shrink substantially
once you impose those requirements. You will have few to choose from, not many, and "few" is only right
because you should be picky.

In the above example, the gap between the two bid figures was 1-3/16, as was the gap between the two ask
figures. Rounding it off a sliver to the generous side, I chose 1¼ points as the "debit" or difference when I
sold the 10 Marches and bought 10 Aprils. This four-week boar hunt pinpoints a couple of rules and
guidelines that I hammered out during a few years experience. For one thing, I practically see "2 & a
fraction/3 & a fraction" in my sleep. That is, most of my spreads begin with a near-in-time sale at 2 & a
fraction and a far-in-time purchase at 3 & a fraction. Note that the above-described IBM call spread fits that
patterns.

Another key is the precise size of the debit, i.e., the amount invested plus commissions. When you get back
a quarter and a nickel, whether they contain any profit depends on whether you ventured two dimes or a
half-dollar at the start. Think small at the opening stage. At least, as small as is practical. "No money down"
ain't the name of the game in options and spreads. The timid person wants to risk nothing or almost
nothing. The avid gambler bets too large and thus rigs the numbers against what he gets back containing a
profit. The Buddhist's "middle path" and the cornhusker's "happy medium" have a place here.

To be precise, a single-point spread is golden (example--sell 2¼; buy 3¼) but hard to find in actual
practice. Do not bypass good nuggets while insisting on a one-pounder. A 1-1/8 point gap (sell 2-3/8; buy
3½) is less rare. Regard 1¼ and 1-3/8 as (a) more abundant and (b) usually good investments. (Examples:
Sell 2-3/8; buy 3-5/8 and sell 2½; buy 3-7/8). Above this, we arrive in cautionary territory. A while back I
took a medium-sized profit with a 1½ point spread and a smaller one with 1-5/8 points. Now I avoid 1-5/8
points and half-avoid 1½. I do not rule out the latter but the fruit boughs have to hang especially heavy for a
rule in.

The larger the opening spread, the smaller and more strained the profit if there is a profit. A beginning
situation of "sell 3 & a fraction/buy 4 & a fraction" is all right if it fits the other requirements, but usually it
does not. Either the strike price is too close to the share price, requiring that you pull out after a few days if
your short end crosses to in-the-money. Or both the near-in-time and far-in-time are several months into the
future so that time-decay (the gap-widening shrinkage of the short end or sold end) happens at a penny a
week for the longest time before it nose-dives into dollars during the final month or two.

932
One iron-clad rule and sound business practice that I mentioned in the past still stands: That the short end
of an option spread should pay for more than half of the long end and preferably close to two thirds. Selling
at 2 & a fraction, buying at 3 & a fraction, and limiting the spread or debit to not far over one point all help
to fulfill this requirement. Also, previous articles opined that an option spread strategist should also be a
trend tracker, positioning a call spread over a rising stock and a put one under a falling stock.

A share's meteoric move in the wrong direction can bleed the long-end options white. The fact that a
strategy as described above is mostly other people's money provides armor and buffering but not total
protection. I did recommend also call spreads over stocks with conservative price-earnings ratios and put
spreads under shares with inflated PEs. During the recent galloping bull market, I have found it necessary
to rank trend over PE and concentrate on calls.

In authors' journals, an article will list 10 rules for writers and then will say, "Break one of them if you have
a really great reason to." Such an amendment could be applied to traders but is 20 or 30-times more
dangerous. Too many speculators and other tycoons have made vast profits and then scrapped their
hammered-out rules, guidelines and safeguards. Their ghosts haunt the bankruptcy courts. Their success
intoxicated them with the notion of "I'm a wizard and can't fail." They abandon methodologies and related
precautions that made them triumph and think that "brilliant me" is all they need for the next financial
safari into head-hunter land.

Did my expedition suffer a loss that makes me preach against relaxing one or two rules? No, just fewer
diamonds from the jungle mines. In early March, Computer Associates and Computer Sciences were both
in the news due to the former's attempt to buy the latter. Both were sound companies according to printed
indicators, not infallible but here there seemed no reason to doubt them. Computer Assoc. stock was rising
gradually but steadily and had a PE in the upper 20s. Computer Sciences bounced around share-price-wise
amid take-over talk, with a PE just over the 30 mark. The former thus seemed the better prospect for a call
option spread.

On March 6, 1998, Computer Associates stock traded at 50 and a fraction, or 4 and a fraction from the
April 55 and May 55 calls. The Aprils traded at 1½ bid; 1¾ ask, last selling at 1¾. The Mays at 2-5/8bid; 3
ask, last changing hands at 3. The bid figures were 1-1/8 points apart, the asks 1¼ points. A try for a 1-1/8
point spread could succeed, but a problem loomed. The prospective short-end Aprils had value of less than
two points. Less time-decay profit potential. Notwithstanding fewer guns for the safari, I instructed the
broker to buy 10 May 55s and sell 10 April 55s with a debit of 1-1/8 points, both to open a position.

The results came that day. I bought at 2¾ and sold at 1-5/8, a difference of 1-1/8 points or a cost to me of
$1,125 plus $100 for the two (buy & sell sides) commissions. In the weeks that followed, Computer
Associates shares climbed gradually but the widening of the spread or gap was slow, happening in tiny
increments. On March 25, the stock rose small fractions into the money (55-1/16, 55-3/16) before closing
barely out of the money at 54-15/16.

The spread had widened little more than was needed to cover commissions. Nevertheless, the next day,
March 26, saw the CA shares cross 55 early on and inch up in fractions toward 56. Hit the ejector switch.
Only it was more complicated than a simple bail-out. The April 55 calls were at 2-3/9 bid; 2-7/16 ask, last
trading at 2-3/8. The May 55s, 3-5/8 bid; 4 ask, last selling at 3-7/8. What if I pulled out by telling the
broker, "Buy back the Aprils at the market and sell the Mays at the market to close the position?" Usually
when you say "at the market" you get the worst prices available; in this case, a buy-back at 2-7/16 and a sell
at 3-5/8. A gap of 1-3/16 points. A gain of 1/16 before commissions and a loss of about $140 after.

I had to try to buy back the Aprils at less than the high figure or ask price and sell the Mays at more than
the low figure or bid price. This is best done when they are not trading at their worst figures, i.e., when they
are trading at higher than their bid and lower than their ask. For example, the Mays last traded at 3-7/8--
above the bid and below the ask. So I told the broker to sell the Mays at 3-7/8. With the Aprils, the bid and
ask were only 1/16 of a point apart. I did not want to take the chance of missing a buy-back over so small a
difference so I said to "buy them back at the market." I figured that the worst that could happen was the
1/16 over or more than the 2-3/8.

933
"At the market" introduced one more hazard. April's ask price went up an additional 1/16 so I bought back
at 2½. The Mays did sell at 3-7/8 as desired for a closing spread of 1-7/8 points. A ¼ point gain after
commissions came to within pennies of a $50 profit. This 4.08% net in precisely three weeks annualizes to
a fraction over 70%. U.S. Treasury Bills (shorter term than long bonds) currently yield slightly over five
percent per year. I suppose one should not complain when one receives almost a Treasury Department
annual return in just three weeks.

Still, option spreading has accustomed me to bigger gains within fairly short time-spans. You can be sure
that I am now more gun-shy about both "at the market" transactions and short-end options worth less than
two points. Although no trade is risk-free and no rule fail-safe, "Sell at 2 & a fraction, buy at 3 & a fraction
now has the look of a very handy pocket sextant, with the newspaper option-listings as the nautical
almanac. One should be grateful when profiting with business-like consistency in the "massacres &
replacements" field of options and futures. Grazie, spread strategies.

My attention turned to an old book with a bookmark. The volume was Robert Tristram Coffin's penned-in-
Britain essays The Book of Crowns & Cottages with the bookmark on page eight, where the author takes us
inside a chapel as evening falls on post-World War One Oxford University after "football" (rugby or soccer
in England): "What if Wren's chapel has nicks on its portals; . . . the College is richer by these tokens of
wear [and the] carvings of faded gilt lying in the very midst of life, among fresh faces flushed with football
and October winds glowing in the candlelight of vespers."

One CTCN subscriber, a medical doctor from California, told me that he really liked my articles' references
to art, literature and cultures but I never got it in writing. The "bookmark" was a letter from a businessman
in western Pennsylvania: "Your paragraphs about the fine arts support a stereotype. You know, the
investors looking at works of art and going to the opera. Where is the carriage trade with the Dalmatians?
Please be informed that many of us traders are regular guys, and proud of it. We shop at K-Mart and we
talk sports over beer and cold cuts."

He should see me in front of the late-night TV, munching Genoa salami and Swiss while watching the
Bowery Boys. However, we need not indulge in "regular guy' one-upmanship. Plenty of Wednesday night
poker-players think that filling an inside straight qualifies them for "mercenary duty in the banana
republics" of stocks, options and futures. Little republics, big cemeteries. Often the sports page devotee is
the recoiler who says, "Learn a new business at my age?" then trades on hunches and hearsay.

If hand guns could be owned only by people who know how to disassemble and re-assemble them, there
would be far fewer barbecue party Wyatt Earps' shooting themselves and others. Columnist Art Buchwald
complained "My next-door neighbor owns a gun and he can't even handle a garden hose right." Is the
situation any better regarding "passion for trading" good old boys with eager fingers accessing the Internet?
The "passion for" doing this or that is seldom accompanied by a "passion for" learning the relevant
engineering in any depth.

Several years ago, my father and I saw Italy as members of a bus & hotel tour group. As the bus neared
Genoa, a 72-year-old man in the group, a retired schoolteacher from Alabama, said of Columbus, "He
proved the world was round. Everybody thought it was flat until he proved otherwise." No one disagreed.

The tour group kept getting escorted to "Junk shops" in city after city, furnishing and bric-a-brac
showrooms, presumably the result of a kick-back arrangement between the merchants and the tour
company. In Florence we saw the Michelangelo David, the Florentine Baptistery, and a merchandise
showroom. During the "Go where you like" hours, I went to view the artworks in the Uffizi Gallery and the
Pitti Palace. Only rarely did I meet another member of the tour group there. They submitted more readily to
the huckstering than to the culture, and felt no loss at missing the treasures of Botticelli and Vasari, Cosimo
and Correggio.

In Verona we were led to a burnished balcony overlooking a courtyard. The tour company guide stated,
"Legend holds that to be Juliet's balcony where she was courted by Romeo." Recently, I saw a TV

934
travelogue that played up Verona as "The City of Romeo & Juliet," with close-ups of the balcony. Neither
tour guide nor travelogue mentioned the city's greatest artist--Paolo Caliari also known as Paul Veronese.
When "regular guy" fallacies come, they come in a crowd and do not leave a restaurant table or a train seat
for truth.

Whether the ancient Egyptians knew the world was round is not certain. Definitely the ancient Greeks did
know. During the sixth century B.C., the Greek philosopher Pythagoras determined that the world was
round through inductive reasoning. He saw that the sun, moon and planets in the night sky were spherical,
and inferred that the entity on which he stood was also. Aristotle (fourth century B.C.) discovered visible
physical evidence of the world's shape. He explained that during a lunar eclipse, the earth threw its round
shadow on the moon for all to see. Christopher Columbus' calculations utilized ancient Greek writings that
many other Europeans had been reading for centuries.

In English Elizabethan drama of the 1500s, girls' roles were played by boys. Consequently, to show lovers
embracing and kissing would have spoiled the illusion. The reason for the balcony on the Shakespearean
stage was to keep the lovers apart. The plot of Romeo & Juliet dated back to Ovid (died A.D. 18) and was
originally set in Babylon. Anyway, Shakespeare would not have known Verona from Cincinnati.

Yet the city with the courtyard had its real gifts. One of the masterpieces of Paul Veronese hangs in the
Vatican--St. Helena Dreaming of the Cross. Frank Preston Stearns wrote "She is dressed in the richest silks
and wears an elaborate jewelled coronet; but she is asleep in her chair--not in a deep sleep, but a transient
doze--and a large wooden cross appears in a dream before her supported by a cherub. Her face is beautiful,
but with that slight modification which sleep gives, and her hands--one drooping, the other supporting her
head--are still more beautiful. At her side is a marble column, and behind her chair a richly figured damask
curtain."

How is that for mixed-message art? The way of the cross handled with sensuality and allure! Real artworks
have greater beauty and sweetness than the bogus balcony or the dime store romance formula-paperback,
but "regular guy" fallacies die hard. In trading and investing, they can be poison both culturally and
financially. Same with female myths.

The Beardstown Ladies have caused quite a flap. Their 1995 book The Beardstown Ladies' Common-Sense
Investment Guide became the biggest of big news and has sold 800,000 copies since its release. These 10
women with an average age of 70 were the subjects of many newspaper pieces and were interviewed on TV
nationwide; several became paid consultants for pension funds. At the center of all this popularity was a
portfolio which supposedly "put the experts to shame" with a phenomenal track record of 23.4% average
annual gain over a 10-year period from 1984 to 1993, during which time Standard & Poor's 500 averaged
only 17.2% yearly.

How? Allegedly via the stodgy method of buying stocks in solid giant companies and holding on for the
long pull. "The old way works!" came the message from the Beardstown, Illinois, heartland where the
women had their investment club. The trouble started in early 1998 when a Chicago Magazine investigative
article said that the members' monthly dues ($40 each totalling $4,800 yearly) had inappropriately been
counted as profits, so that the dues alone accounted for a double-digit portion of the supposed gains.

However, the club's long-time treasurer Betty Sinnock followed up with a different explanation: The
portfolio's profits averaged 23.4% for a two-year period, 1992 and 1993, and this was erroneously entered
as the average annual gain for the whole 10 years. Alas, this did not alter the spuriousness of the bottom-
line. The real average yearly profit for the much-publicized, claim-to-fame decade was 9.1%. The best-
seller had exaggerated by 152%. It put the gals' home-spun cheering section to shame.

Those who praised the Beardstown Ladies' cookie jar virtues had overlooked the hazards of kitchen table
accounting. The episode receives mention here for reasons other than the numbers. Before the
discrepancies arose, ABC-TV's 20-20 attributed the ladies' success to such heartland virtues as hard work
and church-going. After the facts intruded, Frank Rich wrote in the New York Times OpEd page (March
21, 1998): "The Beardstown Ladies were, literally, a G-rated Disney package--archetypes from Main

935
Street, U.S.A., published by Disney's Hyperion Books--so the public and reporters alike threw skepticism
aside."

So what does culture have to do with trading or investing? The Disney people sure got their G-rated maple
syrup/covered bridge culture into the portfolio cake mix. All it lacked were Dorothy McGuire as the Wheat
Belt mom plus a cartoon princess singing, "Wishing Will Make It So." Please fault not me for including
some old Lombardy sunsets that inspired the palette of Paul Veronese in my blend.

The "regular guys" out there are urged to trade in a professional manner, not like passionate crap-games in
back of McClosky's Bar, and to partake of the art exhibit at the bankers' club.

Dual Time Frame Trending the Trend - Andrew Abraham

As in our last article we feel it is imperative to only Trade with the Trend. Trends are made up of up waves
and down waves and if we are in an up wave we would anticipate these waves to be larger and cover
greater distances than down waves in an uptrend. The same applies conversely for down- trends. Here we
would anticipate down waves to be larger than up waves. Keeping this is in mind we have devised a
corollary to our trading strategy and we feel it offers many potential profitable trades.

What we suggest is use two diverse time frames. The time frame can be anything from a 10 tick and a 25
tick to daily and a weekly. There has to be a substantial difference however.

Some ideas to play with are:

· 15 minute and a 60 minute
· 60 minute and a daily
· Daily and a weekly
· Weekly and a monthly
· 1 minute and 5 minute
· 5 minute and 15 minute
· 3 tick and 15 tick

Really whatever you feel comfortable trading. What a trader should attempt to do is first identify the trend
of the higher time frame. He only wants to take trades in that direction. The trader then wants to go to the
lower time frames and find corresponding bars to take trades in the direction of the higher frame.

An example if we are trading 5-minute bars we would use a 15 minute bars on SP futures contract to
determine the trend. Continuing our example we see we are in an up trend on the 15-minute bars and see
blue up wave bars. We would go down to our 5 minute chart and look to first identify red bars (down wave)
and prepare ourselves with a buy stop order to pull us in the market if an up wave becomes present (blue
wave). The same would apply in reverse if on our higher time frame we know we are in downtrend we
would go to our lower time frame to look for an entry which would in this case be an upwave (blue bars).

This concept is similar to buying or selling retracements or Fibonacci trading but with one major
difference. The trader is trading with the trend and that is paramount to success.

In our systematic version of this we have included a volatility adjusting form of parabolic trend delineator.
We think of it as almost a line of demarcation. When prices are above this line we want to be long and
conversely when prices are below, we want to be short. We never want to have a trade on contrary to these
rules. If so, we are neglecting another major tenet of good trading Money and Risk Management. If we
have a trade on contrary to this indicator this is a sure clue the trade is not working and we are violating our
rules.

When one trades, every trader must bear in mind that in order for success to be possible consistency and
easily identifiable & familiar situations must be recognized. Trading using these types of indicators offers
the trader the potential for this.

936
 Member Requests

Marc Abrams would like to know if anyone is familiar with "Candlestick Forecaster" software. Also, are
any experienced daytraders using Japanese candlestick techniques either as the only technical analysis tool
or in conjunction with western analysis tools? I can be reached at uncmarc@aol.com

George Freeborn, phone 562-424-0836 would like to get some opinions (pro or con) from daytraders who
are using "Live Wire Professional" software.

E-Mail from Jeremy - (CTCN), Thanks for your very informative and free information. I can relate to a lot
of the things you were talking about in some of your articles, such as Keltner Channels (which I use) and
applying some discretion when trading. Your articles gave me a fresh perspective and a new outlook on
how to better myself towards more profitable trading. I was wondering if you have ever heard of the KC
Collection by the Futures Group accompanied by the book, "How to Become a Real-time Futures from
Home" by Scott Krieger. The KC Collection is mostly a mechanical setup using Keltner Channels, 5, 9, 20-
day x-ma's, peak/valley oscillator, and other useful tools to make trading easier. I have just begun trading
the S&P 500 with this system and have had good results with it. More market exposure and knowing
myself better should help me along even more, as well as signing up for your services. Which Mark
Douglas book do you recommend the most in your article referring to him? I need to work on my mental
behavior if I'm ever going to make it as a daytrader.

Brian wants to know if there are any trading clubs in the northern New Jersey or New York City area
similar to the ones in Texas and California. Please reply via CTCN or call us at 602-595-1777 with
information. P.S. -- Love the Real Success Tapes!

Editor's Comments

This issue marks the end of our 5th year of continuous publication of CTCN.

We plan to continue reprinting an exceptionally valuable and significant article or two from time to time to
benefit our new members and also long time members who may not recall the articles. For example, the
complete series of excellent S.A.T. articles will eventually be reprinted in there entirety.

Issue 44.

Characteristics of a Trading Methodology and System - Ned Gandevani

Studying successful traders reveals that they all have a trading system. Jack D. Schwager in his book
Market Wizards, identifies a set of "common denominators" shared by top traders. Among them, he writes:
" Each trader had found a methodology that worked for him and remained true to that approach." It is
significant that discipline was the word most frequently mentioned (in his interviews with successful
traders). Success in trading is based on two particular pillars; Methodology (or System) and the Trader’s
Psychology.

These two factors are so intertwined that they create a virtual circle. A better trading methodology and
system will result in improving the trader’s psychology and self-confidence. A better psychology will help
the trader adhere to his/her methodology which will consequently create better results in the trader’s
performance.

It's difficult to build a successful trading environment with only one of these pillars. An opposing and
undesired reaction is also possible in the trading virtual circle -- poor trading results may occur when a
trader’s method is not compatible with his psychology. Poor results can discourage a trader from being
consistent with the application of his method and might discourage him from acting on all system created

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signals, thus creating lost opportunities and unfulfilled expectations, which in turn would reduce the
trader’s self confidence. It is therefore imperative that a serious trader consider both of these crucial trading
pillars before he or she engages in trading activity.

What is a Trading Methodology or System?

Whether you decide to employ a subjective methodology or a mechanical system (either basic rule-based or
advanced machine-intelligence-based), when selecting or creating a trading method you should consider the
followings topics: Entry Point, Exit Point, Money Management, Market Focus and Personalization of the
Method.

Entry Point -- The entry point is based on a particular time or price where the trader would initiate his
trading position in the market. Entry points are created based on a set of rules or calculations that are
determined by the trading method. A trading system should tell us the precise point where we should enter
the market. This entry point could be either based on a particular market set-up, a signal, or a hybrid of
these two. An entry point is a crucial and integral part of any system.

1. Market Set-Up -- An entry point can be generated based on a market set-up or specific and quantified
price pattern. For example: "when the close of the second bar is higher than the close of the two previous
bars on a 30 minute chart, Buy at the open of the next bar." This rule for an entry point was generated by a
specific market set-up. A market set- up can also be based on a price pattern or chart formation. "Buy the
market at the break out of an inverted "head and shoulder" pattern before 12:00 noon" would be an example
of this concept.

2. Signal -- An entry point can be generated based on a particular signal. We will define a signal as an entry
point to Buy or Sell, which has been created by a computer program designed specifically for generating
trading entries. In Trade Station signals are displayed by an upward arrow (buy) or downward arrow (sell),
which is usually accompanied by an audible tone. A signal therefore, is generated based on a series of
calculations or conditions in the market place which may include technical as well as market sentiment
indicators. For example "if our 5-day moving average crosses over our 10-day moving average we place a
buy order."

3. Hybrid of Market Set-Up and Signal -- An entry point can be generated by a hybrid of a signal and
market set-up. For example, enter the market when you get a signal from your mechanical system and a
confirming chart formation. A moving average crossover might give the trader his signal, while the double
bottom chart formation gives him the market set-up confirmation to then enter.

Exit Point -- The exit point is a trading method’s criteria to exit the market and close out the existing open
position. Before we enter the market, we should be aware of where our exit point will be or what will cause
us to exit our position. This can be accomplished based on one the following:

1. Target Profit - Our exit point can be linked to a target profit. In other words, as soon as we make our
intended profit, we can exit the market. The target profit should be a derivative of our risk-to-reward ratio.
The risk-reward ratio is a predetermined amount of how much we are willing to risk versus how much we
want to make. A ratio of 3:1 would imply that we are willing to risk no more than one unit when attempting
to make at least 3 units. This ratio should be based on your own observations and experiments, as well as
psychological requirements. Without a properly set ratio, the game of probabilities is hard to win. To better
assess the profit potential in a market, we need to study that market and set our profit target based on its
potential. For example, the bond market’s daily fluctuation is usually about 16 ticks. It would unrealistic to
set our target profit for one full point (32 ticks) while day trading. In the case of the S&P market, the daily
average swing between its high and low is about 10 to 12 full points. Of course, there are exceptions on
certain days when volatility causes extreme price ranges, but we can’t base our methodology on the
extremes.

2. Stop Loss -- An inherent part of the trading process is loss. Some of our trades will be winners and others
will be losers. But we want to make sure that we don’t risk our total equity capital on one or even just a

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few trades. That’s why we place a stop loss exit point for every trade we take. We can have two types of
stop losses. One is a monetary or Price Stop. In this type of stop loss we decide on the amount of money
we’re willing to risk for our trade. This dollar value can be as little as one tick or as big as our total equity
capital. The monetary stop can also be based on the average volatility (price range) of the market. Another
type of stop loss is a technical stop. This is the type of stop that I prefer. Technical stops should be derived
from proven technical indicators or market set-ups.

3. Abrupt Change - It always amazes me to know that many traders will open a position and then leave it
unattended until they get stopped out or make a profit. They take a very passive approach towards their
positions. If they don’t make a profit, they’ll just wait until the market hits their stop. The astute trader will
observe any abrupt changes that occur in the market and act accordingly. An abrupt change in the market
will certainly give rise to new or different stop loss plans. If we see that market conditions change
(volatility for example) we should exit our trades immediately, regardless of any loss or profit. At this point
profit or loss doesn’t matter -- we must simply get out.

4. Timing -- After studying the character and internal dynamics of a market, one may learn how long it
takes for a particular market to travel from point A to point B. With this knowledge in mind, we can
determine if our position is making the appropriate amount of dollars per units of time, to determine if the
trade is progressing at a speed consistent with our expectations. If our open position moves at an
unacceptable pace compared to our past observations, we may have to exit early. This concept can be
invaluable to our trading. On numerous occasions, I have exited a trade utilizing this type of timing
technique, prior to the market hitting my technical or money stop point -- resulting in a winning or break
even trade, as opposed to a loser . I was able to retain money by monitoring the market through my timing
indications. In some of the financial markets such as S&P’s, one can monitor market movements based on
fractal movements. These fractal movements are the result of the general public’s (retail) thresholds of pain
or pleasure. Since the majority of retail traders in the S&P market are undercapitalized, as the market
moves one to two points for or against them, they jump out of their trades to cover with a small loss or
gain. This constant flow of retail entry and exit activity has created a unique price fractal in S&P market.
An astute trader can easily capitalize on this idea. Understanding this concept can provide you with easy
and stress free trades that are quite profitable.

Money Management -- When the vast majority of available trading books discuss the subject of money
management, they usually refer to the use of protective stop orders. But I believe that money management
in trading should be viewed from a different angle. In my opinion, money management should deal more
with optimization of one’s trading account and equity. What I mean is that if someone has an equity of
$10,000 in his account, he shouldn’t trade more than one contract at a time in the S&P market, assuming
that the margin for day trading is not more than $8,000. But in the bond market, the same trader needs to
trade at least 2 to 5 contracts, unless of course he does not possess a satisfactory confidence level in his
trading system and methodology. A trader who overuses or does not properly utilize the available capital in
his account is guilty of poor money management. Another important point about money management is
that as one trades a system and assesses the resulting win/loss ratio produced, he should then adjust the
trade size and stops to optimize return on investment. If for example you place one lot trades in the S&P
and your account equity is about $7,000, you should not allow your technical or monetary stop to exceed
more than $250 or so. If that’s not possible, then simply pass on the trade. There are plenty of opportunities
in the market. You don’t need to take extra and unnecessary risks to be profitable. Look at trading as a long
run endurance and not as a short-lived kamikaze attack. Don’t beat yourself up if you miss a good trade,
because it is you and your system that perceive trade opportunities. The same market conditions might be
perceived by many other traders as unfavorable. What this means is that if you’ve been able to recognize
one good trade by following your trading system, then by definition your system will show and signal more
winning trades and opportunities in the market. Money management also refers to full utilization of your
money in your trading account. If you’re not able to fully utilize your money in the beginning, don’t let it
sit idly in your account - work it. Buy 3 or 6-month T-bills and let the account earn some interest.

Another important aspect of money management is to never leave excess money in your margin account.
This surplus can be potentially harmful to your trading. When traders have extra funds in their account,
they tend to become lax with their stop placement. They may possibly increase their stop loss amounts,

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with the justification that they need to "give the market room to breathe." Or, some might fall into "mental
stop" trap. They simply don’t place any protective stop in the market with the justification that the "locals
(floor traders) will run our stops and then the market will move in our favor." Following this train of
thought can create a still bigger and deeper problem. As the market goes against their position, they begin
to start hoping and praying for God’s mercy. Hope and fear are magnified with each minor tick that
justifies or opposes the trader’s position. Anguish and jubilation are the emotions encountered with every
price print. The end result is an extremely distressful trade. If by chance you made money on that type of
trade, that gain can be your worst trading enemy and poison. Why? Because the next time you employ the
"hope and pray" strategy, a losing trade may very well cause irreparable damage to your trading account.
My advice is that as soon as you begin to "hope and wish" for the market to move in your favor, you should
exit immediately. Hoping and wishing is the same as trading without a plan at all and must be avoided at
all times. Therefore, money management refers to the methods of optimizing one’s equity through the
proper utilization and preservation of trading capital, as well as the correct placement and employment of
protective stop loss orders.

Market Focus -- Contrary to a popular belief that one trading system and methodology should work in all
markets, I believe that a good trading system is geared for one particular market. Each market exhibits its
own behavior and internal dynamics, illustrated by its daily range, degree of volatility, overall risk and
required trading capital. Your system or methodology should be a personal system which has been
designed for your own mentality, psychology and market of choice. This is essential in order to trade your
system consistently through both good times and bad. A subjective methodology is usually created by an
intense study of a particular market. To apply the same subjective method to other markets, is to assume the
premise that all markets behave in a like manner. Accepting the notion that all the markets behave in the
same manner day in and day out, would eliminate the time factor, dynamics and conditions of every trading
day and therefore ignore new and different market conditions and experiences. Furthermore, considering
only price action in a market would negate your observations and research on a market’s internal dynamics.
In my opinion, each market shares a set of characteristics common to its group member markets. A market
will also behave uniquely according to its own unique internal dynamics. For example, although the S&P
market shares a set of common characteristics with other financial market group members (like the bonds,
currencies, etc.), its behavior is based on its own internal dynamics and personality. If interest rates change,
the S&P would react almost in the same fashion as the bonds, since they are both a part of the financial
market group. Components of the group will tend to all react the same way to external factors. However,
the extent of reaction will be ultimately shaped by the S&P’s internal dynamics and indigenous factors. The
inter-market relationship should only be considered with a long term perspective. Trying to utilize inter-
market relationships for intraday activities would not prove to be profitable to a day trader in the long run. (
In future articles, I’ll discuss this point more in detail.)

Personalized System -- Its been observed by many good traders over the course of time that a successful
career in trading depends more on the psychology of a trader, than the trading system employed. As a
trader, you have to feel comfortable with whatever trading system or methodology you use. This comfort
level can be evaluated by your system’s draw down, time consumption, number of trades and signals it
produces and so on. In brief, to ensure the success of a trading system or methodology, you must select or
create a system that is compatible with your personality and individuality. A system that is custom fit for
you, is more easily adhered to, resulting in less "second guessing" or other discipline related problems.

For the past few years, I have developed my own non-mechanical trading methodology, The Winning Edge
S&P System. This system is the resulting product of research for my doctorate degree in International
Finance. If you are interested, to may be eligible to receive a free one week trial. I only teach the System to
qualified S&P day traders. Please -- no brokers or CTA’s. For details, please contact me at 516-423-8402
or e-mail at Gandevani@worldnet.att.net

The Edge - William Q. Smith

No, not the nick-name of a lead-guitarist for an Irish rock group. The other kind of edge, the main weapon
in your trading arsenal. I'm not talking about a single indicator or pattern, but the items, which used in

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combination give you an edge over the other traders. Have you thought about it lately? Don't even know
what your edge is? Don't trade until you do!

Now, I don't know much about English Literature or Italian Opera, my tastes run more to drinking wally
water and listening to "Too Slim and The Tail-Draggers," so I'll spare you the rambling, unrelated
discourse and stick to trading topics. Seriously, your edge has to be good. Have you done a backtest on it?
Do you keep a running total on how well it performs?

I'm not a very good trader, but I have become very good at following my system. I have lived through its
ups and downs, and I know it inside-out. The system uses a little Gann, a little Fibonacci, a little Swing-
trading, all on the computer so the entry and exits are mechanical. All I do is follow the system and track
how it is doing. I have a pre-determined set point where I will pull the plug on this system and look for
another, but this set point is well below the normal drawdown and periods of negative performance. This
helps me to remove much of the anxiety that usually comes from trading. Of course, by back-testing I know
what to expect as far as a normal drawdown. So, I just add a "fudge-factor" and arrive at my "bailout level."

Losing trades are a part of trading. My system is no different. I don't think a trader can be successful until
he/she reaches that point where a losing trade just doesn't mean anything negative to them. I have found
this very difficult to do, but I 'm getting better at it.

Something about years of our society and schools pounding the idea into my head that losing is bad and is
to be avoided at all costs. Thanks a bunch! Now I have learned to shrug my shoulders, and to just forget
about a losing trade as soon as it happens. It's over and done with, time to move on to the next trade. So,
how are you doing? On last month's brokerage statement was the sign in front of the final amount a plus or
was it a minus? If it was a plus, you're doing something right or headed in the right direction. If it was a
minus, you're doing something wrong or you are headed in the wrong direction.

It's not quite that simple, but that's a lot of it. Know what your edge is and track its performance. Develop a
mechanical system and style of trading that removes all of the emotional decisions. Learn how to dissociate
those losing trades, and carefully sit down and review your actual, bottom-line performance every month.
Hope this helps someone. Now, where did I put that "Too Slim and the Tail-Draggers" CD?

"Trader's Tax Survival Guide & Tax Strategies for Traders"

A Book, Video & Tape Review( Part 2) - Raymond F. Kohn

In a prior issue of CTCN, I reviewed Ted Tesser's newest book "Trader's Tax Survival Guide." The book
was packaged with a video tape and an audio tape. This review will cover the "Audio Tape" which was
titled: How to Turn $30,000 into $1,000,000 (And Get the IRS to Foot the Bill), copyright 1997,
approximately 2-hours.

The audio tape was recorded during a seminar conducted by Mr. Tesser during the "Future West '97"
seminar held last year. Unlike his companion book, that was previously reviewed, the audio tape is current
with the new 1997 Tax Code changes. However, despite the tax law changes enacted in 1997 and
incorporated within the audio tape, the basic message on the tape is the same as in his book. Understanding
the Tax Law is the difference between getting Rich and getting By.

Ted's tape begins with a shocking and attention grabbing fact that is worth repeating here: To begin, he
assumes that a successful trader/investor would be able to achieve an average compounded annual rate of
return of approximately 35% per year. (Which is roughly three times greater than the average annual return
for the S&P 500). Given this assumption, a trader starting out with just $10,000 36-years ago, would be
worth $ 1.1 Million today, and that's "after paying all the taxes that would have been due each year as a
result of his trading activity." (Ted makes note that the title of the tape mentions $30,000, however he
stipulates that only $10,000 is all that is really needed.)

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Then he asks the audience: "How much do you think I would have at the end of 36-years if I didn't have to
pay taxes each year on the gains?" The audience makes a number of guesses ranging from 5 to 10 times as
much. This is where Ted gets your attention: "Without having to pay taxes each year on the gains from
sales the $10,000 initial investment would be worth $492 Million today.

To drive the point home, he goes on to say that taxes are the single largest expense that any successful
trader/investor will ever have. No matter how much a trader spends on data services, software, seminars,
trading systems, etc. The combined total of all trading associated expenses can't even hold a candle to what
you'll pay in taxes. Now that's what I call the "American Way."

Hence the focus of his tape is similar to the focus in his book: Knowledge of the Tax Laws, and Tax
Planning is the key to success. He goes on to say: "There is no such thing as an income tax, you are being
taxed on your ignorance, not your income. The people who are taxed the most, are those who are ignorant
of what's in the tax law. Understanding the tax laws is the difference between getting rich, and just getting
by. It's not what you make in life, it's what you keep!"

He is not recommending any off-the-wall ideas such as: Tax cheating, Scams, Strange loop holes, or
becoming one of those crazy tax protestors who refuses to pay their taxes altogether -- He's just talking
about intelligently using the existing tax code to its fullest extent.

For Example: In the above example whereby a potential $492 Million was reduced to $1.1 Million just
because of annual tax payments -- The simple solution is to have the initial $10,000 put into a "Tax
Deferred" account like an IRA, or other type of pension plan, and then actively trading the funds within that
account for the next 36-years, thus, you would ultimately have the full amount of $492 Million. Even if you
pulled the entire $492 Million out of your IRA all at once, and paid both Federal and State taxes on the
entire distribution (which could total as much as 50% of the total value) you'd still have $246 Million left
over "after taxes." This is a far cry from the $1.1 Million that you'd have when taxes are paid each year.
This is the power of "tax free compounding." And, lets take it a step further. If the initial $10,000 were
placed in a Roth IRA, in 36-years the balance would still be $492 Million, it would all be Tax Free when
you withdrew it. WOW!

Now that's tax planning, It's simple, yet it makes all the difference in the world. There is no question that
tax laws are horrendously complicated, and filled with exclusions and exceptions that make administering
and complying with the code almost impossible. Yet despite the overwhelming and daunting prospect of
having to learn how the tax code works, it remains paramount to your ultimate success to either take the
time to learn those aspects of the code that effect your life, or, hire a professional like Ted Tesser, CPA to
do it for you. Trust me when I say, H&R Block just won't cut it.

Following this astonishing, attention-grabbing, first example, he goes on to discuss the new 1997 tax law
and many of the changes contained in the law which could have a significant impact on traders and
investors. The tape is very broad in scope, and as such, it does not talk about "Trader Status" to the
exclusion of all other tax topics. Some additional topics covered in his tape which exemplify "smart tax
planning" include the following:

1. Time the sale of securities for the best tax advantage. Be careful when selecting the specific lot you wish
to sell and its exact purchase and sale date in order to achieve maximum tax efficiency.

2. Take advantage of the $500,000 Personal Residence Exclusion whenever possible. For example: If you
have "investment real estate" which, if sold, would generate a significant tax liability. Don't sell it right
away, instead, move into the property converting it into your primary residence, and live there for a
minimum of 2-years, thus qualifying for the Personal Residence Exclusion. As a result, up to $500,000 of
the total gain realized from the sale would be Tax Free!

3. Roth IRA's are a perfect vehicle for active traders. You start with your initial nest egg, and begin trading
it aggressively. After a time, the Roth IRA could be worth a small fortune, all of which can be withdrawn
Tax Free. You get the double benefit of tax free compounding and tax-free distributions.

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4. Qualifying for "Trader Status" can be beneficial. However, there are many pitfalls, which if not carefully
addressed, will result in your trader status being denied. Ted discusses many of these issues in detail.

5. And finally, "Estate Taxes." Again, this is a very complex area of tax law, but Ted does a marvelous job
of focusing in on two significant tax planning tools, (The Crummy Trust, and the Charitable Remainder
Trust), which individually, or in combination, can protect huge amounts of your money from the voracious
appetite of the Federal Government.

The tape ends with a series of thought provoking Questions and Answers in which various audience
members ask Ted a number of very interesting questions.

A good portion of the tape discusses "Trader Status," and tends to re-hash much of the material that was in
Chapter 13 of his book, (and covered in my prior review), so there is no reason to cover the same ground a
second time -- With one added exception. The tape specifically makes mention of a small, but very
significant detail, that was not in his book. That detail is: If you wish to be classified as a professional
"Trader," and be able to deduct trading expenses on your Schedule 'C' -- then you'd better have an office. It
could be a "home office," or a rented "trading office." Ted states that if you don't appropriately declare
"office expenses" on your Schedule 'C' -- then you will be denied "Trader Status" during an audit.

A second detail worth mentioning: Ted talks about the likelihood of being audited just because you
classified yourself as a professional "Trader." He states that you are no more likely to be audited just
because you are electing "Trader Status," however, if you go back to "Amend Prior Tax Returns" to reflect
"Trader Status," and as a result are requesting a tax refund, this Will more than likely precipitate an audit,
and a great deal of IRS scrutiny. He recommends that you Do Not amend prior returns to reflect "Trader
Status," unless there's a lot of money at stake, and you are willing to put up an expensive fight with the IRS.

A member of the audience shared a personal experience. He was being audited by the IRS. The IRS was
denying all of his trading expenses and the district manager refused to even acknowledge that "Trader
Status" existed. District manager refused to even look at Ted's book as a tax reference.

This poor tax payer had to get actual copies of the "tax court cases," that were cited in Ted's book, and turn
them into the IRS office for review before they would even consider his position. It was well worth the
effort, he saved over $10,000 in additional taxes by holding to his position.

The tape was a marvelous adjunct to the book, and tended to fill in some of the missing details. It also
provided listener with some new information, and a spirited exchange of ideas in a seminar format. It was
almost like being there in person.

Patience, Patience, Patience - Rick J. Ratchford

It has been said that "Patience is a virtue." When trading various methodologies that require you to make
your own trading decisions, it would be wise to take the maxim to heart.

When you look at a price chart, do you ever find yourself noticing what appears to be a new move, yet your
method or indicator has not quite given you a signal that such a turn is in effect? Ever find yourself entering
the trade in expectation that the indicators will soon agree with you, although they have yet to do so?

Many traders can reflect back upon their account statements and count the many times they did just that.
Instead of patiently waiting for their signals to give the "go," they jump the gun to try and shave a few
points off. Usually they succeed, shaving a few points off their pocket book, that is.

Patience falls under the category of Discipline. Yes, it is hard to master, but is very important if you wish to
stay alive in this business. You must wait for your opportunity, letting all parts of your plan come together
before you can execute. It's your method, your plan. Why sabotage it?

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Unless your method gives allowance for such premature action, you are re-writing your method on the fly.
This is a recipe for disaster!

Allow me to make a few suggestions:

1. Create a check list for initiating trades. Before you place any trade orders, go down your list and make
sure you can check off all requirements to qualify the trade. if you cannot, ask yourself if you are jumping
the gun. If you answer to the affirmative, stay away from the telephone.

2. On your desk, trading screen, or wherever you are when you make a trading decision, tape a small index
card with the words, "Are You Sticking to the Rules?" This provides a reinforcement in your mind that you
are going to suffer again if you are not sticking to your rules.

3. Jot down the trade circumstances at the time you feel a trade may be setting up, but that your signals
have yet to agree. In other words, write down what you are thinking at the time, what the market is doing,
what your signals are saying, everything so that you can recall clearly the circumstances of the trade that
you did not enter. After a couple of days or so, go back and note if you were spared a loss or missed out on
a win. This will help you resolve if your rules really help, or they require modification. It is better to do this
when no money is on the line, than on the fly.

What usually goes on in the mind of a trader is that circumstances are "different this time," and thus you do
not want to miss the trade. In reality, nothing is different except your frame of mind. Any changes to your
tactics should be done "off-line."

Learn patience, and you will be traveling the proper road to successful trading. Even the top traders in the
world get impatient at times, thus losing much of their gains gathered by discipline. Hold tight to the rope
of focus and discipline, knowing that many opportunities come each week and that you will get yours soon
enough. Avoid the roll of the dice attempts to hit them all, but rather sort out those few significant trades
that may miss because they are too busy gunslinging and missing their targets. The patient cat catches the
mouse.

A Quick Buck? Day Traders Rise, Fall Fast on Speedy Action - Dawn Gilbertson
Reprinted with permission of The Arizona Republic

Leon Thompson has been frantically typing commands on his keyboard for an hour when the computer
suddenly freezes. He lunges for phone and asks a technician how long they'll be down. "Five minutes?"
"What?" office mate Mike Fischer shouts, starting to panic.

Thompson and Fischer day trade stocks for a living. It's a risky, quick-draw game in which five minutes
might as well be an hour. (It turned out that their computer glitch was fixed in a minute, so they had one
less thing to worry about.)

They dash in and out of companies, sometimes in seconds, depending how the stock market is moving.
They're looking for fractional gains, 1/8 here, a "teenie" - 1/16 - there. A delay can mean the difference
between winning and losing, like a botched pit stop for a race car driver.

"A long-term hold for these guys is 20 minutes," said Chris Miller, a Phoenix stockbroker who has friends
who are day traders.

The Beardstown Ladies, those folksy long-term investors/authors that spawned a zillion investment clubs,
these ain't.

Day trading has been a way of life on Wall Street for eons. But in the past couple of years it's spread to
office suites in cities throughout the country. In Phoenix there are at least six firms that cater to day traders,
three of which just opened this year.

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There, confident do-it-yourself investors with an extra $25,000 or $50,000 (at least) try to cut out the
middleman and, ultimately, get rich. Some are former Wall Streeters or brokers, but there are also plenty of
retired doctors, attorneys, executives and even plumbers and carpenters, industry officials say. A car
salesman stopped into Bright Trading's Scottsdale office last week to check it out, and a Motorola executive
was in recently.

"A lot of them are here for just a new way of life," Jessica O'Riley, manager of Cornerstone Securities'
Phoenix office, said of the firm's traders. "They think they can make more money doing this than what they
were doing before."

Thompson, a 38-year-old married father of three, is a high school social studies teacher turned trader. He
loved the students but not his long-term earnings prospects. "I could keep breaking my back and working
hard, but everything's based on seniority," he said. Thompson had managed his parents' portfolio and "did
well," so a cousin who's a day trader piqued his interest in trading for a living. Using his savings, he opened
an account at Bright Trading this year and also signed on as office manager. "I hope to be a lot more
successful (financially) than I was as a teacher." Thompson said. "I love it." he said.

He's made as much as $1,500 in a day, trading mostly bank stocks in 500- to 2,000-share blocks. Of course,
he's also lost as much as $700. He's still not profitable, so his parents are providing some financial support
in the meantime.

Bob Bright, a former trader who founded Bright Trading, said people take four to eight months to learn the
business. What they're learning is about trading, not investing, and there's a big distinction.

Forget about earnings, dividends, growth rates and other fundamentals. Traders care about the market's
movements that moment and a stock's trading patterns. Some don't like, or even know, the company behind
the ticker symbol they punch into the computer.

Fischer, who also trades at Bright Trading, buys and sells America Online all day but doesn't sing its
praises. "I don't like the company. It's just easy to trade," he said, citing its big swings in price and cult
following.

Each daytrading firm has a different twist on the game in terms of money required to start, types of stocks
traded, commissions, computer systems and tax treatment on gains. But the goal is the same: to take
advantage of the market's daily gyrations.

Ask Most investors how their stock did on a given day, and they'll give you the closing quote and how
much it was up or down. Ask a day trader, and they'll ask, "Which time?"

As anyone who's tuned into CNBC knows, stocks bounce around, sometimes violently, throughout the day.

The trick for day traders is to ride that roller coaster to their advantage. Thompson and his colleagues at
Bright stare at three or four computer screens all day, waiting to pounce. Like other firms, Bright offers
real-time quotes and instant execution of orders.

Their timing, and read of the market, is crucial. A ½-point, or 50 cent-per-share, move against them costs
$500 on a 1,000-share trade. Multiply that by all the trades they do in a day -- Thompson had 96 trades one
day last week, most of them buying and selling Citicorp stock -- and you'll see how bad bets can make this
a short career.

Fischer, who has trading and investment experience and his father is a Professional money manager, says
he lost about $65,000 in his first couple weeks, though "I've come back since then." "It's easy to get
whipsawed," he said.

945
At one point Tuesday, he was up $4,000 thanks to a good call on AOL. He sold the stock short - a bet that
it's going to decline -- and it fell as much as $4 per share. "That doesn't happen every day," he said.

It also doesn't last. Fischer ducked out of the office for a meeting, and by the time he got back AOL had
recovered. The gains were out the door. He ended the day up about S500.

Gary Swiman, a 32-year-old former securities lawyer and certified public accountant who moved to
Phoenix from New York last summer, is Bright's token long-term trader. He focuses on retail stocks,
holding them as long as three days. "I like to play stocks away from these gamblers," he says with a laugh.

Mark Seleznov, owner of Trend Traders, said twentysomethings are suited to day trading because of their
experience with video games. "They actually do fairly well because they're used to reacting so fast," he
said.

Overall, he and others in the industry said the perception that day traders turn on the computer and print
money is a fallacy.

"People are competing with absolute pros out there and pros with much more capital," he said. "It's not
easy."

Mike Burton, Arizona's top securities regulator, is more blunt: "It's a quick way to get wiped out."

To investors who have made some good trades from their home computer or touch-tone telephone and
think they're ready to quit work, Seleznov offers this analogy:

"A lot of people play golf. There's not a lot of people on the PGA Tour."

Day Trading Isn't Nearly As Easy As It Looks

Watching a day trader move in and out of stocks, making (and losing) money on the tiniest of moves, is a
little like standing in a casino without any chips. After a while you get the urge to play.

So Leon Thompson, manager of Bright Trading's Scottsdale office, suggested I give it a try -- with his
money. That's the best way to get a feel for the split-second decisions traders make after scanning the
market information on the computer screens that surround them.

He OK'd 100-share trades, figuring that would minimize any damage. And while he let me enter the orders,
he was always within a whisker of the keyboard in case things got ugly.

I wanted to try an Arizona company and zeroed in on America West Airlines. It was down on a day when
most airlines were up, so I figured, based on Thompson's previous plays, it was due for a move upward.
The bid -- the highest price a prospective buyer is willing to pay at that moment -- was 27.

The ask -- the lowest price acceptable to a seller at the time -- was 27-3/16. The last trade was 27-1/16.

The market appeared to be going lower so I typed in a buy order for 100 shares at 27-1/16, and it was soon
accepted. The stock did move up, to 27-3/16. That's a gain of 1/8, or 12.5 cents. I could have sold it right
then and made $12.50 before commissions. That's what Thompson would have done. He's after a bunch of
small gains throughout the day.

There were still a few more hours in the trading session, so I held out for more.

But I wasn't too greedy. When it seemed clear this stock wasn't going to make any big moves this day, I put
in a sell order at 27-¼. It was never filled. America West's stock didn't get above 27-3/16 the rest of the
day. It went the other way, dipping below 27.

946
I didn't sell because I kept thinking it was going to come back on the next market upturn, which we could
track via charts on the computer monitors.

"You don't know if it's going to come back," Thompson said, in a tone that says he's heard that a million
times before. "You can't assume it will or it'll wipe you out real quick."

The stock was stuck between 26-13/16 and 26-7/8 the remainder of the day. At Thompson's
recommendation, we put in an order to sell at the market close. Sometimes a stock rises slightly late
because the specialist on the New York Stock Exchange likes it to end the day on an uptick.

Not today. AWA shares were sold at 26-13/16. That's a loss of ¼ per share, or $25 before commissions.
(America West rose 1-3/8 next day.)

My other pick was Campbell Soup. We bought that after a news flash that the company was buying back
some stock. I know enough about buybacks to know companies do them because they think their stock is
cheap, and investors often piggyback on the news. I bought 100 shares at the market price of 56-3/16. The
stock promptly moved lower, and Thompson promptly recommended a sell order. We were out a minute or
so later, at 55-7/8 That's a loss of 5/16, or 31.25 cents per share, for a total loss of $31.25.

Time was the enemy in this case. By the time we figured out Campbell's ticker symbol -- no one in the
office regularly trades it -- it was already up. Plus, Thompson isn't a big fan of market orders because
you're not in control and the price usually turns out to be "terrible." The total damage from my day trading
experiment (repaid by The Arizona Republic): $56.25 plus $6 in commissions. I think I'll stick with day
reporting.

TIPS - How to be a Day Trader

Think you have what it takes besides money -- to dart in and out of stocks all day for a living or hobby?

Day traders in the Valley say prospective traders should:

· Practice, practice, practice. Try it using play money on one of the firm's simulation programs and watch
real traders in action. Some firms offer training classes, with a focus on trading tools.

· Recognize this is trading, not investing. Don't let the fact that you think Dell Computer is a great company
prevent you from selling it short (betting that the stock's going to decline) if the market's headed down.

· Have strong concentration skills (you're staring at several computer screens all day and have to make
split-second decisions) and a strong stomach.

· Don't assume that the brilliant trades you made from your home computers will make you a successful day
trader. In this real-time game, you're competing against Wall Street pros with years of experience and tons
of money.

· Pick a trading discipline and stick to it. If your focus is on bank stocks, don't get sidetracked by the hot
Internet stock a neighboring trader is all excited about.

· Start slow, with 100 or 200-share trades if possible. A 1/8-point, or 12.5 cents, loss per share is $12.50 on
100 shares but $125 on a 1,000-share trade.

· Don't overtrade. Commissions, however discounted, add up.

· Don't be stubborn. If a stock is not moving the way you thought it would, get out -- quick -- and cut your
losses.

947
Editor's Note: The preceding three articles revolve around the daytrading of stocks. However, many of the
ideas and principals are similar or relevant to commodity futures daytrading.

BEYOND TECHNICAL ANALYSIS - Book Review by Raymond Kohn

Really good books are few and far between -- And, it is not often that I will give any book an unqualified
rave review. Beyond Technical Analysis by Dr. Chande, PhD), is one of those rare books that has earned
this rave review. You can't read this book without it having a profound impact on your trading methods and
techniques. In addition, this book can make a significant impact on your understanding of how the
investment and trading markets actually work, and ultimately improve your trading success. Don't miss this
one!

Beyond Technical Analysis -- How to Develop and Implement a Winning Trading System by Tushar S.
Chande, PhD), 1997, 252 pages, $75.00. (This book also comes with a demo disk of specialized software
developed by the author, which includes a method for developing synthetic data.) Dr. Chande is a
scientist/engineer/commodity trading adviser/author. He holds nine patents for various sophisticated
manufacturing techniques; he is a contributing editor to Technical Analysis of Stocks and Commodities
magazine; author of The New Technical Trader; he is a trading software developer and a registered
Commodity Trading Advisor.

This author brings his scientific "mind-set," and "analytical methodology" to the art of trading. And, like
any good scientist, he takes absolutely "nothing for granted," and "questions everything." He questions and
verifies even the most basic trading concepts, which have been repeated so often, and with such regularity,
that we all just assume that these absolute trading truths pre-date the "flood," and were sent down to us on
stone tablets. There are a lot of surprises for the reader when these "carved in stone absolute trading truths"
turn out to be absolute trading fallacies. It's a real eye opener to say the least.

Dr. Chande's Preface and Introduction does a very good job of describing the general sense of the book. It
reads in part as follows:

This is a book about designing, testing, and implementing trading systems for the futures and equities
markets . . . It focuses exclusively on trading systems.

The book is broadly divided into two parts. The first half deals with development and testing -- how the
system worked on past data -- and discusses basic rules, key issues, and many new systems. The second
half explores how the system might do in the future, with a focus on equity curves, risk control, and money
management. A key contribution is a new method called "data scrambling" which allows unlimited
amounts of synthetic data to be generated for true out-of-sampling testing.

A good trading system suits your personality. Fortunately, the fastest way to find one is through a process
of trial and terror ("terror" is not a misprint). Any system testing software on a fast computer will help you
churn out a thousand rosy scenarios. The markets will unerringly reveal any flaws in your design. They will
push you to determine what you truly believe. Eventually, if you survive, you will discover your trading
beliefs.

The markets will guide you to the systems that best suit you.

This book shows you how to create, test, and implement systems that suit your personality. You will
develop not just trading systems, but a system for trading. This book focuses exclusively on creative system
design, thorough testing, sensible money management, prudent risk control, and careful attention to
execution.

After reading this volume, you should be able to take our ideas and convert them into useful trading
systems. This book develops deterministic trading systems, which means that all the rules can be explicitly
evaluated.

948
Below is a list of the chapter headings which will give you an idea of the kinds of topics covered in the
book:
1. Developing and Implementing Trading Systems
2. Principles of Trading System Design
3. Foundations of System Design
4. Developing New Trading Systems
5. Developing Trading System Variations
6. Equity Curve Analysis
7. Ideas for Money Management
8. Data Scrambling
9. A System for Trading

The book assumes that you have a basic working knowledge of technical analysis. With this assumption in
mind, Dr. Tushar S. Chande takes you step by step in a very logical and progressive manner, whereby, you
first evaluate and analyze your own trading and market beliefs. He says: First, assess your trading beliefs --
these beliefs are fundamental to your success and should be at the core of your trading system. After you
have a list of your core beliefs, you can build a trading system around them. Remember, it is not easy to
stick with a system that does not reflect your beliefs.

The author provides an extensive "checklist" whereby you simply check whether you "agree" or "disagree"
with a given statement. He then asks you to pare down your "agree" list to its top 5 trading beliefs. From
this point on, any system discussed in the book, or developed on your own, must be compatible with these
top 5 trading beliefs before you should consider them as possible trading system candidates. Any trading
system candidate must be compatible with your temperament and your belief system, and must reflect your
understanding of how the markets work. This "checklist" is so well done, that it forces you to really think
about what you believe, and to make decisions regarding your personal trading preferences. Once you
complete the checklist and review your own answers, the kind of trading systems and methods which are
most appropriate for you, become literally "Self-Evident."

Once these trading beliefs are identified, he then progresses to his "Six Cardinal Rules" in developing a
trading system and discusses each in great detail. Many of the Cardinal Rules are highlighted with specific
trading examples, charts and trading systems which exemplify and clarify the particular rule. When a
particular Cardinal Rule utilizes a trading system as an example, he develops the necessary computer code
and runs the trading system in a "SystemWriter/ TradeStation" fashion in order to generate a complete
Performance Summery of the trading system used in the example. "Six Cardinal Rules" in developing a
trading system are as follows:
1. The trading system must have a positive expectation, so that it is "likely to be profitable."
2. The trading system must use a small number or rules, perhaps ten or less.
3. The trading system must have robust parameter values.
4. The trading system must permit trading multiple contracts, if possible.
5. The trading system must use risk control, money management, and portfolio design.
6. The system must be filly mechanical.

These trading rules do not represent earth shattering new revelations. However, what is earth shattering is
the way he details each one of the rules and explains their subtleties and importance in developing a trading
system. For Example: I'll highlight Rule #3 which states that a trading system must have "robust parameter
values:"

The term "Robust" means that the trading system is Not Sensitive to small changes in parameter values, and
the rules are typically profitable over various testing periods, and in different markets. Robust rules avoid
"curve fitting" and therefore are likely to work in the future.

To exemplify this Cardinal Rule, the author develops a simple trading system, and while doing so, he
simultaneously details the reasoning behind each parameter used in this simple trading system, and then
discusses the probable impact the given parameter will have on the trading system results. (You really get

949
to see how the author's mind works as he develops many trading systems throughout this book.) He then
writes the necessary computer code to test the trading system in a "systemwriter" format. He then tests this
trading system over a short period of time (using approximately 6-months of historical data). In this
example, the results were wildly spectacular with 87% of the trades being profitable, with as many as 14
consecutive winners, and only 2 consecutive losers, a "Profit Factor" of 13.49, and a net profit of $13,000.
WOW! (Some profiteer will probably sell this system for $3,000 at his next trading seminar.)

Dr. Chande then goes on to explain what is wrong with these spectacular numbers, and why a trader should
be very skeptical when seeing such results. He proves his point by re-running the same trading rules on
"SystemWriter," over the exact same markets, but over 5-years of data, instead of just 6-months of data.
The results were just the opposite, and horrendously unprofitable, showing 32% profitability, 9 consecutive
winners, and 48 consecutive losers, with a "Profit Factor" of 0.61, and a net loss of $107,870. Now that's a
different kind of WOW! -- What went wrong?

The answer is quite simple. The "spectacular initial results" are the "clues and symptoms" of a "curve fitted
trading system." Any curve fitted system will generate spectacular results over a specific data period, but
will fail miserable when tested on "out-of-sample-data" over a long period of time. He goes on to test this
same trading system on 15 additional futures markets over the same 5-year period of time with mixed and
erratic results.

He makes his final point by saying: "In summary, it is easy to develop a curve fitted, system over a short
test sample. If these rules are not robust, they will not be profitable over many different market conditions.
Hence, they will not be profitable over long time periods and many markets. Such rules are unlikely to be
consistently profitable in the future. Hence, you should try to develop robust trading systems."

The above example typifies the style, content and nature of this book. Dr. Tushar Chande begins with a
given subject matter, whether it be curve-fitted trading systems, stop loss techniques, trading multiple
contracts, equity curve analysis, etc., and then develops a trading model which isolates that particular
subject matter. He then proceeds to test the trading model, sometimes including various alternative testing
methods, and then analyzes the results. Multiple tests are done over many markets using many years of data
in an effort to isolate the true nature of the given subject matter, and how it relates to actual market
conditions.

As he proceeds with his trading system design and testing process the reader gets valuable insights into
how the markets really work, ideas for system design, and more importantly you get to see the outcome of
these various test models. This is where the reader really gets an education. You actually see the test results
in black and white over 15 different markets, using over 10-years of data. The surprise comes when he
proves beyond a shadow of a doubt that what you may have thought was true, turns out to be actually false.
And, what you may have thought was the greatest thing since baseball turns out to be the worst thing you
could possibly do. Dr. Chande literally destroys many of the "universal truths and assumptions" we all
make about the way markets work, and debunks the trading methods which we thought had a chance of
working.

Let me give you an example of how Dr. Tushar Chande, (and the reader) might evaluate and implement a
trading system: As a trader, my personal preferences and beliefs are that I want to be a long-term position
trader who takes advantage of major price trends. I also want to implement that time worn philosophy of
"cutting my losses short, while letting my profits run." Seems simple enough. So, I designed a simple
trading system which utilizes a trend following moving average cross-over system in order to keep me on
the right side of the trend. And, then I use an initial stop-loss, combined with a close trailing stop-loss to cut
my losses short if things turn against me. Now I begin my testing of this simple trading idea.

To begin, I start out by testing the basic trading system alone (without using any stop-losses at all), to see if
the system, all by itself, has any merit. Surprise, Surprise! The system, along with the arbitrary parameters
that I selected, make a ton of money in all 15 markets over the 10-years of historical data. WOW! -- I think
I may have accidentally stumbled across the "Holy Grail"! But the draw-downs are far higher than I can
live with. In fact, some of the draw-downs could choke a horse. No problem. I'm no dummy, the solution is

950
obvious and simple. I'll use an initial stop-loss to get me out of the trade if I'm wrong when the trade moves
against me. Then, after the trade starts making money, I'll use a trailing-stop-loss to get me out when the
market turns against me in order to protect the profits that I've already made. Sounds simple enough, and
makes perfectly good sense, it may need a few little tweaks here and there, but, I'm positive that I have
finally discovered that illusive "Holy Grail." I'm gonna be rich!

Because I've just finished reading Dr. Chande's book, I know how important it is to not assume anything.
So I start testing my new strategy over the same 15 markets, and over the same 10-years of historical data.
The anticipation is killing me -- Tick - Tock - Tick - Tock. The computer is finally finished running the
programs and printing out the "Performance Results." Heh! -- what's going on here? Every single market
I've tested lost tons of money, and the draw-downs were even worse than when I used no protective stops at
all! That's impossible, is the math-chip in the computer busted, or what? My "Holy Grail" trading system
has just gone up in smoke. What went wrong?

With a lot more historical testing, using a series of wide-ranging initial stop-loss parameters, and various
trailing-stop-loss methods, the problem is revealed. It appears that when trading for the longer-term the
markets tend to move up and down quite dramatically -- To such an extent that both the initial stop-loss,
and the trailing-stop-loss, were being hit regularly, thus causing the trades to be exited "prematurely."
When the market was in a neutral "trading range," the initial stop-loss caused many consecutive small
losses which accumulated into very large draw-downs, and once the market began moving, the trailing-
stop-loss caused the trades to be exited way to soon, thus missing out on the ultimate long term move.

So, instead of improving a profitable system with sensible money management techniques, I have created a
far worse situation than I originally had when I used no stop loss at all. This is just the opposite of what I
was trying to do.

Further research and historical testing (which is all included within this book) shows that when you are
developing a long-term trading system which attempts to take advantage of long-term trend movements
(when they occur) that only 4% of all the trades you make turn into the big winners. And, without these
occasional big winners, the system stinks. The other 96% of all trades turn out to be a random combination
of marginal winners & losers.

So, what have I learned by doing this exercise? 1. When I trade for the long-term trend, I have to use either
no stops, or very wide stops to protect me against only seriously catastrophic events.

2. If I want to trade the long term trend, I am going to have to learn to live with huge periodic draw-downs.
Because, as it turns out, large draw-downs are a necessary by-product of any long-term trading system.

3. I've got to find a way of eliminating trades within sideways trading ranges where the moving average
cross-over method is ineffective, and small losses accumulate quickly and exacerbate the draw-downs.

Ultimately, if I can't live with the kind of stomach churning draw-downs inherent with a long-term trading
system, then I have to find another trading system that I can live with.

And that, in a nut-shell, is the purpose of this book. The reader is taught to use a logical and scientific
approach of evaluating every aspect of the trading process. Absolutely nothing is taken for granted, even
the most obvious assumptions are questioned. Every aspect of your trading system is tested and re-tested
using various trading ideas and alternative ideas.

You quickly learn that system testing is not for the purpose of finding that perfect parameter set, nor should
testing be used to isolate the one system that makes the most money -- But instead -- Testing is a learning
tool which facilitates the trader's personal growth and understanding of how the markets really work. As a
result, the trader is not only better able to design profitable trading systems, but also design a trading
system that the trader can live with.

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This book is worth many times its modest cost. If you are a technical trader, it will change the way you
think about your craft, and it will make you a better trader. Don't miss this one. Read it, and read it often.

Feedback on the Real Success Course Gerry Quigley

I finished the Real Success videos a few days ago and am very impressed. The simplicity and success of the
technique is truly an eye-opening experience. Your discussion and use of the clusters of market orders
around support, resistance and trend lines is masterful. I highly recommend this course to anyone who
wants to get off to a successful start in daytrading the S&P.

Planting and Harvesting Swiss Francs J.S. from California

When I first began working with seasonal patterns and tendencies, I would look at my seasonal chartbook,
and I could see and understand the planting and harvesting cycle for wheat, corn and soybeans. I could see
and understand the demand seasonal for heating oil.

I was surprised to see a reliable seasonal pattern for the Swiss Franc. In the chartbook I had, it was
documented back to 1915. I don't know why there is a seasonal pattern in the Swiss Franc, but it's there.

There is also a seasonal pattern in the Yen, D-Mark and British Pound. The ideal seasonal top for the Swiss
Franc is in the December/January period with declining prices into the ideal seasonal bottom in June.
Check your chartbook. Prices topped around November/December 1997 and have been in a decline since
then. They may have made a bottom in April, as of this writing. We should expect to see rising prices from
June until December/January. Please remember, seasonal patterns do not always work. Bottoms and tops
may come early or come late.

Observations on CTCN Articles - C.J. Casebeer

The S&P Trading Tips by Dr. Paul E. Diehl -- He and a few others and I advocate mental stops. He notes
"Mark it down. They will gun your stops if you give them a chance." So true! And I wonder why the
majority of writers and so-called experts always make a big issue of putting in protective stops? Since we
should be with the trend, they are not usually necessary.

Now for Raymond Kohn-Part 1 -- Good info. Especially the "Tax Increase Politics" paragraph. Also,
"Schedule C shows no income. Thus, with no income to report, there is no social security taxes due on this
type of self-employment -- that's a very big bonus."

Also the paragraph "Short-term securities traders trying to catch daily market swings qualify for a rare tax
break." I assume this applies to futures too.

And there to cap it off, he states "this is such a significant change in the tax code that it could turn us all
into long-term investors!" The last paragraph tells us that long-term (position trading) is the way to go as
far as taxes are concerned.

Now for J.L. Wimauma -- "Tis Easier for a Camel. . ." Dr. Water! Also Dr. Batman is the premier authority
on water drinking. I have been very conscience of my water drinking for many years. Last summer I kept a
tally of my glasses of water drunk. Even in hot summer I had a hard time making eight glasses, except
when working outside, then I drank 12 glasses or more. All of us need to make an effort to drink more
water. Also a doctor told me years ago that the urine should run clear at least once a day. So J.L. is on the
ball.

And last on J.L., hurray for the "intra-day break-even stops" and do it mentally.

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Because of Ray Barros's Book Review on DiNapoli Levels, I just might read it. A 9.3 out of 10 is a good
rating and reason to do some learning.

When you publish "SAT" articles, I take notice. We need more of these kind of articles. So we can learn to
trade better.

Now, I have not read Greg Donio's "Options & Spreads, the Jewel Box Guarded by the Cobra." Not really
interested in these ways to trade let alone the long-winded writing. I will read it at a later time and see what
changes he has made to futures trading. Really, if you have a method to trade, keep it brief and to the point.
Why ramble about everything that comes to mind. Keep to the subject and as easy and simple as possible.

Andrew Abraham is with most of us -- trade the trend when there is one!

Dave, keep up the good work and hope you can beat the powers that be.

Ned Gandevani, MB What? - V. Bruce Evans

Ned states the S&P 500 Futures move on the average of 16 to 25 points per day. I have a spread sheet on
the futures going back to June '96. Of the 475 days, there were only 86 days with a daily range greater than
16 points. The average over the last 475 days is 11.71, way below 16 to 25.

OPTIONS & SPREADS: Today's Lessons from the 1860s Gold Room - Greg Donio

Early in World War II, the head of a Hollywood film studio feared the possibility of Japanese bombers
attacking California. Deciding that he wanted his studio camouflaged, he called in an expert and offered-to
pay any price. The expert replied, "It can't be done. You see, every camouflaged site needs a decoy site that
the enemy will mistake for his target. By the way, in case you didn't know, your studio is the decoy site for
the Boeing aircraft plant."

I carried that story around in my head for years before realizing what it had to do with me. It involved, to
state it simply, transferring the risk to someone else. As an option spread strategist, I do it all the time. It
might not sound very nice that aircraft manufacturer feared the whipping post and so exposed the back of
that studio head. Nevertheless, with stocks and futures and options, that item called the risk factor has filled
too many financial coffins. If you can pass the ball of risk to some other player and still collect a percentage
of the gate, you do it. "Spreads" in the game-plan score points. Crucial ones.

Of course, you also need good mental furniture upstairs, and that you are too smart to buy a gold brick
might not be enough. In an old comedy film, the Bowery Boys buy a "valuable mansion sight unseen at a
fabulous bargain price." They arrive in their jalopy to behold a decrepit wreck that vaguely resembles a
mansion. One of the gang says, "But we've only seen the outside. Don't judge a book by its cover."

"Yeah," retorts another, "but you don't have to open the box to know you bought a hunk of Limburger
cheese." They should have smelled the stench earlier, when a fast talker not listed in the phone book
offered a deal too good to be true. Let us see if you can "pick up the scent" with the following quick quiz on
investments:

1. At an archaeological excavation, a coin is found in fair condition and bearing the date 240 B.C. Do you
think it is genuine and a good "collectibles" buy?

2. For Sale: Civil War memorabilia. Confederate war medals, gray uniform remnants, and a CSA battle
saber. Would you purchase?

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Answers: You probably spotted the ruse behind the ancient coin in question #1. The coin-makers back then
did not know at the time that they were living 240 years before Christ. #2 would even have fooled many
Civil War buffs due to a fact not widely known: Confederacy did not award medals.

3. For Sale: From the 1800s, election campaign buttons & posters urging citizens to vote for the "log cabin"
presidential candidate. Whose name should appear on those buttons and posters?

4. An Old West stock promoter with derby, bow-tie and satchel steps out of a time machine and offers to
sell you certified shares in the Pony Express. The shares are genuine and you have admired that glorious
enterprise since you were a kid watching cowboy movies. Dividends if declared will be paid with 20-dollar
gold pieces that will travel through time. Would you invest?

Answers: William Henry Harrison in the year 1840. It should be of interest to business people that was the
first "smart advertising" presidential election campaign. W.H. Harrison's opponents jeered at his humble
birth and said, "The White House is too good for him. All he deserves are a log cabin and a jug of hard
cider." His supporters and campaign managers realized that many voters slept there and drank that.

So the cabin and the jug appeared prominently on posters and buttons. The losing side had the cold comfort
of knowing it provided the winning advertising angle. Since Harrison died after only a month in office, he
inevitably became one of the less-remembered presidents. Yet the notion of a "log cabin president" lingered
long enough in people's memories to attach itself to the better-known Abe Lincoln. But if you see a wooden
structure and the words "Vote for Lincoln," the poster is fake.

Far weaker and short-lived than its legend, the real Pony Express lasted less than two years (1860-61)land
was a financial failure. It was bad news for share-holders long before it became a feed bag for boots &
saddle screen-writers. Everybody remembers the heroic gallop across the Rockies, the six-shooter
protecting the mail, but does anybody remember the scorched investors?

5. For Sale at Hollywood Auction: Classic movie props including the "rosebud" sled from Orson Welles'
Citizen Kane. The problem is, everyone saw that sled incinerated at the conclusion of the film. Did it rise
phoenix-like from the ashes or is this a hoax?

6. You have in your possession what appears to be an old Action Comics comic book. In it, Superman
cannot fly but can only jump large distances. It's fake, sure. Everybody knows he flew.

Answers: "The sled" that appeared in the masterpiece Citizen Kane was actually 2-½ sleds. One descended
the snowy Colorado hillside, the other was burned, and the half a one was burned during the camera close-
up of the word "rosebud." The first still exists and brought huge bids.

When first presented to the world by creators Segal & Shuster, Superman could not fly but was an
awesome jumper. Hence the phrase "able to leap tall buildings in a single bound." Dated 1938, those issues
#1 are worth an astronomical sum. So if you open an old comic book and see a caped jumping jack.

Although mostly about collectibles, the preceding quiz has three messages or morals-of-the-story for
traders in options, futures and stocks. One: Be alert and aware, and you will know sooner than some which
financial boxcar carries the De La Renta perfume and which the fertilizer. Two: God is in the details.
Three: What "everybody knows" is often not true and is definitely insufficient for traders and investors.

Regarding what "everybody knows" and what many investors believe about all sorts of things, it is essential
that the successful trader or investor be a skeptic. That is, he must explore the jungle but he must not be the
dupe who reads the sunny advertising and then pets a venomous snake. A businessman checked into a hotel
down south and then approached a black hotel employee. He said "I'm a practicing Baptist and tomorrow is
Sunday. Do you know a church around here I can go to?"

"Well, a couple of blocks east of here is the white Baptist Church and a couple of blocks west is the African
Baptist Church that I attend. The only difference is in some of the Scriptural interpretation."

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"What kind of difference?" "Well, you have to understand that being black makes a fellow skeptical. You
don't always accept the official explanation. At the white Baptist Church, they state that the pharaoh's
daughter found the infant Moses in the bulrushes. At the African Baptist Church we state, "That's what she
says!"

In a movie on TV -- a 1930a romantic comedy -- the following dialogue occurs: He: "The doorman of this
hotel was a general in the czarist army." She: "Didn't the czarist army have any privates?"

She sounds like a gal who became skeptical from hearing the same fibs too many times. When a self-
declared "Hollywood talent scout" opened his wallet to pay her restaurant bill, she also sounds like a gal
who would have spotted his meat-cutter's union card.

Skepticism and an eye for detail. This came to mind a couple of days after the death of Frank Sinatra, as I
watched a TV ad of a futures & options broker. Years ago in Atlantic City, signs and cards in store
windows announced a live performance by Frank Sinatra Junior. The "Frank Sinatra" was in big block
letters but you needed a magnifying glass to see the "Junior." In the broker's TV spot, "200 to 300 Percent
Profit Potential!" took up most of the screen but "risk is involved," was junior-size. Advertising people
describe that as playing up the good and playing down the minus. Cold comfort to those whose trades
perform off-key.

This deserves emphasis because when you quest for a diamond mine, there are so many ways that the
money in your checkbook can become somebody else's diamond mine. Be especially skeptical and attentive
to detail when anybody tells you that things have "changed so much" or "improved so much" since the old
days. Among the many old books in the New York University library is Ten Years in Wall Street by
William Worthington Fowler, published in 1873. No computers or fax machines, of course, but otherwise
the place resounded with familiar rings.

Back then, a huckster could sell you fake stock certificates in a company that did not exist. Today that is far
more difficult if not non-existent, but then as now there were also plenty of perfectly legal ways to fleece
investors on a woolly mammoth scale. During the Civil War Era, railroads were becoming a mature
industry, but mining stock and oil stocks boomed (and busted).

Textile merchants from Upper Broadway, lawyers from Albany, church pastors from the river counties, all
types of people with disposable cash swarmed to Wall Street and jostled each other in line to buy newly-
issued stock -- men lured by headlines that told about gold strikes out west but not about sly-fox arithmetic
on the investment end. Fowler called many of these corporations "bubble companies," i.e., destined to grow
big on hope and anticipation and then burst. Black Mountain Gold, Silver and Copper Company sold
$1,000,000 in stock and then spent $1,000 on mining land. Grand Junction Gold Mining Company sold
shares for $1,800,000 and bought $40,000 worth of property.

No ore strikes, but most of the difference went into the pockets of mining executives and stock promoters
whose "mother lode" was the investors' wallet. With headlines only part of the inducement, the advertising
and hard-sell proved muscular. The scenario repeated with oil-drilling shares. Fowler said:

"A volume might be written to describe how the English language was twisted and turned, to paint the
prospect of fortunes and avoid the legal liabilities incident to false representations; how the bubbles shone
as if colored with every brilliant dye that could be extracted out of Petroleum; what engines were set at
work to bring in the public; what stool-pigeons were called from the solid and respectable circles, from the
halls of legislation, from the learned professions, and from the church, to entice dupes, and feather the nests
of needy adventurers; how the owners of lands that smelt of oil, the mineralogists, the geologists, and
chemists were in clover, and then to tell how one by one the phantom-flowing wells dried up, the
magnificent oil territory became abandoned to its original desolation, watched over only by skeleton
derricks, while the thousands of victims came dropping in, file after file, to draw their dividends, as the
bubbles were bursting."

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That is, to ask for dividends that did not exist as expensive share certificates turned into scrap paper.
Today's history books give an unbalanced picture, telling of oil and gold bonanzas but not of stocks
cramming a thousand tinder boxes. Do not tell me that this is no longer the 1860s, that this no longer
happens. Any second now my phone may ring and another broker-dealer will try to sell me an initial public
offering. This stock is expected to climb extraordinarily. Large numbers of people want to buy in but are
being turned away disappointed. However, a limited number of shares have been set aside for select
customers such as yourself." In other words, his desk is piled high with paper hard to get rid of. The
skeleton derricks reappear like hovering ghosts.

Nor is this the only thing that did not end with the gaslight. Not all blameless innocents, many speculators
make the same mistakes today that they made when Jenny Lind warbled. Back then, Uncle Sam bought and
coined so much gold that a strong federal government was believed to mean an ample supply but, of
course, shortage or fear of shortage was what boosted the price per ounce. Thus good news for the federal
government meant a fall in value of yellow metal and bad news a rise.

During the Civil War, telegraph lines hummed to and from many locations, including blue-coat command
tents in the field and the cavernous Gold Room near Wall Street. News of a Confederate victory lifted the
price of gold and a Union victory lowered it. Allegiances notwithstanding, long players cheered
Chancellorsville and booed Gettysburg, and short-sellers the reverse. A European-born broker on the floor
of the Gold Room offered William Worthington Fowler a standard deal: A contract for delivery of
$100,000 worth of the precious metal, three percent margins short or long.

Fowler wrote a check for $3,000 and said, "Go short at the market." It must have been a good week for
Beauregard's troops because the metal rose. The floor broker said, "Oh, Mishter, tish all right. You geep
your poseetion. But I musht have more marchin. Gif me dree tousand dollars more and I geep you short of
gold, den you mak monish." That broken English cantata was destined to be sung twice more and
responded to twice more, with a total loss to sweet William of $12,000: Futures trading's old "add cash"
bubble-burst.

It has been a long time since Grant and Lee locked glances through field telescopes. But has anything
changed? Traders still write check after check to put up "more marchin." Has anyone not heard the phrase
"throwing good money after bad?" Think of Henny Youngman in heaven as a doctor of finance. "Doc, it
hurts when I do that." "Well, then, don't do that!"

A far sadder story involved a friend of Fowler's whom he identified only as "L___." The price of gold fell
when General Sherman took Atlanta but afterward climbed repeatedly to Lee's delaying tactics against
Grant's Petersburg Campaign. L___ had enjoyed much success as a trader, with a hefty bank account and a
brownstone home in Manhattan. He wanted one more triumph before carrying his winnings away from
Wall Street. With gold at 200 he shorted $100,000 worth.

It climbed to 210 and he proceeded to do "averaging," a maneuver that served him well in the past as with
railroad stocks. Averager's logic said that gold had to decline 10 pts for him now to break even but if he
shorted another $100,000 worth at 210 it only had to fall 5-pts. He did so, and again at 220 and again at 230
and . . . Relentlessly he must have repeated to himself, "This averaging works but ya gotta stick with it to
the Gates of Hell!" The final tally was a $600,000 loss, wiping out trading capital, savings, brownstone, and
leaving a $30,000 debt on money borrowed.

L___ died six-weeks later in the attic of a decaying tenement, his sobbing wife by his bedside and only
moonlight illuminating the room. We need not search far for a financial autopsy report and a second
opinion. One of W.D. Gann's later Axioms: "Averaging a loss is the worst mistake an investor can make."
A statement by Christopher Morley: "If you have to keep reminding yourself of something, maybe it isn't
so." Dr. Henny Youngman's remedy: "Don't do that."

Another Ironclad Axiom of W.D. Gann and others: "Don't buck the trend." Adding more and more margin
money to a trade going the wrong way and averaging a loss whether with stocks or futures or options are
both bets that lilacs abound in a box that smells of Limburger. Both involve throwing good money after bad

956
when the Maxim is: "Cut losses short." A bet against the trend relies not only on a future U-turn but on a U-
turn within specific time and space frames. An alcoholic may lick it and a mugger may reform but probably
not in time to speak at the seminary graduation.

When two Greeks meet, they open a restaurant. When two sailors meet, they start a crap game. When two
speculators meet, they talk about the market. "How did you do?" "I broke even." If you believed all the
"former generals" off the immigrant boats, the mili-military corps in the old country must have been the
only army in the world with no privates. If you believe all IPO touts, no newly-issued stock will ever
nosedive. If you believe all traders, nobody ever did worse than "break even." That's what they say!

Dictionaries define "fish story" as "a lie or exaggerated tale." In a glaring omission, they do not define a
broker-dealer's pitch or a futures & options TV spot or a speculator's Chapter 11 "break even." Without
prevarication, I wish to tell of non-fatal snake-bite in the diamond region.

With horizontal calendar spreads, my standard strategy includes call options over a stock that is rising and
has a conservative price/earnings ratio or put options under a stock that is declining and has an inflated P/E
ratio. The options should be out of the money with a strike price four and a fraction or more from the price
of the underlying shares. In late April 1998, IBM with its conservative P/E fluctuated on the Big Board
between 109 and 111. Call options with a strike price of 115 seemed worthy of perusal.

Calls of that strike price with May expiration dates were skinny dollar-wise due to the lack of time value.
Junes and Julys had ample meat on the bone. My "credo" holds that the short end or near-in-time end of the
option "spread" should be worth at least two points and preferably more. Also that the short end should be
worth more than half the long end or far-in-time end, and preferably around two-thirds. At the time, IBM's
June 115 calls traded at about 3-½ and the July equivalents at about 4-½.

An IBM earnings report was due presently but was expected to fit analysts' expectations. I phoned the
broker and said, "I want to enter a spread order with IBM call options, the buy and the sell going in
together, each dependent on the other. I want to buy 10 IBM call options July 115 and sell 10 IBM calls
June 115, with debit of 1-point. These are both to open a position and both day orders."

The young man taking my order happened to be a broker-in-training who asked, "The Junes that you're
selling--are they covered or uncovered?"

"With a horizontal debit spread," I explained, "the short end of the spread is covered by the long end. So the
bought Julys cover the sold Junes."

That meant that if the 10 Junes were exercised and I had to come up with 1,000 shares of IBM to cover the
obligation, I could obtain them by exercising the 10 Julys I was to own. Broker exigencies require that this
"safeguard" exist on paper but the careful and capable spreader makes sure that it is never used. Those
"long end" or bought options are trader's treasure not to be exercised.

The "one-point debit" meant that the 10 Junes could be sold at any price and the 10 Julys bought at any
price but that the difference between an option bought and one sold could be no more than $100, or $1,000
on 10 bought and 10 sold. In other words, I expected what I bought to be worth $1,000 more than what I
sold, with what I sold plus one grand out of my own pocket paying for what I bought. The report came back
at the end of the day: Nothing done.

Early the next trading day, I entered an identical order except now with a 1-1/8point debit, i.e. $1,125. The
news came a couple of hours later. I sold 10 Junes at 3-3/8 ($3,375) and bought 10 Julys for 4-½ points
($4,500). The money from the sold Junes paid for most of the bought Julys except for $1,125 plus
brokerage commissions out of my own capital. My gold was in the gap or spread & profit-potential in the
hoped-for widening.

There are no sure things. Spreads are risk-reduction strategies but not risk-elimination. IBM's earning
report came in just one penny per share over analysts' expectations, which according to most theories

957
should not have caused the stock price to jump but did anyway. It leaped 5 & a fraction then kept climbing
in smaller increments. Rising above 115 it placed my short-end options in the money, first fractionally and
then a full point at 116, then more.

When it hit 116, I said to myself, "It's in forbidden territory and not just fractionally. I should pull out."
Deep in-the-money "short" or "obligation" options carry risk of "overnight exercise" between trading
sessions, so I was determined to do something before the end of the trading day. Another danger of a stock
pushing an option more than fractionally into the money is that it "squeezes" the spread, narrowing the gap
when the profits are in its widening. That shrinkage prompted me hesitantly to end the sortie.

The shares crossed 117 and the gap narrowed a bit. Why did I not pull out or close the position when my
better judgment told me to do so at 116? The reason that afflicts every flesh & blood trader: The hope of a
turn-around, the bet on a U-turn that has not happened yet, a de facto wager against the trend. I could
envision it falling below 115 in a hour like a dollar lottery player envisions millions or a failing restaurant
owner anticipates crowds.

Had I said to the broker, "Buy back the Junes at the market to close the position, sell the Julys at the market
to close the position," the worst would have happened. "At the market" usually means the worst--buying
back at the ask price or the too high price of the bid/ask gap and selling at the bid price or too low price. So
I asked the broker for each option's bid, ask and "last traded at" prices. When the Junes last traded at less
than the ask price, I entered an order to buy back 10 at the last-traded-at figure. When the Julys last traded
for more than their bid price, I offered to sell 10 for that higher figure to close the position.

Buy low/sell high has special meaning for the option spreader closing a position. Being choosy at the outset
over how wide an opening spread is another crucial factor. On this 1-1/8 point spread I lost _ of a point plus
commissions. It could have been worse. A couple of years ago, I bought into a 1-½ point or $1,500 spread.
Subsequent figures went against me and I closed out "at the market" with a final 7/8 of a point. After
commissions this amounted to a loss of nearly half the investment.

Why markedly less damage this time? No more "at the market" has to be one big reason. Perhaps an even
bigger one is my insistence on a narrower gap at the start. To reiterate guidelines from my previous article:
A single-point debit is pure gold but hard to find. 1-1/8 is excellent and less rare. 1-¼ and 1-3/8 are fine
and okay respectively. Half avoid 1-½ and wholly avoid 1-5/8or more. Less width at the start means bigger
and more frequent gains, fewer and smaller losses, at the conclusion. Although this recent IBM venture
showed loss, I thank Providence that the beginning spread was not 1-½ or 2 points!

The above statements are made with the qualifier that I am not what you would call philosophical about
adversity. Futures broker and independent trader Stanley Yabroff said while lecturing to a New York
University finance class, "You learn from your mistakes, not your successes." The financial wipe-out rate
among futures speculators is variously estimated at between 80 and 90 percent. Could it be that Stan was
trying to sugar-coat the setbacks in a field that is 80 to 90 percent setbacks?

Everyone has heard the adage, "A fool and his money are soon parted." Did you ever hear the following
saying? "The fool became wise and wealthy because of the experience." You did not because I just made it
up and even I do not believe it. Yes, we can learn from our mistakes and profit from them. Yet many, many
a trader keeps writing checks to the broker and does as badly on the last one as on the first. "Den you mak
monish." Aim for more profits and fewer mistakes, especially repeated ones and ones you see others
commit. Remember the little-known proverb: Experience is what you get when you didn't get what you
wanted.

Nevertheless, experience can serve not only to instruct but to test a methodology. After closing out IBM, I
pondered American Express which I had been watching. In itself, blue chip status means little to me.
"Everybody knows" you cannot lose with blue chips just as "everybody knows" Abe Lincoln was the
original Log Cabin President. Yet American Express had a fairly conservative price/earnings ratio of 25 or
26 and what looked like a solid "floor of support" around 100 for shares hovering between 104 and 106
after their gradual climb recently.

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A horizontal calendar spread with call options having strike prices of 110 seemed a good idea, more so
since near the end of April the June 110 calls were meaty at around 3-½ and the Julys around 4-½. I like the
near-in-time option to be "at least 2 or 2 & a fraction and to be worth more than half the far-in-time one," as
mentioned among the rules of hammered-out practicality that served me in the saddle. That alone
eliminates huge numbers of options from consideration. I instructed the broker to sell 10 American Express
June 110 calls and buy 10 July 110s at a one-point debit. Nothing done. The next day I added 1/8 of a point
to the debit figure.

I bought 10 Julys for $4,625 (4-5/8 - ½ points) and sold 10 Junes at $3,500 (3-½ points) and paid $1,125
(1-1/8 points or the difference) plus commissions. Frankly, this bit of sailing has proven less than sunny
and breezy. At the time of this writing -- a trading day and a half past the five-week mark -- the July 110s
trade at 2 and the Junes at 5/8(June 2, 1998). Not only would the gain after commissions be runty if I closed
the position now but the timing has been lethargic. Experience with options spreads has accustomed me to
a three to four-week window of time. I would take profit something like a day after the three-week mark or
a couple of days sooner than four-weeks.

American Express has been a long trek to small nuggets, and it still might not pay completely for the
prospector's donkey. Yet everything is relative, especially amid the skeletons of men and longhorns.
Whoever bought those June options I sold has lost more than 80% thus far. Whoever bought Julys at the
same price I did but without spreading is down nearly 60% and falling.

There could be a turn-around but options, like futures contracts, are "wasting assets," i.e. burdened with
expiration dates. Will John Dillinger reform in time to speak at the commencement?

Spread methodology's armor has been dented but proven effective by experience. Thanks to spreading, I
protected my financial metaphor aircraft plant by exposing a June movie studio and a July iron foundry to
most of the risk & loss bombing hazard. Fallibly, I kept hoping for an upward thrust of American Express
shares to push the short and long ends (near-in-time and far-in-time ends) of the spread farther apart. A
strong floor of support held for the stock price, but alas, likewise a ceiling of resistance. Yet in Contrast to
the Verdun-size losses routinely suffered by options traders as well as futures traders, the spread strategist
perennially has blessings to count.

Merriam-Webster's definition of "Perennial:" Persistent, Enduring. Related to "Perennate": To live over

from season to season. Synonym: Continual. Wouldn't it be nice if those terms described the activities of
many speculators? Great Axiom: Handle trading like a business, not like a gamble. Many traders cannot
because they are not around for longer than a "poker marathon" length of time. Try to imagine a Cartier or
a Duncan Phyfe attempting to run business in circumstances where the statement "I'm cleaned out!" comes
so quickly. If the words "perennial" and "continual" and "ongoing" were merit badges or guild medals, the
spread strategist would have a nice drawer full.

Why is writing repeated checks to a broker a bad way to become "on-going"? Business-wise, it bears an
uncomfortable resemblance to opening a shop of the same type and at the same location as the one that
went broke. It bears an even worse resemblance to the casino gambler who says, "Maybe switching to
another table will change my luck." On-going business success means getting plenty of mileage out of the
original stake, not repeatedly bleeding your bank account.

In my recent years of trading options through York Securities in Manhattan, the only "second check" I
wrote to them was to buy into the Alliance Money Market Fund. I have not added money to my trading
account, officially called the margin account. Now, however, I am about to write another check to open an
additional trading account at a different discount brokerage house -- "opening a second shop" as the Italians
say -- and entirely with money from options-related profits. The struggling actor who achieves success
always recalls the date on which he received The Phone Call. If I could recall the date I first read about
horizontal calendar spreads, it would be framed in red on my wall.

959
My article references to culture, fine arts, literature, have evoked different reactions from different
subscribers, mostly favorable. Yet I did not realize how much this was needed until I just read about the
growing popularity of "dead pools," that is, gambling pools in which people bet on the future deaths of
celebrities in the coming year or month. Many people collected on Frank Sinatra, some on Dana Andrews
and Dorothy Lamour. Princess Di and John Denver surprised everyone; practically no bets. This macabre
type of wagering is done by employees in many business offices and on the Internet. Are you ready for
worse news?

"But it was on Wall Street -- where betting is like breathing -- where the ghoul pool found a permanent
home," wrote Laura Pedersen-Pietersen in the New York Times Money & Business Section. She quoted
Tony DeMartino who worked on the American Exchange for 40-years as saying, "The death pools have
been around as long as the exchanges, because during market lulls traders sit around for hours looking at
one another in utter boredom. They do stuff like this to stay awake." (June 7, 1988)

How is that for an astounding confession? Has culture gone that far downhill since the days when Wall
Street moguls rode horse-drawn hansom cabs to the art museum and the opera house? All right, there have
always been con-men and sneak-thieves on the Exchanges and the Curb and the Gold Room. Yet plenty of
club men gave profound attention to King Tut's archaeological treasures when these were brought to New
York. During lulls on the exchange floor, talk could turn to Rodin's statuary or a performance by Caruso.

With today's technology, anyone can bring to the trading pits an earphone containing Debussy's piano or a
symphony orchestra and Shostakovich. A satchel can hold vivid, detailed color-reproductions of paintings
by Titian and Boucher to which cameras 75-years ago could never remotely do justice. Yet floor traders "sit
around for hours looking at one another in utter boredom" and "stay awake" by betting on stars' obituaries.
Talk about an idle mind being the devil's playground.

In the pockets of the "open outcry" hand-signalers? Not Homer's adventures on the wine dark sea, not the
make-the-milkmaids-blush humor of British Jacobean playwright Thomas Middleton, not archaeology
memoirs by Sir Arthur Evans or Lord Carnarvon, but a pad bearing the names of Rod Steiger, Jessica
Tandy, Abe Vigoda, also the crossed out names of Jimmy Stewart, Tiny Tim, and Brian Keith who helped
to hurry things along. A hero to the dead pool crowd. This vultures-passing-the-time speculation "found a
permanent home" on "Wall Street -- where betting is like breathing."

Please, dear financial reader, have better ways than this of handling your free time or your idle interludes. If
you want evidence on the importance of culture, look at those who lack it as they watch the embalming
tables as well as the dice tables. Even if your monetary ventures are not Astor or Vanderbilt size (and
hardly anybody's are), cast yourself in the role of the carriage-trade tycoon enjoying art works excavated
from Pompeii or Gounod's haunting marble halls music or Anton Chekhov's short-literature sojourns to
Russia's wooded marshes as the mists rise and disappear into twilight. You will feel little "utter boredom"
and even less yen to gamble with autopsy rooms.

A better item for your pocket than a "Mickey Rooney this year?" marker may be Richard Muther's book
The History of Painting. Muther wrote of Tiziano Vecellio (aka Titian): "The beautiful sunny October days,
when thick blue grapes gleam from the dark foliage; when the leaves shimmer in warm, brown tones, and
succulent fruit loads the trees -- such is Titian's season. It is no accident that he is so fond of placing a
basket of ripe apples in his pictures of the Madonna, or of giving his daughter a bowl of fruit. These
peaches, grapes, melons, and oranges in their gleaming, golden splendor meant for Titian what the lily did
for Botticelli, the master of the springtime."

The painting of the artist's 18 or 19-year-old daughter holding the autumnal bowl was described in detail by
Frank Preston Stearns in his book Four Great Venetians: "Lavinia bends slightly backward to support the
weight of the fruit; her hair is rolled back gracefully under a jewelled crescent, and her light mantle falls in
a loop from her shoulders relieving a bust like pink snow. The painting of her neck is of itself a most
interesting study. Slashed sleeves, a necklace of Roman pearls and a girdle of chased (set with gems) silver,
produce a princely richness of effect."

960
The term "culture" has multiple shades of meaning. Several months ago I wrote about H.L. Mencken's
statement that the ghosts of primitive peoples have short life-spans. Members of primitive tribes see spooks
from their father's time, sometimes their grandfather's, but none from farther back in time than that. As new
ghosts are added to the folklore, old ones are forgotten. Also, stone age and jungle peoples tend to lack
history books and portraits which feed memory and imagination.

I compared this to certain segments of our civilized society: Right-wing reactionaries who declare
themselves "traditionalists" and cherish their "golden yesteryear" but whose knowledge of the past is so
meager that it cuts Irving Berlin's career down to a spotty latter half. Well, the process continues this very
moment. More ghosts and yesterdays disappear. Whole decades vanish to Unremembered Land. Vaudeville
memories fade; enter I Love Lucy memories.

A former FBI agent and prosecutor, Frank Keating is now the Republican governor of Oklahoma. After
two boys ages 13 and 11 were charged in the shooting deaths of four students at a Jonesboro, Arkansas
school, Governor Keating wrote a piece for the Wall Street Journal April 10, 1998 in which he reminisced
about when he was 11 years old in the 1950s:

We know the popular culture both shapes and reflects its time and those who inhabit it. What was different
about the popular culture in 1955?

"The big movies of 1955 included Mr. Roberts, Marty and Oklahoma! All three celebrated certain worthy
values-courage, fidelity, love, devotion to duty. Two had villains, but they were made to pay for their
misconduct in the final reel. I don't recall any sex, nudity or graphic violence in those films, which still
delight cable TV audiences almost half a century later."

He went on to hatchet today's raunchy rock lyrics in contrast to 1955's Yellow Rose of Texas and
concluded, "As a former prosecutor, I would feel confident in indicting the popular culture as an accessory
to the Jonesboro murders."

Note the 1950s slant. Judge Robert Bork praised 1930s Tin Pan Alley songs and 1930s film censorship
under Will Hays. Apparently Governor Frank Keating's cultural memory is even more stunted than Bork's.
Right-wing reactionary "good old days" disintegrate in wholesale lots. '30s and '40s slip through the cracks.
Like the ghosts of shamans and witch doctors they do not lasts.

If Governor Keating had known classical Greek culture, he would have known that Sophocles' drama
Oedipus Rex has been performed for 2,400 years without causing men to murder their fathers or marry
their mothers. If he had known Italian culture, he would have known that Verdi's opera Aida, has not
caused any young lovers to be buried alive. If British culture, he would have known that Shakespeare's play
King Lear has not provoked young women to gouge out their fathers' eyes. If French culture, that the
voluptuous nudes in the Delacroix paintings -- conquered, chained, enslaved -- have not yet compelled
children to go around hanging chains on undressed women.

There is nothing wrong with Rodgers & Hammerstein. However, there is plenty wrong with so-called
"traditionalists" for whom "The corn is as high as an elephant's eye" marks the outermost boundary of the
then-known world. When a governor's horse-blinder pronouncements got into the Wall Street Journal and
traders do D.O.A. wagers "on Wall Street -- where betting is like breathing," can this be called
encouraging?

Trading can be a business instead of a gamble. There can be traditionalists worthy of the name. When you
make choices, regard these two as key choices. No longer do Yankees who are long gold root against
General Grant but other absurdities persist. People thirsting for excitement still turn speculation into a crap-
shoot because they cannot tolerate a good business with idle periods. Rachmaninoff or Pavarotti on an
earphone can help you avoid a skeleton oil derrick, and there's plenty to avoid. Happily, there is also real
"black gold."

961
 "S.A.T. Makes Lots of Money Trading & Why Others Don't or Can't Do It"
Reprint, "The Successful Anonymous Trader"

This is in response to the letters written concerning requests for personal instruction and education on day-
trading. I'm sorry to say I cannot fulfill these requests. I am very busy trading during the day and cannot be
interrupted while trading and spending time with my family in the evening. Plus I do not have the
temperament to be an educator. I'm also not a system vendor, guru or newsletter writer.

If it makes anyone feel better, I have tried to teach two good friends to do exactly what I do and they have
learned well. They can recognize all my trades every day. However, they still lose money. Why? They don't
take the signals. They watch 5 or 6 winners in a row go by, then take a loser and quit again; or they get in a
winner and as soon as they see a little profit, they get out; or sometimes will not use a stop and a small loss
turns out to be a big loss. Yet they have the same information available as I do. Why can I make $1,200
today and my friends lose $350 trading the same methodology? It's in their psychological makeup. They
need to work on it. They will eventually pick it up, if they stay with it long enough. I cannot get inside their
heads and that is frustrating for a teacher. You have to learn this by constant experience.

I can tell you what I did that helped me psychologically. I recommend buying the following books: Mark
Douglas - Disciplined Trader - especially chapters 15 & 16. I read this once a month; Joe Ross - Trading Is
A Business - excellent and thought provoking - questions everyone must answer before trading.

"Trading In the Zone" - Mark Douglas

Book Review by Ray Barros

In this book review I shall be looking at the essence of Mark's argument.

Summary: Mark argues that consistently successful trading is based on a specific mental mindset. Before
we can consider the nature of that mindset, we first have to consider Marks' approach to epistemology (the
nature of and means by which we acquire knowledge).

Mark Douglas belongs to the "out there as seen by the in here" school - i. e., he believes there is an
objective reality but that the perception of that reality is distorted by an individual's beliefs, values and
rules. In NLP terminology, "the map is not the territory;" however the closer the map resembles the
territory, the more successful an individual will be in dealing with life.

So what has all this to with trading? Reflect that market information is one aspect of reality. If we distort
our sensory perception then we are likely to perceive it inaccurately. Fear causes the greatest distortion.
Once fear invades our thinking processes, then either immobilization and/or myopia are the result. By
immobilization I mean the inability to respond appropriately to market info; by myopia I mean the inability
to "see" info that runs contrary to our current view of the market.

The key difference between the successful trader and the majority is that the former perceives market info
as a constant flow of opportunities whereas the latter sees it through veil of fear.

The successful trader achieves his more accurate perception because he has no fear of losing money on any
individual trade; this lack of fear is achieved because he holds two apparently contradictory beliefs:

The belief that the market is unpredictable and uncertain and the belief that the market is certain and
predictable.

The successful trader resolves the conflict because the first belief pertains to each individual trade whereas
the second pertains to trades over a large sample size. These beliefs are held not only on an intellectual
basis but also at every level.

962
As a result of these beliefs, other beliefs follow: • each trade is unique and independent of previous trades •
profits and losses are randomly distributed • profits are not dependent on knowing the outcome of an
individual trade. Indeed as Mark says: "The extent to which you think you know, assume you know, or in
any way have to know what is going to happen next, is the same degree to which you will fail as a trader." •
the successful trader takes FULL responsibility for the outcome of each and every trade.

The successful trader derives certain benefits from holding these beliefs.

Because he has no fear: 1. He sees the endless opportunity the market provides. 2. He operates in the
"NOW' moment rather than being held prisoner from a past trade or a future event yet to happen. 3. He
operates from balance rather the from recklessness or fear. 4. He can enters the "zone" at will.

"Zone trading" is defined trading when one is in harmony with the market.

EVALUATION - Bouquets: The book contains a wealth of information and distinctions important to
trading success.

Most important is idea that fear is the trader's greatest opponent; the way to trade without fear in not a
trading plan or discipline but to accept that loss, on any individual trade, is possible because the market can
and probably will do anything.

Apart from his central thesis, Mark covers a lot more ground: • The nature of beliefs and their formation •
How to acquire the successful trader's mindset etc, etc

BRICKBATS: This is a prepublication copy and as such is indeed of an editor and professional layout.
There are no aids to reading apart for some chapter headings.

In addition, although Mark's writing style has improved greatly since his first book, it can do with
improvement.

To glean what an author has to say, I first seek to understand the author's key words from his perspective,
then his key sentences and finally his key arguments,

Mark ouglas has a habit of introducing important ideas out of context and this makes reading his works
difficult. Having said that, I found "Trading in the Zone" is much, much easier to read than the "Disciplined
Trader."

MY VIEW: The material presented more than compensates for any deficiency in style or presentation. I
wholeheartedly recommend this book to all traders from novice to master as a worthwhile addition to his
library. Out of 10, I would give this a 9. The book costs US $200.00 and is available from Mark Douglas:
E-mail: MDoug927@aol.com - Voice: 312-938-1441 Fax: 312-938-1458

Member Requests

I am a new member and would like to know from fellow club members if there is a library one can borrow
Trading books on commodities etc. Please write via CTCN or e-mail Ash Sharma rsharrna@tcsn.net

Member Larry Morris is looking for feedback on Bruce Gould & his latest trading system. Please reply via
CTCN.

Like many others out there I'm new to this game. I've read enough to have an idea of what to do but I want
to paper trade and exchange information before playing the real thing. I'm therefore, opening a forum for
any beginner that wants to paper trade with me. I will have a wwwboard up and running to host the
discussions. Please e-mail me and I will discuss the details with you. Massimo - mpaolini@home.com

963
Issue 45.

Foreign Exchange Trading - Adam Hartley

With the growth of Internet sites offering interbank foreign exchange trading for small deal sizes, this
market is starting to be accessible to private individuals with relatively small account sizes. This article is
designed to inform beginners on some of the practical details of what is involved in trading the foreign
exchange interbank market as opposed to the IMM currency futures market. Readers may wish to visit the
web site http://www.snapdragon.co.uk/ which contains this article and other trading articles and links to
other sites, etc.

Some Internet sites that offer interbank trading over the Internet are:

Currency Management Corporation: http://www.forex-cmc.co.uk/

EForex: http://www.eforex.com/
Money Garden: http://www.forexmg.com/

What is a Foreign Exchange Quote?

Take a typical quote for the dollar/mark rate: USD/DEM 1.7263/68. What this indicates is the number of
German marks that there are to one US dollar. Note that the rate name (USD/DEM) is made up of two
parts, the primary currency (USD) and the secondary currency (DEM). The order that these are given in is
important: DEM/USD is not that same as USD/DEM, in fact one is the reciprocal of the other.

The important thing to remember is that if the dollar strengthens then the rate will go up. In other words, if
the primary currency strengthens then the rate increases so that more marks are required per dollar as the
dollar is stronger. This means that if you believe that the rate will increase you want to buy dollars or to sell
marks. Similarly, if you believe that the rate will go down then you want to sell dollars or to buy marks
(more on this later).

The Bid/Ask Spread

Note that the quote above has two parts to it: 1.7263 and 1.7268 (typically shortened to 1.7263/68). What
this means is that the bank offering the quote will buy dollars/sell marks from you at 1.7263 and sell
dollars/buy marks at 1.7268. This means that you will be selling at the lower price and buying at the higher
price. It is important that you get this correct -- as in a typical deal you do not necessarily have to bother
saying whether you are buying or selling dollars you only indicate the price you want to deal at.

For example if you are quoted 1.7263/68 and you want to buy dollars/sell marks -- you would say "at 68"
or "68 done" whereas if you wanted to sell dollars/buy marks -- then you would say "at 63" or "63 done"
etc.

Cross Rates

Most currencies are quoted with the dollar as the primary rate, with a few notable exceptions being:
GBP/USD, AUD/USD. There are also markets quoted for the major "cross rates," i.e., markets that do not
involve the dollars at all. For example: GBP/DEM, DEM/JYP, DEM/CHF. Note in each case the first
named currency is the primary rate so that the DEM/JPY rate goes up if the German mark strengthens
against the Japanese yen.

Trading

An interbank trade consists of the following:

Whether you are buying or selling
The rate at which it was done
The date for the deal

964
The amount for the deal

For example you might be buying dollars at 1.7268 for settlement in two business days time (a spot trade)
for an amount of 1-million dollars. What this means is that in 2-days time you will take delivery of 1-
million dollars, paying 1,726,800 marks in exchange.

Now if you are merely speculating on the direction of the rate and do not actually want to receive 1-million
dollars, then you will need to offset this transaction with an opposite one. For example, later in the day the
rate might move to 1.7318/23 and you sell 1-million dollars at 1.7318 again for delivery in two business
days times. This trade means that you will be delivering 1-million dollars, receiving 1,731,800 marks in
exchange. What you should notice is that the two dollar amounts cancel out, so that you are no longer
required to deliver or receive any dollars, your account is merely credited with the difference in the number
of marks that was to be exchanged.

Transaction 1 - USD +1,000,000 - DEM -1,726,800

Transaction 2 - USD -1,000,000 - DEM +1,731,800
Result - USD 0 - DEM - +5,000

As you can see the net result is a profit of 5,000 marks. When the amount specified for the trade is given in
the denomination of the primary currency, then the profit is given in the secondary currency and the
amount equals the difference between the buying and selling price multiplied by the size of the transaction:
Primary Currency Size: Profit=Size * (Rate sold at - Rate bought at)

Alternatively, one could have traded in amounts that were denominated in the secondary currency, marks in
this instance. For example, if one bought dollars/sold marks at 1.7268 for an amount of 1.5 million marks,
then in order to offset the trade one would need to sell dollars/buy marks at 1.7318 again for 1.5 million
marks.

Transaction 1 - USD+868,659 - DEM-1,500,000

Transaction 2 - USD -866,151 - DEM+1,500,000
Result - USD + 2,508 - DEM 0

As you can see, if the size is specified in the secondary currency then the profit is given in the primary
currency.

Secondary Currency Size: Profit=Size* (1/ (Rate bought at) - 1/( Rate sold at))

Note that in either case for margined foreign exchange trading case, you do not have to have the full 1
million dollars in your account, but only a small percentage of this amount (e.g., 5%) to be used as margin
on the deal.

Forward Rates

While most quotes are given for the spot market with settlement in two business days time -- one can agree
on a settlement day further in the future.

There is a simple relationship between the spot market and the forward rate which depends on the
differences in the interest rates between the primary and the secondary currencies for the specified times.

Forward Rate=Spot Rate * (1 + Isecd) / (1 + Iprim) where Iprim=the interest earned over the period in the
primary currency

Isecd=the interest earned over the period in the secondary currency.

965
In practice, you merely ask the dealer to roll the deal forward to a given date and to give you the new price
as the above calculations are quite standard. Note that there is a bigger Bid/Ask spread for forward
contracts as there is less liquidity.

Reminiscences of Future History - Rick Ratchford

When dealing with the subject of cycles, it would be neglectful on the part of the presenter to leave out a
key ingredient of its usefulness, that being history of market action repeats itself.

Advocates of cycle analysis, those who consider it based on market geometry, will quickly point out that
future cycles can be predicted by considering past cycles.

On the other hand, critics of cycle analysis are likely to take a stand for randomness of the markets, saying
that each new day brings completely new and different situations that is not a repeat of the past.

Curious though, is that many of these critics, when asked about recommended books to read, will quickly
draw your attention to the book by Edwin Lefevre, titled "Reminiscences of a Stock Operator," now an
investment classic.

Written in the early 1900's, this book is believed to be a reflection on the trading life of Jesse Livermore,
considered one of the finest traders of this century. The words found on page 10 caught my eye
immediately, and I couldn't help the grin that immediately surfaced upon my face.

"It was not long before I was anticipating movements in prices. My only guide, as I say, was their past
performances."

W. D. Gann, recognized by many as a master of market analysis, also believed that historical information
played a major part in anticipating future events. He would research price data going back hundreds of
years, noting how market action would repeat itself at regular intervals into the future, which was still his
past.

Today, there are still some strong students of Gann, who also have been able to overlay charts of past
market action with current events and find uncanny matches in their complete moves. Based on these
findings, it has been relatively simple to anticipate what direction a market is likely to take from there into
the future.

Here is another interesting quote found in "Reminiscences of a Stock Operator" . . . "I noticed those
advances as well as declines, stock prices were apt to show certain HABITS, so to speak. There was no end
to PARALLEL cases and these made PRECEDENTS to guide me."

"Habits, Parallel cases, precedents," are words to refer to repetition of past events, cases that are not unique
but that has occurred before, and can be used in future instances. All these words certainly speak volumes
on the fact that the past is very important in anticipating the future, especially when dealing with market
action.

The term cycles, clearly fall under the same category as "going full circle." Repetition is what cycles are all
about. Critics of cycle analysis fail to understand that those patterns they look for to trade from are
recognizable only because they are not new. Those patterns have appeared time and time again (cycle).

Head and shoulders, ascending/descending triangles, 1-2-3 patterns, bullish/bearish flags, and so-forth. If it
were not for past price patterns (actions), these cycle critics would have no reference (precedents) to trade
from.

Those who analyze cycles correctly understand that history is the basis of the future. The future is history.
It has already happened (pattern wise), although the reasons for the patterns, the people and events for

966
causing the moves will be different. It matters not to a trader if 100-years ago the market made a 10-week
bull run up due to floods, 100-years ago prior to that it made a major run up for 10-weeks due to drought,
and today 100-years later, it makes a bull run up due to nuclear waste. The reasons themselves are not what
is necessarily repeatable, as the individuals and environment will have all changed. But that the movement
of the market itself will continue to repeat, using whatever current affair is necessary for the future to be
history.

Feedback and Technical Support on Omega SuperCharts - Luc Jauron

I use Omega SuperCharts Ver.4. Recently I contacted their technical support department many times for
different reasons. Here is my conclusion so far. When I called I waited about 30-seconds before I could talk
to a technician. For e-mails, the average time for a response has been less than a day -- something like 5-6
working hours.

The solution hasn't always been found on the first communication and I think that we have to expect it. The
interaction of a software with Windows is not simple. What I expect from technical support is to be
responsive to our problems or even sometimes to our lack of understanding the software. I always got this
from Omega Research technical support team. But I would not say this of all the divisions of Omega
Research. The technicians have always been polite and they really try to help.

I know the technical support of Omega Research has been the object of many comments in the past. I think
it was an element to consider in the past for those who were looking to buy SuperCharts or MetaStock. To
me it is not an element to consider anymore.

Screen Capture Utility for Technical Support

I found that a screen capture utility (like Snag-it) can be very useful to communicate a problem to a
technical support team. These utilities capture a complete screen or part of it as an object. This object can
be embedded in an application document that can use OLE (object linking and embedding). For example
you can write your message with embedded capture windows in Word, WordPerfect or even Wordpad and
send this message as an attached document with your e-mail. You cannot embed directly in your e-mail (I
am sure Outlook 98 or Eudora Pro 5 can do it now). You have to attach the capture object in your e-mail or
attach a word processor document. To me the last option is better, because your question and the capture
windows that details the error message can be side to side.

A capture utility costs about $30 to $40. Most of them are shareware. You can make a search for <<screen
capture>> at this web site and many others: http://tucows.dsuper.net, http://www.pc.world, or
http://www.hotfiles.com.

I think that an e-mail with embedded capture windows can provide a very systematic way of presenting
what we have done and the error message that resulted from it.

Technifilter Plus

You want to test and develop your trading ideas. You better look at the new window version of Technifilter
Plus. You can download a free and fully functional copy for evaluation at http://rtrsoftware.com

This version comes with a set of data, so you can test and see if the software answers your needs. This free
version will not work with other data than the set provided. The cost for the normal version is $425.

Daytrading the S&P 500 with End of Day Data,

Suggestions Needed - W. B. DeNeen

967
I'm a new subscriber (07/98) and to start, would like to say how helpful and informative CTCN has been to
me already.

I've been daytrading the S&P 500 futures for almost a year now. Built a system that uses a series of MA's
(3 close MA's over I open MA) with 4 confirming screens: Stochastics, MACD, Detrend with Momentum
and a Volume Weighted RSI.

In the beginning, with limited knowledge, a system that does its job and possibly a bit of blind luck, I did
quite well. I know that I still don't know a lot, so I read and study every evening.

In April of this year things began to change - slowly at first. My stops started to get hit more often --didn't
have a chance at times to trail down to break-even point. Trading ranges became narrower and more
volatile. My indicators were still doing their job, but I evidently was not.

A string of losses ensued, small at first. I widened my stops -- not smart. Now a series of big losses. My
account was now 2/3 less than when I started trading.

I stopped trading for two months. Retested my system, adjusted MA's to filter out market "noise," went
over previous trades and notes of each market day to see where and if I'd screwed up. Found some
violations of my trading rules -especially stops.

Began trading again in July. Results have been mediocre to poor. My system still gives me good
indications, but I believe what's happening now is that I'm losing my decisiveness and confidence in taking
or not taking a trade.

I would like to ask some questions and hope that the readers will offer some suggestions.

1. Can one daytrade the S&P 500 profitably with end-of-day OHLC data?

2. My S/R calculations are always within 1 to 2 big ticks (I 00-200), yet I've been failing to time my entry
correctly. When I've entered a trade, my tight stops get hit, I'm knocked out, only to see my original
calculations come to pass later in the trading day. After my previous bad experience with stops, I'm hesitant
to do so again. I've been unable to come up with an answer.

3. One side of the trading camp says to trade the trend for the day (enter on open -- exit on close). The other
says to trade for small, but steady profits. Yes, my mouth waters when I see a day's trading range of 15 to
20+ big points, but I prefer to go for small and steady. Seems lately though (July) the only way I can profit
is to trade Open to Close. Not comfortable with that at this point -- what to do?

4. I've been told by some that I should buy all the "bells and whistles" (real time tick-by-tick data feed,
TradeStation plus a "when to buy/sell" program, etc.) that would do the analysis for me and also the
decision process.

Have a hard time with that. First, I enjoy the analysis and decision making process. Second, I'm thinking,
what did the past and current good traders do before the electronic age? I have no problem using what's
available today to help me speed up the process, but can't one be a good trader without the "bells and
whistles?"

That's it. Very basic stuff to some I'm sure, but to me, important basic stuff. Thank you all for your time.
Once again, would really appreciate some feedback from the membership via the newsletter or e-mail me at
sprookie@aol.com

Electronic Order Entry - LEO-WEB - Keith Johnson

968
I read with particular interest the articles in CTCN on electronic order entry via the Internet in the Jan/Feb
issue, and would be pleased to contribute to the discussion from my unique position with regards to
employment and background.

As the European Sales Manager of Linnco Europe limited, I have watched with fascination as both interest
in and sophistication of electronic order entry has grown.

Linnco Europe tends to specialize in London, Europe and the Middle East, and in the great majority of
these markets English is not the first language. We find in particular many eastern European clients are a
lot more comfortable using electronic order entry as the great majority are more comfortable using written
rather than spoken English on the markets. In fact, many banks and larger institutions like the added facility
of an audit trail which they gain from trading on the Internet. To-date some 400,000 orders have been
entered using our electronic order program, Leo.Web.

I have been in the markets as a broker for some 20-years, and it is fascinating to watch the evolution of
what is perhaps the most substantial change since the introduction screens to replace ticker tape. While
many clients are still more comfortable using the phone, we are seeing a gradual change. This usually
commences with clients opening a number two account and developing confidence before they become
totally electronic.

I was somewhat surprised that none of your contributors commented on what is the undeniable advantage
of electronic order "independence and distance from noise."

I have studied over the years the profile of those traders who consistently make money and found that a
number of characteristics are common via: ® a systematic mechanical approach ® money management ®
and independence and indifference to the market noise

It is this last characteristic which defeats many traders. Often they have the system and the money
management but when they come to place the orders they are tempted to change their rules. Sometimes
they sense by the tone of the order taker that their order looks naive, other times the broker will say outright
"did you know that . . . " In the end the process of placing orders brings them in touch with the market noise
and destroys their system. The great benefit of electronic order entry is the ability to blindly follow a
system without interference because in the end it is only those traders who make the money.

On the technical side, it is encouraging that every few months the electronic order entry program becomes
more reliable and flexible in order type it will accept. If anyone has any doubt that electronic order entry is
the way of the future they should look how LIFFE lost market share to the electronic DTB exchange.

I am interested in seeing the system improve and would be pleased to hear any suggestions regarding
improvement, or to assist traders in setting up a test program. I can be contacted on
kjohnson@linncoeurope.com.

A sample program can be downloaded from web site http://www.linncoeurope.com

In the case of a test program, the order actually goes to the floor and an order number is given. This allows
potential traders to practice without the orders being executed.

"The Millionaire Next Door" - A Book Review by: Raymond F. Kohn

I just finished reading a most fascinating book, titled: "The Millionaire Next Door" by Thomas J. Stanley,
Ph.D. and William D. Danko, Ph.D. 1996, $22.00, 258 pages. The authors have been studying the wealthy
in this country for over 20- years, and it's this research that is the basis for their book. The authors are
marketing research specialists who advise commercial businesses on the best ways to market their products
or services to the rich of this country.

969
The authors have taken their two decades of research, numerous interviews, combined with their personal
insights, and wrote a book about what makes the rich tick, and how they got rich in the first place. The idea
is, if we can learn how the rich got rich in the first place, we could all learn how to become wealthy too.
One of the true benefits of this book is that it finally puts to rest the many myths, and misguided
assumptions, about whom the rich really are and how they got that way. It is a real eye-opener to say the
least.

Despite what you have heard, or read about in the press, or even seen on television shows like: "The
Lifestyles of the Rich and Famous," the vast majority of "Rich Americans" do not live high profile lives of
conspicuous consumption. In fact, just the opposite is true.

The book opens with a hard hitting "Introduction" which lays the groundwork for the eight chapters that
follow. The introduction states: "Many people who live in expensive homes and drive luxury cars do not
actually have much wealth . . . Many people who have a great deal of wealth do not even live in upscale
neighborhoods." The authors go on to say: "we have discovered who the wealthy really are, and who they
are not. And, most important, we have determined how ordinary people can become wealthy."

The authors draw a distinction between "wealth" and "income." There are many "high income" individuals
who have very little "wealth" or "net worth." These high income individuals literally are spending every
dime they earn and then some, leaving little or nothing left over to go toward the accumulation of real
"wealth."

Here are some quick statistics which help bring home the point: More than 25 million households have
incomes above $50,000 per year. More than 7-million households have incomes above $100,000 per year.
But in spite of these high incomes, these same people have very low levels of "accumulated wealth" (net
worth).

The average American household has a net worth of less than $15,000 (excluding home equity). And, when
you remove automobiles, furniture, and personal possessions, their net worth drops to zero.

Even the very top quintile of Americans are not really wealthy. Their median household net worth is less
than $150,000, and when you exclude their home equity, it falls to less than $60,000.

The "rich" highlighted in this book are true "millionaires." They are financially independent. They could
maintain their current lifestyle for many years without ever earning another paycheck. And more important,
they are not the Rockefellers or Vanderbilts, they did not win lotteries, or sign multimillion dollar contracts
with the Yankees. More than 80 percent of the "rich" are ordinary people who have accumulated their
wealth slowly, and steadily. The typical American millionaire is a compulsive saver and investor. They are
self-made millionaires and are first-generation rich.

Over the many years of research, the authors have noticed seven keys "common denominators" that many
millionaires have in common with each other. Below is a list of those seven common denominators:

1. They live well below their means

2. They allocate their time, energy, and money efficiently, in ways conducive to building wealth

3. They believe that financial independence is more important than displaying high social status.

4. Their parents did not provide economic outpatient care

5. Their adult children are economically self-sufficient

6. They are proficient in targeting market opportunities

7. They chose the right occupation

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In the first chapter the authors give you a typical "Portrait of a Millionaire." Again, the information is most
insightful. The typical millionaire is:

A 57 year old male, married with three children. About one in five is retired. About two-thirds are self-
employed. (Being self-employed is a key element that comes up often throughout the book: Their research
indicates that less than 20% of the working population in America is self-employed, yet 66% of
millionaires are self-employed. This is not coincidence.) Many of the businesses they operate are "dull and
normal" ranging from janitorial services, auctioneers, to owners of mobile home parks. Their median
taxable income is $131,000 per year. Median net worth is $1.6 million. 97% are homeowners, and the
average home value is $320,000. 80% are first generation affluent. They live well below their means, wear
inexpensive suits purchased at J.C. Penny's, and drive older American cars. In other words, most
millionaires are not only hard working, but are serious tightwads. They have an enormous respect for the
American work ethic and don't take their hard earned wealth for granted. And, more important, they do not
show off their wealth with expensive possessions. They live so modestly, that even their own children are
totally unaware of their parent's millionaire status.

They are fastidious investors, investing nearly 20% of their household income each year. And, they
typically make their own investment decisions. They maintain strict household budgets, and can tell you
exactly how much they spent on food or clothing during the past year.

For the most part, it takes many years to accumulate wealth, hence the typical age for a millionaire is over
50. For those of you who are under the age of 50, the big question becomes -- How do you know if you are
on track to becoming a millionaire? The answer to this question is one of the real values of this book. The
authors have created a formula which takes into consideration your current age and annual income in
determining whether or not you are "on track" to eventually becoming rich. This formula is one of the most
valuable elements contained in this book.

It is a very simple formula: Take your "Current Age" divided by "10" and then multiply that result by your
"Annual Income": The result will equal what your "Current Net Worth" should be (excluding your home
equity).

If your net worth is less than half the calculated amount, you are considered an "Under Accumulator of
Wealth" (UAW) and will probably never become a millionaire without changing your ways. If your net
worth is as calculated, you are considered an "Average Accumulator of Wealth" (AAW) and will very
likely become a millionaire before retiring. And, if your net worth is twice the calculated amount you are
considered a "Prodigious Accumulator of Wealth" (PAW) and will most assuredly reach your goals.

It should be noted that becoming a millionaire is a combination of having a reasonable good level of
current "income" while maintaining a frugal lifestyle, combined with an aggressive savings and investment
program. The authors make reference to the fact that if your annual income falls below $75,000 per year, it
becomes far more difficult to accumulate wealth because you have less income to work with. However, it
should be noted that there are many examples of people who have started saving early enough in their
lifetimes thus taking advantage of many decades of compounded investment returns to eventually become
millionaires.

The book's purpose is to highlight the personal traits of PAW's who have become millionaires. The reader
can compare their own sense of monetary values against those of the typical PAW and find similarities or
discrepancies, as the case may be. You quickly learn that having a "high income" alone has absolutely
nothing to do with being "wealthy." The authors highlight countless case studies of individuals earning in
excess of $200,000 per year, and yet could barely make ends meet. In one case a physician was earning
over $600,000 per year and could not save enough for his own retirement. He fell into that category of
being a "high consumption - low savings" UAW personality.

While on the other end of the spectrum, the authors highlighted individuals who had very modest incomes,
chose to live well below their means, and saved every penny they possibly could. Their frugal lifestyle,

971
combined with a dedication to saving and investing resulted in them being able to accumulate enormous
wealth in their lifetimes.

Living a life of Thrift and Investment is the universal secret of becoming "rich" in America.

Despite the life lessons regarding wealth accumulation, this book gives the reader enormous insight into
how parents relate to their children. In some cases, "high consumption" parents raise "high consumption"
children who have never learned the virtues of frugality.

Likewise, at the opposite end of the spectrum, it is so easy for the wealthy to indulge their own children to
protect them from the "slings and arrows" of life, that the wealthy inadvertently create "dependent adults"
who become serious underachievers with all of the related negative consequences of such a circumstance.

This portion of the book will give all of us who have children serious pause for thought.

I am so impressed with this book, that I have been recommending it to everyone I know. I am insisting that
my son read it. And, if I ever loose sight of the American work ethic, I will reread it again and again.

This book should be mandatory reading for every American in this country. It's no wonder that it is a New
York Times Best Seller.

Regards to A Traders Press Offer to Open Futures Bookstore Partnership -

Dear Ron Albriton: This is in reply to your e-mail offer for CTCN becoming an advertising partner with a
Traders Press Co-Branded Investment Bookstore partnership, via our webtrading.com site.

The main reason we replied to suggest Traders Press first advertise on our web site or in our CTCN
newsletter is because of past hard feelings between Commodity Traders Club News and your firm. We
thought there may be a chance of resurrecting our ruined relationship if you would first give us some
needed advertising income (to help defray our membership and postage costs, to keep our subscription rates
low), rather than us first giving you (referral) business.

You may not know this but unfortunately several significant events happened to seriously harm our
relationship, perhaps 4 or 5-years ago.

First, CTCN was prohibited from the pages of your Traders Press Catalog due to the fact your Ed Dobson
told me he was a personal friend of Bo Thunman of Club 3000 News. Ed implied he did not want to
jeopardize his friendship or take any business away from Bo due to CTCN's direct competition.

By an odd coincidence, at about the same time, the identical thing happened involving Futures Truth and
John Hill. John rejected our check for $250 to pay for an ad in his Master Performance Tables, as he said he
was also a personal friend of Bo and was concerned about Bo being upset or losing business to us!

At the time Club 3000 was an unfriendly rival of ours. C3 was bitter because we went into business in
competition with their one-time monopoly (with this type of member feedback newsletter). Traders Press
(and also Futures Truth) freely promoted C3 for many years but would not let us advertise, even on a paid
basis, let alone a freebie basis.

At about the same time as rejecting our name from the pages of your catalog, Ed placed a paid classified ad
in our CTCN newsletter offering your books and 800 number for orders. When you did not renew your ad
for the following issue, we called Ed to ask why. Ed said he could not advertise any more because you
failed to get any orders or even inquiries from his paid ad.

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We found this very hard to believe as our 1500 or so (at the time) club members were very active and
constantly buying trading products and books. I asked Ed if perhaps his order takers did not keep a record
of the source of the orders and Ed said absolutely not as they always asked.

A few days later I personally called your 800 number Order Line, and as an experiment placed a book order
with your order taker. When finished with the order he started to say goodbye and never asked how I
learned about your company. I asked him why he never asked how I contacted you? He said (exact quote):
"why would I ask callers this question?"

He seriously could not understand why he would ask this important marketing tracking question. When
questioned further, he said he had being taking orders for a long time and was a "long time employee" and
had NEVER (asked anyone the source of their order! I asked him why, he said no one had ever asked him
to get this valuable info from callers!

Yet Ed claimed he was not advertising with CTCN again because of not getting any orders from our
members. We found this very upsetting for several reasons:

1. It was apparently false information

2. We lost an advertiser due to this incorrect info

3. It hurt our reputation in the commodity business as you may have told other Vendors CTCN ads were
not effective

4. You may have told Bo Thunman this false info and;

5. C3 then likely told many other vendors, etc.

All this makes us very uncomfortable in future dealings with Traders Press. Also, very importantly, what
does this say about you actually reporting our true sales and paying our correct commissions!

This ended up also hurting your company in the future, as for years we recommended either Lind-Waldock
Traders Catalog or Traders World Magazine Catalog to our members, who purchased many books from
them.

By an odd coincidence, Club 3000's business and influence has allegedly declined over the past few years.
In fact, its Editor/Owner, Mr. Bo Thunman has now seemingly retired from Club 3000 and it was being run
by his wife's cousin, who (at least at the time) had never even traded commodities, from what we are told. It
seems we at CTCN rarely hear C3's name mentioned anymore for some odd reason.

"Copping Out" - J. L. from Wimauma

I've said it in a previous article and I'll say it again: "It ain't the money!" I said this to a seasoned trader and
he thought I had a screw loose. As far as I know, my screws are all tight (except whenever I buy gold). My
point is: can we ever succeed at doing anything well if we don't really understand why we're doing it in the
first place? Sure we could get lucky once or twice, but I mean being consistently successful. Maybe I'm just
talking about defining that "success" but, at least for me, it just "ain't the money." I just read that some
millionaires actually love to lose in the markets (maybe a "status symbol?"). That sounds like a hobby, and
hobbies cost, not make, money. I'm certainly not there yet.

Right now most of you readers are also wondering about my "nuts and bolts." Until you too have
experienced the thrill of a "Perfect" $200 profit (or even a well-executed loss) and the emptiness of a
$1,000 profit by accident (did you really say "Sell" instead of "Buy?"), you'll never believe me. Oh, I know
you took the little lady out on that $1,000 profit (you did, didn't you?), but your gut is a lot harder to fool!

973
And I used to think that the money was the "measure" of our . . . acumen." Then I asked myself, "Does
Larry Williams feel any better than I with his $20,000 afternoons vs. my $200 one?" How could anyone
have felt better than I did? So what the heck good is this "money" thing anyway? Maybe it's only the
"admission fee." Pretty hard to enter the sweepstakes without that. And if you're just trading for "boasting
rights," you'd better start with a bundle!

I just read a book entitled "Die Broke" (believe it or not). I figured that I should be able to do that right.
Written by the country's #1 estate planner (I believe book liners), the theory is clearly that the ideal "estate"
spends its last penny on the coffin. It agrees with the bumper sticker, "I'm spending my kid's inheritance."
Well maybe there's something to it. If there wasn't, I might be buying into all of those junk-mail "make me
a millionaire" offers. When the trading strategy that guarantees to make me a happier man finds my
mailbox, they've got me, but I won't hold my breath. Why do they all assume that I just want to make
money at any cost?

Oh well. Do you suppose that I might just be "copping out" because I didn't make any money today?
Anything is possible, you know, But maybe I struck a chord or two out there in trader-land! I drink (my
cranberry juice) to the source of all human pleasure - Accomplishment! Healthy investing to all!

Need for the Truth - Arthur Johannpeter

Arthur Johannpeter wrote --I read your web site http://www.webtrading.coml/sutrader.htm I was impressed.
The Commodity Traders Club News says that performance rankings of Futures Truth are of very dubious
value.

I am pretty much lost and I don't who to trust now . . . I am sure many traders are in the same situation.
Would you please make a big favor for the whole trading community and bring some truth about the best
trading system available . . . Please publish some serious scientific work. We all will appreciate that. We
are all looking forward to that.

Editor's Comment: The problem is I know of no one who does serious ongoing work on trading system
performance other than Futures Truth.

I believe they try to do a good job and have the tools to do the job well and the people at Futures Truth are
apparently honest people.

However, many commodity traders experience vastly inferior results trading a system, they (Futures Truth's
Master Performance Tables) had ranked highly.

We are not sure why this is so. We have asked John Hill of Futures Truth, Ltd., to write an article about
this odd phenomenon, but for some reason he seemingly will not write about it for us. Regards, Dave
Green, CTCN

Thanks Dave for your honest answer . . . it is important to clarify this issue.

The Way - Jeff Leas

The Beginning

You do not have to like trading -- like what is in the trading: the opportunity to find yourself. The time
spent trading can be a parable for the rest of the day (or for the rest of your life). Align yourself with the
higher purpose of fulfilling your own potential and joy will be the result.

The Market

974
It is a myth that the markets make sense. Markets are nonlinear, infinite parameter worlds and therefore are
chaotic. Nothing is firm, nothing is balanced, nothing is durable. Nothing remains in its current state - each
moment brings change. The goal of trading is to discover regularities within this perpetual change. Markets
are chaotic systems and therefore fractal in nature (they are self-similar at various orders of magnitude, by
any measure -- price, volume, time). Market conditions that you may be waiting for will probably not be
significantly different next hour or next week or next year. Only the scale of the change may be different.

The Religion

Let go of the false ideas of what makes the market tick and simply respond as the market unfolds. Create
your own reality. Make the universe your own creation and harness any regularity that is there to your own
uses. There is more to trading than technique. Move beyond technical mastery to touch the very soul of
your craft. Perceive and merge with the very essence of what makes your calling an "art." Develop a sense
of energy relationships. Energy absorbs the patterns of things and builds with those patterns. Your
subconscious energy will connect to an energy within the universe that is larger than your own energy.
Operate from a plane of existence that is attuned to a harmonious flow within the universe. When you are
aligned properly, you will feel yourself flowing with the universe. You will trust in yourself and trust in the
universe. Expend your energy on positive ideas, creativity and action. Make your actions match your
intentions. If you are going to do something important, the best time to start is right now. Trust in yourself
with the awareness that you have everything it takes to win.

The Mind

Success originates in the mind and translates into the material world. The mind must be allowed to act of
itself. Quiet down your mind so that answers can arise within the quietness. The best answers come from
the silence within. The wisdom you experience comes not from you but from the silence. Keep a clear
mind, maintain a softer focus and use less effort and you will automatically access your wisdom. Wisdom
is the ability to "see" an answer without having to "think" of an answer. The best way to access your
wisdom is to know that it exists and to trust it. Remain in a responsive mode, the most relaxed state of
mind. You will see the bigger picture and take things less personally. You will stay flexible and calm so
that when an opportunity comes the mind will be open and receptive to abundance and success. Use your
conscious mind to give positive orders to your subconscious mind. It will in turn connect to the body and
make you strong; it will connect to your feelings and make you confident; it will connect to your intellect
and make you think clearly; it will fill you with positive energy.

The Fear

Fear is instinctual and healthy and is simply a fact of life, but it should not be a barrier to success. Fears are
only rationalizations for quitting or not getting started. Think of your fears as lazy thoughts that should not
be taken seriously and can be dismissed. Admit that your fear is not working to your advantage. Remaining
fearful is not safe at all. Make decisions from a place of wisdom rather than a place of fear. Fears that
clearly and directly interfere with your dreams are the dream snatchers of your own making. All fearful
thoughts are useless and hold you back all of the time. Concentrate exclusively on the present moment and
you will avoid fearful thoughts of the past or future. You are not the only one experiencing fear at this
moment -- all other traders are also. Push through the fear rather than live with it. Let go of fear and allow
success to unfold. You are stronger than your fears and more competent than your worries. You are going
to do whatever you are worried about anyway. Trust yourself so that whatever happens you are in a
position to handle it. Learn to trust that you will survive, no matter what happens. Be a warrior who
consistently faces daily risk with stoic composure and calm.

The Decision

Reduce your strategy to its point of application. Trading demands the work of this instant. Recognize that
there is no real mystery about the market at this moment. If these are the conditions you want now, then
trade. If the trade proves wrong later, you can correct it then. Every judgement teeters on the brink of error.
Trading is an unending adventure at the edge of uncertainty. Kiss the old, irrelevant logical systems

975
goodbye. Live and focus in the present moment. Trade with an empty mind. Let the market make your
decisions. Act upon what you see, not what you want to see. The here and now is all there is. Allow the
truth of the moment to surface, without bias or personal agenda. Act from a place of wisdom and safety.
Listen to your inner voice and wisdom and the path to success will be clear. Feel the moves as they are
occurring. Trust these feelings and go with them. Be truly one with the market and when you are wrong,
correct your mistakes quickly. Listen, feel and respond to the market without hesitation. The spirit and
sword must be united as one.

The Trade

Be systematic in your trading; you will feel in control of the process. Aim for performance over the long
run. Any single trade, winning or losing, is just part of a bigger process. The system or technique practiced
is not as important as implementing it with discipline, consistency and control. Abandon certainty. Strive
for excellence, not perfection. Do not be attached to trading outcomes. Attachment creates fear. Belief that
everything must work out perfectly creates enormous worry, fear and immobilization. Acceptance of
imperfection allows you to not worry, to move on and to stay focused on your purpose.

The End

See yourself as your own worst enemy and as your own best friend. You are the cause of all your
experiences. One who is able to change and transform in accord with the market and wrest victory is
termed spiritual.

"Up the Down Staircase" There are Many Ways To Define

Technical Issues - J. L. from Wimauma

As we ponder the self-created perplexities of something so absurdly transparent as the commodities market,
we will only find solutions by embracing the two facts just alluded to. How's that for a mouthful? Make
room, Greg Donio!

As to that "self-created" part. Aren't all traders basically looking for the same thing on their charts, i.e.,
turning points? It seems to me that a turning point must be one or more "up" days followed by a "down"
day (or vice versa). And then it hit me! After 15-years of trading, I wasn't really sure how to best define an
"up" day (or a "down" day)! Sure I thought I knew, but did I? How in the world was I to therefore ever
identify a "turning point?" I'll make you a bet right now . . .

If I polled a room full of traders, I would get a show of hands for each of the following definitions. An "up"
day is:

a) a daily Hi higher than the previous day's Hi,

b) a daily CL higher than the previous day's CL,
c) a daily CL higher than that day's midpoint, or
d) a daily CL higher than that day's Open.

I know we could create many more definitions, so the point is, no wonder lots of us can't make any money
at this. I'll never dispute that any one of the above (usually more than one at the same time) could indeed
signal a turning point, but back to the initial question. It implies a "stand-alone" up day, not an "up" day
relative to any previous day. That eliminates "a & b." Then I reasoned that if an Example "c" Close was
still lower than that day's Open, could that still be an "up" day? That leaves only "d." After all, for my
money (literally), if a market can't close above its day's Open, the "bears" won the day. If the Open is
indeed the traders' consensus after the overnight news, then surely the Close must represent the consensus
after the day's trading, i.e., an "up or down" day!

Let me tell you, if my definition also works for you, we have just opened some huge doors! Link these days
with swing Support and Resistance lines, and for the first time I can tell you short-term whether the market

976
is unequivocally Up, Down or Sideways - Trending or Correcting! Does anybody care to know what the
"friend" is, even if it might switch on you the following day (like any other "friend?") Since we're talking
"swinging" here, you don't need a heck of a lot more, except maybe . . .

How about a good intraday, "early warning" signal so that you don't have to miss those $'s lost by always
waiting for the close? I think mine is dynamite, but a little too complicated to explain here. I'll leave this
subject with this challenge. Just as the otherwise useless (to me) Parabolic studies are based on where a
market has gone "too far" counter-trend (causing the original trend to be in doubt), don't you think you
could now calculate an intraday "sweet spot" where you've got about 80% odds that you will have an Up or
Down day (and often a "turning point") at least by my definition? Well it works for me, and I'm no rocket
scientist (even if I do live with Mrs. Einstein)! As for my "up-down" definition, try it -- you might like it! If
nothing else, a five-year-old could spot these days on a chart! That's at least good for "starters."

Just received my new issue and note that Andrew Abraham's trend definition is basically what I was
referring to above. However, when "the previous down wave in the uptrend is surpassed," I'm willing to say
that the trend has already reversed, even tho I still wouldn't reverse until the confirming "failure" swing.
The difference is probably just semantics, but let me say that his is good advice! I use his "dual time frame"
idea also!

And one final note, on my last issue's subject (drinking water). The formula is ½ oz per # of body weight
per day. That's one lofty target! What works for me: all 8 oz glasses -- two first thing when I arise, and
another in about 30 minutes. That "starts the ball rolling" and thereafter I'm reminded to drink another glass
each time I "go." Skip too close to meals (so as not to dilute those stomach acids needed for digestion) and
too close to bedtime (for obvious reasons)! You won't believe how good you feel! "Healthy investing" to
all!

Markets in Motion - Rick Ratchford

Markets are not random. Random is the explanation one gives when one is unable to provide an answer to
why it moves the way it does. The reality of the markets is that it is made up of cycles. Some cycles have a
greater length than other cycles, and when combined, they tend to distort the pattern from a simple sinwave
pattern of a lone cycle.

Many "cycle traders" try to find these simple sinwave patterns in the hopes of trading them. They note that
Hogs have a 24-day cycle or Sugar has a 120-day cycle, and so-forth. (Note: Cycle lengths are examples
only and not necessarily the accurate count.)

The problem of using such cycle counts is that it may work one, two, maybe three times before
disappearing. The problem is not taking into account the other cycles combined.

Back in 1991, I took a test for my FCC General Telegraph License. A very difficult test on vacuum tubes
and radio waves, etc. One of the things a person has to know to pass this test was the fact that cycles can
become distorted by the inclusion of other cycles. It has help me tremendously to learn about the reality of
market cycles, to visualize this when learning the concepts from various esoteric teachers.

It is understandable why many want to discount the fact that cycles exist in the markets. Hocus pocus they
exclaim! Is it really hocus pocus, or simply ones limited understanding of a higher order?

Imagine demonstrating the microwave oven to those in Salem back during the witch hunts. Or how about
telling someone about the electric light bulb in Columbus' day. "If man was meant to fly, they would have
wings!" "Man will never walk on the moon." I bet you all chuckle at these people today. How short sided
they were. Obviously, they would not be the ones to fly or walk on the moon.

It is no different today than it was back then. Without the proper background, some things are just too much
for some to believe.

977
A very good example of this is my brand of cycle work. That which I have labeled Fdates . It is cycle work,
in the sense that the mathematics used to create the dates are based on market Geometry.

Yes, you heard right, Geometry.

To get a better understanding of market Geometry, you might want to read the works of Brad Cowan or
Michael Jenkins for starters. The markets are geometrically perfect. The problem is that we are not perfect
and so can forecast movements with a little room for error. Yet, if one really wants to dedicate time to
learning about Market Geometry, he/she will be greatly rewarded. My discovering these things for myself
have paid me dearly in many, many ways. One way is enlightenment -- knowing something and being in
awe of it.

It is not my goal in trying to convince every one of the wonders of the universe. Fibonacci ratios in nature
and the markets, geometric relationships of the universe and the markets, etc. Too much material to cover.
More time than I wish to commit. No, I leave this endeavor to those who are tired of following the masses
into the pit of account depletion. Anything worth having or knowing is worth the effort to go after it. There
is no reward for sloth.

Because markets are not random, but rather made up of cycles combined, their movements can be
anticipated with a very high degree of accuracy. This can be done on several levels, such as daily, weekly
or monthly.

The Fdates mathematical algorithm is applied to the daily market prices. I've used the algorithm, with slight
modification due to the uniqueness of the weekly data, to derive weekly cycle dates, or what I like to call
Wdates. Yes, I'm big on using the alphabet for my cycle date names.

The result of this work has been incredible. When properly applied and used, one can note the time frame a
weekly trend change is due, then move down to the Fdates that fall within that weekly time frame window
to isolate those which will have you going in the new weekly direction. It has been a boon for longer term
trading. Again, it won't reward laziness, but the practice of mathematically extracting cycles has been quite
rewarding, and has clearly shown that the markets are not random. Too many accurate forecasts, regardless
of those that do not pan out, show that randomness is not the answer to the flow of the markets. The answer
lies in learning more about what makes the markets move the way it does and how to discover this early.

When one thinks of the markets as random, they've automatically laid their money on the table and spun the
roulette. Might as well trade using a coin. You'll soon find that to be futile.

A later discovery of mine, though I did not discover on my own but by the information derived by many
authors, has lead me to learn how to extract cycle information using other methods. Now imagine the
excitement I experienced as soon as I overlaid the results of my cycle work using Fdates/Wdates and the
results of using a completely different method of cycle extraction. It is amazing! The cycle mapping is
almost identical, with dates maybe being only a day apart of the samples. Using two completely different
methods, one mathematical, the other historical, and having them confirm each other almost to perfection!
What chance could that have happened if the market was random? None!

Very few have ever stepped into my office and seen what I've seen. I know that there are but a handful of
people reading this that can fully appreciate what I'm talking about. The rest may be curious or down right
skeptical. That is just to be expected.

But I did not always know nor believe that such things were possible. No, it was one piece of the puzzle
after another, and an open mind to complement it. Never quick to criticize that which I may not fully
understand, nor try to sound scientific in telling someone this or that is impossible. "Man will never walk
on the moon!" How ridiculous that seriously made statement sounds now. Just imagine how ridiculous
hearing some say "Market turns cannot be forecasted!" sounds to those of us who actually know better. Ah

978
yes, that last statement is sure to raise some hairs on people's necks. Those witch hunters in Salem had the
hairs raised on their necks as well. It was their actions later that said it all.

Knowing and learning these truths is only the beginning, knowing how to use them takes effort as well.
Gann proved forecasting was possible as it was documented in many press articles where he demonstrated
this time and time again. Yet, even Gann had not discovered all the secrets. If he had, he would not have
lost 8% of his trades. He kept looking for all the answers up until his death. No, I don't believe he amassed
$50 million, but he did amass millions from understanding that markets are not random. His life is another
story in itself.

Yes, knowing that the markets are not random is just the beginning. Need to know how to exploit the
knowledge? That is what we endeavor to do each week in The Membership. Some are more masters at it
then others. That is another truth about markets and cycles. Never settle for the common beliefs.

A Review of Currency Management Corporation - Adam Hartley

It used to be the case that spot foreign exchange trading was only accessible to traders who were prepared
to deal in large amounts. The trader who wanted to trade small sizes would either not be catered for or
would be charged large spread prices that made trading on all but the longest time frame prohibitive.

However, with the growth of the Internet, had come new companies offering interbank foreign exchange
trading at much more competitive rates. The reason for this is that much of the trading is now more
computerized and more efficient which means that the spreads can be decreased and the minimum
transaction sizes reduced as well. One of the pioneers of this service is Currency Management Corporation
(CMC) which offers spot forex trading at interbank rates with small minimum deal sizes either over the
phone or using their Market Maker trading software.

CMC offer forex quotes with fixed 5-pip spreads (except when market conditions are extremely volatile)
for major rates on deal sizes of $100,000 (or equivalent) or more. This might be a problem for traders of
larger sizes who would normally expect narrower quotes though it is possible that this could be
accommodated somehow.

The minimum account size is $20,000 though interest is only given on accounts of size $50,000 or more.
CMC is regulated by the UK's Security & Futures Authority (SFA) and so clients are protected from the
shady practices that have been associated with some spot forex operations in the past. However, the client
has to sign agreements to be treated as a non-private client (as defined by the SFA) which means that the
level of protection offered is less than for trading futures for example. This would include the lack of
automatic compensation should CMC go bust. In addition, the client has to sign an agreement that their
funds are not held in segregated client accounts which again could cause problems should CMC go under.

As far as trading is concerned there are two ways of doing this. Traders can use the phone or the Internet.
The most appealing method is definitely the Internet trading which is done using CMC's Market Maker
software.

The client establishes an Internet connection and then starts the Market Maker software. Live quotes are
then immediately available for the most actively traded rates and cross rates. In theory these quotes can
actually be traded whereas for normal forex operations one has to ask for a quote before dealing. To trade,
one simply double click on the desired rate, say Dollar/Mark whereupon an order ticket appears. The client
then fills in the trade details such as Buy or Sell, the amount and whether the order is a Market order, a
limit or a stop together with an associated price if necessary. The client is asked to confirm the transaction
before it is sent off to CMC. Once the order has been accepted and processed then this fact is reported back
to the client. This whole process can take the matter of a few seconds.

In practice, the system works fine most of the time. However, there are times when the system really slows
to a crawl, especially around the time that the US markets are opening and when there is a key economic

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report due out. This can make the whole process extremely frustrating at best and at worst one sometimes
doesn't know whether an order has got through or not. In such cases I usually resort to using the phone.
Occasionally the computers even lock or crash at CMC's end which means that they don't know what your
position is which can make things a bit fraught but they write down all the trades and things are sorted out
eventually. I understand that many problems will be sorted out once the next version of Market Maker is
released though it was originally scheduled for February 1998 and there is still no sign of it.

There is one other gripe which is that although the quotes are tradable in theory, CMC do reserve the right
to update the quote when you make a request to trade. This is because sometimes the quotes have not been
updated for a while and are a bit behind the market or the market may be moving very quickly.

In such cases the client is offered a new quote with 10-seconds to accept it or reject it. My one complaint is
that one never gets a better quote offered if the market has moved in ones favor, only if it has moved
against the position that one is trying to put on. When trying to establish a position and when every pip
counts, I usually resort to the telephone as the quote received over the phone is guaranteed tradable and is
up to the second.

The main worry with spot Forex trading is that one is not trading on an exchange where the prices are
regulated, the quotes that you are trading off come entirely from the counterparty, CMC in this case. In
theory they could offer poor quotes as they will know your market position or even deliberately stop you
out as they know where your stops are. In practice I only once had a stop deliberately taken out: during a
quiet period the quote was banged down to hit the stop and then moved straight back up again. I
immediately rang up to query this and they were very apologetic and reinstated the trade. I can only guess
that it was a novice dealer who thought that it was OK to do this. Word would soon get round if a Forex
dealer were to operate in this manner and they would soon lose their clients. In general, I have found that
CMC has been very fair in their dealing.

In conclusion, CMC offers a good spot Forex trading service aimed at the smaller traders and using cutting
edge Internet technology. 0nce they get some of their computer problems sorted out to cope with the huge
increase in clients that they have had, then their services will be even better.

Congress Attacks Free Speech

Publishing Industry Needs Help - By William S. Scott, Attorney-at-Law

The United States Congress created the Commodity Futures Trading Commission, an obscure government
agency, and empowered that agency to regulate and control all speech concerning the commodity industry.
So far, this intrusion upon the First Amendment to the Constitution of the United States has not been
stopped by the Courts. This is because Congress exempted the large publishers from regulation. And, the
small publishers have too little resources to withstand the cost to sustain a protracted fight.

It is time for all Americans to recognize that government intrusion of the freedoms we enjoy begins with
the regulation of a small, unnoticed, group of people. In this case, the commodity publishing industry.

The present attack is against those who want to express opinions concerning commodities and to publish
commodity software. No one knows where the next attack will be.

The Commodity Futures Trading Commission, under the threat of a budget cut or extinction because its job
can be better accomplished by the Securities and Exchange Commission, without regard to the rights
guaranteed by the First Amendment, has said to express opinion concerning commodities requires
registration, i.e., government control. Congress created this agency without the provision of adequate
supervision of its activities. It is currently running amuck causing ruin to innocent people who own and
manage a small segment of the publishing industry.

This industry needs help. You can provide that help in the form of your financial support to the defense of
the members of this industry. Send your contribution to: Publisher's Defense Fund.

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Editor's Note: CTCN members should thoroughly investigate the Publisher's Defense Fund and the author
of the above anti-CFTC article (Mr. William Sumner Scott, an Attorney located in Florida) before sending
any "contribution" there. We say this for several reasons:

1. Of course use caution when sending money to anyone asking for contributions.

2. Mr. Scott was previously disbarred by a CFTC Administrative Law Judge involving allegations of
wrong-doing.

3. Mr. Scott at one time did some legal work for Commodity Traders Club. It's alleged he did a
"unsatisfactory" job involving several issues

4. Including, the non-disclosure of relevant facts to CTCN, such as withholding knowledge of his previous
disbarment.

5. Finally, and most alarming, Mr. Scott promised both verbally and in writing to refund our additional
$1,000 payment to him, in the event our court case was not heard for any reason.

The case was in fact not heard and dismissed, but Mr. Scott still hasn't refunded our money after numerous
requests. He allegedly has no intention of honoring his refund promise.

For Immediate Release, June 19, 1998 - By William S. Scott, Attorney-at-Law

In an effort to avoid being taken over by the Securities and Exchange Commission, the Commodity Futures
Trading Commission has asserted that it has the right to regulate the publication of opinions regarding
futures trading while the Securities and Exchange Commission lost the same argument in regard to
opinions on stocks in the Supreme Court of the United States in 1985 in the case of Lowe v SEC, 472 U.S.
181. But for now, the Commodity agency has unlimited money available to attempt to prove that it is better
than the SEC. Unfortunately for all Americans who value the free expression of opinion, the risk is if
commodity opinion is regulated, the next step will be to regulate other forms of speech. This Country was
founded by a number of people who were looking for the right to say and print what they wished. Now
your taxes are being used in an attempt to overturn that freedom.

The government has made an all out attack on free speech on many fronts.

It has said that a seller of opinions in the form of computer software can not be sold because technical
analysis of past price action can not predict future prices. And, not surprisingly, an admin. law judge
appointed by the same agency, has agreed. The defense by the seller is that opinion should be free to sell on
whatever terms an informed buyer wished to pay. For more info on this case contact Mr. Greg M. Reagan,
R&W Technical Services Ltd., 713-995-4477.

It has also said that a publisher of commodity analysis of past price action to predict futures prices which
many occur at the same time each year has to disclose his list of buyers and the research report he generates
to permit the government to determine if he has done anything wrong. The publisher contends that his sales
information provided the government with all the information that is relevant to permit the government to
determine what he is doing. For more information, contact Richard Tokheim 402-964-9042.

The same government agency has said that because a respected McGraw-Hill book publisher said he
produced 2,500% profit over five years when he only produced 1,700% in profit according to the
government calculation, the book publisher should be fined. And they have stripped him of the attorney of
his choice. Contact Curtis Arnold 561-747-1554.

Another respected publisher is under attach for the publication of its opinions on commodity prices and the
publication of charts. For more information contact Nick Van Nice at 561-694-0960.

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The industry, with the help of the Institute for Justice, has filed an action to stop these abuses. Contact Scott
Bullock, 202-955-1300 (IFG).

Editor's Note: These opinions are Mr. Scott's, not those of CTCN or its Editor. Our position on the CFTC
appears below.

Updated Press Release from CTCN, Aug 1998:

A Letter to Commodity Traders Club Clients & Supporters re the CFTC:

Please help and support us in our efforts to (at a minimum) tone-down the U.S. Commodity Futures
Trading Commission's (CFTC for short) apparent (but in our opinion NOT deliberate) harm to Financial
Privacy Rights. The CFTC say's they adhere to these privacy rights and in fact routinely mails Privacy Act
Notices to everyone they contact. However, unfortunately, financial privacy seems to get frequently
violated, even though the CFTC does not do this with intent. This occurs because of the CFTC's power and
amazingly in-depth activities, including great subpoena authority. As a result, it seems financial privacy is
routinely violated in fact (but not in theory), what with their questionable, powerful and seemingly heavy-
handed investigative activities.

At one time we did not think highly of the U.S. Commodity Futures Trading Commission and their
policies. However, our quite negative views over the past 2-years have now changed to generally positive
opinions of the CFTC and their Staff and employees, including their 140 or so Attorneys.

We have a lot of respect for the CFTC and feel the Staff Attorneys we have come into contact with seem to
be very professional, dedicated, hard working, reputable, honest and fair-minded individuals. However,
their heavy-handed barrages of subpoenas, legal and investigative procedures, may unfortunately not be
"fair" or warranted in all cases.

Although the CFTC obviously does not deliberately do things with the intent of harassing, harming anyone,
or intending to violate anyone's privacy, nevertheless it unfortunately ends-up in actuality having this sad
effect. We greatly respect the CFTC, (and several officials we know well, in particular). Nevertheless, it's
alleged the CFTC's Division of Enforcement "investigations" are similar in some ways to a "witch hunt"
and "fishing expedition," though apparently not intentional.

The (non-intentional) end-results are incredibly troublesome, time consuming, business disrupting and
income destroying activities against a number of varied futures industry firms, in addition to Dave Green
and CTCN.

Some of their investigations and subsequent actions are warranted, such as investigating Commodities
Telemarketing Schemes, so-called Boiler Room frauds (common in Florida for some odd reason),
worthless and fraudulent commodity futures trading product vendors who have committed fraud or sold
worthless systems, sold expensive courses and seminars for up to $4,000 and offered their clients an absurd
one-day money-back guaranty, lied about their personal trading successes and past trading records, churned
managed accounts, lost all of clients funds due to over-trading (to generate commissions), deliberately used
and/or stole money from customers, promised guaranteed huge profits to traders, Ponzi scheme operators,
etc.

Unfortunately, it seems by virtue of the CFTC's extremely involved and amazingly strong investigative
activities, they end up coming down very hard and having the effect of seriously harming most everyone
whose affairs they decide to look into, justified or not.

P.S.: It's really too bad the CFTC does not investigate all major white-collar crimes (and even criminal
cases), not only futures issues, as their arrest and conviction rate would likely be almost 100%! We really
believe this to be true! Your support is greatly appreciated, even more than you know. We are indebted to
you because of your help and support on this difficult issue.

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 90% Claims Are Hard to Believe - Robert Bennett

I am not familiar with WinWaves but 90% claims are hard to believe. As a member I am looking for some
trading software. If you were me what would you buy today. I see that WinWaves has a 90% guarantee that
their software is right! What's the catch? And can they be that good?

I did buy Omni trader. I have not traded anything yet, it looks nice. But can it make money.

I have just ordered TradeStation, should have it today. How do you like it? (Editor: Very well)

Determination + Attitude=Success! - Rick J. Ratchford

A race is never won unless you finish. It is never started unless you believe you can do it. To begin and end
any endeavor, you must have the attitude that you can do it and be determined to finish what you start.

The field of trading is no different. Finish what you start! But to do so, you must have the attitude that it is
possible to win. You must be determined to prove yourself right. The facts are: If you believe you can do it,
you can do it!

I once heard the words from a man who was paralyzed from the chest down and told he would not be able
to get around on his own, but now moves around freely in his wheelchair, as well as drives, "If it's difficult,
you can overcome it. If it's impossible, it just means it will take a little more time." How true those words
are! Do you allow others to tell you that you cannot succeed? Do you tell yourself you are not good
enough? Do you put off taking action although you know you really should? Do you find yourself giving
up before completing what you started? If so, you need to readjust your attitude and become determined to
finish what you start. All people are unique with different gifts. Yet, with a positive mental attitude, a belief
that you are just as capable as anyone else to succeed, you will have the foundation to build on. Let me tell
you a story I found interesting:

There were these two eggs that were soon to come alive. They were discussing what they wanted to be in
life. The one egg says to the other, "I would like to be an oyster. An oyster only has to lie at the bottom of
the ocean and just lets the water move him about. I will eat the food that comes between my shells as the
water moves past me. I will eat only what the water passes by me, no more and no less. I will go where the
water moves me. As an oyster, I won't have to do anything at all. The other egg said, "That is not the life
for me. I want to be an eagle. Sure I will have to hunt for my food, but I will be able to go where I want to
go. Sure life as an eagle will be harder, but I will be able to soar above the mountains or into the valleys
below. I will control where I will go, not be controlled. Yes, it will be harder to be an eagle, yet I will be
free to chose where I will go.

This is exactly what life is about, and also trading. The water is likened to the masses of traders who
inevitably lose. The reasons why usually start with attitude and determination. Instead of choosing for
themselves the direction in which to travel, they let the masses do the choosing for them. The results are
disastrous, and they soon drop out of the race. I suggest an affirmation which has shown great results with
many people employing them.

Each day, on a clean piece of paper, write the following line 20 times. Do this each morning for 21-days
straight. By doing this, you will reinforce in your mind that you will succeed, and your determination to do
so will improve daily. It is up to you to stick to this for 21-days to be effective. This is the affirmation:

"All my thoughts and actions draw success toward me more and more each day."

In almost any endeavor worth the effort, it takes climbing some major obstacles to get over the hump. Too
many people actually quit right when they are on the one yard line! Don't let this be you. Believe in

983
yourself, as you are just as capable as anyone else who has succeeded before you. What made them
successful was always believing they would be without question.

If you hear yourself saying to yourself, "I can't do this," it will take three affirmations on a positive basis or
more to correct. Keep thinking positive thoughts and believe them. It has allowed many to rise from the
ashes of mediocrity to the heights of greatness. Step out of your bubble and do something you might have
been afraid to do before, no matter how small. Small steps will eventually get you to the finish line. Time is
not relevant if you start now. You will finish. Be determined to do so regardless. Avoid those who talk the
negative talk, as they have given up and do not wish for anyone around them to be successful, thus leaving
them alone. Surround yourself with positive people, people motivated to improve, always encouraging you
to continue in your dreams, your goals.

As the Bible says in 1 Corinthian 15:33, "Bad associations spoil useful habits." This fact is as ancient as
man! Keep yourself deep in positive material, avoid the negative of the newspapers. Read more
entrepreneurial material such as Success magazine and other encouraging press.

What you feed your mind is what will motor your mind and actions. Make sure you feed it the food of
positive thinking. Be determined to succeed in your dreams to be a successful trader, no matter how long it
may take. Because if you ever give up, this will most definitely carry over into other aspects of your life.
Don't let it!

Be like the eagle. You are in control! Fly the heights in whichever direction you choose. It doesn't matter,
as long as you are the one making the choices, and not others for you, like that of the oyster in the ocean.
Be determined to succeed. Have the positive attitude that you will succeed. You will then succeed!

OPTIONS & SPREADS: Anti-Martingale Strategy

--- How NOT to Roll Dice on Concrete - Greg Donio

During World War One, British recruiting posters said, "Enlist with a Pal!" The arrangement was that men
who volunteered together would be allowed to serve together. The pitch worked well in terms of the
numbers it brought in. Whole streets signed up, as did entire factory crews and upper-school classes.

Alehouse cliques and beanery cliques disappeared. "Not a soul down on the corner. That's a pretty certain
sign. Those wedding bells are breaking up that old gang of mine." Now, however, the sound vacating the
street corners was not a bell but a bugle.

The downside of this proved horrendous. Battlefield carnage mounted, wiping out entire streets and
factories. Eton College's rollbook of alumni killed in action grew many pages. The sad and sentimental
empty stool at the pub multiplied vastly.

Financially, trading futures and options resembles July 1, 1916, day one in the Battle of the Somme. It
began with huge multitudes of would-be heroes and medalists. It ended with over 60,000 Britons dead or
wounded. On the eve of trading as on the eve of battle, immensities of optimism grow with few roots in
reality. Always, always, more optimism will grow no matter how badly the last batch fared.

Over 90 percent. That is the estimate generally given of how many futures traders end up as financial
"ashes to ashes," also how many out-of-the-money futures options and stock options do a "dust to dust" by
expiring worthless. Few see that carnage. Countless thousands of white crosses cover the grass at Flanders
Fields. For traders, however, only a small-print phrase marks all the deep sixes: "a high turnover rate."

The names on the "active list" of the futures and options brokers are not the same ones that graced it a few
months ago. Different voices when the phone rings. Steinberg has replaced Silverman. Costa has replaced
Corelli. Princess Waterleaf has replaced Chief Whitehawk. Optimists crowd around the brokerage desk as
around the recruiting desk, despite all knowledge of past battles and thinned ranks and why they need new
blood.

984
Optimism. It brought Andrew Carnegie to the shores of America with just 50 cents in his pocket and it
brings the sucker to the back alley crap-shoot. Many a speculator starts out to be the Carnegie of futures
contracts or the J.P. Morgan of puts & calls, but does little more strategy-wise than throw dice on concrete.
Optimism caused investors to buy Resorts International's rich stock and Charles Ponzi's fake promissory
notes. After Ponzi's arrest, government expediters seized his holdings and were able to return to note-
holders 28-cents of each dollar invested. That seems like a fortune compared to what many traders are left
with--with no laws broken.

An abundance of high hopes the day before the battle. Boxcars of caskets the day after. Yet high hopes
keep growing in all types of soil. No amounts of losses at the horse parlor in the past prevent the placing of
more bets tomorrow. I am involved with spread strategies on stock options because they involve profits
from both the recruiting desk enthusiasts and the coffin train, with the latter not dampening the former;
from both the excited placing of bets and sad losses, with the latter not dampening the former.

There is an old saying, "More than one pessimist got that way by financing an optimist." Yet it is possible
to profit from optimism that loses money. Bookmakers do it every day. Brokers collect a commission
whether a trade or investment wins or loses. Most importantly, they make money regularly and over the
long term. Not so with people whose high hopes get ahead of their good sense. Any brain-dead gambler or
trader can tell you about his big win back in 1995 and can you lend me two dollars? Option spreads include
that ongoing, long-term plus-factor -- not just profits but profits with businesslike regularity.

Remember Damon Runyon's two fictional bookmakers? Sorrowful Jones and his partner Regretful. Those
names fit when their clients lost but what about at the excitement stage earlier on? The thrill of a bet and
the hope of a win? Sunshine Jones and his partner Brighter Day would have been appropriate. The glad,
hopeful bet and the sad loss are the two profit bookends, all the more since the Sorrowful does not dim the
Sunshine of the next bet.

High hopes, sunshine and a vein of gold. The horseplayer believes in these no matter how many torn tickets
and hurt faces he sees at the track, no matter how many times he has emptied his own passbook. The
bookmaker's optimism, though tinged with cynicism, is more grounded in reality. The rainbow-chaser's
visions may be fantasy but he spends real money in his quest for them. There's gold in them thar--in them
thar other people's wallets and checkbooks. The option spreader sells puts or calls which, when they expire
worthless, hold far less value than the spurious Ponzi notes. What the spreader buys, the other bookend,
gets most of its gains from other people's money. Prison food for Ponzi, broiled lobster for the spread
strategist.

Over 90 percent. By that much the sad stories told over pork & beans out number the treasure tales related
during lobster thermidoro. Yet trading success exists and is not the exclusive domain of any one cuisine,
character type or geographic location, no more than in the past. Dated 1870, James K. Medbery's book Men
and Mysteries of Wall Street told of the buy & sell orders that flowed through the cables of Western Union
and the Bankers and Brokers' Telegraph Company in and between major cities. Medbery added:

"But the most significant illustration of the deep-seated and widely ramified tendency toward speculation is
found in the occasional commissions which trickle in from strange and wayside places. Villages whose
names are scarcely known beyond the boundary of their counties have their rustic Fisks and Vanderbilts.
Sparks of electricity fly up from the marshes of the Mississippi Valley, from the golden desolation of
Nevada, from factory hamlets in Connecticut, from the pastoral seclusions of Vermont; bearing emergent
orders to sell Hudson short, to buy 500 Fort Wayne, to take a put on Rock Island, or a call on Tennessee
6s."

"In the flush days, between 1863 and '67, the sum total of these outside speculators reached enormous
figures. Now York City, and the population included in a radius of a hundred miles of that center, furnished
its thousands. Women pawned their jewels for margins. Clergymen staked their salaries. One man sent his
horse to his broker, and realized in the end $300,000 from this small beginning. Brokers cleared from three
hundred to three thousand dollars a week in commissions alone."

985
"The unlucky never tell of their misfortunes. An author in two months lost the profits of three books. A
bank clerk, in one of the chain of towns between Albany and the city, on the Hudson railway, made
$30,000, in successive strokes. Then he offered himself to a fair young girl, and put the whole of his gains
into (Wall) street, promising his affianced the rarest of bridal gifts. Three days after he received a despatch
with the warning word, "10% more margin." His resources were exhausted."

The bank clerk hurried to New York City and, with much pleading and imploring, persuaded his brokers to
carry him for just one more day. It only prolonged the agony and slightly postponed the wipe-out. The
printed account does not say whether the fellow ended up as a groom in a low-budget wedding chapel or a
bachelor in a sanitarium. Did it not occur to him to limit his risk? Could he not have ventured part of his
$30,000 and banked the rest at Chase Manhattan? Also, shares in Bank of Boston, Bank of New York and
Chase Manhattan have paid cash dividends every year since 1784, 1785 and 1848 respectively. He did not
have to hazard everything in one speculative cargo hold.

Do not pay too much attention to the Horace Greeley for President posters that young man strolled past
afterward. It could have been a William Jennings Bryan poster or Al Smith or Wendell Willkie or Dan
Quayle. Floating too large a portion of trading capital on a substantially risky venture happens in every era.
So does disregarding the fact that margin magnifies potential loss as well as potential profit. Optimism
survives despite past shipwrecks but, alas, hazardous sailing survives also.

Stinginess is a virtue for traders, when they are trading. If you possess a generous streak, please mail a
donation to St. Jude Children's Research Hospital (PO Box 50, Memphis, TN 38101) but when you trade
guard each dollar of capital with a sword. Too many people concentrate on the big amount at the
conclusion of a venture while not concentrating on the small amount at the start that this requires. In fact,
they pay extra at the entrance gate because they are so anxious to "get in." An age-old bungle, paying too
much at square one -- anting up too many dollars for "a piece of the action" -- sabotages many trades
because that square one figure is the basis for comparison when you ask, "Any profits?" This may seem
obvious when viewed objectively but anxious, cash-in-themitt souls at the entrance gate get low marks for
objectivity.

For me, stinginess provided an invaluable shield. Recently, I pondered a stock option game plan involving
a horizontal calendar spread and considered moving it from blackboard practice to the playing field. In such
a plan, I buy options that have a far-in-time expiration month and sell options with a near-in-time
expiration month (hence the "calendar" of the horizontal calendar spread). While expiration dates differ, the
underlying stock is the same, as is the strike price of the different options (hence the "horizontal" regarding
the strike prices as opposed to a higher and a lower on the chart).

In my standard strategy, the batch I sell must be worth more than half of the batch I buy and preferably
around two-thirds. With options, one point equals $100 but since I routinely buy 10 option contracts and
sell 10, one point means $1,000 in my reckoning. The 10 far-month contracts that I buy having more time-
value than the 10 near-month ones that I sell, the fars will be more expensive than the nears thus creating a
"gap" or "spread" in the respective dollar amounts. For example, if I buy 10 Decembers at 3-5/8 points sell
10 Novembers at 2½ points, the "spread" is 1-1/8 points which equals a cost to me of $1,125 plus
commissions.

Note that the sold Novembers are worth more than half, in fact, slightly more than two-thirds of the bought
Decembers. Other people's money enters the game plan in that what I sold pays for better than two-thirds of
what I bought with my capital paying just the remainder. The precise amount of that gap or remainder
figures crucially and this is where stinginess pays. Please excuse me for restating what I have written
before but the jeweler's scale & chart deserve repeated attention. A one-point spread is rare gold, 1-1/8
point is gold easier to find, 1¼ and 1-3/8 points are good-grade ore. Half avoid 1½ and wholly avoid 1-5/8
or higher.

It was while visualizing the above mental gem-chart that I scrutinized some IBM call options. IBM shares
showed months of lethargy in terms of upward movement but enjoyed a conservative price/earnings ratio

986
and a solid floor, i.e., a sudden plunge that would bleed the call option white seemed unlikely. During the
first week of June 1998, IBM's stock price moved in the middle teens between 110 and 120. On June 8th,
IBM's June 120 calls sold for 2¼ and the July 120s for 4½. Later that trading day, they inched down to 2
and 4¼ respectively.

This raised my eyebrows because the June expiration date was less then two weeks away. Picking up the
phone the next day and buying 10 Julys would give me the right to sell 10 Junes as part of a horizontal
spread for a whopping $2,000, with the obligation attached to the latter disintegrating at expiration in only
nine trading days. So what made me hesitate? For one thing, the June call options wore worth less than half
the Julys, not the more than half which I call my vicinity or the two-thirds where the sun shines brighter
still.

Worse than that, this would mean an opening spread of 2¼ points after I have trained my eyes to view I½
as half a warning flag. What would I actually own on the long end or "buy" end of the spread? 10 July calls
worth $4,250 for which I paid $2,250 plus commissions, the other $2,000 coming from other people's
money. Late the following week, with dwindling, vanishing time-value devouring the burden of short-end
Junes, I would realize a profit if the 10 Julys continued to be worth any amount more than $2,250. The
brevity of nine trading days or less added more fruits of temptation.

When Sherlock Holmes had to ponder the details of a deep and complex case, he would reach for the
slipper of tobacco on his mantlepiece and say to Dr. Watson, "This is a two or three pipe mystery." Being a
nonsmoker, I meditated over a couple of bottles of Stewart's original cold-brewed Root Beer. Who
appeared in the bubbles but Nicholas Darvas, the professional dancer turned speculator who wrote the
books How I Made $2,000,000 in the Stock Market and Wall Street: The Other Las Vegas.

Nick Darvas developed a pragmatic system called the "pyramid of boxes" which involved trend-following
and the heavy use of stop losses. After enjoying much success, he scrapped this methodology for a time and
invested on hunches and impulses. By now he thought he had a knack which needed no safeguards but,
according to his own written account, he came within an inch of total ruin. Fortunately, the return to his
box theory and his stop-loss trigger brought a return to wealth and more of it.

Many other cases I had read about ended tragically. Great names of Wall Street and the Chicago trading
pits and the Bourses died paupers. Usually, past success made them think they could not fail. Whatever
they did right yesterday they thought was unnecessary today. They risked too much on flimsy ventures,
figuring that with their great flying ability they needed less plane engine caution.

Well, my engine manual said to let other optioneers pay for most of it, not just part, and to limit the spread
to not much above a point. So no deal at 2¼. Thursday of the following week, the day before June
expiration, the July 120s shriveled to ¾ of a point from the previous day's 1-1/8. $2,250? 10 calls would
have been worth $750! This resulted from IBM shares dropping to 107. Ah, the blessings of not eagerly
paying any price at the entrance gate. Best root beer I ever drank.

"Handle speculation like a business, not like a gamble." Practically no one disagrees with W.D. Gann's
golden axiom. But practice it? It is the pheasant and filet maxim to which vast numbers of traders nod in
agreement before they eat at the greasy spoon. To varying degrees, certain occupations create a climate
conducive to gambling. In the movie The Five Pennies, the young wife of band leader Red Nichols enters a
delicatessen and says hello to several musicians during one of the rare instances when they are seated
around a table, without playing poker. Then she acts woozy and heads for the ladies' room. Instantly they
start betting each other on "what month she is in."

During idle periods, soldiers bet pocket money or a pie ration on everything from the weather to your
health. In financial spheres, the virulence spreads in the form of the bookmaking bartender near the
Exchange and the office bets on what color shoes the secretary will wear or which statue the pigeon will
land on. With musicians and soldiers the wagering will probably not taint their work but with people of
finance a spillover occurs in the wrong direction. The crap game does not become more businesslike but
the business of trading becomes more of a crap-shoot.

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How does one distinguish a businessperson from a gambler even when they may look the same while
speculating in stocks, futures or options? For one thing, the businessperson insists on the "right
opportunity" while a gambler's eagerness frequently plunges him into the wrong ones. That old, much-told
story contains plenty of truth. As Sam plays poker, his friend sidles over and whispers to him that the game
is crooked. "I know it is," Sam whispers back, "but it's the only game in town."

A gamester anxious and itching to play is not stopped by hell or high water, bottom-deals or marked cards.
Notice that the bookmaker and the card sharp put good sense ahead of eagerness. They planned and
organized and stepped into the right opportunity, not only winning but winning consistently. Not so with
Mr. Sam I-Just-Gotta-Get-A-Bet-Down. Similarly a businesslike, scientific-minded trader realizes not all
"opportunities" are good ones and all but a few deserve to be rejected.

Regarding the time element, the gambler sings the "I'm In a Hurry!" song. The businessperson does not
wait eternally but does accept the time factors inherent in one or another business methodology. The curing
and smoking of meats, the refining of oil, the breeding of thoroughbreds, the advertising and publicizing of
shows or the building of homes and bungalows. Short-cuts mean trouble. For the hurry-up wagerer, the
questionable adage, "Better a fast nickel than a slow dollar" translates into the even worse, "Better a
crooked poker game today than a fair-chance one tomorrow." The businessperson occasionally waits for the
right opportunity or the right situation while Roulette Randy says, "Right now, right away!"

Recently I waited nearly a couple of weeks for The Opportunity or The Situation. I scanned the daily option
page regularly but was not comfortable with what I saw. Then the stocks of certain major banks began to
attract my interest: Citicorp, Chase Manhattan, Mellon. All had conservative price/earnings ratios and all
showed varying but ongoing amounts of upward motion.

Good candidates for a horizontal calendar spread with call options. Citicorp seemed too volatile, however.
With Chase Manhattan, the call options with strike prices a fairly comfortable 4 & a fraction or more above
the share price were too skinny value-wise. I needed 2 & a fraction or 3 & a fraction or 4 & a fraction of
market value.

Mellon appeared to be it. Since this was late June, the worth of the July options had already shrunk with the
dwindling of time. Augusts and Septembers remained sirloin-thick. With Mellon's share price in the low
70's, I focused on August and September calls with strike prices of 75 and 80. According to my measuring
stick, there was plenty to attract attention. The spread between Augusts and Septembers stood at less than, a
full point! It touched only 5/8 of a point at some moments in the fluctuations, usually just slightly higher.

The possibility of a quick stock rise prompted me to wait it out for a couple of days. The crossing of a
spread's strike price by the share price would require a pulling up of stakes with the loss of commission
costs. The shares rose to 74 & a fraction, causing me to disregard call options with a strike price of 75 as
"too close" at the moment and to focus on the 80s. August 80s traded at 3-3/8, Septembers at 4-1/8.

The stock ebbed, to around 69-70. There appeared to be a 69-70 "floor" and a 74 & a fraction "ceiling." A
horizontal calendar spread with calls at the 75 strike price level now seemed a worthwhile idea. I decided
that tomorrow I would phone the broker with an order at a ¾ of a point spread or debit, which looked to be
a realistic, likely-to-get-executed figure. Today, though, I would indulge in a psychological gimmick. I
phoned the order to the broker but with a 5/8 point debit, knowing there was little chance of execution at
such a great figure.

That was my trial run, my rehearsal. I have found that "crossing the crucial threshold" goes easier on the
nerves if you cross it for practice beforehand. Thus I went through all the motions beforehand for the sake
of warming up and the slight possibility of it connecting. The order came back "nothing done" but mentally
I was past the opening night jitters and already on stage.

The next day, Mellon Bank's August 75 calls traded at 3 and the September 75s at 3¾. I phoned the broker:
"Buy 10 Mellon call options September 75 to open a position. Sell 10 Mellon call options August 75 to

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open a position. The two orders going in together, each dependent on the other. The sell side covered by the
buy side. This is at a debit of ¾ of a point." The statement, "The sell side covered by the buy side" meant
that the transaction involved no "naked" options, only "covered" ones. "The two orders going in together,
etc." is a boilerplate statement within the yards of spread activity.

The word came back "nothing done." The next day, I entered the same order but with a 7/8 point debit.
Again no execution. That these were low-volume options could have caused the hindrance. According to
my measuring stick, a single point debit was rare gold and less than that practically El Dorado. I had to act
fast before the spread widened, and with something more aggressive than the two-seater bicycle. I would
handle the two transactions separately, like a non-spreading optioneer doing a buy or a sell.

July First. Mellon's September 75 calls were bid 3-3/8, ask 3-5/8, last traded at 3½. For a buyer, the low or
bid figure would be wonderful but is almost impossible in actual practice. The high or ask figure? Too
expensive! The in-between one seemed practical, more so since options had just traded at that price. I told
the broker to buy me 10 at 3½ and within minutes I was proud owner. With opening a spread and handling
the two transactions separately, the buy must occur before the sell to avoid the hazard of "naked" option
selling. Selling naked options means that a strong, sudden move in the underlying turns a $2,000 gain into a
$3,000 or $4,000 or worse debt. On spreads, your long end grows too.

Now that I owned Septembers, I could sell Augusts, the key figures of which I had already been watching.
Bid 2-9/16, ask 2¾, last traded at 2-3/4. When you sell, the bid number is too low and the ask nice but
unrealistic. 2-5/8 was in between and realistic enough to have just happened. The amount worked out right
spread-wise. I told the broker to sell 10 August 75s at 2-5/8 and prompt execution followed. Debit: 7/8 of a
point.

The 10 Septembers cost $3,500, paid for with $2,625 from the sale of the Augusts and $875 plus
commissions from my own capital. In my stinginess, I paid much less than whoever bought the Augusts
and whoever bought comparable Septembers but without spreading. Many spread traders routinely handle
the buy and the sell separately and shun the "Two orders going in together, each dependent on the other."

The hazard lies in the possible lack of buyers/sellers at the desired price. For example, if my offer to sell
the Augusts for 2-5/8 ($2,625) had gone unexecuted, I might have had to lower my price and thus enlarge
the debit or opening spread. However, handling the two transactions separately does make for fast, cut
through-it action, as opposed to my three days of "nothing dones." I might take up this matter in future
writings.

July Tenth: Mellon shares climbed to 74 & a fraction then closed at 74, a single point below strike price.
The spread between the August and September options fluctuated around 1 and 1-1/8.

July Thirteenth (after the weekend): Having "tested its ceiling" on Friday, the stock spent most of today at
73 and various fractions before closing at 72-7/8. The spread wiggled between 1-1/8 and 1¼, swaying in
the right direction.

July Fourteenth: Shares fluctuated between 72-7/8 and 73¾, closing at 73-3/16. The August calls last
traded at 3-3/8, Septembers last at 4¾, fattening the gap to 1-3/8.

What is another difference between a businesslike, scientific-minded trader (I humbly hope I qualify) and a
casino sucker transplanted to an Exchange? Realistic profit goals. A haberdasher price-tags a suit at double
the wholesale cost and, after factoring in overhead, may figure that a third of the garment's retail price will
be profit. The professional handicapper at the race track anticipates a 20% or slightly better profit after
several bets. The horse junkie expects to turn $100 into $1,000 or $1,000 into many grand, without ever
telling us why everybody does not ride limousines if the bank breaks that easily.

In spread trading, a 25% profit in four weeks annualizes to 325%, and bigger gains in less time are not
unusual. Clearly this is not dividends or 30-year bond coupons. Yet the spread strategist does not expect his
capital to multiply rampantly -- each dollar birthing a dozen -- within a beer-fermentation time period. That

989
is the realm of the "wealthy in a week or two" traders who will have been better off brewing beer. Too
many brokers "no longer active" client files are mass financial graves for such "multipliers."

Still another item of contrast between the businessperson trader and the crap-shooting trader resounds: The
former looks farther ahead in time and, in tandem with that, is more aware of what can go wrong. The
gambler tends to focus on the next thrilling win while the businessperson intends to be around for the long
campaign, and thinks and plans accordingly. To illustrate, "doubling up" is a standard gimmick of casino
wagerers. You bet $5, then if you lose you bet $10, and keep doubling until you win.

You will win perhaps a half-dozen such run-ups for a total gain of $30. Then around the seventh run-up,
you will lose $40 on the fourth bet, $80 on the fifth, $160 on the sixth. The gambler delights in the
immediate win while the businessperson stands alert to the mathematical land mine a few steps into the
procedure. At the Exchange or the broker's office, this awareness prompts the scientific speculator to pass
up nine potential trades and to risk only a conservative amount of capital on the tenth. The gambler "keeps
reloading" by repeatedly adding money to his trading account. The businessperson makes his original
capital last a long time. He sees the distance and goes the distance.

A particularly crucial distinction between the Exchange businessperson and the Exchange crap-shooter lies
in the latter "make it interesting" syndrome and, accompanying that, the need to be "interested" all the time.
Many people find a sporting event watchable for its own sake. Some find that betting a few dollars "makes
it interesting" and a larger amount more so. This often snags the speculator in options or futures or stocks
who is structured inside like a gambler instead of a businessperson. Venturing a conservative amount
wisely limits the risk but a larger stake makes it more "interesting."

A closely-related germ is the "all the time including periods in between" disease. Years ago on his TV
situation comedy, comedian Danny Thomas remarked, "That kid of mine eats so much. I've heard of eating
between meals, but he's the only kid I know who eats between bites." Something similar can really happen.
A problem drinker craves something stronger than the half-finished glass of beer in front of him. He goes to
the whiskey bottle, downs a shot, then returns to his glass of beer. He is "drinking between gulps!"
Symptoms of addiction include wanting to "high all the time" which means "filling those interludes."

Trouble aplenty oozes between the slats in financial speculation. Mention was made in the previous issue of
CTCN of "dead pools" -- betting on which celebrities will die in the coming year or month, an activity
indulged in by office workers, Internet surfers, and most frequently Wall Streeters during boring, inactive
periods on the trading floors. In other words, wagering between bets. Using corpses as dice before or after
using options and other securities as dice. Gotta fill in those dull stretches.

Since the last issue, players in stocks or futures or options have collected on their side bets on Maureen
O'Sullivan and Roy Rogers. Less macabre deals include the bookmaking barber and the poker deck in the
desk drawer. A piece of the action here and a piece there "make it interesting." Handle speculation like a
business? Yeh, bet on which sugar cube a fly will land, then use option contracts as de facto flies and sugar
cubes. Remember that plenty of businesses have been dragged down to the saloon bet level but that saloon
bets have never been pulled the other way. Stay off the one-way escalator down.

Five minutes before the close of trading a couple of days ago, I obtained a welcomed quote on Mellon
Bank shares. Where was I at the time? Playing video poker? Betting on Milton Berle to tell his last Pearly
Gates joke? I was on the basement phone of the New York University library. Although many people are
more scholarly than I, I find that being a scholar of sorts makes the days "interesting" without recourse to
crap games between crap games. While there I Xeroxed a piece by English author Ford Madox Ford on
British-born poetess Christina Rossetti (1839-1894):

"I do not know that in her drawing-room in the gloomy London square Christina Rossetti found life in any
way ennobling or inspiring. . . Her poetry is very full of a desire, of a passionate yearning for the country,
yet there in box-like rooms she lived, her windows brushed by the leaves, her rooms rendered dark by the
shade of those black-trunked London trees that are like a grim mockery of their green-boled sisters of the
open country . . .

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"She put love from her with both hands and yearned for it unceasingly; she let life pass by and wrote of
glowing tapestries, of wine and pomegranates; she was thinking always of heaths, the wide sands of the
seashore, of south walls on which the apricots glow, and she lived always of her own free will in the gloom
of a London square."

Yet the bright side shines exceptionally: When her fancy roamed it roamed with gusto, finding the violets
and the sea-foam and the picturesque ruins of abbeys, not Brighton coast roulette or bets between street
vendors. Would that many traders follow her example, sending forth their spirits from trading pit or office
cubicle or laptop to something better than a barroom bet or a sports wager? Scientific investing can turn
into a back alley crap-shoot but a back alley crap-shoot cannot become scientific. Martingale strategy
(doubling up) goes deeper and deeper below the hash house.

In the previous issue of CTCN I made a request which I do hereby repeat to financial readers: Please cast
yourself in the role of the carriage-trade tycoon. Even if you do not drink, send your inner self strolling
through the Rothschild's wine cellar rather than the Diet Pepsi plant. Whether you are the scientific trader
or the poker deck patsy of the Exchange depends on precisely how you "fill the interludes" and "make
things interesting." Let your spirit roam among the ghosts and archaeological artifacts of the ancient Greek
temples at Agrigento, island of Sicily. The spiced winds from there will not taint your investing. The dead
air around the slot machines might.

Among other items I researched at the NYU library were details regarding the opera Turandot by Giacomo
Puccini, which I had seen several years earlier at the Academy of Music in Philadelphia. Puccini had died
while writing it in 1924 with the third and final act not quite complete. Composer Franco Alfano finished it
based on the late creator's notes. This brought about the famous "unfinished premiere." At the premiere
performance of Turandot in 1926, maestro Arturo Toscanini conducted up to the last notes written by
Puccini. Then he told the audience, "It was here that the composer put down his pen." He laid down his
conductor's baton and walked off.

Toscanini served as maestro for several performances of the opera in its entirety during the remainder of
that season. The title character is a beautiful but cold princess in old China. Her ancestress was kidnaped,
raped and died while a captive of a foreign mogul. Turandot extracts revenge by letting foreign princes
come to her court and propose marriage, then having them beheaded. During Act One, the Prince of
Persia's severed head is brought onstage. An interrogation by torture and a suicide follow until an unknown
prince thaws her out romantically for a happy ending. Among the portions of Act Three which Puccini did
complete was the standout tenor aria "Nessun Dorma" ("None Shall Sleep") which has in recent times
become the signature piece of the great Luciano Pavarottio.

Like swallows to Capistrano or a mysterious melody, they keep coming back. I refer to the lovers of
"golden yesteryear" to whom "traditions" is anything remembered by people with lousy memories and little
or no culture. Richard Nixon's vice president Spiro Agnew expressed pride in his Greek heritage. Yet he
was the champion on a pedestal to millions and millions of right-wing reactionaries -- Americans who
thought Pericles and Euripides owned pushcarts. Today they keep coming back even in the pages of the
Wall Street Journal.

After the teen-age school shootings in Springfield, Oregon, conservative publications such as the National
Review and the Weekly Standard routinely blamed "the culture" -- movies, magazines, rock and rap lyrics.
In the Wall Street Journal (June 11, 1998) Albert R. Hunt wrote of anti-censorship people: "Defenders of
this rot insist there is no reliable data that links violence to cultures. That flies in the face of common sense.
If Frank Sinatra songs make people feel romantic and John Phillips (sic) Sousa makes people feel patriotic,
then the obscene violence of shook rocker Marilyn Manson or gangsta-rapper Snoop Doggy Dog might
encourage impressionable teenagers to feel perverted or violent."

Sousa's middle name was Philip -- one "1" and no "s" at the end. The reactionaries finally come up with a
"good old days" advocate whose knowledge of music history goes farther back in time than the 1930s and
"Looky, Looky, Looky, Here Comes Cookie," and he messes up the spelling. Similarly, Judge Robert Bork

991
cheered in retrospect Will Hays and his 1930s movie censorship but misspelled the name Hayes." Their
look-back-in-time telescopes appear to be of Woolworth grade with faulty focus beyond the Ozzie &
Harriet period. No wonder they did not try to teach Spiro Agnew about the plays of Aristophanes or the
sculpturing by Praxiteles. Nor do they reveal to us how many real-life poisonings and adulteries have been
traced to grand opera by Giuseppe Verdi.

Hunt and Bork and others of their stripe would have liked the recent (July 7, 1998) New York Times
retrospective on the late Roy Rogers and his wife Dale Evans, who acted together in many movies and TV
episodes from 1944 to 1957: "Devoted as they were, they never kissed on screen. Mr. Rogers frowned on
such public displays and was ever mindful that he was a potent role model for millions of children." The
article was remiss in failing to mention the miracle of the housebroken horses. The film crew strained to
prevent the cameras from catching a glimpse of horse manure, on which the censors frowned. Studio hands
with shovels helped and were the unsung heroes of screen decency.

Only one thing bothers me more than seeing traders and tycoons accept this lacy blushes-in-the -candle-
shop notion of culture, and that is seeing members of a certain ethnic group accept it. In his already-
mentioned Wall Street Journal article, Albert R. Hunt quotes as an authority criminologist John DiIulio:
"The music pounds and pounds with messages of violence and degradation of women; if you talk to people
on the streets, they will tell you this is public enemy number one," says Mr. Dilulio of Princeton University.

An intriguing statement coming from an Italian-American. Does he use, if not singing cowboy movies,
accordion music and Spike Jones as measuring sticks? Was the shooting of a pregnant women in Roberto
Rossellini's landmark film Rome: Open City too much for him? I am sure that Professor DiIulio shares my
fondness for kitchens aromatic with garlic and tomatoes and sweet basil. Beyond that, I just hope he knows
Italian heritage better than Spiro T. Agnew knew Greek heritage.

One does not easily cringe at rook and rap music that "pounds and pounds" when one has thrilled to the
sight and sound of a baritone stabbing a tenor and seducing a soprano. Heavy, yes, if you are used to Glenn
Miller and roses that sigh in the June night. As for speculators and investors, no cowards in my regiment!
Also no "traditionalists" who think that Botticelli sold protection on the east side. I insist. In 1859, the
premiere of Verdi's opera Un Ballo in Maschera (A Masked Ball) was plagued with cancellations and
postponements because it dramatized the assassination of a king. Many people feared that performances
would encourage real regicides. If you talk to people on the streets, they will tell you. Higher-ups in royalty
and government too.

Back then, they lacked the blessed influence of Roy not kissing Dale. It may be that I do Professor Dilulio
an injustice. Perhaps his criminology files at Princeton University teem with cases of real-life rapes,
beheadings, suicides and interrogations by torture caused by the Puccini tale of the ice princess. You get
away from boy & his dog fiction and all sorts of trouble break loose. Where are songs like "In the Shade of
the Old Apple Tree" and "My Sweetheart Went Down with the Maine" now that we need them? However,
if you are a trader who must "fill the interludes," explore the pyramids and catacombs for something
stronger, if only from your desk or armchair.

The Roman and Florentine labyrinths still come alive in the autobiography of Benvenuto Cellini as much as
when he wrote it in the 1500's, as do his bronze Perseus holding the Gorgon's viper-hair head and his gold
medallion Leda and the Swan. Did sapphires, rubies and emeralds turn into liquids on the palettes of artists
of the Neapolitan school? Have a look and decide for yourself. A soprano aria shimmers like polished
silver as much today as when the ink on the score sheets barely dried.

If another trader tries to lure you into a stairwell dice game or a bet on Kirk Douglas' life expectancy, or
another right-wing reactionary shows up in the Wall Street Journal and tries to "save" you with saddle
songs and heroes who do not kiss anybody, show your intaglio of Old World influence. Either enjoy a plate
of manicotti with marinara sauce or slay with the sword of Ulysses. But guard the fine-tune of your trading
knack.

992
July Twentieth (exactly 13-trading days or 2½ weeks after starting the Mellon position): The August
options clocked in at 1¼, the Septembers at 2-7/8. Those who bought the Augusts on July First are down
more than half; those who bought Septembers but without spreading are off a fifth. This 1-5/8 spread nearly
doubled my 7/8 point stake. Dry hole for others; the spreader's gusher.

NFA Press Release - In the matter of MBH Commodity Advisors

and Jacob Bernstein

NFA Case No. 96-BCC-015 On May 5, 1998, a designated panel of NFA's Hearing committee issued a
Decision to MBH Commodity Advisors, Inc. (MBH) and Jacob Bernstein (Bernstein) after a hearing was
held. MBH and Bernstein denied the material allegations against them. The Decision expels MBH from
NFA membership and bars Bernstein from association with or being a principal of any NFA Member.

MBH and Bernstein may reapply for membership after 18-months from the effective date of the Decision.
The Decision also jointly fines MBH and Bernstein $200,000.

On May 20, 1998, MBH and Bernstein filed a Notice of Appeal with NFA's Appeals Committee. The filing
of that Notice stayed the Hearing Panel's Decision. MBH is a commodity trading advisor Member of NFA.
Bernstein is an associated person of MBH and Bernstein Investments, Inc., an introducing broker Member
of NFA. Bernstein and MBH are located in Northbrook, Illinois.

The panel found that MBH and Bernstein used misleading promotional material which emphasized profit
while downplaying risk [C.R.s 2-29(a)(1), (b)(1) and (b)(3)]. The panel also found that MBH and Bernstein
represented that futures trading is for everyone [C.R. 2-29(a)(3)] and used hypothetical trading results
without the required disclaimer.

NFA Press Release - In the Matter of Advantage Trading

Group - and Richard Allen Spohr

NFA Case No. 98-MRA-002 and 98-ARA-002 On May 29, 1998, NFA took a Member Responsibility
Action (MRA) and an Associate Responsibility Action (ARA) against Advantage Trading Group, LLC
(ATG), a guaranteed introducing broker Member of NFA and Richard Allen Spohr (Spohr), a principal and
associated person of ATG. ATG and Spohr are located in Phoenix, Arizona.

The MRA and ARA suspend ATG and Spohr from NFA membership and Associate membership and
prohibit them from soliciting or accepting (including via ATG's Web Site) any additional investments in
ATG. The MRA and ARA also prohibit Spohr from disbursing any funds from any ATG accounts for any
purpose prior to NFA's approval.

These actions were deemed necessary to protect commodity futures markets, customers or other NFA
Members because NFA has reason to believe that ATG and Spohr engaged in fraudulent activity in
connection with the solicitation of futures customers and others to acquire an ownership interest in ATG.
ATG and Spohr have also repeatedly failed to provide NFA access to certain books and records requested
by NFA and have provided false and misleading information to NFA.

The MRA and ARA became effective immediately and will remain in effect until such time as Spohr and
ATG have demonstrated compliance with all NFA Requirements to satisfaction of NFA.

Editor's Note: As a side note, you may already know last year Commodity Traders Club filed suit in the
U.S. District Court against Advantage Trading Group and Mr. Richard A. Spohr. CTC's suit resulted from
ATG's default on marketing services oral contracts performed on their behalf, and also for slanderous
activities Spohr was participating in.

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Our lawsuit was eventually dismissed due to a technicality as the court ruled we had filed suit in the wrong
court, which lacked jurisdiction. We were working on a new lawsuit in a different court when we received
word about Advantage Trading Group and Mr. Spohr being suspended. Due to this NFA suspension, CTC's
new suit has been deferred.

Editor's Note: This is an additional side note. We won't go into much detail on this, but only touch upon
the main concerns since this situation is similar to the ATG and Spohr matter, but even more serious, at
least as far as we are concerned.

This involves still another commodity broker who also defaulted on a (written) marketing services contract
with Commodity Traders Club. Actually, this claim is much more clear-cut and solid than the ATG matter.
This is because we have a signed written contract from the President of BLT Financial Group, Mr. Paul
Brittain. In addition, he previously sent us several compensation checks which also had the effect of legally
ratifying the signed contract.

When we asked for the additional funds owed us, this Broker became immensely hostile and made up lies,
amazingly denying the existence of the signed contract and blatantly denying the fact he compensated us in
the past, under the contract.

After we asked again about the matter, and at a minimum an apology and acknowledgement of the true
facts, he became even more hostile and displayed even greater dishonesty. We received an e-mail from him
dated 7-22-98, which because it was so alarming, we referred it to the Police Dept., as an interstate
commerce threat.

These are his words in his e-mail: "To CTCN and Staff: Bye, Bye, So Long and don't let the door hit you in
the ass...I answer your letter only out of amusement. However, I think I'm going to come to Arizona and
personally kick your little ass. Go Dave Green, reap the whirlwind. May your days be filled with
unhappiness and your life long." Paul Brittain, BLT Financial Group, Sparta, New Jersey.

Editor's Note: For legal reasons CTCN would greatly appreciate hearing from club members who had (or
have) a commodity trading account at BLT at any time during the period of July 1997 to now. Thank you.

Timing and Limiting Losses - Rick J. Ratchford

The different facets of trading are numerous. Need to trade within our means (money management), need to
cut our losses short (preplanned stop loss locations), patience and discipline must be exercised constantly,
profit objectives or stop-loss exits must be calculated, trading plan must be adhered to the letter, and so-
forth and so-on.

There are two givens in trading. You will have wins and you will have losses. Every beginner and every
veteran in this business (game) of trading will experience both of these realities. There are a few other
realities that my escape notice:

1. Having more wins than losses does not necessarily constitute a winning program

2. Having more losses than wins does not necessarily constitute a losing program.

3. Having equal wins and losses does not necessarily constitute a break-even program.

There are a few things that must be addressed here. How big are the wins, and how small are the losses per
contract (trade)? How much commissions are being paid which will add to the negative side of program,
thus making it necessary to marginally profitable just to break even?

To go along with money management, patience, discipline, and other facets of trading, there is Risk
Management. Risk management is not the same as money management. Risk management defines what

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you are willing to risk on any given trade based on factors you have determined to be in your best interest.
How you come up with these factors is a subject all its own.

With risk management, you are attempting to limit your losses, so that they do not exceed your winning
expectations. Thus, if you can limit your losses to an amount less than the size of your average winnings,
all things being equal, if you have the same number or wins to losses, you will then be ahead of the game.

Now, there are different schools of thought on limiting losses. Some choose to use a fixed amount, say
$200 on cattle trades, $300 in soybeans, etc. Others may define their risk based on how far away their stop
loss will have to be to be beyond the last swing top or bottom (resistance/support).

Both of these have merit and downfalls. If you set a fixed limit, that is merely your limit, not the markets. It
does not have to acknowledge that just because you are using a $200 stop in cattle that it cannot move
against you and hit that stop. Many times that is exactly what it will do. Using previous swing tops and
bottoms is a good strategy, yet it is well known to floor traders that orders are sitting there (that is what
they tell us anyway), and also it may make your stop-loss a tad larger than you (or your account) is
comfortable with to reach beyond the previous swing point.

So now that I've introduced the subject, I will take this opportunity to share how I might go about limiting
risk using the method of trading comfortable to me. My risk management is directly linked to market
timing for which I use Fdates.

Consider an example: Based on market swing research (Fdates and cycles), it is determined that the
probability of a swing bottom to occur today is very high. Prices have indeed made lower prices. Now these
are the things I start to consider:

1. Did prices happen to find support, and if so, is it holding?

2. Are weekly price charts showing this market to be merely in a retracement trend, as the main trend is
actually bullish?

3. If the weekly price charts are showing this to be a bear trend, does it appear to be at the end of this trend
based on cycles or some other indicators?

If I find that the situation looks good for a move to the upside based on market timing, the next thing I will
plan to do is to let the market tell me it is ready to march higher. The procedure to do this is extremely
simple.

First off, I will let the market close on my swing bottom day. Then, knowing what the high of the day is, I
simply place a buy stop order a couple of tics above the high prior to open of following day.

Now think about what I'm doing here. When working with high probability swing dates, I'm expecting that
if the date is accurate, a higher high will be made the next day as prices start to turn up. Unless this
happens, my being in the trade is very small thus keeping the risk down. Once my trade is taken by making
a higher high, I must protect my position with a stop loss order to limit my risk.

Where do I place it? Well, if this trade was taken based on high expectations of a swing bottom having just
been made, then obviously lower prices than the swing bottom would nullify this belief. Once this belief
has been nullified, so should the trade. The logical place then is to put a stop-loss order a couple tics below
the swing bottom at this time.

A word of caution here. If you use this strategy, common sense should be employed that placing a buy stop
order just above a swing point range which is much smaller than the average daily range for the market in
question is not a good idea. It would be very easy for the market to simply make an outside day range the
following day (a range that has a higher high and lower low than the previous day) which could pick up
your trade and your stop-loss in very short order. It is preferable that the range be average or greater which

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would require a big move on the part of the market to take out both orders. Again, start with the buy stop
first, then place the stop-loss only if the trade is initiated. No need to have your stop initiated first if both
orders are placed at the same time and you truly expect a turn during this period. It could easily be one day
late.

Talking about one day late, since this is the margin of error given for a swing turn date, if it just wants to go
lower the day following, then we have yet to be in the trade and no harm down. Again, we are working to
limit our exposure. The next day following the day late time period, we again place our buy stop above the
high of that day. Now, we will either be going long here, or this trade will be completely nullified (unless a
lower low was not made, such as with an inside day, in which we would then place our buy stop at the
same location for the following day, not above the high of the inside day).

Our probability of loss is limited. We put the probabilities on our side by first timing the market using our
timing techniques. In the above example, this was done using Fdates (cycle swing dates). Next, we let the
market prove us right or wrong, likely keeping us out of the trade if wrong or early, and into the trade when
right and it is time. We can then easily determine our risk amount and decide before the open of the market
if it is too much in relation to our account or profit objective, or just right to go for it.

This is just one timing model, as there are others. This is also one loss limiting strategy that I personally
have found to be a major factor in keeping me trading year after year.

Learn how to time a market, and importantly how to limit your losses in relation to your timing model. The
only problem you will then have is you, in determining when to get out (hopefully with profits greater than
your risked amount).

About Real Success Video Course & CTCN - James Shaw

I'd be flattered to think I've made a useful contribution to such a fine publication. It's very disconcerting to
me to hear about your troubles with the CFTC. Please don't let them hound you out of business. If it comes
to that take publishing offshore. CTCN is too valuable to let go.

But about the Real Success method, you mention again the drawdowns, is it still a viable method to work in
your opinion or does it need retooling of some sort?

Editor's Note: Yes, the basic methodology is still intact and viable. However, the stop-loss and target
levels need to be adjusted upward to compensate for the markets greater volatility and higher price level
since the tapes were produced during 1996.

Lastly, I do hope the problems you're having with the government get resolved, because I thoroughly enjoy
the learning experience of reading CTCN. It always seems whenever I find a source about Futures trading
that I can actually learn from our govt (for my own good, I'm sure) steps in and interferes. They drove the
Pacific Commodity Newsletters and its editor Dr. Martin Miller into bankruptcy. I hope they don't do the
same to you.

Randomness at Work - John R.S. Piper

The expectations of any market approach are heavily based on the law of randomness, but few traders
really understand these rules, nor do they make any attempt to do so. In an attempt to remedy this omission
I have recently been reading The Jungles of Randomness by Ivars Peterson (ISBN 0 14 02.7172 4). I
recommend this book to anyone trading markets.

Let's look at a "typical" trading system. System X has a 50% expectation of profit or loss, meaning that it
will make winning trades as often as it makes losing trades. When it wins it averages a 2.5 multiple over its
losses. So if the system uses a fixed stop at 20 DOW points, then each loss will be $200 (ignoring slippage,

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overnight gaps, etc. - I am not trying to be 100% realistic here, I am trying to demonstrate a simple point).
The average profit would be $500. Is this a good system? Most definitely, over 1,000 trades it will have
500 losers totalling $100,000 and 500 winners totalling $250,000. I am ignoring commissions which at $25
per trade would reduce the total by $25,000, but it is still good news.

But how many traders would be able to use such a system? Not many because within that 1,000 trades there
would be some fairly long strings of losses. This is where randomness comes in.

Out of every 1,000 trades we would have 500 winners and 500 losers, albeit this would vary slightly with
each sample of 1,000 trades. Of those 500 losers, half that number would be followed by a further loss, thus
250 of those would form a string of at least 2 losers. Of those 250, half again would form a string of 3 or
more losers. So it goes, thus we end up with a table something like this:

1,000 Trades

500 losers forming a string of 1 or more losses.

250 losers forming a string of 2 or more losses.
125 losers forming a string of 3 or more losses.
63 losers forming a string of 4 or more losses.
32 losers forming a string of 5 or more losses.
16 losers forming a string of 6 or more losses.
8 losers forming a string of 7 or more losses.
4 losers forming a string of 8 or more losses.
2 losers forming a string of 9 or more losses.
1 loser forming a string of 10 or more losses.

If an individual is asked to list out a string of random results it usually fails to include the long strings that
are bound to form part of that result. Thus the more knowledgeable observer can tell such a human creation
from a truly random string.

But think about what these results mean in the real world. Many traders abandon any system which
produces more than 3 or 4 losers. Out of every 1000 trades 125 sequences will produce 3 or more losses, 63
will produce 4 or more losses. Out of every 10 trades there is liable to be one string of 3 or more losers. So
most traders will abandon a good system simply because it loses 3 or more times, something that is bound
to occur probably in the first 10 trades. So do traders give systems a chance? OK, I am generalizing, but I
suggest the answer is "NO." To truly judge performance you need to know what to expect and prepare
yourself for just that. Only then will you give any market approach a fair crack of the whip.

Member Requests

Paul Lester - I've enjoyed my subscription to the "CTCN" BUT . . . Trading is just too intense. It demands
my full attention. I've learned a lot about my self during the past few years. I've stopped trading. Because of
this, I am selling my official copy of Omega's SuperCharts 4.0 Real Time software with security block,
permanent password, all original CD's and documentation plus the Easy Language videos for $650.00.
Anyone out there interested may contact me at: plester120@aol.com

Editor's Comments

This issue includes a full page ad from Zap Futures. Our last issue contained an educational type of
"infomercial" article written by Mr. Bill Kaiser of Zap Futures. We have heard good things about ZAP
from several members, especially regarding their speed of execution. Ms. Rita Karpel is our contact there.
We have known Rita for a number of years and have found her very helpful and a nice person to deal with.
Please speak to Rita if you call ZAP for information at 1-800-257-6842x1852 or e-mail to
ritak@interaccess.com

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Issue 46.

Delayed Quotes - Nancy Oss

I'd like to share with your readers an experience I had using delayed quotes verses "real-time."

Since delayed quotes for all exchanges, including equipment rental run about $100 a month, verses about
$300 a month for the CBOT exchange only, I decided to save money.

I wasn't trading the S&P-500, the mini S&P, or anything with a great deal of volatility. So my thinking was
volatility and speed wouldn't be much of an issue, generally speaking, since prices seem to hover around
price action for a while without moving very quickly. In other words, if you're trading grains during winter
or some other market that isn't exhibiting a lot of volatility it seemed to be a good way to save money.

Was I wrong? I went short two December copper @72.55. Not one, but two. Why, because I was greedy.
The intra-day, daily, monthly, and yearly trends were all down. Talk about trading with the trend - how
could I go wrong? Other indicators gave me a sell signal also.

My stop was in at 73.00. Not more than 15-minutes after the fill at 72.55 my broker called with the 73.00
stop order hit and filled. I ran to the computer and looked at the screen. Prices were around 72.70. I sat and
watched this $500 unprofitable trade unfold before my eyes. I felt like a person on a plane that's going
down and is going to crash. You know you're going to crash and it's just a matter of time. Of course, the
consequences are not near as dire.

It's money and not my life. But the sense of impending doom is kind of the same. It already happened. I
knew it happened. Now I'd watch it happen -- with my DELAYED quotes. Needless to say, I won't be
using them again to trade from.

P.S. -- If I had "real-time" quotes, I may have jumped back in and reversed the position and went long. But
there was no way I would do that and not be able to monitor that trade accurately and correctly. Also, then
I'd be trading against the trend. Anyway, timeliness and accuracy are of utmost value in these highly
leveraged markets.

There's One Born Every Minute - William Green

Jake Bernstein has a lousy record trading fixtures -- but has made plenty trading on investor gullibility.

"I'm teaching you something that I know works," says Jake Bernstein. "It's real simple." Bernstein, 51, is in
a Washington, D.C. hotel meeting room mesmerizing an audience of aspiring futures traders. Want to make
a killing trading futures? All you need to know, says Bernstein, is that many seasonal price patterns occur
year after year. Buy live hog futures on Oct. 30 and sell on Nov. 27. That's a trade that would have made
you money almost every year in recent decades, he claims. Bet on the S&P 500 March contract to rise from
Jan. 12 through Jan. 18. For 15 years, he says, this trade was a winner 93% of the time.

Does anyone believe his nonsense? Unfortunately, yes. Intoxicated by the promise of easy money, audience
members line up to buy Bernstein's products, among them his books, with titles like The Seasonal Trader's
Bible and The Best of Bernstein: A Treasure Chest of Jake Bernstein's Market Wisdom.

His monthly newsletter costs $400 annually; his weekly newsletter costs $895 a year. He sells three other
newsletters, plus video courses and a CD-ROM ($695) that lists 60,000 seasonal trades. He offers
telephone hot lines and charges up to $2,500 per person for his two-day seminars.

Yes, you can fool some of the people all of the time. Commodity Traders Consumer Report, a respected
futures publication, tracks the trades Bernstein recommends in his $895 flagship newsletter. If you had

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acted on these weekly tips from 1988 through 1992, you would have lost money for five consecutive years
(assuming typical transaction costs).

Let's say you set up a $20,000 trading account in 1992 and executed the newsletter's recommended trades
for that year. Your account would have been wiped out. In 1996 you would have lost 95% of a $20,000
account. Bernstein's response: "There are always losing periods."

He professes to be an expert on the psychology of trading. His qualifications? In registering with the
Commodity Futures Trading Commission, the Montreal-raised Bernstein wrote that he held a master's
degree in psychology from Chicago's Roosevelt University. In fact, he never completed his master's
studies.

In the 1980s Bernstein hooked up with an outfit called Robbins Trading and helped to manage futures
accounts for investors. James Roemer, who co-managed money with Bernstein, says: "Jake is brilliant, but
he can't manage money to save his life . . . He'd get scared, buy at highs and sell at lows . . . He kept losing
money."

Bernstein found an easier way to get rich. Instead of just trading futures he would trade on investor
gullibility. In 1996 he starred in an infomercial that has aired on nearly 400 TV stations. It hypes a video
course ($180) called Trade Your Way to Riches. In it a farmer named Harold Henkel tells viewers how
well Bernstein's approach has worked for him. Henkel, however, now admits that he lost money trading in
1996 and 1997 while using Bernstein's products.

On his website Bernstein offers to set up customers with his "personal" brokers at Fox Investments, a
division of the Chicago brokerage firm Rosenthal Collins Group.

Suppose you take Bernstein's recommendation and set up an account at Fox with $5,000 -- the minimum
that Bernstein says you need to become a trader. Your commissions would be $60 to $80 per trade, about
three times more than savvy retail customers pay. Bernstein's weekly newsletter offered 195 recommended
trades last year. At that rate, a small trader's commissions alone might amount to more than double his or
her original investment. Needless to say, Bernstein receives a slice of the brokerage's commissions. A Fox
broker appeared in Bernstein's infomercial, touting his seasonal trading approach. Says Bernstein: "There's
no arguing with history." Say we: Where are the regulators when you need them?

Commodity Shark - William Green

JAKE BERNSTEIN is not alone. Another prominent purveyor of hype is Ken Roberts, a college dropout
and former life insurance salesman. Roberts convinces neophytes that they can become successful traders
with a grubstake of only $1,000.

In 1983 he self-published The World's Most Powerful Money Manual & Course, a mail-order book that
intersperses tips on futures with platitudes about getting "everything you want (mentally, physically, and
spiritually)." He claims to have sold more than 300,000 copies. At $195 each, that adds up to nearly $60
million.

Roberts, who touts futures trading as "the world's one perfect business," charges $2,695 for his advanced
trading seminar. He hawks trading charts, a course on options, a newsletter and his novel, The Rich Man's
Secret. He also owns a piece of a California brokerage firm, Main Street Trading. It charges commissions
so high -- $95 a trade --they virtually assure that most small active traders will lose money. The hype has
paid off for Roberts. It has brought him tens of millions of dollars and an Oregon mansion with a cigar
room. But where are the customers' mansions?

Read more: By William Green - Management, Strategies, Trends - From March 9, 1998 Issue

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 A Brief History of PEPS & Kurt Amacher's 3-D System - John Mack

We were both wrong! I didn't pay $95 but $495 for PEPS in September '86. After that, I cut out his ads in
Futures Magazine (with all those charts studded with astounding buy and sell signals), and they show him
(Ramesh Veghela) began charging $695 in October '86 and $985 before April '87. From April '87 on, the
price seems pegged at $985.

You were right about the indicators he used: a 9-day slow stochastic and a 9-day RSI. He compared their
movement to the price movement of the underlying commodity and sought divergences between them. He
told me he got the idea looking at charts in Commodity Perspective. He saw this pattern repeat over and
over -- possibly even when it was absent! He made a trading method out of it, and the rest is profits.

Before buying, I recall asking him why he was selling such a hot idea. "Ah, well, you see, John, this is a
very good question . . ." and off he'd go into how he was a struggling grad student in Wisconsin, trying to
collect enough funds quickly to set up a super-duper computer system to test this idea thoroughly and
develop even better ones. Yes, he wanted my money to test the idea he sold me! Confidence, man.

When I bought the "system," I was annoyed how much his signals lagged the market, so I called and asked
how he overcame this bothersome feature. He began the Dance of Multiple Indicators, paternally advising
me not to put all my eggs into his single (ill-woven) basket. We didn't talk after that, but I continued to
collect his ads, remarking in each how brilliantly PEPS performed last month. One couldn't ask for a better
rear view mirror.

My recollection of paying $95 was correct, but it was for Kurt Amacher's 3D system. This one looked for
divergent behavior between current and forward deliveries. In reality, it was a loss-leader intended to
entice you to buy his $2,400 system, Predictor. I did and it used a novel way of drawing triangles on price
charts to pinpoint the day that prices would reverse. I still think it's pretty clever, although one can generate
so many triangles, you don't know which ones to believe. Worth the money? Hell, no.

That'll do it for now. It was great talking with you! I'm glad to hear you're doing well, and I hope the "Real
Success method" works out well for me, too. I'll keep you posted on my progress.

Day Spread Trading of T-Bonds - Stephen Goldfarb

I have been considering a conservative trading idea involving day spread trading of T-Bonds. There may be
other futures on which this concept may be better adapted. I would be interested in getting feedback about
this idea. Let us say that the spread between the near month T-Bond and the next 3-month period (e.g.,
June/September) varies during the day by a small, but tradable amount.

For example, the two contracts may, at the narrowest spread, be 8-tics, and the widest spread, 12-tics. That
is a 4-tic spread. Each tic in T-Bonds is worth $31.25. The idea would be to enter an order to sell the near
and buy the far at an 8-tic or less spread, and liquidate by buying back the near and selling the far at a 12-
tic or better spread. That would be a gross profit of $125 less, say a $25 spread commission for a net of
$100.

If the liquidating spread price is not reached, one assumes liquidation at the close. For purposes of the
example, I assume that one could get out at least even, or perhaps with a 1-tic profit to pay the commission.
Reality may differ.

The concept does not depend on anticipated disparity, as might occur when a spread is entered between two
different contracts, such as S&P 500 and Value Line, and held for an extended period. It depends on non-
directional intra-day undulation.

The spread variance in the example should be considered hypothetical. The spread appears to vary on any
given day.

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I have no meaningful experience with this kind of trade. I would be interested in the mechanics of the trade,
and opinion of the feasibility of doing the trade. Some questions:

1. Can one enter a spread trade based on the size of the spread, without specifying specific buy/sell
prices? That is, to enter when the spread between contracts is 8-tics or less.
2. What are typical bid/ask prices in T-Bonds?
3. Assuming the near and far contracts reach the anticipated spread at which one wishes to trade,
how capable are floor traders at identifying the spread, and entering the trade as specified? How long
must the spread persist for the floor trader to act?
4. This concept is based on expectation that spreads will not, on an intra-day basis, become wildly
disparate. Therefore, no stop loss points would be entered. How realistic is that expectation?
5. Does anyone trade in a way that is similar?

Any general comments and contributions on this concept would be welcome. Steve 510-658-1050
Voice/Fax or e-mail address: CMVD52A@Prodigy.com

Losing Sight of the Long for the Short - Rick Ratchford

Short-term or long-term? Which do you subscribe to? If you are a short-term trader, you obviously like to
get in and out of a trade in just a matter of a couple of days or so. If you are a long-term trader, you want to
ride a move for most of its duration, allowing counter moves (retracements) to temporarily erode your
paper profits in expectation of the market resuming its move in the direction you want to go.

Which is better? Well, that is debatable, and also depends on individual skills.

If you have the skill to time short-term moves, you can make a good return short-term trading. However, if
your timing is not that precise, you may find that long-term views of the market can make you richer. Even
short-term traders, like myself, know the value of catching a long-term move.

Do you miss some good long-term moves because you focus too closely on the short-term gyrations? I
know I have many times. And the funny thing is that the long-term move many times turns out exactly as I
imagined it would, except I had imagined that I'd be in it when in reality it got away from me.

Consider that you time a weekly turn to perfection, then you go to the daily charts and time the very day to
enter this new weekly move. Now, you get in the trade, and soon come upon a daily reversal. As a short-
term trader, you might exit and wait for the retracement to end, once again affording you opportunity to get
in at a better price.

Maybe you do this with precision once or twice, but on the third reversal, the market changes its mind and
takes off in its original position instead of providing that pullback entry you wanted. Now you are missing
the big move you knew was going to happen because you wanted to shave a few points off the top. This is
what I call "Losing sight of the long for the short!"

Longer-term moves provide you with a higher probability of profitability. If you know that a certain market
is likely to move up for a few weeks, why not just enter and hold for a few weeks? Well, the mentality of
the short-term trader is to extract more from that move by not allowing it to move against his position then
reenter. Of course, there is that risk of missing the rest of the move.

Don't lose sight of the Long for the Short. If you are a short-term trader, and want to take advantage of the
more profitable long-term trades, you simply need to use a good strategy.

Enter your trade with multiple contracts if your account can margin it, and when you come to a retracement
forming, merely exit part of the position while letting the rest ride the counter move. Once you suspect the

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move will resume into profitability, you can add those contracts back on. In the event it gets away from
you, you at least are making money anyway.

Starting with multiple contracts is usually safer if you are properly margined, rather than pyramiding on
each retracement. The latter can make your position top heavy and one bad counter move can wipe the
whole cupboard clean. Start off with x-number of contracts first, then remove a percentage after profits
during a retracement, and finally getting back in with the same number you started with allows you to play
BOTH games, the short and long of it.

Learning Trading the Hard Way & about Ken Roberts, Curtis Arnold,
Turtle Method, Elliott Waves, Robert Miner, etc. - Albert Castro

It seems that all successful traders go through a phase of learning the trade business usually within 3-5
years. We all seem to learn the hard way by losing money in the market. Some of us do quit trading after
losing money. But some of us persevere and try to learn what we did wrong especially when we initially
made money, but end up losing most or all of it later. Let me tell you what happened to me in the past 3-
years and see if any thing I say may have or relates to you in any way.

I got interested in trading commodities back in December 1995. I kept receiving a brochure in the mail
from Ken Roberts over and over again for about two-years prior to 1995. I finally became interested after
being convinced about all the advantages of owning a business with no employees, no payroll, no
inventory, short hours, small investment, and opportunity to make money. I used to own a business that had
all of the above except short hours and making money. So you can see why I became attracted to this and it
was only $200 to buy his course. I did not know too much about commodities at that time other than it was
a risky type of investment and many people had lost money.

I received Ken Robert's package called "The World's Most Powerful Money Manual." I read his book and
viewed the video and heard his audio tapes. One month had past by and I still did not understand his
method. I started to use his alert line over the phone which alerted to the formations which had been
described in his course. However, I could not get this information from the phone fast enough, so I bought
a tape machine to record what was being said.

This still took too long and was costing me a large telephone bill, so I paid Ken Roberts $95 to receive a
lifetime fax printout of this information. This was much easier, although it took me about an additional 2-
months to understand what he was talking about. Well, of course, the fee of $200 was only for a 3-month
trial so I had to extend the subscription for another 3-months. That's right you guessed it, this extension was
for an additional fee. There is just no way that you can learn his method in less than 3-months. Unless of
course, if you do not have a regular job, a wife, no kids, no friends, no other interest, and are willing to
devote all of your time learning this. At this point, I was about to quit being frustrated in not understanding
his method of trading. But I am not a quitter, although I could see why many people would quit at about
this time. I would guess that over 95% of students quit by this time. Ken Roberts does offer seminars,
workshops, and additional videos to help you understand. But this is for an additional charge and much
more than the initial $200 investment.

After about 5-6 months had past viewing his videotape again and again, paper trading, and following his
method, I finally got a grasp of what his method was. It is simply a bottom and top formation strategy.
There was a problem with this method in that there weren't too many trading opportunities. I was paper
trading everyday looking for opportunities which were far and few between. Also, when you entered a
trade, the protective stops were wide with the possibility of losing $3,000-$5,000 on each trade.

Well, I decided to put real money in the market. I started with $5,000 and had a open long position to buy
one German Mark and one short position to sell one US Dollar Index contract. I waited about 3-weeks
before the DM rallied and the US Dollar fell quickly. I made S3,000 in one day. That was easy money and
it felt really good. I became excited and decided to purchase his Option Manual, which I read and studied
for about 2-months. I now took action to buy options. In addition, I purchased another book called -

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"Capturing Full Trend Profits In The Commodities Futures Market" by Collin Alexander, even taking it on
my vacation to read. Before I left on vacation, I decided to have open trades using his methods and one
with Ken Roberts method. When I returned from vacation in one week, I had lost $5,000. Ken Roberts
discussed protective stops but as mentioned, his stops were too wide and you can lose $3,000 easily on
each trade if the market goes against you. I did not get a chance to read about protective stops in Collin
Alexander's book before I took the trades. Also, later I lost about S2,000 trading options which expired
worthless. Now I was feeling depressed and now realized that I needed to know more about the markets
before I traded again.

I often wonder why Ken Roberts' counselors were working for him since they could have easily made so
much money using his method. It wasn't too long that I realized that trading was a business that required
knowledge, skill, and money to make money. It was no different than any other business other than you
don't have the same headaches that I previously mentioned.

Using his method is fairly simple and if you had his money and enough patience, you could probably make
money. You should trade with an account of $25,000 or more and this money should be money that if you
lost it would not change your lifestyle. I feel that I am generally a patient person, but waiting for his
formations to develop does take a lot of patience. I required just a little more action.

Well, by this time I became very interested in trading and I wanted to learn as much as I could. I purchased
an excellent book called Curtis Arnold's PPS Trading Systems. This was an easy book to understand, it was
fun to read, and he showed you a real proven system. However, you also have to show a lot of patience to
use his system which is conservative and does not take in the big moves. You generally enter in the middle
of a trend.

I also read Schwager Technical Analysis on Futures. This was a very difficult book to understand and had
so much information about many things.

I also read the Turtle Method which is nothing more than trying to catch the breakaway of a trend. This is a
very simple method to apply, but you will have many more losses than winners. However, you will always
be able to get into the beginning of a big trend which you hope will eventually make up for the many
losses. Trends don't occur as often as you would like. In fact, trends only occur about 15% of the time.

I read about technical indicators and Oscillators such as the Moving Averages, Divergence, and others. I
learned about Elliott Waves by attending a seminar provided free by AdvanceGet who is selling an Elliott
Wave software program. Elliott Wave is by far the most difficult concept I have ever come across. It has
taken me about one year to learn and apply this method.

Editor's Note: It's surprising and also curious, why so many traders try to use Elliott Waves in their
trading, when they appear so difficult to use successfully. It seems counting market waves is far from an
exact science! It's believed if you show a number of traders the same chart and ask how many waves they
see, you probably would get almost as many answers as there were traders. This is due to the definition of a
wave being highly subjective.

Now where am I, now after losing already $7,500. By the way, you can write off this as a loss in your tax
return at $3,000/year, but you can also write off all of your expenses if you use Schedule C. I suggest you
read The Traders Tax Survival Guide by Ted Tesser, to learn more about this. As you can see, I read many
books, attended seminars, and paper traded. I also have a software program called MetaStock and I receive
data from Reuters for all my commodities. This is an excellent program for the price.

I tried using Omega TradeStation software for a month trial, but it was too difficult to understand and apply
so I had to return it. I also tried the Elliott wave software Win Wave, but it was just too expensive for what
it gives you in return.

What am I doing Now? Well, 8-months ago, I purchased a book by Robert Miner, called Dynamic Trading.
This is an excellent book, but has taken me about that long to understand and apply. This method is

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uncanny and accurate and allows you to look at the market from an overall perspective. He provides free
Internet information on how to trade his method and he sells a software program to make your trading
easily. He also sells a weekly newsletter to show you what trades he has taken and why. He uses the Elliott
Wave, Time and Price Projections which is amazing to me how it really works. However, it will take you
6-12 months to learn and apply his method.

I believe that this will be the last stop for me. I will be using Robert Miners Method, but will keep my eye
out for breakaways from the Turtle method, and patterns from the PPS system. I am working on the trading
plans and rules on when to enter and exit a trade.

It is very important that you understand what your trading philosophy is (are you a short-term trader, day
trader, position trader, etc.) and develop a trading plan and rules to achieve positive results.

I have learn the hard way to trade so far, but I have persevered and now I feel I am about to take off. This
has been a long and expensive education for me but I know it will pay dividends from now on. I have a lot
more confidence today than ever before and I have developed a "feel" for the market which can only be
received by studying, learning and practicing the markets.

I realize you must look at trading as a long-term journey and picture what kind of money you will make in
the next 5-10 years, not within 30-days. Look at where you would be now if 10-years ago you successfully
traded for that time period. It won't be long when I will be in a position to trade with $25,000 capital
(money I can afford to lose without changing my life style), but will already have the knowledge, skill and
confidence to trade the futures market.

"What Goes Around Comes Around" - J. L. from Wimauma

I've always observed that we come into this world on 4- wheels on the trip from the hospital, get our first
tricycle, then a bicycle, then in retirement a tricycle, and yup, the hearse has 4 wheels. Reminds me of my
trading when my first trade 15-years ago (a day-trade) made me $1,800 -- like hitting the jackpot on the
first pull. So naturally I tried options, scale trading, swing trading, back to options two months ago and now
back to day-trading 2-days ago. As I've said before, it's awful to know how to make money and not be
willing to. When I make money for my friends, I tell them "Don't worry, I'll trade your account the same
way I do mine." They should worry. I should trade mine like I do theirs!

Examples: A ten-year-old could learn how to buy a cheap commodity with enough capital behind him, and
make a pile by just rolling over and eventually taking the profit! A twelve-year-old could learn scale
trading and, properly done, make more than Dad in the stock market! I'll say it again. Commodities are at
the same time the greatest investment in the world and the riskiest trading instrument there is.

Talk about the ultimate "Know thyself!" I couldn't have guessed that I am really a hopeless "researcher"
(from "search again"). Finding something that works forces me to find something else that works! A trader
friend says, "Don't bother me with details. Teach me to press a button and the money rolls in." I've got to
know the whys and wherefores and "It ain't the money." My Catholic upbringing probably had one thing
right. "Money (per se) never made anybody happy" (so why not just give it all to us).

My decision to go "back to my roots" wasn't a whim. When copper twice and now the Canadian clobbered
me overnight, I say enough. (Tip -- If someone had told me I could place an overnight stop in the EFP
(Exchange for Physical) market, I'd be $1,000 richer today!) Ignorance is so expensive!

When a market must do one of two -- two-bar patterns in order to reverse, I'm seeing that intra-day bars
work the same as dailies. We've all heard of Buy-Sell price envelopes, but what about TIME envelopes?
The intra-day bar stuffs the daily bar stuffs the weekly bar stuffs the monthly. Can someone out there do
something with that? Like for instance, signals within signals? (Tip -- My "3-strikes and out" means that if
within 3-consecutive bars that you're trading, prices don't go your way, hit the Exit button -- if you haven't
already been stopped!) No more hoping and praying allowed!

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Well enough rambling. I tend to put down computer "nerds" who get too involved with their programs, but
I'm no different if I'm also in it for the "entertainment." It seems to me that the guy with enough "surplus"
money can afford this "hobby," and the guy who really needs the money can't afford to trade! Is that crazy
or what?

I think I've got it! If making money at something is called a "job" and hobbies usually cost us money, still
many of us would prefer a hobby! "Fun" is rarely free. (Would you give up your boat or your golf?) If
Larry Williams could teach us his incredible WILLINGNESS TO PROFIT, he'd really have something. Get
to work on that, Larry! I leave you with: "Your next trade is the first trade of the rest of your life and your
account." Therefore, don't base it on your last trade. I know I ask the impossible. Healthy trading to all!

Plan the Trade, Trade the Plan - Rick J. Ratchford

Working with as many traders as I do you tend to spot many different attitudes toward trading the markets.
Those who seem to remain in the game for more than a brief visit have a certain "type" of attitude, while
those who are here today and gone tomorrow have yet another "type" of attitude.

Although all traders are unique in personality and how they address/view the markets, after some time of
reading messages sent to me or the membership forum, it becomes somewhat apparent what 'group' a trader
likely falls under. This article is not meant to deal with the varying groups as it were. Rather, to point out
some observations I've made over the years of working with many different kind of traders.

For example, there is a group of traders that fall under the heading of "No Time/Effort." These are ones
who want to trade their own accounts, rather than letting someone else do it for them, yet do not have or
want to take the time to do the necessary homework to plan their trades. Instead these traders want someone
to tell them what to trade, when and how, every step of the way. In other words, they want to trade
someone else's plan without letting that individual do it for them. It is this trader's opinion that these traders
are confused, for they want to initiate the trades which are not theirs to begin with, but someone else's, and
feel it is their own. Futures trading is not likely the best forum for these traders to dabble in.

One person trying out our membership for the first time, after just two weeks, wrote and said that he had no
time for following the markets and dismissed himself. It became clear in his message what group he fell
into, and you can only wonder why he would pick futures trading and all its volatility to put his money into
if he wasn't going to put in any time at all to plan his trades.

It appears from much evidence that those who continue to trade beyond their first year or two are traders
serious about learning how to make their own trading decisions, so they can plan their trades and trade their
plans. They know that some homework is required prior to each trade, and that there has to be a reason for
putting on a particular trade (plan). These ones soon learn that when they jump into a trade without proper
planning, that they end up getting their account chewed up some.

In our membership we have different types of traders. There are those who have been with us several
months to nearly 2-years, and there are those who come and go, and come back again, trying out different
methods here and there. Also, we have the quick here today, gone tomorrow trader, who can't keep focused,
but is looking for a get rich quick scheme. Yes, we see all kinds here.

The focused trader needs only to identify a good methodology that fits their personality and time frame
(i.e., short/medium/long-term trading.) Then, when such a methodology proves to be effective, to work
hard at it, give it proper amount of attention and time, and become good at it.

What it comes down to is that the trader needs to learn how to plan the trade, then trade the plan. Must stick
to a strict method of approaching the market. What does the methodology require? Figure out
support/resistance maybe? Note two or three indicators possibly? Some of each?

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Whatever it is, if you do it consistently when evaluating the markets prior to putting on the trade, you are
then "planning the trade." If you then put on the trade based on your consistent use of your current
methodology, then you are "trading the plan." This is the formula for a successful venture in futures
trading. If you do not have the time to do this, find a good money manager for a mutual fund or stock
portfolio and forget about futures trading.

Having someone trade your futures account is a frightening thing to consider. You could see your capital
vaporize before the ink of your signed contract even dried. Want to trade futures, then prepare to learn how
to trade first and develop an approach. That approach then becomes your means of developing a plan for
each trade. From there, after you plan the trade you wish to make using the methodology template of your
choice, stick to it! Trade your plan exactly as you had earlier decided you would. Don't deviate on the fly!
Don't modify! If you are for some reason not sure of what you are doing, then get out of the trade. Once
you do that, you can think with a clear head on whether your planning needs tweaking.

If you feel you are currently in the group of traders who do not want to take time to do the homework, the
planning, but would rather have someone else tell exactly what to trade, sits back and re-think this desire.
What are you trying to achieve? Long-term capital growth? Short term speculation? Just maybe you are
looking in the wrong arena for what you are trying to do. Get rich quick? Forget it. You will need to make
your own decisions and trade them yourself if you want to get rich, and not so quick at that in futures
trading.

Reality sinks in rather quickly when your account is cut in half. No plan means no money. Therefore, for
those who have decided that trading futures is the way to their personal goals, then here is what must be
done.

üLearn a method of approach -- Sometimes this requires that you contact others who have been using the
method and see how they are coming along with it. Regardless of the method, no two traders will have the
same results. Some fail with a winning method, so it will take homework on your part to separate the
methods from the traders themselves to get a good idea of whether you are willing to try it out. In any
event, find and learn an approach to the markets.

üFocus on that method until you build confidence in it. -- Once you find that the method itself is good, you
still need to learn it. There are simple methods, and more complicated methods. Simple is not necessarily
good, nor is complicated necessarily bad. Enough time and effort is needed to test a method and build
confidence in it. Especially when the method is different than that which is used by the majority, it takes
time to get past the doubts by seeing it in action a few times. Test the idea without investing your money,
such as in paper trading. Of course things change when you start using real money, but you will at least see
if the method works or not, and you just have to work on you when it comes to real money. Stay focused on
the method and don't let your eyes keep wondering from one method to another.

üPre-plan your position trades, or your approach during day trading, so there is no confusion when it comes
time to trade. -- Trading on a whim is bad form. Gut feeling may be good for some, sometimes, but it
hardly is effective for the majority. If you are a day trader, or are working towards this, you want to get it
fixed in your mind what it will take to initiate a trade. This requires having decided how you will make the
decision to buy, sell or exit, in advance. If you are going to position trade, then you need to plan the trade
before the market opens, and then look for the situation to enter based on your pre-planning. Then, when
the time comes, there will be no confusion how you should act.

üTrade the Plan -- Believe it or not, but even after a well-thought out plan, some still abandon it right at the
time of decision because of fear, greed or both. Self-sabotage starts here. The purpose of the plan is to
remove the emotional factor that has ended many a trading career. Stick to your pre-planned strategy or
stay out of the trade! When you wrote out the plan, your head was clear, you were calm and comfortable.
Now that the markets are opened and you are watching the prices move, you may start to second guess
what you planned, or forget the details of your plan, and other emotional bombardments going off in your
head. Trade the Plan! If you have a good methodology, the plan will call for an escape move in the event

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the plan was wrong, and the loss should be small. Don't rewrite the plan on the fly! Your whole trading
career could rest on your ability to follow this one simple suggestion.

Do not be in a hurry to learn. If you are impatient, you will not fare well. Take your time and learn to do the
planning right. If you are involved in learning a new method and don't understand something, make sure
you can get answers to your questions. If you cannot, then you better find a different method. There should
be no questions how to approach the market when you are forming your trading plans.

Some new traders feel that they will be different from those before them, and that they don't feel it is
important to "plan the trade and trade the plan." Maybe some can get away with it. But just remember this
if you are still trying to get a grip on trading and have yet to do so. Remember when your parents would try
to teach you something and you felt you knew better. Now you are likely a parent, or at least older now,
and can see how foolish your thinking was back then. Experience dictates that you need to take time to
learn, to build confidence, to plan the trades, and then to follow through. Don't make that same mistake
again.

Chicago Board of Trade Floor Traders Know Where the Stops Are -- Bob McGovern

The activities of the Chicago Board of Trade (in a recent 2-week period) have negated any rational thought
processes regarding the fundamental and technical aspects in Soybeans, Wheat, and Corn. What is
occurring seems to be this: The "heavy" interests start the chaos by initiating a large, perhaps 5 to 20
million bushel sell-short-at-the-market order, which in turn, causes the bids to be lower, triggering
commodity fund stop-loss selling. The floor locals know where the stops are, so they also sell short to drive
the price even lower. The locals can short tremendous amounts of a particular contract, as they aren't
required to have any margin, just as long as they are out by the close each day.

The commercials, who always scale buy on the way down, and scale sell on the way up, normally take the
buy side of this activity. By this time, the market is in full retreat.

The small traders' stop-losses are hit by now, with the originators of the rout and the commercials taking
the buy side on the scale down. Finally, the market, after losing 8 or 10-cents in a few minutes, stabilizes.

Locals have cleaned out all stop-losses in the immediate vicinity, and they cover their short sales by buying
from the last of the stop-loss sellers.

The heavy-duty interests, who started the debacle, have covered their short sales on the scale down, and are
net long by now. To add to the fun, they buy 5-20 million bushels at-the-market! And up the market goes!
This is seen by the jackals (Oops!), locals, who once more smell the blood of stops above the market this
time, and they load up now on the long side.

That does it for the Harvard boys at the commodity funds! Their black box stop-buys trigger in, causing the
market to go further up, with the commercials selling on a scale up, all the positions they bought originally
on the scale down. CNBC, FNN and DBC get on the TV and Internet, spoon-feeding listeners something
about El Nino, or cold weather. By now the Account Executive with the commission house has finally
gotten around to call poor Joe Doe to inform him that he was stopped out of the market to the downside,
but the market looks good again, and he better go long again because it looks like it's going to the moon!

Joe Doe takes the hook again, buys just as the last sell orders are executed by the heavies, commercials, and
locals. At this point the market is back to unchanged for the day! The heavies have made a bundle on both
the downside and upside. So have the commercials and locals. Let's see. Did I leave anyone out?

Barriers to Learning - Chris Majer

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Many people miss opportunities to learn something worthwhile due to various mental barriers. They may
fall under one or more of these categories:

• Characterizing oneself as unable to learn.

• Attitude that you already know the information.

• Lack of Self-Confidence/Resignation

• Isolation from Others

Trading is a very broad field in terms of the amount of things you can learn. So many different theories,
methods, techniques and directions one can go in learning how to analyze, trade or forecast price action.
Different major fields, such as Technical Analysis or Fundamental Analysis, or a combination of the two.
Indicators or systems, real-time or delayed, long-term or short. Fibonacci or Gann (or both). Fixed or
dynamic cycles (Fdates), astronomy or chaos theory, and so-forth.

Say you like to use indicators and chart formations. There is a big following in that type of analysis.
However, by close examination you will find that the majority who use this type of analysis are also not
succeeding. Actually, the majority in just about any method is not succeeding. Some methods are esoteric,
not of the mainstream. Do you find yourself, as an indicator type analyst, having a negative view of
methods that are so different then the one you find yourself currently comfortable with? Do you think that
wise if you are not succeeding with your comfortable way of analyzing?

Here are several reasons why many people miss opportunities to learn something that may improve their
trading.

Characterization of Ourselves or Others

Many of us perceive our incompetence as a permanent feature of who we are. We fall into stories such as:

• I don't have the aptitude

• I don't have the talent

• I don't have the knack

• I'm not smart enough

In these stories, there is no Possibility for learning.

Already Knowing

The biggest barrier to learning is knowing. When we live in a story of already knowing, we cannot see that
which is new as new.

I already know this, this is just another way of saying/doing______.

This is the same as ______.

There is nothing new for me here.

This is a form of arrogance and blindness. We assume that the world can only be the way we see it. This
stance precludes you from being on the lookout for opportunities to learn.

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There are thousands of examples of how business opportunities were lost because people saw what was
new as more of the old. IBM offers us two classic examples. They did not see anything new or special
when they were presented with the first photocopier. This missed opportunity became Xerox.

Similarly, 20-years ago, IBM saw that the future of the computer world was in hardware. They saw
software as being an ancillary consideration, so they decided to contract out for this service. The contract
went to a little company called Microsoft.

Lack of Self Confidence/Resignation

We also close ourselves to learning because, even though we see the new as new, we fall into:

• I could never learn this

• I'm not smart enough to know this

• I'm not good enough to know this

• This is too complicated for me

• This is too hard

I could carry on with an endless list of reasons behind which we hide when learning opportunities occur.
The main theme for each of them is "There is something wrong with me." This is a common, yet tragic,
interpretation that is universally ungrounded and inhibits people from creating the lives they want or to be
able to trade successfully.

Isolation From Others

A classic mistake is to think that we can learn on our own. One of the unfortunate realities of our business
world is there are two conversations that are unofficially forbidden -- or at least we act as if they were. The
first is "I don't know," and second is "I made a mistake." In the absence of permission to have these
conversations, we find ourselves hiding our lack of competence and attempting to attend to it on our own.
This shows up as:

• I don't need a coach, I can get this from a book.

• I don't want anyone to know that I don't know, I'll do this on my own.

Learning is a social phenomenon and is best accomplished with others.

How To Be An Effective Beginner

The first step in the process of learning is to acknowledge that we don't know.

• To learn is to be introduced into the unknown; we accept we do not know.

• When the instructions don't make sense to us, they don't make sense because we don't know. We don't
know because we are beginners.

The second step is to authorize a coach, to find someone from whom we can learn, someone who can teach
us.

• The only way to move when we don't know is to trust the coach and to follow his or her guidance.

• We grant this person authority and trust.

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• When we grant authority, we are saying that we are willing to submit ourselves to this person's guidance
and accept instruction.

The third step is to accept and be at peace with being a beginner.

• This is stage in which we will be awkward, make mistakes, appear foolish, etc.

• There is nothing graceful about being a beginner.

When considering to learn any methodology, you want to make sure that someone will be available to
assist you every step of the way to facilitate your learning. Learning from a book is fine to get the basis and
terms down, but nothing beats experience, and that is where a coach comes in. You wouldn't try to learn
Karate from a book alone, would you?

Establishing Supportive Learning Community

• Isolation is a barrier to learning, so it's important to find or build a community of people with
whom you can learn, speculate and think.

• Creativity rarely happens in a vacuum.

• Understanding can occur in private. Learning is a social process.

Practice, Patience and Perseverance

Practice, patience and perseverance are the three hallmarks of a committed beginner.

• Practice - The way to embody a new competence is through DOING again and again and again.

• Patience - Being at peace with the fact that learning takes time.

• Perseverance - Continuing to practice in the face of doubts, bad moods, other people's assessments,
being willing to endure through our own negative assessments.

Moods and Postures of Learning

Success in learning depends in part on how open we are in our mood and posture.

Arrogance -- "I already know. I don't need to learn. There is nothing you can teach me." -- Closed posture

Confusion -- "I don't understand this, and I don't like it, so please give me the answer." -- Rigid or
paralyzed posture

Perplexity -- "I don't know what's going on, and I don't know if I like it or not, so tell me more." -- off-
center posture

Wonder -- "I don't have the foggiest idea what this is, but I like it, and I want to learn." -- Open and
centered posture

Ours is a world where learning is no longer a luxury. It is now a necessity, but also an opportunity to
explore new possibilities and the rich and tremendous rewards that the learning process has to offer -- as
well as the results we can create along the way. Anyone can learn a method new or different to them, if
their learning posture is open and centered.

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 Extra Stuff About Internet Based Futures Trading, Data & Trading Books
George Famy from France

Here are a few things I'm working on or thinking about. Maybe some CTCN readers can help me.

1. Internet based Futures trading -- I'm familiar with most of the companies offering the service. But until
you actually try to put real orders into the pit (S&P 500 in my case) you can't know the effectiveness of the
system. I say it because most of the Internet trading platforms offer "practice" sessions where you can enter
hypothetical orders, etc. Although this is worthwhile to understand the order entry process, it doesn't
answer my biggest fear. I understand orders passed via the TOPs routing get executed by brokers standing
next to the (order producing) machine in the middle of the pit.

The big problem is when it's busy these TOPs routed orders build up in the machine and your "market
order" may be behind a long queue. This is called "queuing up" and I'm wondering how bad can it get. Has
anyone traded using ZAP Futures, or any other of the Internet based platforms during BUSY PERIODS
when the market was "moving?" What is your impression of the "latency" of your orders arriving in the pit?
I daytrade the S&P 500 and obviously this is of utmost importance.

2. Anyone trading the Mini S&P? How are the bid-offer spreads when you go to trade and how are the
fills?

3. Forex Data -- I'm looking for 20-years of daily Forex data, i.e., major currency pairs and crosses. I'm
referring to 24-hour cash Forex data with London opening. Does anyone knows where to go for this?

4. Let's stop talking about it and JUST DO IT! I'm all for the library (book) exchange. These damn books
are just getting more expensive by the day. There are many books over $150 now. I know because I have a
few of them! A book exchange would be good because you can always buy the books you read and liked or
those "must have" books that you don't want to wait to borrow. Otherwise the book exchange lets you read
everything and spend your money on data, software and hardware.

By the way, two modestly priced books I've recently read and found above average were Perry Kaufman's
"Smarter Trading" & Cynthia Kase's "Trading with the Odds." Both are written by "street smart" traders,
but also have some interesting mathematics applicable to trading & managing risk.

"Pitbull" by Marty Schwartz is really a fun book to read although I wasn't able to "decipher" more than just
the general concept (approach) of his trading method.

Anyone read Advanced Trading Strategies by Connors? Is it worth the fancy price tag?

5. I've seen two interesting Internet based Forex trading platforms from CMC and GNI both in London.
You receive real time data and have a few seconds to "deal" (trade) on the quotes given to you by the
dealer. It doesn't get any better (more fair ) than this. My problem is that I trade futures also. How many
platforms does a trader need? I'm in the process of upgrading my equipment and it's too darn complicated
to figure out my software and hardware needs for the next couple of years. Isn't possible to have one
software (trading platform) that has a real time data feed and where you can execute Forex and futures?

6. I'm being told that the fastest and most dependable connection to Internet is a '"T3" connection directly
to the "backbone" of the Internet. Which Internet service providers (ISP) give this type of connection in the
U.S.? Anyone tried a cable hookup to Internet using a cable modem? How well does it work and who offers
it?

I'd appreciate any helpful comments from CTCN readers. Contact me at azurGT@aol.com

"Bad Data": About Glen Larson & Genesis Financial Data Service Issues

1011
 "Limited Recall" - Tom Beno

As many of you know (and for others who don't), I've been "negotiating" (arguing) with Genesis Financial
Data of Colorado Springs since April regarding Genesis' continued sales of Pricing Data known to contain
numerous errors. During the process, I've been lied to, put off, re-directed, challenged, threatened and
ignored by Genesis' president and owner, Glen Larson.

In May, Larson threatened me with legal action, as he tried to buffalo his way past my discovery and
exposure of his Bad Data. When I showed him proof of my claims, the threats suddenly disappeared and an
email parade (80+) began.

I documented the errors to Larson and met with wall after wall of denials, finger-pointing, excuse after
excuse, before he twice - in writing - finally admitted them. It turns out that Larson had know about the
errors for up to a year prior to my talks with him. Therefore, he's been scamming the public for about 18-
months, possibly longer.

I requested that Larson notify the marketplace that the product he's selling is faulty. (Note that I have no
financial stake in this issue. I returned the bum data long ago and got my refund. I'm on record that if any
financial benefits are derived from this situation, every penny will go to a non-involved charity). I'm
insistent that Genesis responsibly admit the errors and stand behind their product. Larson has refused. His
position is effectively "Customers are on their own. It's not my problem."

I don't agree. I've repeatedly requested to Larson he answer my claims openly - on the forums and
newsgroups where I've posted my complaints, where Genesis customers, potential customers, and
interested but unbiased observers can decide, and I would abide by the majority opinion. We could both
openly state our positions and let the public determine if he's scamming and covering up or if I'm wrong in
exposing him. Larson refuses.

I began occasionally posting my unpleasant and on-going experiences with Genesis to several chat forums
as we continued discussions. Larson didn't like the negative Internet exposure, asked me several times to
cease, yet he still refused to provide admissions and corrections to those who rely on his data for trading
analysis.

On June 9, I offered that if Larson would agree to make a contribution to a federally-recognized, fully tax-
deductible charity in a neutral state, I would stop exposing him on the Internet. He led me to believe that
we'd struck an agreement. I should have known better.

Larson reneged on the contribution to the charity, and instead on June 26, he tried to buy my silence with
another tactic. His ploy: "Since you are very good at finding data errors, I would like to offer perhaps a
proposal that will benefit both of us. I would like to offer you free updating as long you need. All you need
to do is let us know immediately of any errors that you may find."

Such a deal. I (politely) told him where to stick it. On July 9, the offer was this: "I would like you to have
the data ... I hate to admit it, but the most critical people of data are just those we need using or looking
over our data... "I told him no way, I didn't want any more of his Bad Data, and I wouldn't use it under any
circumstances. (Would you?)

He shipped it to me anyway, trying to "close out our problem." It's still sitting here, unopened. Larson
danced, dodged, and delayed his way thru yet another month of BS with me, resolving nothing. On 8/5, he
again offered: "I would request if there isn't someway that we could compensate you, using our data
services and products." I again refused. (Would any readers of this ridiculous saga be comfortable in
dealing with this company?)

I began increasing the number of Internet postings, and copied Larson on them. It hasn't been enough to
force him into an ethical, responsible solution to the problem, but it served to raise public awareness of it
and to advise people to watch out.

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In September - as I promised Larson - I started to seriously attack this scam in public, actively posting my
experiences with Larson and my opinions about it to a variety of newsgroups and financial forums. This
one is also being copied to Futures Magazine, Stocks & Commodities, Investors Business Daily and the
Wall Street Journal. Whether it gets printed or not, I don't know. But the dishonesty is blatant, and I'd like
for others not to be taken in by it. In my opinion, this deliberate deceiving of the public by selling a product
with known defects is fraud, and Glen Larson is the owner and perpetrator. When the smoke clears and I've
exposed him sufficiently on the Internet and in trade publications, I'll turn my findings and documented
discussions over to federal and Colorado State authorities. Maybe they can ask him some questions and
explain to him what the terms "ethical" and "responsible" mean.

Larson has refused to respond to my messages since Sept.12, but I continue to send him copies of my
Internet postings anyway (including this one). I offered to withdraw or make adjustments to my claims if he
could disprove any of them. He's declined (even though I sent him notification of my intent by Certified
Mail).

Behold -- early last week I get a meek little form letter in the mail from Genesis. Larson is still pointing
fingers elsewhere - anywhere - everywhere this time at Omega Research, and only for certain products -
even though (on May 11) he said "I didn't think we have a relationship with Omega for several years."
Right, Mr. Larson - so then how exactly are they responsible for you selling Bad Data?

But at least he's finally and publicly acknowledged that there's a problem with his data. He won't refund
your money, of course - he's only offering to "replace" the Bad Data with - what else? More of his Bad
Data.

The "scam" continues. Call Mr. Larson, if you'd like, but expect whines, denials, complaints, dances,
finger-pointing, and other excuses not to give you a refund. He's a sweet-talker, but, the "facts" are as
you've read them (above). Perhaps Larson can explain why its taken 80 emails, 6-months and relentless
Internet pressure for him to make right on his own product and he still won't give customers their money
back.

His form letter is undated. It finishes with "If you have any questions about this offer, please call us (800-
808-3282)." If you email him directly (GLarson@GFDS.com), bring your hip-waders.

A Hard Look at Daytrading

Technical Traders Bulletin

We receive more requests for articles and advice on day trading than on any other topic. Beginning traders
are especially interested, particularly those that have been attracted by the glamour and intensity of the pit
traders who seem to be constantly jumping in and out of the markets and reaping enormous profits.

It seems like almost all traders have tried day trading at one time or another. After all, it is very tempting to
try and slug it out with the pit traders. Every tick is exciting. Every rumor or news item that affects the
market either creates euphoria or is another nail in the coffin. When you have a position on, you can't stand
the pressure, but if you're not in the market you tear your hair out every time prices act the way you
predicted. Your heart pumps fast, your adrenaline surges, and you feel like you've finally arrived in the
wild and woolly world of fast-paced futures trading.

All of this sounds like fun, but as you might imagine, there are many, many pitfalls along the way. We've
come to realize, after talking to numerous traders who have attempted or are about to begin day trading,
that most traders who start are not fully aware of the scope of the problems they face. To some readers the
following discussion may be redundant, but we suspect that many of our subscribers may be embarking on
a venture with only a limited grasp of the basics.

Cost of Doing Business is High

1013
The day trader enters and exits trades during the same market session, normally a period of only four to six
hours from opening to close. The very short term nature of day trading presents both advantages and
disadvantages. The major advantages are the lower margin requirements and the absence of overnight risk.
The disadvantages are the bad odds, time and effort required, the limited profit potential, and the
burdensome costs of frequent transactions.

The transaction costs consist of both commissions and slippage. The commissions are a large and obvious
cost of doing business. However the slippage is much more difficult to quantify. The trader might have a
mental image of trading at the prices shown on a computer screen, but in reality he must continuously buy
at the offered price and sell at the bid price. The spread between the bid and offer becomes a very
substantial but hidden cost of doing business. In addition, as most of us have learned many times over, it is
unrealistic to expect stop orders to be filled at our stop prices.

In the meantime, to offset these unavoidable costs, the day trader is limited to very small profits when he is
correct in his analysis and completes a winning trade. Under even the most optimistic scenario, the day
trader's potential profits are limited to a portion of the price range that is likely to occur within a few hours
of trading.

Let us assume that our day trader has negotiated a discounted rate on his day trades and is paying twenty
dollars per trade. Next let's be optimistic and assume that the spread between the bid and offer amounts to
ten dollars buying and ten dollars selling. In order for the trader to complete a trade that nets $100 he must
be smart enough to identify a move of $140 according to the prices on the screen he watches.

On the other hand, when his timing is wrong by only $140 he is going to lose $180. It doesn't take a Ph.D.
in mathematics or an M.B.A. from Harvard to figure out that this is far from an ideal business environment.
In fact, even the professionals on the floors of the exchanges must be intelligent, highly disciplined traders
just to survive.

The public doesn't realize how many of these professionals fail in spite of the advantage of being on the
floor and paying only minimal costs per trade. Imagine how small the odds for success must be for an off-
the-floor trader faced with the costs we have described.

To have any hope of success, the day trader must strive to maximize the profits on the winning trades so
that he can overcome the tremendous disadvantage of both the obvious and the hidden transaction costs.
Unfortunately, the day trader has very little control of the potential profit to be obtained because the extent
of the price range during the day absolutely limits the maximum profit that can be realized.

No trader can reasonably expect to buy at exact bottoms or sell at exact tops. A very good trader might
hope to be able to capture the middle third of an infra-day price swing. That means that to make $180, the
total price swing must be three times this amount or $540. How many futures markets have a daily price
range of $540 or more? Very few. How many futures markets can produce a $180 net loss? Almost any of
them.

Don't forget, the trader that is smart enough to find markets with $540 price swings and then smart enough
to trade them correctly so that he nets $180 is only going to break even unless he has more winners than
losers. To make money in the long run, the day trader must have a percentage of winning trades that is far
better than 50% or he must somehow figure out how to make more than $180 on a $540 price swing. (or
best of all, do both) This also assumes that the trader is smart and disciplined enough to harness his
instincts and emotions and carefully limit the size of the losses.

Beating Tough Odds

As you can see, the day trader is faced with an almost impossible task. We would venture a very educated
guess that less than one out of a thousand day traders make money over any sustained period of time. Our

1014
best advice is to not even attempt it unless you are one of the many traders who is actually trading for the
recreation and mental stimulation rather than the money.

If you are serious about making money, your time and energy will be much better spent perfecting your
longer term trading skills. Even if you should succeed at day trading, it is difficult to reinvest the profits
and continue to compound them. Day traders can only operate efficiently in very small size so don't expect
to make your fortune at it, it's only a very enjoyable but hard earned living at best.

In spite of our sincere warning, we know many of our readers will attempt to beat the odds and become day
traders for a while. Fortunately, the lessons learned while day trading can be applied to more serious and
productive trading later on. In the meantime, we will do our best to explain as much as we can about day
trading and hopefully make the learning process less costly.

Obviously, we don't have all the answers ourselves or we wouldn't have such a negative outlook on the
probability of success. We certainly have learned a great deal about this subject over many years of trading
and the fact that we have elected to no longer play this game simply demonstrates our personal preferences
in the allocation of our productive time. We hope whatever hard-earned information we can pass along
proves helpful.

Selecting Best Markets For Day Trading

As we pointed out earlier, there are very few markets that have wide enough infra-day price swings to make
them suitable candidates for day trading. Because they must monitor the prices so closely, day traders
generally prefer to concentrate their efforts on only one or two markets. In addition to the fact that the
prices must be watched continuously, there are very few markets that are suitable even if we had the
capacity to follow more of them. Presently, day traders seem to have given up on pork bellies and tend to
favor the stock indexes, bonds, currencies, and energy markets. From time to time other markets may
become candidates for day trading because of temporary periods of high volatility.

We ran a test (several years ago) to see what percentage of the time various markets had a total daily range
of $500 or more between the high of the day and the low. There were only five markets that had a $500
range at least two days a week or 40% of the time.

In addition to looking for a wide daily range, liquidity and the size of the minimum spread should also be
factors to consider when selecting suitable markets for day trading. Our previous example of costs included
paying a spread of only $10 on each side of a trade.

In the S&P market a minimum spread would be $25 each side while in the bond market a 1/32 spread is
$31.25. If you are day trading bonds with $20 commissions, you must overcome total costs of $82.50 added
to losses and subtracted from gains. Your average winning trade must run $165 farther than your average
loss just to break even. This assumes a 1-tick spread which is the best case possible.

The element of liquidity comes in to play in determining the number of ticks in the spread between bid and
offer. A one tick spread is the best you can hope for and most markets have a wider spread than that.

You can usually assume that the higher the average daily volume, the tighter the spread. For that reason,
you will want to concentrate your day trading in only those markets with very high volume. Otherwise, you
can be making good timing decisions and still be assured of losing money.

Part 1 - Why Are Futures Traders So Grim? A Collection of Satire and Stuff
about the Futures World (and you might even learn a thing or two) - Ted Nash

INTRODUCTION

Futures trading can be a grim affair

1015
with fear and greed flying everywhere.
Of course I realize to a certain degree,
as a noble pursuit, it has to be.

This constant whirl of emotion in motion

needs some relief, so I took up the notion
to apply some humor that might provide
a satirical look at the lighter side.

There's also some straight advice to explore

that can help if you're still a sophomore.
And even you wizards might appreciate
some of these attempts to infuriate.

If you're ready to begin this poetic journey,

come by yourself without an attorney.
But the party you don't want to leave behind
is your good companion - an open mind.

CHARTING FOR THRILLS

You study your charts and you work out trades

that conform to your technical analysis.
Then your anguish flares and your courage fades
as you freeze in your tracks with paralysis.

When this comes about, review your findings

so that nothing is left undone.
Then shake out your goggles, check your bindings
and push off for a breathtaking run.

With your thighs burning at the bottom of hill,

your face aglow with pleasure -
you'll look back on your course and relive the thrill
that your memory will always treasure.

If you don't take risks, forget your schemes,

for they'll never come to pass.
Just carve your course in the race to your dreams
and then listen to the anthem of brass.

SUGAR

What's a nice, sweet, little market like you

doing in a place like this?
With all these unsavory characters -
it's hardly a state of bliss.

There are all those mines with their squalid digs.

The oil fields with their grimy rigs.
The cattle carcasses hanging on their hooks.
The copper crowd with their manipulating crooks.
The lumber ravagers with their sawing and hauling.
The greasy pork bellies with products appalling.

So, my sweet sugar - you're just too refined

1016
for these blue collar clods, so subpar.
Hang out with your coffee and cocoa kind
and stay as sweet as you are.

BOTTOM FISHING

The price dropped a lot

and from this you thought
that it looked like a buy
so you gave it a try,
but you had good cause for concern.

For bottom fishing

will have you wishing
that you'd held off a bit
before making your hit
as it's better to wait for the turn.

For instead of reversing

it was only rehearsing.
The momentum hadn't died -
your oscillator lied
and your stomach started to churn.

You thought you caught'em

right at the bottom,
but after a pause,
it's another lost cause -
from this may you finally learn.

A VOTE OF THANKS

You've read all about those market wizards

with their powerful systems and high profit scores. But more important are the market lizards
scurrying and shouting on the trading floors.

They're never invited to appear on TV

and those "How to Trade" books they won't write,
but they maintain the markets to a fine degree
that allows our trading to expedite.

With their dramatic song and dance routine,

these traders set the tempo for the whole orchestration.
For their featured roles in this resounding scene,
these lizards deserve a standing ovation.

The United States of America & The U.S. Commodity Futures Trading Commission
In the Matter of CFTC Docket No. 97-12
Curtis McNair Arnold & London Financial, Inc., Order...

The attorney first retained by respondents in the above-captioned case has filed an application for
interlocutory review of an order by the Administrative Law Judge ("ALJ") debarring him and his firm from
further representation of Curtis M. Arnold and London Financial, Inc. in this matter. The attorney, William
Sumner Scott, who heads The Scott Law Firm, P.A., also asks that proceedings before the ALJ be stayed

1017
pending Commission review of his application. Scott's clients, the respondents, have joined his
application.

The Division of Enforcement ("Division") has filed a response opposing the requested stay, but taking no
position on the sanction imposed by the Administrative Law Judge (ALJ).‚

The ALJ, acting sua sponte, debarred Scott and his firm upon finding that Scott willfully made false and
misleading statements in a motion filed on behalf of respondents seeking leave to submit their answers to
the complaint out of time. The ALJ determined after a hearing that Scott falsely represented that he did
not learn when the complaint was served on respondents until after the deadline for filing an answer had
passed and ‚ that the Division of Enforcement ("Division") did not advise him in a timely fashion that it
would consent to an extension of time for answering the complaint.

The complaint was issued by the Commission on July 30, 1997. The ALJ held that Scott knew on August 1,
1997, that the complaint had been received by respondents and knew on August 4, 1997, that the Division
would consent to an extension. (ALJ Bench Order of 9/10/97). The record in this matter supports these
findings.

The ALJ debarred Scott pursuant to Commission Rule 10.11(b), 17 C.F.R. § 10. 11(b) (1997), which
authorizes this sanction against an attorney or other representative for contemptuous conduct. Scott
promptly sought interlocutory review pursuant to Rule 10.101(a)(2), 17 C.F.R. § 10. 101(a)(2) (1997).

The ALJ's action did not constitute an abuse of discretion. A presiding officer enjoys wide latitude in the
conduct of proceedings before him. See Rule 10.8(a), 17 C.F.R. § 10.8(a) (1997). ƒScott submitted a
written document to the ALJ that contained misleading statements. His misconduct was not mitigated
simply because his misrepresentations concerned procedural matters that did not necessarily bear on
outcome of case.

Scott acted improperly by seeking to mislead the court as to the reason for seeking an extension of time to
answer the complaint. Any prejudice to respondents from the order is slight since Scott was dismissed from
the proceeding at an early stage. In light of the foregoing, the petition for interlocutory review is granted
and the action of the ALJ is affirmed. The motion to stay is denied as moot.

IT IS SO ORDERED. By the Commission (Chairperson BORN and Commissioners DIAL, TULL,

HOLUM and SPEARS).

Catherine D. Dixon - Assistant Secretary of the Commission - Commodity Futures Trading Commission -
Dated: October 17, 1997

1. The application for interlocutory review, styled "Notice of Appeal and Motion for Stay," states that it
was filed on behalf of Scott, his firm and respondents "by their attorneys, Donald F. Mintmire, Esquire, and
Mintmire & Associates. . . . "Notice of Appeal and Motion for Stay at 1 (Sept. 16, 1997). Though it
describes Scott and his firm as "Former Legal Counsel," passim, the application was signed by both Scott
and Mintmire. Id. at 14.

2. Scott and respondents subsequently filed a motion for leave to reply to the Division's response, and
submitted the proffered response. The Division filed an opposition to the motion. The motion is granted.

3. See generally In re Ferragamo, [1990-1992 Transfer Binder] Comm. Fut. L. Rep. (CCH) 24,982 at
37,597-98 (CFTC Jan. 14, 1991) (discussing the ALJ's broad discretion in the conduct of enforcement
proceedings).

Editor's Comment: Mr. Scott is the Florida Attorney CTCN once hired (and fired) partly due to his failure
to notify us about his prior disbarment involving the CFTC. Of course, if we would have known about his
earlier disbarment for "willfully making false and misleading statements," we would have never hired him
in the first place!

1018
 "The CFTC Wants You Offline" By Scott Bullock - Institute for Justice

The ability to speak and publish freely is the birthright of all Americans. But not if Commodity Futures
Trading Commission (CFTC) gets its way.

The CFTC wants to license individuals who publish about trading commodities. Anyone who for
compensation offers opinions, analysis, or even general information about this subject must register with
the CFTC as a "commodity trading advisor (CTA). Registration involves fingerprinting, submitting to a
background check, paying fees, filing reports with the CFTC, turning over subscriber lists, and being
subject to on-demand audits. CFTC officials have the awesome force of law behind them -- anyone not
registered who publishes on commodities violates federal law, and faces $500,000 in fines and up to five
years in jail.

On July 30, the Institute filed a First Amendment lawsuit on behalf of five commodity newsletter
publishers, software developers and Internet users, and five of their subscribers, seeking to end
government-compelled registration of those who offer impersonal analysis and advice about commodities.
The suit, filed in the US. District Court for the District of Columbia, aims to preserve both the right of
individuals to communicate truthful information and the ability of willing listeners to receive important
information to guide their economic decision making.

CFTC is federal agency charged with regulating the commodity & futures markets in United States.
Unfortunately, rather than assume a discrete role for government regulation to protect individuals from
fraud in the marketplace, the CFTC seeks to maximize its power at every turn. Not content to simply police
individuals and firms actively managing investor accounts, in 1995 the CFTC asserted power over
everyone who publishes about commodities for a fee, demanding that they register as CTAs. The agency
extended its broad reach even to persons who neither offer personalized investment advice nor invest
customer funds.

In the 1980s the Securities and Exchange Commission (SEC) attempted to do the exact same thing to
individuals who provide information on stock trading. But in 1985 the U.S. Supreme Court unanimously
held that so long as individuals merely publish about securities, rather than trade them, they cannot be
required to register with the SEC. As a result of that decision, the SEC returned to its authorized mission of
rooting out fraud rather than harassing publishers. Importantly, this

precedent did not hamper the ability of the SEC to go after the "bad guys" in the financial business, but
instead led to a proliferation of new sources of information for people interested in stock trading.

Now CFTC has expanded beyond traditional publications to regulate computer software and information
online. The CFTC has filed lawsuits to stop unregistered developers of computer software from offering
their products. Moreover, while national attention focused on the Communications Decency Act and
government's attempt to regulate indecency on the Internet, CFTC last year quietly attempted to regulate
the Internet with potentially damaging consequences for all of society.

The CFTC's proposed Internet rule could mark the beginning of a new chapter of government regulation
online. While the Communications Decency Act sought to regulate the Content of speech online, the CFTC
wants to regulate who may provide information. The proposal spares virtually nothing on the Internet from
agency oversight and regulation -- websites, user groups, and hyperlinks come under the CFTC's assertion
of jurisdiction. Anyone who establishes one of these tools must register as a CTA, complete with all the
ramifications that entails. Although currently the CFTC has suspended enforcement of the rule pending
further review, the proposal heralds the intrusion of the heavy hand of government into this vital emerging
technology.

At its heart, the CFTC's policy is a policy of ignorance. The agency seems to believe that the less
information people have about commodities, the better. Yet First Amendment and the tradition of open

1019
inquiry in this country are premised on the exact opposite principle. More information, more robust debate,
and more speech create a marketplace of ideas where listeners, not government officials, choose which
information is valuable and which speakers are worthy of listening to. Through its campaign, the CFTC
stifles this marketplace and keeps consumers in the dark about valuable economic information. With hope,
the lawsuit filed by publishers and readers of commodity publications will close another sordid chapter in
government's continuing campaign against free speech.

Scott Bullock is an Institute for Justice staff attorney. Check out http://free.ij.org

OPTIONS & SPREADS: Spanish Treasure, Swamp Gas & Phone

Monsters - Greg Donio

A bit of Yiddish folklore from the Old World: A neighbor knocked on the door and asked to borrow a tin
spoon. The next day he returned two tin spoons. "Why two?" the lender asked. "The one that you loaned
me was pregnant and gave birth during the night. So I am returning both parent and offspring."

A madman or a fool, the lender thought. Nevertheless, he accepted both. The next day, the borrower
showed up again and asked for the loan of two expensive silver candlesticks. The way this man's mind
works, pondered the candlesticks' owner, tomorrow he will bring me four of these expensive silver pieces.
So he gladly loaned them.

The next day, the borrower did not bring back the items, nor the next day or next. Angrily the owner went
to his neighbor's house and demanded their return. "They died during the night," the borrower explained.
"Ridiculous, fool! How is it possible for candlesticks to die?" "Simple," replied the borrower. "If you
believed that spoons can birth and you accepted them, then it is also possible for candlesticks to die. May
they rest undisturbed."

Another old story from the Philadelphia men's wear trade: A man enters a shop and asks to buy a suit. The
haberdasher responds, "You shall have the finest custom-tailored suit. First we bring in an entourage and
they take your measurements, then your measurements are flown to England. Then we phone Turkey and
order them to shear fine fur from the Angora goats. The wool is flown to a French weaving mill where it is
woven into the best mohair. Then the cloth is flown to England where it is custom-tailored into a
masterpiece of a suit based on your measurements. Then that gem of a suit is flown here."

"But you don't understand!" the customer protests. "I need this suit by tomorrow evening."

The men's wear-dealer replies, "Don't worry. You'll get it."

An old Irish joke: At the end of the work-week, Clancy opens his pay envelope and finds it $10 short. He
complains to the foreman who says, "Your pay envelope last week was $10 over, but you didn't complain
about that." Clancy retorts, "Well, anybody can make one mistake, but two in a row is intolerable."

A slice of New England history: Author and philosopher Henry David Thoreau was also a surveyor. He
would explain to a client about there being more than one method of surveying. Inevitably the first question
was not, "Which is most accurate?" but "Which will get me the most land?"

Incident in a barber shop: Angelo put down his scissors for a moment and said, "Hey, Mike. Look at this
thing I bought." He held up a hardback volume entitled Winning Big in the Casinos. The customer in the
chair reacted, "Angelo, you know why the guy wrote that book? To get back the money he lost."

From the newspapers: Dear Abby in her advice column quoted some story or explanation she did not
believe, then added her own remark, "If you can buy that, I have some swampland in Louisiana to sell
you." She was deluged with letters from readers wanting to invest in the Louisiana swampland. Even
though it existed only in her wisecrack.

1020
The desire and effort to cadge profits may be less universal than breathing, but only slightly. With the
variety of forms that these take come the variety of risks and unknown factors, and always there are risks
and unknown factors. So if one's taxi is to stop at the bank and not the bankruptcy court, the questions must
be addressed: Do you know the risks and unknown factors in your particular hunting copse? Can you spot
and deal with them?

Everybody says yes, and yet! One need not know quantum physics and differential calculus to trade
successfully. Yet one must grasp the intricacies relevant to the hunt. The fact that each speculator is in
effect a one-person business carries a hazard: It is nice to be your own boss but dangerous to mark your
own test papers and keep giving yourself a hundred. That is precisely what many traders do on the matter
of "grasping the intricacies," of gauging the risks and unknowns.

Nobody thinks himself a moron or a borderline-incompetent, but the high casualty rate in the financial
trenches casts ample doubt on all those "I can't lose!" self-evaluators. The roulette-player with the "can't
miss" system never seems to ponder why the world does not swarm with people who got rich doing what
"can't miss." He knows that a casino has millions of dollars in expenses and yet he feels certain that it will
not come out of his pocket. Clancy could believe in a magic pay envelope that would add a sawbuck to his
wage but not in accountants who would have to make things balance out. Many traders on the stock
exchanges and futures exchanges and options exchanges similarly "believe in magic" and appear just plain
blind to the realities of the accounting ledger.

Those farther up the mental ladder can also stumble. The Yiddishman was a thinker and had tin-spoon
evidence to support his theory. Yet he trusted his valuables to a man whom he labeled either a madman or a
fool (the possibility of "cunning swindler" apparently did not occur to him). He expected this odd-ball to
deliver repeated profits of 100% overnight with the dependability of the Bank of England.

It is possible to profit off of a madman, but not as a steady income. A psychotic may think himself John D.
Rockefeller and pay you a philanthropic donation, then think himself Jack the Ripper tomorrow. Then
again, there may be a method to the supposed madness. A fox guards your tool shed without pay "just to be
nice," then volunteers to guard your henhouse. Did you see the scam coming when the borrower sacrificed
a tin spoon and then asked for a loan of expensive silver? Too many traders win some tin and then expect
the market to pour silver into their laps, quickly and effortlessly and repeatedly -- yes, very repeatedly.
There just ain't enough sterlingware for everybody who wants or expects this.

What was your take on the haberdashery store episode? It is the kind of gag in which much of the audience
does not "get the joke" or "gets it" in a way entirely different from the next person. A person of theoretical
or fanciful thought may assume that the joke takes place in a surrealistic world where super speed is a
humorous hypothetical. Someone more alert to the seamy side of the real world would say, "The suit's
coming off the rack. That men's wear merchant is palming off the hard-to-get-rid-of stuff from the back
room." The latter would make a more capable trader.

Speculation -- anything involving financial risk -- is a poker game in which one of your opponents plays
honestly, another plays honestly and smartly, another cheats and still another tries to pick your pocket.
However, it works to your advantage that the rogue's repertoire is usually not lengthy. Did you ever read
the "Business Opportunities" classified in any newspaper? So why does the seller want to get rid of the
business if it is the Fort Knox that he alleges? "Selling due to illness" or "'Owner retiring" or "Partners
disagree" or "Owner has other interests." As repetitious as "The dog at my homework."

Yet plenty of adults believe it as though it were the government's guarantee of bank interest and principle.
To add a teardrop, the gullibility extends to stocks, futures and options. You can make steady profits if you
are well-versed regarding both the natural hazards and the banditry. Counterfeit gilt-edge stock certificates
sold door-to-door a century ago have disappeared but the de Mille-sized crowd scenes in the bankruptcy
courts have not. According to the Wall Street Journal (8/8/98):

1021
"Securities regulators from four states have acted to shut down what they called a nationwide network of
"boiler room" sales offices promising investors big returns from the currency turmoil caused by the Asia
crisis.

". . . Nine employees of Options Trading Group Inc. were arrested July 30 based on warrants issued in
Idaho, where some of the steepest investor losses occurred, according to state regulators in Texas and Ohio.

"Options Trading and its employees stand accused of cheating roughly 1,000 investors out of many
millions of dollars. State officials allege that the company used high-pressure sales techniques and high
transaction fees to exploit headlines about currency turmoil in Asia, and convinced these investors that
there was money to be made on futures options for Yen, Marks and Swiss francs."

Boiler rooms. High-pressure telephone sales. With many firms the patsy answering the phone is a retiree or
other person on a limited income. How many even heard of futures or options before the hawker mentions
them? How many of that small percentage have a relevant book or two on the shelf? Talk about
infinitesimal numbers! Obligatorily under law they hear that risk exists and losses occur. But does anybody
inform them that the financial survival rate is somewhere between gladiators and Alamo defenders? "I need
those profits by early next month." "Don't worry. You'll get 'em."

As an option spread strategist, I suppose my laments could be compared to those of an undertaker trying to
look sad at a spare-no-expense funeral. The "fat" that gets "burned off" in a spread is other people's hard-
earned capital. The "armor" that gets "shot up" protecting my capital is other folks' money. A spreader's
profits are those of a bookmaker, a bankruptcy lawyer, a coffin-maker. A boiler room huckster is a recruiter
who says to Grandpa Gus, "Here's a submachine gun. Tomorrow's the battle. Win medals. That there is the
trigger. It's real easy." Although I pocket a dead man's gold, I still prefer to keep grandpops and picnickers
out of the Verdun trenches. A well-trained gun hand has a chance. A "Fortune awaits you!" phone-call-
receiving Vanderbilt does not.

Let us not blame everything on the novice. Few activities other than trading are so crowded with
financially-scarred veterans who get caught in the same ambushes again and again. One relative of mine --
now a retired professional musician--was wiped out completely three times in his life. The cause? Heavy
use of margin in buying of stocks. Everybody knows on day one that margin can double the bad news as
well as the good, but it took three massacres to make him "feel the significance" way down deep. Like
speculators in many categories he lived on the hope of a turn-around until the pealing of the monetary
funeral bells.

It happened to him with stock shares over a period of about two decades. The teardrops would have come
in quicker succession had his "thing" been options or futures. In what other pastime does the dollar-amount
of the bait so often exceed that of the trout? Even with anglers who have been at it for years. "Pastime"? An
old adage states "When a habit starts to cost money, it is called a hobby." Is your trading a habit, a hobby, a
gamble, a business?

Everybody likes to think of his speculations as a "business" because nobody likes to think of himself as a
player of government-approved three shell games or an on-the-charts model plane flyer going over budget.
At the fantasy-level, trading confuses too easily with the conquest of Everest, the capture of Geronimo, the
discovery of the Star of India Sapphire. It needs more business kinship with a furniture dealer, a camera
shop, an actual jewelry enterprise. If you know your small gems and carats and financial details, you may
get a chance to bid on the Hope Diamond. If you expect to swell $1,000 into $1,000,000 rapidly via some
marked-deck techniques applied to the Exchanges, such is the barstool angler at it for years; a string of
emptied bank accounts.

Regarding the financial details: Let us assume that you have a 50-50-chance of doubling your money,
whether poker or roulette, stocks or options or futures. This means you have one chance in four of doing it
twice in a row, one chance in eight of three consecutive bull's eyes, one in 16 of four, and so on. $1,000 has
to double only 10 times to become $1,000,000. So how come the world does not swarm with millionaires
who began with a grand? The odds against 10 such hits in a row are one in 1,000. Half of those who began

1022
won once, half the winners got eliminated when they tried to repeat it, half the surviving quarter got
chopped on the third attempt, and so it goes. Needed is more business, less repeat coin-toss, especially for
those who expect to be at it for any length of time.

Regarding the mental approach: The basic purpose -- being in business for a profit -- is too easily
consigned to a back burner if not the wastebasket in the thinking of many speculators. In recent issues of
CTCN, J. L. from Wimauma wrote, "It ain't the money" and he stressed the feeling of "Accomplishment"
with a capital "A" as "the source of all human pleasure." Although I read J. L. as avidly as theater-goers
used to go see John Barrymore, on that particular point I wish to take a diametrically opposing stand.
Traders should be "in it for the money."

Traders should be "in it for the money" because the most widespread alternative is so dangerous: Being in it
for the entertainment -- the thrill, the suspense, the fascination. Those relishing fascination or thrill simply
tolerate too greatly the holes that speculation shoots in their wallets, month after month and year after year.
The example worth repeating: The horse-player who has been losing for years but who cherishes the
excitement of post time. Had he banked those chunks of gambling money he could hire a limousine on the
interest. But the gradual accumulation of interest does not electrify and jazz up his nervous system like the
horses rounding the far turn. Myriads of his counterparts react likewise to the buzz of the Exchanges. This
is business?

Years ago in pre-casino Atlantic City, my parents had as neighbors a retired cab driver and his wife. The
fellow whom I shall call Sam was continually rah-rah about the stock market. If an acquaintance
approached him on the street and asked him about stocks, Sam would pull papers from his shirt pocket and
read off data. He reveled in armchair gabs about shares and their performances. Once as he talked in my
parents' parlor about his buys and sells, my father asked him, "Sam, what's your over-all outcome been in
recent years? With so many thousand here and so many there, what's the over-all tally? Gain or loss, a
ballpark figure."

Sam replied, "Broke even." Breaking even is a kind of loss, my father thought, since certificates of deposit
or a money market would have brought several percent gain. Another time, Sam's wife walked in from the
kitchen where she had been chatting with my mother and said to him, "When I hear you talk about the
market, it makes me sick!" Subsequently she said during a private conversation that, far from breaking
even, he took beating after beating. Hearing him gab on about investments griped her because a hefty part
of what he lost was her money.

Yet I had to admit that Sam was happy and entertained, as much as any sports fisherman rhapsodizing
about sunrise over the lake or the large-mouth bass that put up a fight. The trouble is, securities investing
costs far more than bait and tackle. Dictionaries define a "fish story" as "a lie or exaggerated tale."
Claiming that he "broke even" may be the trader's perennial fish story. Sam and his wife would have
suffered far less financially had his enthusiasm been about chess or backyard telescope astronomy or Indian
arrowheads or Joe Miller's Jests or lighthouse lithographs or Damon Runyon Era sports legend. Speculation
can be a sound business but use it as a win-the-prize funhouse and you can lose the United States Mint.

Again we arrive at the hazards of self-evaluation, the tendency to mark one's own test papers and declare
oneself a Rhodes Scholar. Everybody says, "I'm a scientific trader but he's a crap-shooter. I'm the Andrew
Mellon of my specialty but he's Charley Horseplayer." You mark more accurately if you remember the
past. Keep in mind: If it were possible to make money consistently that way, somebody would have done it.
People made money consistently mining for nuggets and sailing a Spanish galleon to the Spice Islands,
wholesaling or retailing sporting goods or plumbing fixtures. But the slot machine or keno player or
Exchange coin-tosser on a big budget?

A Grand Canyon of a gap lies between taking a profit and taking it consistently, and what winner does not
cherish another go at it? You know the racial slur that means temporary prosperity accompanied by big
spending. The terminology would be fairer if "nigger rich" were "honky in a horse-parlor rich" or "necktie
whitey with a broker dares it all rich." Temporary prosperity. A 50-50 chance of gaining once, one chance
in four of twice, one in eight of three times, with a Russian roulette exposure of capital on each venture and

1023
15 of 16 chambers loaded on the fourth try. Would it be unfair to the red man to call this a tomahawks-&-
scalps mathematical progression? "I broke even" conceals a multitude of tears.

This does not appear to register in the thinking of the trader who expects to multiply his capital again and
again, and with seven-game series rapidity. Knowing that it has been tried plenty of times before, he does
not pause to wonder why similar thoughts and attempts in the past did not spill forth plethoras of
millionaires, why the files of high-turnover brokers are crammed with no-longer-actives instead of Andrew
Carnegies.

Psychologically, we all have a certain satisfaction with and even a fondness for the way our minds work.
When you are out driving, anybody who drives faster than you is a "speed demon" and anybody slower is
"overly cautious." What is an over-sexed person? Anybody who wants it one time more than you do. What
is a glutton? Anybody who wants another dinner helping after you feel full. Just about everybody admits he
is less than perfect but that does not prevent just about everybody from using Nice Guy Me as a measuring
stick for the world. Practically everybody from the real Einstein to his alleged "reincarnation" in the
psychiatric hospital thinks

that way. Often this is harmless but in the realm of speculation, many shot-up bank accounts are what
sledge-hammer the way to a trader's second thoughts about how his mind works.

Years ago, I made a beginner's luck bundle buying and selling call options during the boom in Atlantic City
casino stocks. Calls with gambling shares underlying yielded profit upon profit. Trouble came when I tried
to repeat my success with other underlying stocks. I thought that "playing long" or buying put & call
options to re-sell would be my life's occupation. Fortunately, it took just a couple of quick gunshot wounds
to make me realize that I was pursuing profits contra mathematical "odds against" that took no prisoners. I
detoured into (a) "writing covered calls" or selling call options on good stocks that I owned, and (b)
horizontal calendar spreads. Since then my trading life has been not one of pure gains but one of a
bookmaker favored by the odds. That solid, practical "plus" showed itself plenty over the long haul.

The time of this writing -- September 1998 -- stands as a gloomy one for Dow watchers and investors, with
the stock market having lost most of its past year's record gains. My most recent option spread position
closed with a minus, yet my crying towel remains dry thanks to the success of prior trades. Also the recent
losing trade served to test a couple of strong points of my methodology and they tested well. Less
philosophical than some, I prefer a profit rather than "a loss with lessons attached," but a minus that can
instruct serves at least some purpose. I shall not tell that white lie worn to dingy gray about "breaking
even."

The much-publicized Viagra potency drug had me looking at the Pfizer Company's shares and options. In
early July, there was too much price gap between Pfizer's August and September options. My attention
turned to another pharmaceutical company, Bergen Brunswig, which had a near-conservative P/E and
received some publicity due to Cardinal Healthways' intention of buying it. The latter also placed some
upward nudges on the stock price which fluctuated near 50. The August 55 call options and the September
55s gaped at only about 7/8 of a point from each other, 3½ to 43/8.

I entered an order with the broker to buy 10 September 55s and sell 10 August 55s at a 7/8 point difference
or spread. Nothing done. The next day I phoned in the same order but with a full one-point difference. I
bought 10 Septembers for $4,500 and sold 10 Augusts at $3,500, a spread of a point or $1,000 plus
commissions out of my capital. One item that makes spreading perennially attractive is the sorcery of other
people's money, with the August buyer paying 3½ times more than I, financing most of my Septembers,
and the non-spreading September buyers paying 4½ times more than I for comparable options. Another
item has to be other people absorbing most of the risk, a crucial sea wall in this case.

News that the federal courts might permit the Cardinal Healthways/Bergen Brunswig merger boosted the
latter's stock to above 60 points, placing my short-end August options more than 5-points into the money,
bad news for a short position. However, I anticipated that this was just a temporary spurt and such news

1024
could not come every day. The next day, the share price fell to the low 50s, putting my Augusts a few
comfortable points out of the money.

In August the worst happened. A federal judge nixed the merger on anti-trust grounds. Bergen Brunswig
shares fell to the low 40s and then the high 30s, shrinking the call options with 55 strike prices and
shrinking the accompanying price gap between months. To make a weeks-long story short, I lost over half
my $1,000-plus-commissions investment. Is there an instructional bright side? A couple. Those who paid
$3,500 for the Augusts lost between $3,000 and $3,500 depending on whether they sold right after the court
decision or waited until expiration hoping turn-around. The non-spreaders who paid $4,500 for the
Septembers lost varying amounts over $3,500 depending on when after the judgment they sold. Thankfully
the spreader -- the brigade in the middle -- suffers the lightest casualties while the long players on the left
and right flanks catch the most gunfire.

A second bright side: This happened at a point in my evolution when I was demanding narrower and
narrower opening spreads. I am, ashamed to admit that a couple of years ago I would have tolerated a two-
point gap at the start, jeopardizing two grand plus commissions of my own capital instead of just one.
Losing over half of $1,000 is certainly not as bad as losing over two-thirds of $1,500 or more than three-
quarters of $2,000. Half-price at the entrance gate is half the battle. Less cargo on a ship reduces the risk, as
does letting surrounding ships catch the torpedoes. You would like to see everybody reach prosperity port
but everybody will not. Brokers' statistics say most of the fleet will sink.

Since I am not too philosophical about "bright sides" on losing trades, I would not mention a third such side
unless it were really vital. An Iron-Clad Rule: Limit your loss or your exposure to loss. In my particular
strategy this translates as: Risk one but do not risk a second until the first starts bearing fruit. In the
previous issue of CTCN, I described a spread in call options of Mellon Bank. Once that moved into plus
territory and a closing out of that position was in sight, then and only then did I launch the Bergen
Brunswig position.

My plan was to consider launching another spread if and only if the Bergen Brunswig one moved solidly
and markedly into plus territory. Twas not to be. That proved an effective warning sign. The sight of
Bergen B taking on water signaled me not to send another ship into the channel. After I closed that one out,
the end of that trading day found me with no other spread positions. As typhoon and tidal wave of the
collapsing market raged upon the water, I had no crafts vulnerable. Brunswig proved a bad investment but a
good warning light, especially for a one-at-a-time, limit-your-risk trader.

I recently began communicating by phone and fax with people who write to me. The biggest difficulty I
find is in persuading traders or soon-to-be ones to limit their risk or their exposure to loss. A happy medium
is possible between the I-can-never-win pessimist and the boxer so optimistic he thinks his opponent will
throw no punches. While too many speculators bunch up around the latter, good business locates itself
attitudinally in between. A fine business rule: Hope for the best and prepare for the worst. An alert clothier
buys wear popular with teenagers but limits his purchase because he knows the fad may die suddenly. Most
of an option spreader's ships cross safely and deliver a profit but this one may sink or partially lose cargo.

Each trader likes to think himself the businessperson, the inner office that walks, and regard others as the
chips-on-green-felt players. Everyone likes to think of his wallet as "the smart money" and others' as "the
sucker money." Remember that smart cash is limit-the-risk cash. It could grow diamonds or it could vanish
in the swamp gas. The check-writer needs to figure this and keep the amount as small as is practical.

A Wall Street Journal article (September 22, 1998) bore the title 'In the Field of Investing, Self-Confidence
Can Sometimes Come Back to Haunt You." Writer Jonathan Clemens quoted finance professor Steven
Thorley of the Marriott School of Management at Brigham Young University in Utah: "A positive mental
attitude, optimism and self-confidence are good attributes. But in the financial world, they just don't work.
You're not interacting with people. You're interacting with prices. They don't care how you feel that day. In
general, over-confidence is a negative." Such over-confidence could describe the player, whether sugarfoot
or gladiatorial, who envisions dollar-multiplications and vast fortunes, soon too, ere the bonded bottle of
shots needs replacing.

1025
He is not ignorant of the 10-mile financial graveyard haunted by vast numbers of souls who used to hold
similar visions. Still he anticipates that the next shovel-full of earth will uncover Captain Kidd's treasure.
Viewing trading as a business means thinking in terms of a wholesale shipment of Samsonite luggage and
not long-lost Spanish doubloons; rum & molasses merchanting rather than free-booting or treasure-hunting.
Boy pirates of the Exchanges expect quick fortunes, get quick spankings.

One does not write about finance for any length of time without entering the sphere of psychology, of "why
people do" this or that. In high school, I did amateur magic in the student variety show. During school
hours, one or another fellow student would see me reading a non-curriculum booklet or catch a glimpse of
one in my loose-leaf notebook--a "magician's methods' pamphlet or a "humor for stage" patter piece--and
would insistently want to look at it. I learned something: After a minute and a half of riding a bus, standing
in line, or sitting in a cafeteria or study hall, people crave entertainment. Anything that can amuse is
psychological sparks & tinder, even trivially or momentarily.

On important matters, if trading or investing is the most interesting thing in people's lives, it often becomes
a stage show and profits get secondary status. "Secondary" usually means tossed in the wastebasket. For
example, everybody is against cheating, everybody from athletes to gamblers. Nobody writes a doctrine or
makes a speech in favor of cheating. Yet many athletes and gamblers have an even stronger dislike of
losing. They cheat because in their mental hierarchies, dislike for cheating ranks second to dislike for
losing. Among mind priorities, with desires competing against each other and numerous aversions
jockeying for first place, second place means out-of-the-money and off the edge of the earth.

When trading is the most interesting thing in a person's life, it strains under triple duty, serving as a liven-
things-up variety show and a sports event that you root for from the stands and a novel with a Byzantine
plot difficult to put down. Business and profits can become second stringers where only the first string gets
on the playing field. Let "Ain't We Got Fun?" Sam in Atlantic City serve as an object lesson. It is the
psychological lock on the strongbox that the trader have other interests, and not just mild ones.

Contrarily, I believe that those with at least some claim to being Renaissance Men and Women make the
best traders as well as the best critics. Mention has already been made of using the stock market as a
fascination-fixating, get-wrapped-up-in substitute for chess or sports fishing or astronomy et cetera. It
would help if the active-as-a-checker-player investor were fascinated by a few other things. Also, the
accomplished pianist who studies Egyptology could add a percent to his already fine grasp of intricacies.
Judging from speculator loss reports, plenty of traders have far more need of that percent. To those who
claim that Italian Renaissance art has no relevance to modern finance, I still insist that people who
appreciate the brush-strokes and the use of light and color by Correggio or Giordano are less likely to
handle trading like sports betting. Let the spill-over be off the canvas and not Rose Bowl point-spread
sheet.

Editor's Note: Due to space limitations we were forced to shorten the article.

Member Requests

A Member is looking for feedback on Steven Cox and Natural Order Educators - reply via CTCN

Joseph Light - jolight@home.com or 941-475-4064 is interested in hearing from readers who have
purchased publications from Greg Donio - DBA Oldcastle Laboratory. Also send feedback to CTCN for
next issue, many readers are interested.

Editor's Comments

This issue includes an invitation from ZAP Futures and Rita Karpel to pay for your CTCN Membership or
for your purchase of our 1998 Real Success Trading Course.

1026
 If you are already a CTCN subscriber this offer will let you renew for 2-additional years at no cost to you.
ZAP Futures will pay CTCN $100 on your behalf for a two-year membership, either new or renewal. They
also offer to pay us $877 for you to acquire our revised 1998 Real Success Trading Manual and Video Tape
Course.

ZAP and Rita have this announcement to make: "If you open an account with ZAP Futures, the original
online trading firm, not only will you be able to use the "best" online trading software available, you will
also pay only $20 per round-turn commission (plus all applicable fees), and will also qualify for a full 2-
year Commodity Traders Club News membership and perhaps even qualify for a Real Success Trading
Course for FREE!

For all the details and information, please call Rita Karpel at 1-800-257-6842 x1852, or send e-mail to
ritak@interaccess.com"

Note: We have known Rita Karpel for a number of years and have found her very helpful and a nice person
to deal with. Please speak to Rita if you call ZAP for information on this limited time money-saving special
offer. We have also heard good things about ZAP and their order execution speed.

Issue 47.

How Much Should You Trust Trading Magazines' Tips? - Deborah Adamson - L. A. Daily News

You see them at nearly every newsstand: personal finance magazines touting the best investments or the
hottest stocks. With all the subtlety of a 30-minute infomercial, they scream to readers the promise of
investment success.

"Best Mid-Year Investments" SmartMoney declared in July 1997.

"Six Stocks Pegged to Earn 47%" within the next year, Money magazine promised in June 1997.

How good are these recommendations? Not very, based on a Daily News review.

The newspaper tracked the year-long performance of 141 stocks recommended in 21 articles in issues of
four popular personal finance publications. Seventy-three stocks out of the 141 - or 52 percent - lost money.

Forget earning 47 percent or even modest returns; more than half of the stocks recommended in some
articles by some of the nation's most popular personal finance magazines cost their readers' money. The
lesson to be learned is that readers ought to beware - even when the advice comes from some of the best-
known magazines.

The articles ran in the April 1997 to January 1998 editions and were selected randomly to gauge the year-
long performance of stocks through last year's bull market and this summer's bear. But he said that if
professional investors "have slightly more winners than losers, they are stars."

Magazines' record is surprising, considering that most of the stock picks were made in a market which by
every measure was hugely profitable. The findings are a cause for concern because millions of investors -
through individual retirement accounts, 401(k) plans and personal accounts - have funneled billions into
stock market in recent years, relying on magazines like Money, SmartMoney, Kiplinger's and Worth for
advice.

If those magazines' readers had bought into index funds that tracked the Standard & Poor's 500 Index on
the first day of that month's issue instead of buying the magazines' picks, the investors would have made as
much as 45.88 percent (before fund fees and without reinvesting dividends). If they had bought at the worst
possible day during that time, they still would have made 3.24 percent.

1027
Comparing the stock recommendations against five indexes (S&P 500, S&P Midcap 400, Russell 2000,
MicroCap 50 and Wilshire 5000 indexes) that better reflect the market segments of these securities, the
magazines did even worse. Eighty-two out of 141 stocks, or 58 percent, did not beat the market.

For Money magazine, 23 out of 39 stock picks - or 59 percent did not beat their market segment. Seventy-
four percent (20 out of 27 stocks) of SmartMoney's picks did not beat the indexes. Eleven of 20 stocks (55
percent) touted by Kiplinger's lost to the indexes. As for Worth, 28 out of 55 stocks, or 51 percent, did not
beat the market.

If you took the average return per article, excluding dividends, and compared the result with a comparable
index, 56 percent of Money magazine's articles did not beat the market. SmartMoney had 75 percent miss,
half of Worth's articles did not beat the indexes and none of Kiplinger's articles beat the market.

To be sure, it's not easy to beat the market. Most mutual fund managers don't do better than the S&P500.
Some of the stock picks in the articles performed well over 12 months but still didn't outpace the market.

Kiplinger's April 1997 issue recommended buying Chase Manhattan, which rose 42 percent in a year. But
that didn't beat the S&P 500's 45.88 percent gain over the same period.

The results aren't much better even if the yardstick is simple profitability - whether a stock increased after a
year (or, in the case of the January 1998 special issue, nine months).

Using this yardstick, 19 of the 39 individual stocks recommended by Money from June to August 1997, or
46 percent, lost money.

Comparing the performance of all recommendations by articles, three of nine Money stories showed
negative returns - 33% miss.

However, Money made a good call in an August 1997 article, "Don't Just Sit There . . . Sell Stock Now."
Investors who acted on it would have avoided the October 1997 correction and the current bear market -
providing they put the money in cash, money market accounts or bonds.

If someone followed the magazine's advice and bought stocks recommended in other articles in the same
issue, the results would've been mixed.

For instance, $1,000 invested in each of the five stocks recommended in "Defend your Portfolio with stocks
that promise income and growth," would have made $1,345, or 28 percent, in a year.

But if someone bought $1,000 worth of each stock recommended as hedges against inflation that also was
in the same issue, he would have lost $1,247 a year later, or 26 percent. Indeed, four out of the five picks
were losers.

As for SmartMoney, 16 Out of 27 stocks recommended in the May, July and October 1997 issues, or 59
percent, lost money. If each of the four articles examined was tallied separately, half-had declines.

In Kiplinger's April and August 1997 issues, our out of 20 stocks lost money - 20% miss. One out of four
articles (25%) lost money. As for Worth's June and September 1997 and January 1998 issues, 35 out of 55
stocks lost (64%) and three out of four articles (75%) showed losses.

Jersey Gilbert, financial editor for SmartMoney in New York, contends that one year is not enough time to
decide a stock 's success. If an investor waits at least 5-years, "75 to 80%" of SmartMoney's stock picks
will make money, he said.

1028
Kiplinger's "preaches long-term investing" of at least three to five years, said Manny Schiffres, senior
associate editor in Washington. Many stories from these magazines remind readers that their
recommendations are for the long-term.

Publications' Staffs Short on Credentials

Just what are readers buying? Finance magazines offer readers stock recommendations of Wall Street
pundits, star mutual fund managers, plus investment picks from the magazine's editors and reporters. Then
there are company profiles and interviews with executives, among others.

Experts of Wall Street featured in these publications have to possess a stellar investment record before any
national magazine gives them ink. But that's not the case with the magazines' own journalists, who often
step into the role of investment guru.

Editors at Money, SmartMoney and Kiplinger's said they and their staff carry years of financial reporting
experience that equip them to make good recommendations. (Worth did not comment.) For an expert
opinion, they also might bounce ideas off proven fund managers.

But most don't have either a formal education in finance, such as an MBA or college business degree, or
credentials such as a certified financial planner designation.

"It's hard to say what qualifies a person to analyze stocks," said Jersey Gilbert, financial editor for
SmartMoney magazine in New York. He argues a business degree does not guarantee great stock picking.
Instead, SmartMoney recruits reporters with analytical skills and trains them, he said.

Manny Schiffres, senior associate editor at Kiplinger's magazine in Washington, said he's been writing
about personal finance since the mid-1980s and feels "very comfortable with my abilities in this area"
especially "in a world filled with 28-year-old fund managers." He also consults with mutual fund managers
he holds in high regard, those with proven track records.

In contrast, Consumer Reports financial editor Lou Richman has an MBA and so does three of his four
financial writers. The magazine is more a consumer advocacy publication than a traditional business news
publication.

Still, Richman says that while it helps to have an MBA, journalists don't have to possess a business degree
to do their jobs well.

Indeed, there are personal finance journalists who have been covering the industry for so long that they've
learned a lot, said Barbara Levin, executive director of Forum for Investor Advice, a nonprofit group in
Bethesda, Md.

However, "there's no guarantee these people know what they're talking about. They don't have to have a
history of success," said Barbara Roper, director of investor protection at the Consumer Federation of
America in Washington.

Jane Bryant Quinn of Newsweek, one of the most famous personal finance columnists in America, frowns
on journalists becoming stock pickers.

"Some reporters today are . . . turning themselves into financial advisers by picking, or promoting, mutual
funds and stocks in print - trading on their credibility as a disinterested source," she wrote in the
March/April 1998 issue of the Columbia Journalism Review.

We justify it by saying, "Better us than a stock salesperson. Besides, look how our stocks or funds have
soared," she wrote. "What kind of geniuses will we be when stocks go down?"

1029
 Buy and Hold? - Andy Abraham, CTA

We as good stock market investors have been promised Buy and Hold and you will have your retirement
nest egg. Who will need Social Security? All we need to do is buy and hold?

The year is 1928 or 1972. That was then and this is now. It took approximately 25-years to bring your
account back to par if you had invested in 1928 or 8-years in if you had invested in 1972. How about the
Japanese buy and hold investors. We would still be waiting to get back to our original investment level.

I don't want to guess where the market can go to (15,000, 20,000 or 5,000). I don't know the future and I
would be very wary of someone who says they do. OK, so what does one do to protect their nest egg, yet
still have the advantages of upward movements in the stock market?

I'm a commodity broker with Angus Jackson and we trade mechanical systems for clients. Being a broker
has given me the ability to see what has potential to work over time and what doesn't. Therefore, I
developed a method of scaling in and out of the stock market using mechanical systems.

I use systems based on Price Momentum, Breadth [advancing issues, declining issues and new highs and
lows], sentiment and interest rates. I use a synergy of systems because any one system can under perform
or even stop working. I weight heavier on the Momentum and Breadth systems. The sentiment and interest
rates can have somewhat of a lagging effect.

I want to participate if the market goes up but also scale out if the market gets choppy or directionless. I use
a multitude of systems. My goal is to out perform the market and at the same time maintain a very risk
adverse stance. Yes it can be done. In my model I use various systems and they allow me this luxury.

Some of the systems are my own and some are in the public domain presented by Ned Davis, Marty Zwieg,
Gerald Appel and many others. The key to all this is besides having a system that you have thoroughly
tested in all types of markets is the ability to pull the trigger. Pulling the trigger takes courage and the
ability to the uncomfortable thing and is a contrarian. If in the beginning of October, someone would have
told you to start buying the market you might think he was crazy. Or maybe now selling the market?

I scale in slowly in the market. If slightly more than half of my models are on a buy I will enter on a 5%
exposure. As more systems start to flip to a buy, I increase my exposure. I increase to 25%- 35%, 55% and
so forth, and if all systems are on a buy I will be more aggressive to maximize my gain. The most important
attribute of the model is its defensive posture. If less than half my models are not on a buy I am safety-
earning interest while sitting on cash. This year this has served me well. On July 31, my model had me in
cash. I avoided this ugly drawdown but scaled in slightly in September with a 5% exposure damage was
minimal and went to cash again. On October 12, we started in again. Recently the market seems to be
possibly rolling over.

Breadth had deteriorated and massive divergence's existed. Our model had scaled us out from 90% to 65%
exposure. Is this a correction or the start of something more vicious? I don't know nor do I try to predict
tops and bottoms. At 1146, I will surely scale back to a much greater extent.

Only time will tell where the market will go. Maybe you are braver then me, but I have three children and a
wife to care for. I don't want my nest egg to disappear. If you would like to see the hypothetical as well
real-time results send me an e-mail at angus@actcom.co.il

Discipline Equals Success - Michael Calo

What does it take to be a successful futures trader? The answer, which would be the same regardless of the
occupation you asked about, is - discipline. After years of trading and numerous discussions with both
successful and unsuccessful traders, I have come to the conclusion discipline is the only requirement one

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needs to be truly successful in this business. Today, with the myriad of systems and newsletters inundating
the market, a trader has a true variety of tactics available.

The problem is most of us are unsure of what type of trader we want to be. Daytrading, short-term, position
trader, they all have their benefits and drawbacks. How many times have we, after careful thought and
study, decided to enter a trade, convinced that buying and holding was the tactic. Once in loss, our resolve
begins to fade, and we second guess our decision. Training to be a disciplined trader must begin with a
decision. A decision to define your trading method and goals.

Whether you are a new investor with $5k or a seasoned trader with $500k, it is imperative to define a set of
goals, and a strategy that fits your financial position as well as your personality. Let's take a close look at
ourselves. How well do we really know our reactions. Once completing the process of paper trading and
graduating to real thing, we may be surprised to find a new world of emotions. The calm and cool process
used on paper fades quickly in the light of actual dollar gains and losses. If you ever day traded, in real-
time, you can appreciate what I'm talking about. Before the market opens your analysis determined your
direction and goals. Within 5-minutes of the open, the awful process of second guessing comes into play.
The solution is simple and if you follow along with my thinking, I believe that by the end of this short
article you can have a new outlook on trading.

For just a moment, forget everything you ever learned about trading. Clear your mind and consider the
following statements as factual. Don't think about them, just accept what is said; 1. All markets are
technically traded and fundamentally driven. 2. A majority of the thousands of trading systems,
methodologies, and advisory services are profitable. 3. Successful trading is repetitive. 4. Wavering is
caused by fear, indecision and undisciplined trading habits and result in Failure.

Accept these simple facts, and you're on your way to success. Find or develop a system or service you're
comfortable with, one which fits your financial situation and personality. Then build a repetitively
disciplined habit of trading that system.

Due to the large number of systems and programs, finding or even developing one can be time consuming
and costly. Just as air is essential to life, so is your system essential to your trading life. Preparing your
discipline requires you have faith in your trading system.

Just like breathing, we don't think about every breath we take, we simply breath because we are conditioned
to live. Conditioning your mind to trade will require discipline, one which will eventually become second
nature. This type of faith in a system can only be achieved by solid factual investigating of a track record,
its drawdowns and profits. To be disciplined will require a thorough understanding of draw-down and
cyclical phasing of your system. Sounds good, but all it means is that all systems will experience highs and
lows. You only need to be aware of those times, and retain your overall focus and goals. Never alter your
trading during good periods or bad. If you normally trade 1, 2 or 3 lots, then during a drawdown don't
change. Consistency is the offspring of discipline and discipline results in success. Take a realistic look at
the system of your choice. Are you prepared that this system may start into a drawdown phase when you
begin trading? What if this system lost its first five trades, would you abandon it? How about the first 10
trades? What would you be thinking then? Before you trade dollar one, be convinced beyond any doubt that
the system of trading you are using is going to make you money.

If you are not going to trade when your system tells you to, then you shouldn't be trading at all. Fear kills,
don't fear loss. Accept it as part of being successful. It doesn't matter how long your system has been
around or how well it has done in the past, it will have drawdowns. There are no perfect people, and
therefore, there cannot be a perfect system.

Short of perfection then, we must accept a system based on its past performance. There are no crystal balls
tuned to the futures markets.

By accepting these facts, you're ready for the next step; Setting goals. You must have both short and long-
term goals. For example, I am a short-term trader, I look for momentum moves, intraday and interday.

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Before every trade, I have a loss limit and a profit goal. If the goal is not 2-3x the loss potential, I do not
make the trade. A goal is essential to success. Some systems are goal oriented, and that eliminates your
decision, but most are not.

Finally, to retain a positive attitude, look at the worst case scenario and be able to accept it. Look at loss
potential and be sure you can live with it. Some experts believe that trading is like playing poker, you don't
count your money. I believe that is a mistake a trader cannot afford to make.

Every tick is money either in or out of your pocket. Could you run a multimillion dollar corporation by not
closely monitoring the profits and losses? I doubt it. You must have a keen awareness of profit and loss.
Now, with a realistic understanding of potential loss, turn your focus back to the positive and remain
steadfast in your decision as you begin to trade. Trading is not an art, or a science, or a religion. Trading is
a discipline, a mind-set to do the same thing over and over, and over again. Day after day, week after week.
Once you have a system, even if it is only 50% correct, if the system's gains are 2-3x the system losses,
then you'll be profitable.

There is no magic to trading. It doesn't require a genius, or a mathematician. Just discipline. If you are the
type of personality who needs to make it big, and make it quick, I recommend caution. However, an
average trader can earn a high 5 or low 6 figure income with a reasonable time requirement. There is no
other business in the world like trading. But if you're not successful it can be the most frustrating
occupation on the planet. Futures trading statistics follow the real working world, only 4% of the
population makes over $100,000 annually. Well, approximately 4% of all traders are successful. And the
losses of the 96% make the profit potential substantial to the successful 4%. If you are tired of being one of
the 96%, now is the time for change.

I believe that 1999 is the beginning of what may be the greatest opportunity for traders in the past 50-years.
You don't want to be shooting from the hip, but following a methodical and disciplined plan that will bring
you to success.

Black Box, Brown Box, Cash Box- Analysis of TradeAdvisor by Stelar International - Rodney Marcantel

Software by design can analyze markets using proprietary algorithms or can allow the user to develop a
trading system using existing technical indicators. In either case, these are black box type trading systems,
where no intuitive thinking is required. Simply follow the signals and rules generated. A trader with a
strong desire to succeed cannot rely on this type trading system to achieve long-term success in the futures
markets.

There is nothing wrong with any of these trading programs. Each offers advantages for anyone looking for
a trading system that provides a level of confidence when trading and works with their style of trading. But
success with a trading program comes from employing something known as a brown box trading system.
Money management techniques coupled with a brown box trading system can produce outstanding results
and fill your "cash box."

Trading Systems - Black box trading systems are purely mechanical and require no intuitive thinking by the
trader using them. Simply follow the system, its buy and sell recommendations, stop loss placements, target
profit points, etc. and you have a system that requires very little thought and probably very little profits in
the cash box. Trading systems like this needs help to perform adequately for the investor. That's where a
Brown Box trading system comes into focus.

Brown box trading systems are not purely mechanical although they may appear to be so. A good example
of one might include a black box trading program as described above and a plethora of intuitive filters
derived from fundamental data sources, cycle theory, interrelated markets, and/or consensus figures. These
are the filters that a black box trading system, whether derived from trading programs, technical indicators
or a combination thereof, cannot make decisions by which buy/sell recommendations are derived.

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Let's look at a brown box trading system that I have come to appreciate using a trading package that I have
come to purchase solely on its black box record - Professional TradeAdvisor98.

Editor's Note: Rodney, please clarify what you mean when you say "it's a Brown Box System with a
Black Box track record."

Addendum from Rodney: Regarding "Brown Box with a Black Box track record." In my opinion, a Brown
box system is one which employs fundamentals and other non-programmable indicators. A black box
trading system is one which follows strict guidelines, i.e., buy & sell recommendations, stops & objective
points, etc.).

Is there such a software package that can by itself produce results that let profits run and cuts losses short
with little drawdown per trade and plenty of upside potential? TradeAdvisor98 does this by itself as a black
box system when markets trend but fails to perform adequately when markets consolidate or distribute.
This is no different from many trend following systems and has been proven through many months of real-
time paper trades taking into account some level of slippage on entry. By using a "black box system" like
TradeAdvisor98 or any other technical trading package with intuitive filters, one can substantially improve
upon winning trades and virtually eliminate many bad signals that result in many small losses.

Markets do trend over long periods and also at times consolidates to bring in new longs in downtrends or
shorts in uptrends. This helps strengthen the next wave down or up (depending on the long-term trend).
Sometimes this consolidation forms a sideways trading range and other times it's a corrective wave or
bull/bear flag formation. Markets also have periods of distribution. It's these times that large specs work to
dump their huge net short positions in downtrend markets before exploding higher thereby forming a new
trend.

Being able to identify periods of non-trending action requires intuitive thinking. Fundamental bias may be
shifting and/or a cycle low may be at hand. Understanding the overall market bias is crucial to success. And
this understanding can be achieved many different ways like the ones just described. Another method might
be to look at the weekly charts. But it is more difficult to catch the start of consolidation or distribution.
However, it may help the cash box, once identified, in an effort to keep the trader out of some black box
trades until the trend has resumed or turned.

Filters - Some filters I've come to appreciate include fundamental data, intermarket relationships, major
market reports and cycles. Fundamental data might include a crop progress report or interest rate hike,
certainly something difficult to program into a trading package. Intermarket relationships might include T-
Bonds rising, by which causing equities to rise and certain commodity prices to fall or the relationship Live
Cattle have with Corn prices. Cycles are also good predictors of market turns or distribution action. For
instance, the CRB Index cycle low was due this past October 1998, and since (as of this writing) has not
been broken.

Whatever the method of filtering, one must develop a set of filters that turn a marginally profitable black
box system into a highly profitable brown box system with less drawdown per trade. Sounds simple
enough, but difficult when back testing with fundamental data or other intuitive filtering techniques.

Editor's Note: Rodney, you also refer to the use of "intuitive filters." What does this mean? Is intuitive
based on hindsight or judgment, etc.?

Also, you apparently use your "Filter 1, Fundamental Basis." How is it possible to program Fundamentals
into a system, black box or brown box? Also, after years of trading myself, I have learned frequently the
commodity markets will go the opposite direction of the Fundamentals, so how can they be used.

This is especially true with a computer system which will only accept clear-cut yes and no conditions, with
no room at all for ifs, buts, ands or maybes, and no allowance at all being possible for any judgment in the
evaluation of the market and its fundamentals.

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In addition, different people, including experts, will give different opinions on Fundamental News, so how
can it be used with any Black or Brown Box System?

Addendum from Rodney regarding Filters: Intuitive filters are just that, intuitive. They are things you learn
about certain markets like cocoa for instance which rarely trends or like knowing the seasonal tendencies in
the grains and meats. I can elaborate further if you like. It's not possible to program fundamentals,
therefore, fundamentals must be dealt with intuitively as one would use good judgment based on
experience and awareness and not programmed.

What I've come to appreciate about TradeAdvisor98 are excellent back-testing features, which allows one
to pick any period and scan for resulting Elliott Wave patterns and other technical indicators along with
candlestick formations for sound technical black box results. Using Bollinger Bands, Andrews Pitchforks,
Fibonacci Numbers Fan Lines, retracement levels and a host of technical indicators, TradeAdvisor98 has
become an extremely useful, quick and easy trading companion.

The filters I've developed to complement "TradeAdvisor98" include:

1. Fundamental bias - Staying on the right side of fundamental news.

2. Weekly trend - Looking at weekly chart, did market break support or resistance of the previous weekly
price bar?

3. Intermarket Relationship - Nikkei Index and Dow Jones Average, for instance

4. Consensus Figures - Too many buyers and not enough sellers (in an uptrend).

5. CRB Index Cycle - 7.5 year cycle low due this past October.

6. 50-Day Moving Average - Looking for three consecutive closes above or below average for possible
reversal.

One approach to these filters might be to disqualify a TradeAdvisor98 signal with these and possibly more
filters are applied to eliminate signals generated during periods when markets will consolidate or even turn.
Drawdown with the black box system using stop system 2 has not exceeded $2,000 in any single market
over the 12-month of real-time paper trades.

Editor's Note: Rodney, you say by using a "fundamental bias" drawdown has not exceeded $2,000 in six
months. This sound too good to be true! Most all systems will have a "small" $1,500 drawdown in a matter
of hours, certainly not much more than several days, let alone 6-months!

How is this possible? Does the "Brown Box" come into play? Is it possible you designed this (alleged)
amazingly low drawdown system using any hindsight or optimization, like what you would expect in a
"gray box" system, for example? Was a stop-loss method used involving the $2,000 drawdown system? If
so, how did it work so well? How many trades and how many markets were traded? Was a target level
used?

Addendum from Rodney regarding "drawdown" definition error: "Drawdown not exceeding $2,000." I
guess the word "drawdown" was not the right word to use. What I meant to say was that no single trade
exceeded $1,500 in losses. In actuality, drawdown at any given time did not exceed about $11,000 which
interpreted means margin on all open positions.

The use of some good fundamental information and cycle theory helped keep me out of trades that would
have otherwise been additional losses. This proves my theory and probably many others that it is extremely
difficult to trade a simple black box system profitably over long periods without some level of human bias
like fundamentals or Cycles or other indicator.

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The largest losses being from trading cotton into a report, highly volatile natural gas, and Japanese yen, a
market filled with overnight trading can easily create large gaps, highly risky markets.

Money Management - Two of the hardest things to learn in trading are discipline and money management.
And to each it brings varying degrees of successes and failures.

The disciplined trader has mastered the ability to accept and minimize losses while sticking with winning
trades. The undisciplined trader relies on emotion and fear resulting in cutting winning trades short and
holding on to losing positions. Great deals of books referring to money management, though, only refer to
the use of protective stops.

Money management is difficult for a new trader to understand. I've traded some 3-years now and only now
begin to see its importance. Preservation of capital is rule number one. How one goes about achieving this
goal and still profiting long-term requires a plan that can answer the following questions on each trade.

How many contracts do I trade? How long do I stay with a trade that initially moves against me? How do I
add to winning trades? How do I go about removal of positions? Difficult to understand by so many, but
even more difficult to execute properly and with optimal results.

If we were to look at those TradeAdvisor98 trade results using the stop system 2 that Stelar International
developed, the proper use of money management would have yielded 4.5 times the same black box results
on the first $40,000 profits.

Editor's Note: to Rodney, about your Stop-Loss System-1 and you saying "with proper use of Money
Management" profits would have yielded anywhere from 4½ to 9-times "the original black box results."
Does this also mean the Black Box system did not use any Money Management or Stops at all? If not, how
was the drawdown so low for 6-months! It seems impossible without superb money management in the
first place.

Is the proper use of Money Management built-into TradeAdvisor and fully mechanical or is it something
which is optimized or is it something the user (Rodney in this case) figures out and applies himself? How
critical is this to the results?

The next $40,000 profits would have produced nearly 9-times the original black box results and the next
$40,000 would have been off the scale. Purely hypothetical, but worth time and energy to evaluate.

Addendum from Rodney regarding: "Brown Box with a Black Box track record." In my opinion, a Brown
box system employs fundamentals and other non-programmable indicators. A black box trading system is
one which follows strict guidelines (i.e., buy/sell recommendations, stop points, objective points, etc.).

Addendum from Rodney regarding money management: Stop system 1 was used which uses a very close
stop loss. This is not the part of money management I was referring to. What I was referring to was money
management as applied to number of contracts to be taken or added at some point versus just one contract
every time.

So how does one achieve these levels of profit with a brown box trading system and applied money
management techniques? The addition and removal of winning positions at key turning points in a market
may hold the key along with the removal of trades which initially move against your position. Candlesticks
can warn of such impending change along with other technical indicators. But it also takes a clear
understanding of market behavior and cycle theory.

Knowing that your trade is proving to be successful as the markets begin to move is great and gives a
feeling of success. But when to add to that success can bring about stress. What may be appropriate might
involve the initial trade itself. If, for instance, the brown box trading system produces a signal to place a
limit order in a given market, how many contracts might be appropriate to start with. Certainly no more
than your risk capital will allow, whether 10%, 5% or 2% of the trader's account balance per trade. That's

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rule #1 - preservation of capital. So the minimum would be 1-contract. As your account balance grows with
each winning trade, additional contracts could be added as preservation of capital is maintained.

Position Removal - Removal of positions may involve warning signs from your black box system.
Technical indicators such as MACD divergence, overbought/oversold, harami candlestick formation are
good warning signs that a trade should either be completely exited or partially removed. TradeAdvisor98
uses these indicators very well to provide warning signs.

Editor's Note to Rodney, about technical indicators like MACD (moving average convergence and
divergence), candlesticks, Fibonacci, Andrew's pitchforks, etc. Personally, after many years of full time
hard research, I found out most all (probably all) technical analysis indicators, including I believe those you
refer to, are really lagging indicators, not leading indicators. How did you get them to work better for you
as leading indicators?

These warning signs are excellent tools to aid a trader in money management. However, in my experience
the breaking of support or resistance levels (on a close) still prove to be the best gauge of a market
turnaround. I like to think that the use of the tools just described is best used for exiting a trade and not
entering.

Other indicators for the removal of profitable positions would be projection levels reached. A trader should
never enter a trade without knowing the target profit objective. TradeAdvisor98 uses Fibonacci Ratios to
project levels of the next impulse wave. Whatever method used to obtain a target profit level, a trader
should either exit parts of his position or remove them all together. If only trading a single contract, then
one might protect the position at that level to lock in profits rather than removing it. As the next profit level
is reached, additional positions should be removed or protection should be placed to once again protect the
profits. Preservation of cash will certainly go a long way towards long-term success.

How would one go about protecting profits as projection levels are reached? The use of options may
provide the necessary answers. In the case of being long the market, once a profit target is reached, you can
protect those profits by purchasing an at-the-money put option. The intrinsic value of the option will
decrease as the market moves higher, but will prevent being stopped out early if the market is trading near
your profit target. Conversely, as the market moves lower, the put option would gain intrinsic value at
nearly the same pace as the futures contract would be losing. Once again, preservation of profits.

Discipline - As my analysis continues, Stelar "TradeAdvisor 98" is proving to be a very good tool to my
trading plan. Using that tool or any trading package will only be as good as the discipline and money
management applied. So many traders give up on trading packages because they lack the discipline it takes
to trade every signal and follow the rules of the system.

I have not traded TradeAdvisor98 with real money yet only because I feel it is very important to develop
my trade plan and test TradeAdvisor98 fully under many market conditions. Most traders lack the
discipline to do just that. Having to worry about your account because you're under capitalized is just one
of many things that break down the discipline and brings doubt in every signal generated by your trading
plan.

The updated article uses stop system 2 and not 1. I have since found stop system 2 is better.

PS: I''m working on another article a bit more generic in nature which deals with trading plans, based on
my experience. It takes what I've learned to the next step, the refinement of the plan to "preserve capital."

Also, just because I haven't traded with TradeAdvisor98 with real money, does not mean the results are
invalid. They are very valid when you factor in the slippage you are used to getting with your broker (i.e.,
10%, 20%, etc.). Even with this amount of slippage, the results are still pretty impressive. In any event,
many people will discount the results for two main reasons, lack of adequate funds and lack of discipline.
It's sad but true. I know, I'm still wrestling with those.

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 The Lonely Life of a Futures Trader - Ted Nash

The bunch at the club over a round of good cheer were comparing investments they've been in this year.
They have CD's and munis and variable annuities, small caps and large caps and conservative utilities.

When they casually ask, "which way do you go?" I proudly announce, "I trader futures, you know." "My
God, what you're saying - it can't be true - a nice level headed guy like you?"

"You'll never beat'em no matter how hard you try." "They'll hang you out and leave you to dry." "Your
losses will quickly multiply." "Your supply will fly without a goodbye."

Now realizing that futures have a maligned reputation, I listen to all this wild exhortation - not letting their
remarks faze me at all, for what matters most - I'm having a ball.

Alignment of Stars - Analysis of a Trading Day - Ed Downs - Nirvana Systems

To quickly recap today's action (Friday, December 18) we were expecting a close just under 8900, and
ended up very near that level. I've been bullish recently and clearly, the case for The 2nd New Bull Market
is holding and still pretty good. (We had 1st New Bull in October). See Weekly Chart #2. (All charts
referred in this article in print copy only).

But now, we have something very interesting happening. Look at the 60-minute Chart #3. Do you see that
we are just under the 62% Retracement point? Now, as it happens, we are also at the 38% Retracement on
the Daily Chart #1. Talk about Jupiter aligning with Mars! Whenever you have two key retracements in
two time-frames, watch out! That's powerful stuff. So, I have to report that I'm expecting a downside
bounce Monday of probably a hundred points or so (to 8800).

Anyway, if this analysis is right, we will see an explosive downside move at the Open, which could be
good for 100 points or so. Shorts could be played for quick gains in this kind of scenario. But, I still believe
we are going up in general, and would expect to see a reversal for the next rally after the initial decline
completes (in 8750 to 8800 range).

This new round of volatility is creating a trader's market. We are going to see many opportunities on both
long and short, that are profitable. I love markets like this because it's so much easier to hedge risk by being
long and short at the same time in different issues. By doing this, you greatly reduce your risk should the
market suddenly move a lot in one direction or the other.

Your Support Can Make a Real Difference - Institute for Justice

Vera Coking will celebrate the holidays in her home because we had the resources to stand toe-to-toe with
the Atlantic City government and Donald Trump. Thousands of Milwaukee school children will now have
access to good education and school choice has unprecedented momentum because we had the resources to
sustain eight years of litigation defending Milwaukee's voucher program. And in cities across America,
hardworking men and women are getting their first shot at starting their own businesses because we had
what it took to fight the bureaucratic tyrants and powerful interest groups that want to keep markets closed.

The resources available to our opponents always dwarf our $3 million budget. But the fact that we can
consistently achieve such success against well-heeled adversaries demonstrates just how effective we are in
our unique approach to public interest law.

And it demonstrates how vital it is for us to have the necessary resources from you and people like you who
share the principles we fight for. We have no endowment. We accept no government funds. No single
contributor provides even 10% of our budget. Every contribution is important to us. That is why I am

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asking you to please join the dedicated individuals across the country who believe in our message of
individual rights and limited government and support the IJ.

We would be very grateful if you would make a tax-deductible contribution of $100, but after you consider
what's at stake, we hope you'll appreciate what a tremendous difference your support of $250 or even $500
will make for our clients.

What lies ahead are some of the most important cases we've ever taken on, at a time when our momentum
is creating an irrepressible force for freedom.

For instance, our campaign to secure constitutional protection for economic liberty is now truly nationwide.
In New York we are engaged in what The Wall Street Journal describes as an "an epic battle underway
between inner-city entrepreneurs and the public transit monopoly."

In Nevada, the Institute for Justice is suing petty regulators who, according to the Las Vegas Review-
Journal, tell our aspiring clients, "If you want to compete with existing limo companies, get lost." The
Review-Journal's editors hit the nail on the head when they went on to say "The current regulatory system
amounts to nothing more than a protectionist racket designed to protect existing limousine companies by
limiting competition. That should not be government's role."

And Forbes captured the heart of our economic liberty work in a feature on our hairbraiding lawsuits in San
Diego and Ohio noting that these cases are about "how stupid laws, and bureaucrats with nothing useful to
do, stifle the entrepreneurial aspirations of a few thousand poor Americans."

Since our big win for Vera in Atlantic City, we have been inundated with requests for help from besieged
property owners. We will be at the forefront of this issue working to establish a rule of law that secures
property rights for all individuals. We have again teamed up with renowned scholar Richard Epstein on a
U.S. Supreme Court amicus brief in a case that could finally set limits on land use planners' ability to abuse
property rights through endless regulatory process. Zoning, asset forfeiture, and rent control are also in our
sights for the coming year.

From Milwaukee all the way to the U.S. Supreme Court, we and our allies battled the teachers' unions, the
ACLU, and the NAACP; and as The Wall Street Journal said, we "beat one of the most potent collections
of special-interest groups ever assembled in a courtroom. These anti-choice groups have just lost a big one
in a court of law." But we shall have to take them on again to get the constitutional cloud over school
choice completely removed by the Court. Our other school choice cases (Arizona, Ohio, Maine, and
Vermont) all become possible vehicles to accomplish this goal. In addition, we will be there to defend any
and all choice programs as they are enacted, protecting the chance for every youngster to opt out of the
failing public school monopoly.

And, the Constitution is clear about the protection afforded to free speech, but that doesn't prevent
Leviathan from running roughshod over the First Amendment in its effort to regulate the free flow of
information. We represent North Dakota farmer Roy Neset against the FCC and its army of lawyers
seeking to shut down Roy's tiny radio broadcast tower. Roy woke the sleeping regulatory giant by
rebroadcasting a talk radio show from his rural farmhouse out to his tractor while he worked his fields. The
FCC claims he is broadcasting without a license, despite the fact that the FCC will not issue any licenses to
"microbroadcasters" like him. Even though his signal doesn't interfere with any other station, the FCC
secured an injunction to silence Roy and his radio. This case strikes at the heart of FCC authority to
regulate based on the archaic and flawed concept of airwaves scarcity. We sued to protect Roy's rights and
advance the notion that in the face of ever-improving technology, "ownership" of the airwaves lies with the
marketplace and not with the government.

In our challenge to the Commodity Futures Trading Commission, you'll recall that we represent small
commodity newsletter publishers and software developers who publish "speech" for a living. The CFTC
says that they cannot "speak" about the markets under its jurisdiction without having a license to trade
commodities, in spite of the fact that our clients neither trade commodities nor offer specific investment

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advice. This clear power grab by a government agency tramples the First Amendment's protection of the
content of an individual's speech and must be vigorously opposed to protect our nation's proud tradition of
open inquiry and informed public debate. We won the first round and we're in the process of filing our
motion for summary judgment.

These cases are just a few on the Institute for Justice's very busy litigation docket across the country. Our
courtroom work will be complemented by our unparalleled work in the court of public opinion, which, as
you have seen, brings the vital issues at stake in each of these cases into the living rooms of America. It's
our goal to focus public attention on the erosion of fundamental rights and liberties in this country, and
make the government accountable to the people.

In addition to helping make all this possible, your investment also makes the Institute for Justice Clinic on
Entrepreneurship at the University of Chicago Law School a nationwide showcase on the power of
entrepreneurship and free-enterprise in revitalizing the inner city. In the short time since we opened its
doors, the IJ Clinic and its law students have been pounding the pavement of South Chicago, helping
aspiring inner-city entrepreneurs open a day care center, an educational software company, and an animal
health care company, as well as set up street vendors, cosmetologists, independent construction contractors,
and a copy business. It's so successful at offering an alternative to the pathologies of the welfare state that
already we receive inquiries from other law schools wanting to open their own clinics based on this model.

As you can see, this will be a very exciting year. Our track record demonstrates our ability to accomplish
what we set out to do. Such success comes not only from diligently pursuing our long-term mission, but
also from maximizing unanticipated opportunities that are consistent with our mission. You can be sure that
the courts and the national media will continue to recognize the vital role that we play in extending the
benefits of freedom to those whose full enjoyment of liberty is denied by government.

Please help us keep this up by making a $100, $250 or $500 tax-deductible contribution to the Institute for
Justice, 1717 Pennsylvania Ave., NW, Suite 200, Washington, DC 20006 - e-mail: General@ij.org - Thank
you so very much.

Take In a Larger View - Rick Ratchord

There is an old saying about not being able to see the trees from the forest. When it comes to getting a fix
on medium term direction of a particular market you wish to trade, this actually can be a good thing. At the
level where the trees are, the daily price chart for example, you witness the market trending in one direction
or the other, or going sideways, and must determine which way you wish to go with it.

At times you may notice that a market on the daily level is moving up. So you jump in long and just then
you get hammered. Why? Usually this is because the medium term direction is down and you are trying to
swim up a creek. Before you decide on a direction to trade, consider looking at the larger aspect, the 'forest
from the trees'. It is relatively simple to ascertain predominant daily action by noting weekly trends.

Take out your weekly charts and note whether the bars are going up or down in a trending fashion. If up,
you'll want to then look for longs only when position trading on daily price charts, entering on retracement
bottoms. If going downwards, you'll be looking for shorting opportunities only, selling on rally tops. If
sideways, find another market to trade unless you like to trade channel swings (hopefully you are aware of
channel breakouts - be prepared).

Whenever I plan a trade, I look at the larger picture. I want to get a good idea which way the market wants
to go. Obviously, this puts the odds of a successful trade moving into my corner, but there are other
considerations to work out. So far I've given you a more simplistic approach to a somewhat complicated
technique.

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Be aware that even weekly trends can change at anytime. Yes, you can go to the next level up, monthly
charts, and note which way it is moving to get an idea of likely, weekly direction. But be careful not to lose
your perspective.

I have found that for those who may not have a good grasp of cycles, using the law of probability is the
next best thing. What do I mean by "the law of probability?" Basically, when looking at weekly charts, the
odds of a weekly trend change are low at the start of a new trend direction than one that has been underway
for some weeks. In other words, if you notice the weekly bars making lower lows each week, then suddenly
you get a weekly bar that makes a higher low and high than the previous week, the law of probability states
that you are likely to continue making weekly bars with higher lows, thus now moving upwards or
sideways, and less likely to continue on its previous course. Again, this is just the probability, since it can
continue if it wants to and does at times.

While this new move is just forming, the probability of it continuing its original downward course is low.
But, as each bar is formed going forward in time week by week, the odds become greater that another
weekly turn will occur soon. Using this law of probability, once a bar veers off course, anticipate the new
direction by trading in that direction. Use your daily charts and wait for retracements to enter in this new
direction. Using stops on a daily level, you can minimize any adverse moves against you in the case the
weekly trend hasn't indeed changed.

Considering the material just covered, it should become quite evident that if a weekly move has been a long
time running in one direction and your just looking to enter the market, that maybe, it would be prudent to
look elsewhere to trade until a weekly trend change is evident. The law of probability again states that the
longer a move has been progressing in one direction, the higher the probability it will reverse soon, and you
don't want to enter right when that happens, do you?

If you really would like to increase your ability to anticipate weekly trend changes, it would be to your
benefit to study cycles. Be advised that the study of cycles is a very difficult subject for most, especially if
you are not mathematically inclined such as in Algebra, Physics and Geometry. Yet, there are simple ways
to get approximations, so don't despair. Some even have found aligning to planets, such as the moon, to be
somewhat useful timing weekly cycles.

In any event, make sure to consider the larger view prior to putting on a position based on daily data. You'll
want to make sure that you have at least found the right "forest" before you go stumping among its "trees."

Rebuttal to William Green's Article in Last Issue of CTCN - Neil Costa

William Green, in his front-page article "There's One Born Every Minute" (CTCN, Sept/Oct 98), pulled no
punches in his discussion of Jake Bernstein's track record, claiming "Jake Bernstein has a lousy record
trading futures - but has made plenty trading on investor gullibility". I am not in a position to comment on
any of Mr. Green's allegations, and will not attempt to do so.

I will, however, suggest that many traders across the globe owe Jake an enormous debt of gratitude for
writing The Investor's Quotient. I'm an Australian trader who knows of no better book on the psychology of
trading. It is written by someone who clearly "walks his talk," it is comprehensive and it is a most
enjoyable book to read. I do not hesitate to recommend it to other traders who need to gain a better
understanding of their behavior in an emotionally charged environment.

I have completed many psychology courses, including several at Masters degree level, and found The
Investor's Quotient to be of far more use to me than all of the others put together. Frankly, I do not care if
Jake completed his Master's degree studies in psychology or not - I judge his book on its merits, not on his
qualifications. Should I ever have the privilege of meeting Jake Bernstein, I will not hesitate to shake him
by the hand, and if he will accept it, buy him a well-deserved cold Australian beer. The Investor's Quotient
has certainly earned him the respect of many traders in this country, I included, notwithstanding any
alleged sins.

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Editor's Note: Several members have asked if the William Green who wrote the article's critical of Jake
Bernstein and Ken Roberts was related to me. The answer is no. Mr. Green is on the Forbes Magazine staff
and not connected with myself or CTCN in any way.

I have only spoken with him once when he called me prior to the two articles, unsolicited, to ask for any
input or information CTCN may have on Jake and Ken Roberts. I did have considerable comments to make
but he chose not to publish them in Forbes Magazine.

There are Cycles, and there are . . . Rick Ratchford

Cycles - The two are not the same in trading. What? You might ask, is the difference?

Much of the talk about cycles here has recently dealt with HOGS. And what a great market to explain this
kind of cycle research. Hogs have been pretty good in both types of cycle analysis.

Rick, what two types of cycle analysis? Okay, fixed cycles and dynamic cycles.

Fixed Cycles: Some markets, at least for a period, will follow a fixed cycle. Every x-number of days you
are to expect a cycle turn in trend. Whether it is every 28-or12 days, whatever. Once you discover the cycle
interval, you then count from one major top or bottom that number of days to see if another top or bottom
forms.

The problem with fixed cycles however is twofold. 1. They tend to disappear all of a sudden without any
warning, only to reappear at some unknown date in the future. Could be months or years? 2. Markets are
not static, but rather they are dynamic. Ebb and flow, expanding and contracting. If they were fixed, we'd
all have a nice map of when to expect turns, and there would soon be no market. Must change to keep you
guessing?

Dynamic Cycles: Dynamic cycles are much more difficult to unveil, but well worth it. Since markets are
dynamic, you will end with a top or bottom occurring at different time distances, rather than every x-
number of days. It is easy for those familiar with radio waves to grasp this, but I will try to explain its
development.

Consider for example the effect the moon has on ocean tides. It does not move up and down at equally
spaced intervals, but rather they occur at different spacing. Thus, a mathematical model had to be
developed based on where the moon and sun is at anytime to determine tides. Do a search on Tides in Alta
Vista search. There is a website that will provide you the tide times for different bodies of water in the US.
You should immediately note the differences of time and amplitude of each of these tide charts.

The influence of the moon depends on its location relative to any given longitude/latitude on a map. That is
why at the same time each day, each place has a different cycle pattern. The markets move like these cycle
patterns. They are not fixed, but dynamic. Those patterns are not the result of one thing . . . i.e., the moon.
They are the result of the moon, sun, and other parameters. That is why it is not fixed. The influence of
different Signals, if I may use that phase, distorts a purely fixed cycle, like a sinwave for example. This
distortion is what you see in the markets.

If you take the cycle pattern for a given time, for a given market (see how complicated it gets?), and were
to detrend or extract the individual cycles from the complete pattern, you'll see each component is a Fixed
cycle. It's the blending of all these fixed cycles that distort into one that is dynamic.

One other thing. The stronger fixed cycle component in a dynamic cycle has its way. If one strong fixed
cycle has to go against several weaker fixed cycle components going the other way, the combination
(simple addition/ subtraction) will provide a wave that is the result of the difference.

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For example: Let's assume that a particular market is influenced by certain external forces. Say there are
four external pulls on the market (in reality, it is more a pull on the traders themselves, a whole other
lesson). Say you have:

1. A (amplitude of 10) 28-day fixed cycle.

2. A (amplitude of 3) 12-day fixed cycle.

3. A (amplitude of 5) 5-day fixed cycle.

4. A (amplitude of 2) 14-day fixed cycle.

Now, if you have 4 fixed cycles like the one above, they obviously will be going the same direction
sometimes, going in opposite directions at other times, and a portion thereof at other times still. Take a
piece of paper such as a graph paper, and have all 4 start on the same vertical line. Using the amplitude
values provided (start from the center line to have room upside and upside down), draw each as a nice even
sinwave (looks like smooth camel mounds, upside and upside down).

If you take the power of each one (amplitude), and add them all up, you get the resulting wave for that time
frame. The starting location is called level 0, so when it goes above it is positive amplitude, and when it
goes lower it is negative amplitude.

So, starting from the center of the page, draw the first sinwave cycle with the amplitude of 10. That means
10 horizontal lines up from 0. Draw a smooth camel hump that will top 7 vertical lines from where you
started, and drop back to 0 7 bars after that. Now draw it another 7 lines forward, this time below the 0 line
making an upside down camel hump (or bowl) and then back up to 0 again. This also should be 10
horizontal lines down. This is one complete 28 fixed line cycle with an amplitude of 10. You should note
that if you were to connect the open end that began this cycle, to the final open end, you would have a
complete circle, or a 360 degrees. A end returning to the beginning to once again start over.

From the same starting point, do this with the other 3 fixed cycles above, but note each individual
amplitude (horizontal above and below the 0 line) and the vertical forward lines (from 0 to top to 0 to
bottom to 0). You simply take the cycle duration and divide by 4 to get the vertical moves. 28 cycle was 7
up, 7 to 0, 7 down, 7 to 0. Once complete cycle is 28. This is a true cycle. When a trader is referring to a
28-day cycle, he is usually going from bottom to bottom or top to top. That is half a cycle, but this is
getting deep.

If you plotted your cycles smoothly and evenly, you will be able to do the next task. Take another graph
sheet of paper. Staring at 0, you will start to draw the results of combining all these 4 fixed cycles together.
Each line above zero is 1 amplitude value. Each line below is -1 amplitude value.

Now, vertical line to vertical line on the original paper is to align with your new sheet in terms of time.
First vertical line, note the amplitude of each of the 4 cycles. If you started each one going up, they will all
add to each other to end with a positive number. If they all were drawn starting downwards, they would all
add up to be a negative number. If some went up and some down, they all add up, thus the result will be the
difference between the up and down waves.

Let's assume you went up on all of them. Add up the total and plot it on your new sheet. From zero, move
right one line and up one line to the proper amplitude. Do this for each line up and to the right if the
number is positive, and line down and to the right if the number is negative. Each line to the right deals
with Time, and the horizontal lines deal with amplitude. 0 to 10 up, 0 to 10 down. That is because our
biggest wave is an amplitude of 10.

So, if 4 lines to the right we are sitting on an amplitude of say 6, and we note that on line 5 to the right of
the original chart we have (+6, +2, -1, -3) for example, the result would be to move our line down to
amplitude 4, as this is the result of adding the 4 amplitude values. So you would draw your line from 6 to 4

1042
when going from vertical line 4 to 5. This was just an example. Once you are done from left to right, you
now have a dynamic cycle which is the result of combining 4 fixed cycles. Those knowledgeable of radio
waves or dynamic cycles are aware of this.

Well, this post is long, I apologize. Trying to squeeze years of experience in one post. If anything, I hope
this enlightens you to the differences of fixed and dynamic cycles. The type of cycles I deal with is
dynamic.

Commission Advisory - Consumer Warning -Beware of Promises of Easy Profits from Commodities
Trading Based on Seasonal Demand & Other Public Info

Consumers need to be alert to efforts to sell commodity futures or options to them based upon a sales pitch
that you can make a lot of money with little risk by rushing into the commodities markets in advance of
seasonal changes or in response to publicly-issued reports or well-known current events.

The United States Commodity Futures Trading Commission (CFTC) is the federal agency that regulates the
trading of commodity futures and options contracts in the United States and brings actions against firms
suspected of illegally or fraudulently selling commodity futures and options. Over the past several years,
the CFTC has brought actions against wrongdoers who lured customers by claims that one could earn large
profits with little risk based on predictable seasonal demands, published reports, or well-known current
events.

The Pitch - Companies often use advertisements on radio and television, as well as infomercials - program-
length television commercials - to promote commodity futures and options. These advertisements may
claim that seasonal trends in the demand for certain commodities or well-known current events create an
opportunity to make big money by trading in commodity futures and options. The advertisements and
infomercials promise quick riches - such as turning $5,000 into $20,000 in just a few months - with
predetermined risk. A toll-free number will be announced or appear on the television screen inviting you to
call if you want more information.

For example, advertisements on radio or television may urge you to purchase commodity options in heating
oil because increased demand for heating oil in the winter is likely to push up heating oil prices. The pitch
might go something like this:

It won't be long before cold weather is here. Heating oil inventories are down and demand is going up.
There are warnings about shortages already. Get the facts on how $5,000 properly positioned can return
$20,000 or more with just a ten-cent move in heating oil prices. Past performance is not indicative of future
results and people can lose money. Low supplies and high demand equals higher prices. Get the strategies
now by calling 1-800-XXX-XXXX. $5,000 can return $20,000 or more but timing and strategy is the key.

Similarly, in the spring, advertisements may tout commodity options in unleaded gasoline because
increased consumption of gasoline in the summer is likely to boost gasoline prices. Or you may receive a
phone call from a salesperson urging you to invest quickly in futures for certain agricultural commodities
because El Nino has driven up prices on those commodities or a recently-issued government report has
described shortages of that commodity.

What's Wrong With The Pitch? - These sales pitches are false. Seasonal increases in the demand for
commodities do not necessarily result in the increased value of an option or futures contract on those
commodities because the market has already factored seasonal demand into the price of futures and
options. The same is true of well-known information like El Nino or government reports.

The markets respond immediately - within a few hours, often a few minutes - to new information. In other
words, the prices of commodity options and futures contracts already take into account all known or
predictable market conditions, such as seasonal changes in demand for a commodity or known shortages of

1043
a commodity. The advent of the summer and winter seasons, or the latest United States Department of
Agriculture report on crop size, is not news that is known to only a few.

Moreover, claims that the risk of purchasing commodity futures and options can be predetermined or fixed
are misleading. Purchasers of commodity option contracts can lose every penny of their investments and
because futures contracts are "leveraged" or "margined," futures investors can lose more than their
investments.

You May Be Pitched Via Radio, Television, The Telephone, Or The Internet - Aside from television and
radio advertisements, you may hear these sales pitches in telephone call solicitations, e-mail messages,
Internet advertisements or web-sites, or during discussions on Internet chat rooms. In recent months,
concerned consumers have forwarded to the CFTC's Division of Enforcement a number of unsolicited e-
mail messages transmitted over the Internet. These "spam," or mass-mailed, e-mails tout investment
opportunities in a variety of commodities, typically predicting high returns based on seasonal price trends
in a particular commodity or on weather-related news developments such as El Nino. Also, in some
instances, the company that has produced and arranged for a television or radio advertisement is not
registered to offer or sell commodity futures or options, but instead will sell your name to brokers who will
then make similar claims in a telephone sales pitch. In a subsequent, high-pressure call, a salesperson may
repeat the seasonal come-on, or a similar claim, and urge you to act quickly to seize this "can't miss"
opportunity.

Warning Signs Of Commodity Futures Or Options Come-Ons - If you are solicited by a company that
claims to trade commodities and asks you to commit funds for those purposes, you should be very careful.
Watch for the warning signs listed below, and take the following precautions before placing your funds
with any commodity trading company that offers leveraged or financed commodity transactions:

ü Avoid Any Company That Predicts or Guarantees Large Profits Because of Predictable, Seasonal
Changes in Demand, Published Reports, or Well-Known Current Events

ü Stay Away from Companies That Promise Little or No Financial Risk

ü Be Wary of High-Pressure Efforts to Convince You to Send or Transfer Cash Immediately to the Firm,
via Overnight Shipping Companies, the Internet, by Mail, or Otherwise

ü Be Skeptical about Unsolicited Phone Calls about Investments, Especially Those from Out-of-State
Salespersons or Companies with Which You Are Unfamiliar

ü Prior to Trading, Contact the CFTC or Other Authorities, Including Your State's Attorney Generals
Office Consumer Protection Bureau, and the Better Business Bureaus and the National Futures Association

ü Be Sure You Get All the Information about the Company and Its Track Record and Verify the Data. If
You Can, Before You Invest with Any Company, Check the Company's Materials with Someone Whose
Financial Advice You Trust

ü Don't Deal With Individuals Who Won't Give You Their Background

ü If in Doubt, Don't Invest. If You Can't Get Solid Information about the Company and the Investment,
You May Not Want to Risk Your Money

For More Information and Contacts - General information on the commodity futures markets and the CFTC
is available through the World Wide Web. Members of the public may report suspected wrongdoing to the
CFTC's Web site at www.cftc.gov. You also can communicate directly with the CFTC's Division of
Enforcement via e-mail at enforcement@cftc.gov. You may also write or call the U.S. Commodity Futures
Trading Commission, Division of Enforcement, Three Lafayette Centre, 1155 21st Street, N.W.,
Washington, DC 20581, 202-418-5320.

1044
 "Is Trading Simple?" - H. F.

As a former therapist and now full-time trader for the last 12-years, I find it disturbing to see that trading is
being described as simple but not easy. While it is important to not put things into a category that describes
something as difficult and therefore in turn set up unnecessary barriers in a person's mind, it is vitally
important to a person's self-esteem to not encounter failure after failure after failure with something that is
supposed to be simple.

If we encounter a failure with something that is difficult it is much easier to handle emotionally than if we
fail at something which is simple. Failing in something which is simple causes people's confidence to
disappear and that is the worst thing to have as a trader. Failing at something which is simple has many
people questioning what is wrong with them. Why can't I do this simple task. If it's simple then everyone
else must be able to do this. So why can't I? How come I'm so stupid, if trading is simple, because all I have
is mostly losses or only a small improvement in my bank account and in most cases not nearly enough to
live on?

Part of the "trading is simple but not easy" slogan has come from people who have something to sell, either
seminars, books or videotapes. It's understandable that no one is going to sell a seminar that will be very
popular if it's titled "learn how difficult trading really is," or "come and find out all the difficulties you have
with trading."

In my opinion, trading takes time and is neither simple nor easy in the way that is commonly understood
for the words simple and easy. It is certainly simple and easy in a Zen context where we allow ourselves to
move outside certain rational understandings, but this is not the time to go into that area.

For something to be simple, anyone should be able to do it and do it with a high rate of success. If we look
at the August edition of Futures magazine on pages 78 and 79 we find a review of the performance of
public Futures funds for the six months to the end of June. So if trading is so simple, we would expect to
find, particularly with professional fund managers, whom one would expect to be experienced, skilled and
having access to and using top performing systems, that their performance would be outstanding and reflect
how "simple" it is to make big returns consistently. Well, I don't call it outstanding when more than 50
percent of these professionals have a minus return for the six-month period. Of 189 fund managers, 101 lost
money and the balance averaged very meager returns.

It's Nice to see Some Advisors & CTCN Writers Admit to Losses and
Do Not Put Me to Sleep - Patricia Morgan

I saw a copy of your latest issue in my broker's ring binder. You asked for feedback on Greg Donio. Well,
his article in that very issue almost knocked me off my chair. He actually admitted that he had a losing
investment. I thought financial advisors reported their gains but never their losses. Perhaps I was wrong to
generalize.

I respect Mr. Donio's good intentions as much as I respect anybody's good intentions, but it can't make
much difference in a field of nonsense like commodities and options. Every so often somebody tries to
make astrology more "scientific" or gypsy fortunetelling more "ethical" but it cannot help amid such
nonsense. Nor will it help in your street-peddling branch of finance.

Speaking as an investor in blue chip stocks and bonds, commodities and options are charlatanism. Frauds
do the selling and self-deluded people do the buying. The first chapter contains scads of would-be
millionaires and the last chapter contains scads of sad, sad stories. You might as well just form a seance
group and forget trying to be "scientific."

Judging from just one issue, Rick Ratchford, Greg Donio and "J.L. from Wimauma" are among the few
financial writers who do not put me to sleep. Sorry to say, however, essentially they are interesting horse

1045
parlor conversants before everybody goes home with empty wallets. Your publication gets high marks for
frankness, I grant you that. After those Jake Bernstein and Ken Roberts exposes, if you were any franker
you would be a reporter covering night court.

Well, Greg Donio, you Certainly Have some Flowery Ways - J.L. from Wimauma

Ya got me. But I never said that making some "quick" money wasn't one of the sweetest
"Accomplishments" going. I just said that, for me at least, the greater accomplishment is to understand how
I did it! It's so nice I'd like to do it again! You know, "Teach a man to fish . . . "

You certainly have some flowery ways to give great advice. Try "Protect your backside or you won't be
trading for long." I think that you voice many traders' conscious attitudes very well. My "It ain't the money"
emanates from the subconscious and mine seems mainly concerned with simply "feeling good." That's the
mind that made me for years, stupidly lose every time I got over $40 grand and brilliantly make money
each time I got under that figure. Call it my "comfort zone," it was like the bloomin' Berlin wall. (Now my
"wall" is at $60G - that's progress.)

Another way of saying all this is that I'm in the enviable (or unenviable) position of knowing if I hit the
million $ lottery tomorrow, I wouldn't change my truck, my home or my woman. I'd probably just buy a
couple more trading books and trade a "few" more contracts. It's called contentment. My being "poor" all
my life sure comes in handy now.

For Pete's sake, just a $100 per trading day is almost twice my income in many years! Am I just saying
"Money isn't everything?" (For example, try good health right up there next to, yes, "feelin' good" and
oxygen.) I'd bet that even you "feel better" after a perfectly executed profit of $1,000 than after a sloppy,
lucky $2,000 performance, and that's my point. Hello, Sub-conscious!

But on to Greg's favorite topic - options. I've already changed my mind since starting this article. Again
(after many years) I thought they would work for me. I can't get the "hang" of them. I understand the
"insurance" function, but buying near enough to the money with enough time value left to protect my
futures, costs an "arm and a leg." And I mustn't be "nimble" enough to write the darn things. Greg's
probably got the right idea with "spreads," but notice he isn't doing it with commodities. For Pete's sake!
(I'd like to strangle that Pete.) I've decided that with what I spend on a good (but wasting) option, I can take
three "cracks" at the position I want if I use a tight stop. I could get it on the first try, you know.

One more thing. I had to prove to myself again that trading 10-minute bars with an OB/OS RSI isn't worth
the effort. All of those small profits made the win-loss ratio look great until the inevitable big loss takes
them all away. Back to giving positions time to make some money (with that tight stop)! I keep thinking
that I can improve the wheel! Greg, you'll be pleased to know that I must have known your advice was
forthcoming. (Trading develops intuition, you know.) Consequently, I decided to make some money this
last month and did real well. But be forewarned, I could decide to "feel better" again at any time. You keep
on making us think. We never get enough of that. Healthy investing to all!

OPTIONS & SPREADS: Gaslights & Green Eyeshades - Greg Donio

Centuries ago, map-makers had an unwritten rule: "Where you know nothing, place terrors." Thus the blank
spots on maps became monsters' lairs, islands of giants, crevices 1,000 miles deep and the ocean boiling at
the Equator.

During the Age of Exploration after Columbus, many explorers had an unconscious rule which, if made
conscious and put in words, would have been something like, "Where you know nothing, place gold fields."

Both these viewpoints are exaggerated, but what makes them relevant to today? It would be no
exaggeration to say that today's speculators are cartographers and explorers, that they face risks and the

1046
unknown, that their maps contain blank areas which their expeditions and imaginations must fill in, and
that some will carry profits in the ship's hold while others will not survive. How are you filling in those
unknowns?

Passbook savers view speculation as vampire land. Neophyte traders view it as the dump-wealth-in-your-
lap land of El Dorado. Let us assume that you have had a fair piece of experience. You are familiar with the
region's diamond mines and its lions and leopards. At times you have acquired gems and at times claw-
marks. So what next?

All experienced traders are NOT created equally. Some make the same mistakes over and over, for years
even. Others bring about "improvements" in their procedures which make as much difference as changing
deck chairs on the Titanic. Famous last words: "I would not have suffered those losses in the past if I had
the method I have now. I expect to make a fortune." Still others do things differently and really fare better
than previously.

Good Truism: If you fire enough shots, you are sure to hit the target eventually. Bad Truism: If you take
enough steps, you are sure to step on a land mine eventually. Bad Side of Good Truism: If you bet on all
the horses, you spend more than you win. Good Side of Bad Truism: You lose less in the explosion if you
limit your risk. The Thread That Connects All This: Be Stingy With Your Capital Dollar and Be Informed.

An acquaintance of mine, a futures & options broker who asked not to be named, saw a statement I made in
print: "Those who have read books on options are invited to respond." He said, "You're crazy, to put it
bluntly. If I only accepted clients who've plowed through McMillan and Angell and Caplan, I wouldn't be
able to pay my office rent. Remember this and remember it good: A suitable client is anybody whose
check-writing hand was not shot off in the war. Sure, it's sad that they lose, but they can see as well as
anybody that the ocean doesn't swarm with yachts, I mean, yachts carrying suckers who wrote a check to a
broker. But they still expect fabulous wealth, riches oozing out of the woodwork. You do spreads, huh?
That says it all. You drain everybody else's bank account just like I do."

I have stated in previous articles that gains from option spreads resemble coffin-maker profits and a skim
off the suckers at the gambling den. These words are written a few days after Thanksgiving, and I give
thanks not only for profits but for ongoing profits. One CTCN subscriber, a New York medical doctor,
wrote to me and asked about my five-year track record. I have been doing option spreads only since 1995,
the same year I began writing regularly for CTCN. My transactions have been detailed down to the dollar
in those articles, so I have been trading in a display window. Anyone curious about my track record may
consult backissues. In dollars as well as instances, the gains have substantially outweighed the losses.

While my win record is not 100 percent, I can report consistent profits in a financial boxing ring where
"consistent" is a word not often uttered. The good doctor's letter prompted me to take a look at my first
CTCN article, in the issue dated October/November 1995. It opened with a trade I had done months earlier,
buying 10 June call options with a strike price of 70 and selling 10 April calls with the same strike price--a
horizontal calendar spread. In dollars I had bought $4,000 worth and sold $2,500 worth and paid the
difference of $1,500 plus broker's commissions. In points, I had bought options worth 4 points each and
sold options worth 2½ with a difference or "spread" of 1½ points.

Like the president of Prego Spaghetti Sauce, I like to think I got better as I got older. An option spread of
1½ points seemed just fine then. I have since evolved toward smaller or skinnier. A point or less than a
point seem excellent, 1-1/8 and 1¼ good, 1-3/8 fair, 1½ half a warning flag. Something else did not change.
The article contained three "substantial advantages of spread strategies" which still stand:

1. The likelihood of a profit is over 90 percent as opposed to over 90 percent losses when options and
futures are "played long."

2. You "make out like a bookie" in that you use plenty of other people's money--amplitude that sweetens
the pot.

1047
3. Other people's money cushions and shields your own investment capital when markets, portions of
markets and individual stocks and futures contracts become tempest-tossed.

The latter does not guarantee against a loss but it helps to make losses fewer/smaller. I recently came across
corroborations of other items in that three-year-old article. That piece quoted Wasendorf & McCafferty's
book All About Options: "A negative personality rarely earns profits consistently. They are usually
attracted to options for the wrong reasons -- to make a lot of money fast without exerting much effort.
Therefore, they don't spend the time required to learn some of the more complicated strategies that are
more conservative by comparison."

By quoting magician/author Cecil Lyle, I compared above "wrong reason" traders to amateur magicians
who consider adding a particular trick to their repertoires but lose interest if it requires more than casual
preparation and effort. They want Houdini-like spotlights and applause but God forbid they should have to
sweat a little. A recently-discovered old critique found likewise.

In 1944, critic Edmund Wilson wrote of a then-decades-old book on magic: "From the directions and
diagrams of Hoffmann it was possible to learn the rudiments of sleight of hand and how to build your own
apparatus; but magic has, it seems, fallen a victim to the same pressures that produce outlines of philosophy
and digests of famous novels. A growth of interest in nonprofessional conjuring has been accompanied by
an increasing reluctance to take any trouble about it, so that the amateur is likely to satisfy himself with
devices that require no more skill to operate than the jokes on sale at novelty shops."

Like dice and trick decks, perhaps? The growth of "nonprofessional conjuring" has been paralleled by the
growth of nonprofessional wrong-reason trading, each with aversion to "exerting much effort" and aversion
to spending "the time required to learn some of the more complicated strategies." Gann's Maxim: "Handle
speculation like a business, not like a gamble." As with many pieces of wisdom, no one speaks out in
disagreement but multitudes of people violate it. Every speculator will say, "I'm not a gambler. I'm a
businessman. Do you see a roulette wheel?" No, but the lack of effort and learning time gives such
"business activity" an uncomfortable kinship to exploding cigars, wizard's powder, The Pharaoh's Lucky
Number Dream Book, and How to Win at Poker by a man who died broke.

Handle it like a business? In the minds of many who take up trading, the fact that learning the arithmetic of
dice-rolls is easier than learning a business keeps matters in the back aisle of the novelty shop. Even older
than the above Edmund Wilson quotation is Philip L. Carret's book The Art of Speculation, first published
in 1930. Carret wrote, "Speculation is no simple business. The amateur cannot take a few thousand dollars'
capital, fifteen minutes a day of time, treat it as a sideline and be any more successful than he would be in
any other business. Indeed, speculation requires broader knowledge, closer attention, sounder judgment
than the average business."

Then as now, plenty of traders handled it with an unbusiness-like blend of on-the-side dilettantism and
addiction. The author also said, "Familiar observation of the sources whence a stock broker's customers are
drawn lends force to the indictment against the speculator. The lawyer whose partner neglects his practice
to spend profitless hours pouring over the quotations in the morning paper and haunting his broker's
boardroom is one strong critic of stock speculation.

"The business man who has seen a promising subordinate lose interest in his job as he caught the fever of
the ticker is another. Then there are the well-known figures, whose origin no one seems to know, but whose
authenticity no one questions, that 95 percent of traders in stocks lose money in the long run. These are
readily available to the critics of stock speculation."

A defender of speculation, Carret viewed skeptically the "well-known figures." Today with futures and
options, the "90% losers" figure persists despite the tendency of telephone hucksters to deny it like tobacco
executives denying smokers' funerals. The fact remains that trading attracts the dabblers and the poorly-
prepared and the hypnotically-induced like no other businesses. Did textile-wholesaling or toys or the
granite monument business ever bind spells and lure people like yesterday's ticker-tape or today's tote
board?

1048
When advising traders or would-be traders, I am often the big turnoff, although that is not my intention. I
turn off more than a few seekers-after-wealth when I advise them to read or study perhaps a quarter or a
third as much as a jeweler reads the gemologist's manual, the dealer's guide, the basic principles of
accounting, a couple of chapters on the history of gem-setting. Not seeking to bother their brains with
complexities, they want fortunes fast and easy. Plenty of times I have quoted Philip Carret: "Speculation
requires broader knowledge, closer attention, sounder judgment than the average business." Reactions-
wise, that statement is a 12-word party-pooper.

Also I turn off plenty of traders or would-be traders when I talk about business-sized profits and not
avalanches of wealth. 25 or 35 percent profit in three weeks or so? You gotta be kidding. They want
astronomical multiplications of capital, and not slowly. If any clerk or secretary can make a vast fortune so
quickly and easily, then why are there not a couple of million Lear jets each serving champagne to a clerk
or secretary? Handling it like a business means dealing in realities. Finding Inca gold in three easy lessons
is not reality, but many venturers expect something similar.

Did you know that "parquetry" meant an intricate floor design? Edith Wharton's novel The Age of
Innocence portrayed Manhattan high society during the 1870s. Let us indulge in a divertimento that will
turn out to have a bearing. Her novel sparkles with the following evening vignette:

"Mrs. Beaufort, then, had as usual appeared in her (opera) box just before the Jewel Song; and when, again
as usual, she rose at the end of the third act, drew her opera cloak about her lovely shoulders, and
disappeared, New York knew that meant that half an hour later the ball would begin.

"The Beaufort house was one that New Yorkers were proud to show to foreigners, especially on the night
of the annual ball. The Beauforts had been among the first people in New York to own their own red velvet
carpet and have it rolled down the steps by their own footmen, under their own awning, instead of hiring it
with the supper and the ballroom chairs. They had also inaugurated the custom of letting the ladies take
their cloaks off in the hall, instead of shuffling up to the hostess's bedroom and recurling their hair with the
aid of the gas burner; Beaufort was understood to have said that he supposed all his wife's friends had
maids who saw to it that they were properly coiffees when they left home.

"Then the house had been boldly planned with a ballroom, so that, instead of squeezing through a narrow
passage to get to it (as at the Chiverses'), one marched solemnly down a vista of enfiladed drawing rooms
(the sea-green, the crimson and the bouton d'or), seeing from afar the many-candled lusters reflected in the
polished parquetry, and beyond that the depths of a conservatory where camellias and tree ferns arched
their costly foliage over seats of black and gold bamboo.

"Archer was distinctly nervous. He had not gone back to his club after the Opera (as the young bloods
usually did), but, the night being fine, had walked for some distance up Fifth Avenue before turning back in
the direction of the Beaufort's house. He was definitely afraid that the Mingotts might be going too far; that,
in fact, they might have Granny Mingott's orders to bring the Countess Olenska to the ball.

"Wandering on to the bouton d'or drawing room (where Beaufort had the audacity to hang "Love
Victorious," the much-discussed nude of Bouguereau) Archer found Mrs. Welland and her daughter
standing near the ballroom door. Couples were already gliding over the floor beyond: the light of the wax
candles fell on revolving tulle skirts, on girlish heads wreathed with modest blossoms, on the dashing
aigrettes and ornaments of the young married women's coiffures, and on the glitter of highly glazed shirt-
fronts and fresh glace gloves."

You can read between the lines that the red carpet, diamond shirt-studs and mother-of-pearl hair ornaments
were paid for by Vanderbilt rails & shipping, Astor furs, Morgan banking, varieties of interest and
dividends, profit-taking on stocks, bonds, promissory notes and instruments resembling futures and options.
I used to feel that people who ventured into investing and speculating too easily envisioned themselves
beneath gaslight flames and gilded sconces. Now I wish more of them would think like that.

1049
Several years ago, I knew a man who bought a block of penny stocks costing a few cents a share in a type
of business about which he knew very little. He shrugged, "It's a risk, but I have to admit that owning
10,000 shares of anything sounds so good." I picked up on his line of reasoning instantly. Owning 10,000
shares of something made him feel like a tycoon, like he had "arrived." It made him feel on par with the
mogul riding a hackney coach from Wall Street or the Gold Room or the Bankers' Club to the Beaufort
mansion.

He did not say quite that much but I noticed that he had some scribbled notes that he took from his pocket
to glance at. I glimpsed the ballpoint words "dress circle." Merriam-Webster defines "dress circle" as "the
first or lowest curved tier of seats above the main floor in a theater or opera house." Clearly this man was
thinking cognac and cravat. That seemed a thin basis for venturing a hefty chunk of change and still seems
it. Yet in the years since then, I have come to respect that man more if only in contrast to other traders and
investors whose thinking hints of novelty stores.

Yes, everything is relative. Back in the 1970s, I made a profit with mail-order on the side and so I wrote a
monograph on how to start a one-person mail-order operation. I advertised it for sale in the "Money-
Making Opportunities" section of one of the supermarket tabloids. It received a very poor response. No
wonder. It was surrounded by ads that said, "Make Thousands of Dollars Each Week!" The couch potatoes
and barstool ponderers did not want business-sized profits but mountains of money instantly. You may
already be the new Rockefeller!

The tabloid-readers who answered those "Deed to Fort Knox" ads were not in the least made skeptical by
the sight of every barfly and supermarket customer not hiring butler & maid with the thousands of dollars
per week. When I began to do more advising on stocks and equity options recently, I encountered this type
again with increasing frequency. The nice guy who knows beer can labels better than he knows financial
intricacies wants to own his own diamond mine, and fast. He never notices that the many who drank beer
before him never carry off vast fortunes with the ease he expects. "Speculation is no simple business" Phil
Carret said. Yet it hypnotizes and lures people like car dealers' conventions or meat-packing or booksellers'
guilds never do. And it disappoints more.

I find myself wishing that more traders would aspire to an opera box or a seat in the dress circle, or would
admire the paintings in the drawing room. That would have to mean fewer "wrong reason" traders and
fewer dabblers trying to trap crocodiles. Alas, speculation attracts increasing numbers of couch potatoes
and barstoolers whose techniques are small improvement over the water-witch with the dowsing rod.

Many a broker does not discourage them because he must replace the find-water-with-a-stick people who
left his office last month and cried all the way to the pawnshop. The Holy Grail is even worse than other
questionable Holy Grails: It is rusty tin with "get rich quick" engraved on it. Anybody with an unparalyzed
check-writing hand qualifies. You call this "handling it like a business" like you call an outhouse the
Beaufort mansion.

One need not be a club man wearing a top hat, but more of them in the trading realm would mean fewer
green eyeshades and chips-by-the-ashtray mindsets. More Pompeiian artifacts and fewer beer can
collections would also count as a plus. There is nothing wrong with a song like "Louisiana Hayride" except
when the person listening to it is a lottery-player who writes down license plates. Then he and thousands
like him plunge into futures or options, which is to say, try to spear live sharks after reading both sides of
the instruction sheet. A person who has been hypnotized by the Dance of the Vulcan Maidens in Verdi's
opera Aida or has heard Shostakovich create a crimson twilight via music possesses a better chance of
distinguishing the financial penicillin from the snake oil.

A long time ago I came across a riddle which sounded ridiculously simple but which fooled everybody.
Gradually I realized it was a personality test in miniature. The riddle: Who's buried in Grant's Tomb? But
wait. It's multiple choice. Is it (a) Grant, (b) Grant and his wife, or (c) nobody? Not as easy as you thought,
huh? The correct answer which nobody gets right is (b) Grant and his wife. Those who say (a) tend to be
routine people giving the routine answer. They may be inert matter managing to put one foot in front of the

1050
other or they may be diligent folks doing a full day's work for a full day's pay. But challenge and adventure
are not their things. Financially they would tend to be passbook savers.

Those who say (c) are usually venturesome types intrigued by an "empty crypt" mystery. Curiosity, a thirst
for challenge -- they have these. Financially, they include many speculators in stocks, futures and options.
On the minus side, they give the wrong answer to the riddle and they count among the massacre-like losses
in these financial fields. Also on the minus side, many in this category have a weakness for fascinating
theories with thread-thin evidences like UFOs and the Bermuda Triangle.

The answer (b) has evidence and probability on its side: Husbands and wives are usually buried together. In
addition to being correct, the person who gives this answer has a good claim to being evidence and
probability oriented, scientific-minded and businesslike. Such a person tends to be skeptical toward flying
saucer reports and "make a fortune overnight" pitches. He or she has the best probability of gaining
business-sized profits. I toss in an extra merit badge if oils and frescoes have influenced how they see, like
Archer Newland in The Age of Innocence: "Newland leaned back in his chair and smiled at her. She looked
handsomer and more Diana-like than ever. The moist English air seemed to have deepened the bloom of
her cheeks and softened slight hardness of her virginal features; or else it was simply the inner glow of
happiness, shining through like a light under ice."

In the movie Harlow, Martin Balsam in the role of film studio head states a key business rule: "To know
what to avoid as well as what to do." Skepticism toward "instant wealth" sales pitches stands essential
because they multiply like roaches and, worse than that, they change their shapes to impede detection.
Among the latest is "Become a Day-Trader!" proliferating in the "Help Wanted" ads and the "Business
Opportunities" classifieds. "How Would You Like To GET RICH DAY-TRADING? Trade With Up To
100% Accuracy!" According to the Oct. 8, 1998 edition of the Wall Street Journal, "State securities
regulators have stepped up their scrutiny of daytrading, worrying that smaller, fly-by-night firms are luring
too many novice investors into the business and creating unrealistic profit expectations, sometimes with
advertisements promising quick riches."

According to a lawsuit filed in Texas, one couple lost nearly $50,000 of their savings as a result of the day-
trading come-on. The suit alleges "highly leveraged" investing "incredibly churned, on margin" and "with
tens of thousands of dollars in commissions and fees."

Perhaps inevitably, old scams have come in a tidal wave to a new medium -- computers and the World
Wide Web. The Wall Street Journal for Oct. 29, 1998 said that since cyberspace is pretty much unregulated
and anonymous, "the Internet is a magnet for unscrupulous stock promoters in search of a fast way to reach
millions of potential investors. Many violators are more traditional, penny-stock, boiler room operators
who have traded cold calls for cyberspace," this according to SEC enforcement chief Richard Walker. In
the same issue, the SEC chief of Internet enforcement John R. Stark stated, "All types of scams are finding
their way to the Internet. You have Ponzi schemes, pyramid schemes, public offerings, oil and gas fraud,
every kind of fraud."

Handling it like a business. Knowing what to avoid. Technology advances but suckers do not wise up. As
in the old days of bucket shops and gold bricks, the dupes and patsies still think that a bountiful angel is
dropping a Klondike deed in their laps. Venturesome types who believe that Grant's Tomb is empty also
believe that Yukon gold flows through the Web. The spell of the tickertape machine has been replaced by
the spell of the computer screen. As in the days of candlelight and Curb, an encore of the envisioned big
bankroll, the busy check-writing hand, the cry of, "I got taken!" The more things change, the more the
bunco squad has to work overtime.

I do not expect to see any cyber-suckers looking at Roman bronze in the Metropolitan Museum. CTCN
subscriber Simon Wainer, one of the leading gemologists on Manhattan's Jewelers Row, showed me some
silver settings based on centuries-old designs from Valencia and Florence. Although Mr. Wainer talked
readily about computers, my instincts told me that his name will not appear on the growing list of traders
and investors buying the Brooklyn Bridge over the Internet. This cannot be said for all the bar & grill
Cornelius Vanderbilts who cannot recognize a Dry Gulch three-card monte game disguised in silicon.

1051
In the Blondie & Dagwood comic strips, a neighbor's little boy Elmo tells Dagwood, "I've been thinking
about what I want to be when I grow up. I decided I want to be very, very important." Then the kid adds,
"The rest of the picture is still a little fuzzy." That could be the story for many speculators. They want to be
very rich. Worse than a little fuzzy, the rest of the picture falls apart terribly as to details. To change one's
thinking, to alter the way one's mind works, is a tall order. But with all those "Capture Fort Knox!" cavalry
brigades of traders suffering 90% casualties, those in the saddle remain too tolerant of ride-off-a-cliff
strategy. Are improvements possible?

We are stuck with the Over-All System. With so many people trying for vast fortunes, either most must get
massacred financially or everybody makes millions and a basket of paper money buys a can of coffee. If
everybody gets a raise, nobody gets a raise. Coffin-maker profits and bankruptcy lawyer profits--sad--but
real world people do not live forever and everybody does not prosper. In the real world, the improvements
must occur inside one person's skull. All humanity will not prosper but he might. Tet if he avoids driving
off a pier, he will be an exception.

In Orson Welles' classic film Citizen Kane, newspaper publisher Charles Foster Kane represents low-grade,
sensationalistic "yellow journalism." He hires or steals a group of reporters away from a higher-grade,
respectable newspaper. Kane's unsentimental business manager remarks, "He'll have them changed to his
kind of newspapermen in less than a week." The idealistic, optimistic drama critic responds, "Of course,
there's always the chance they may change him without his knowing it."

It would be nice if all changes occurred in a favorable direction, good blood always altering bad blood
instead of the reverse. Some art books turn male nudes into waist-up shots and female ones into facial
close-ups. Evidently, the prudes influence the art works but not the other way around. I stated in a previous
article that a businessman becomes a crap-shooter far more easily than the reverse. Yet to indulge in a bit of
macabre symbolism, a person can switch from the empty crypt category to the two Grant corpses.

I advised a man on option spread strategy via fax. Subsequently he told me, "I'm glad you steered me
toward horizontal calendar spreads. When I only played options long, I succeeded but it was the hardest
thing in the world to repeat that success. You can't call something a business unless you can make a profit
repeatedly. I find that with spreading, it's not perfect but the odds are so much more with you than against
you. With you instead of against you. I didn't think that was possible on a one-man basis."

Let us condense that into a Maxim: Aim for repeated profits instead of overnight riches.

Also let us conclude with another item from Edith Wharton's novel The Age of Innocence. Rumors
circulated on Fifth Avenue that the owner of the Beaufort mansion was momentarily menaced by
"unfortunate speculations" in railroads and "threat of insolvency," also extortion "by one of the most
insatiable members of her profession." (This was 1870s New York, not 1990s Washington.) Chapter 27
begins:

"Wall Street, the next day, had more reassuring reports of Beaufort's situation. They were not definite, but
they were hopeful. It was generally understood that he could call on powerful influences in case of
emergency, and that he had done so with success; and that evening, when Mrs. Beaufort appeared at the
Opera wearing her old smile and a new emerald necklace, society drew a breath of relief." Where you know
nothing, Gilded Age jewels become good omens.

A Number of Comments - Vern Tyler

1. William Green: Maybe it's me. I am not clear of the citation in the "Read More" note, i.e., what or where
is contact info for the publication? Is it planned to run more of Green in CTCN?

Editor's Note: Mr. Green is with Forbes Magazine. We have asked him to participate in CTCN's forum
again in the future. The "Read More" note should have been omitted, sorry for the error.

1052
2. Writers in CTCN: I see that Goldfarb (pg. 3) provides Voice/FAX and E-Mail info. I would like to see
each writer provide an E-Mail address, at least where each agrees to it. Many times, I would like to send a
comment or question to the writer, otherwise narrow in scope and most likely it wouldn't be useful to send
it to you first.

3. Donio: Ignore the occasional gripe about the length of his copy. His material is well-written, absorbing
and is written from a perspective of decades of practical trading experience. We're all aware of the amounts
charged by clever promoters for seminars with a lot less content than one of Greg's pieces!

4. Bernstein: I recently purchased his "Bible" on a $39.95 plus S&H promo. I regularly get Taucher's
Almanacs'. I want to compare the two, largely to see how Bernstein's work supports Taucher's. The
Almanacs are considerably more thorough; the two works have different purposes.

Member Requests

I have "Gann's Scientific Method unveiled I & 2" Patrick $350. "How to Make Profits in Commodities
Market" W. D. Gann and I want to exchange Bayer, Jensen, Brad, Gann, Larry Pesavento, Long, David
William, Bill Meridian, Ray Merriman, Burton H. Pugh, or other astro master books. send e-mail to
myin70@hotmail.com

Rick Miller - After being a subscriber for two years, I have a member request. I'm interested in any
software, manuals, old newsletters, etc. concerning Ben Crocker and the Crocker Reports. I can be reached
at rlotz@ix.netcom.com

Editor's Comments

Look for some major enhancements to our website effective in January. By the time you read this our new
very powerful Search Engine should be fully operational. It replaces our old search engine which wasn't
nearly as powerful or comprehensive as our new one.

It's probably the "best" website search engine there is. It has some amazing search capabilities you must see
and use to appreciate. In addition, we have added lots of helpful new content to our website so there is a lot
more valuable information and online trading knowledge for you to search for.

To check it out visit our expanded website http://www.webtrading.com

In addition, we have added several other new and useful features to our website. One of them in particular
(beside the new search engine) you may find extremely helpful and quite possibly also lucrative, as it could
easily bring our members some revenue. More on this in our next issue and also within our website.

In reference to the CFTC, many of you have expressed concern we will go out or be forced out of business
by a direct result of the CFTC's investigation.

Good News! The CFTC has now accepted my Settlement Offer in which we neither Admit or Deny their
accusations. The Settlement Offer ink is now dry and the matter is concluded.

After spending the past 2½ years dealing with the CFTC and addressing their concerns, we are more than
glad to put it behind us and move forward.

We expect, during 1999 to attract many new members as well as keeping our present members.

1053
We also need to be successful with our other product and service offers to make us more financially viable.
We can then continue to serve our members and provide even more knowledge and trading tools in the
future.

To this end we will be announcing a number of new trading related products and services in the near future
and during the New Year. Please visit our web site for more details.

A Happy and Prosperous New Year to all our trading club members.

Thanks to everyone who has contributed knowledge to this issue of Commodity Traders Club News.
Without you this would not be possible.

We ask all members to please make a contribution to the next issue of CTCN. Don't worry about your
submission not being interesting or useful to Members . . . rarely is this true. Usually, most all
contributions/ submissions/articles are quite interesting and valuable to other traders, but the author usually
does not realize the actual value of his knowledge or experiences.

Submissions can be any length, long or short; typed, handwritten or submitted on a disk. Formal or
informal. Please participate by sharing your information and knowledge with other traders. Please make a
contribution about your experiences, both good & bad with systems, services, advisors, data vendors, and
other trading related product.

P.S.: As a special reward for making just one contribution/submission per year, you'll receive an automatic
50% price reduction on your renewal.

Delayed Quotes - Nancy Oss

I'd like to share with your readers an experience I had using delayed quotes verses "real-time."

Since delayed quotes for all exchanges, including equipment rental run about $100 a month, verses about
$300 a month for the CBOT exchange only, I decided to save money.

I wasn't trading the S&P-500, the mini S&P, or anything with a great deal of volatility. So my thinking was
volatility and speed wouldn't be much of an issue, generally speaking, since prices seem to hover around
price action for a while without moving very quickly. In other words, if you're trading grains during winter
or some other market that isn't exhibiting a lot of volatility it seemed to be a good way to save money.

Was I wrong? I went short two December copper @72.55. Not one, but two. Why, because I was greedy.
The intra-day, daily, monthly, and yearly trends were all down. Talk about trading with the trend - how
could I go wrong? Other indicators gave me a sell signal also.

My stop was in at 73.00. Not more than 15-minutes after the fill at 72.55 my broker called with the 73.00
stop order hit and filled. I ran to the computer and looked at the screen. Prices were around 72.70. I sat and
watched this $500 unprofitable trade unfold before my eyes. I felt like a person on a plane that's going
down and is going to crash. You know you're going to crash and it's just a matter of time. Of course, the
consequences are not near as dire.

It's money and not my life. But the sense of impending doom is kind of the same. It already happened. I
knew it happened. Now I'd watch it happen -- with my DELAYED quotes. Needless to say, I won't be
using them again to trade from.

P.S. -- If I had "real-time" quotes, I may have jumped back in and reversed the position and went long. But
there was no way I would do that and not be able to monitor that trade accurately and correctly. Also, then

1054
I'd be trading against the trend. Anyway, timeliness and accuracy are of utmost value in these highly
leveraged markets.

There's One Born Every Minute - William Green

Jake Bernstein has a lousy record trading fixtures -- but has made plenty trading on investor gullibility.

"I'm teaching you something that I know works," says Jake Bernstein. "It's real simple." Bernstein, 51, is in
a Washington, D.C. hotel meeting room mesmerizing an audience of aspiring futures traders. Want to make
a killing trading futures? All you need to know, says Bernstein, is that many seasonal price patterns occur
year after year. Buy live hog futures on Oct. 30 and sell on Nov. 27. That's a trade that would have made
you money almost every year in recent decades, he claims. Bet on the S&P 500 March contract to rise from
Jan. 12 through Jan. 18. For 15 years, he says, this trade was a winner 93% of the time.

Does anyone believe his nonsense? Unfortunately, yes. Intoxicated by the promise of easy money, audience
members line up to buy Bernstein's products, among them his books, with titles like The Seasonal Trader's
Bible and The Best of Bernstein: A Treasure Chest of Jake Bernstein's Market Wisdom.

His monthly newsletter costs $400 annually; his weekly newsletter costs $895 a year. He sells three other
newsletters, plus video courses and a CD-ROM ($695) that lists 60,000 seasonal trades. He offers
telephone hot lines and charges up to $2,500 per person for his two-day seminars.

Yes, you can fool some of the people all of the time. Commodity Traders Consumer Report, a respected
futures publication, tracks the trades Bernstein recommends in his $895 flagship newsletter. If you had
acted on these weekly tips from 1988 through 1992, you would have lost money for five consecutive years
(assuming typical transaction costs).

Let's say you set up a $20,000 trading account in 1992 and executed the newsletter's recommended trades
for that year. Your account would have been wiped out. In 1996 you would have lost 95% of a $20,000
account. Bernstein's response: "There are always losing periods."

He professes to be an expert on the psychology of trading. His qualifications? In registering with the
Commodity Futures Trading Commission, the Montreal-raised Bernstein wrote that he held a master's
degree in psychology from Chicago's Roosevelt University. In fact, he never completed his master's
studies.

In the 1980s Bernstein hooked up with an outfit called Robbins Trading and helped to manage futures
accounts for investors. James Roemer, who co-managed money with Bernstein, says: "Jake is brilliant, but
he can't manage money to save his life . . . He'd get scared, buy at highs and sell at lows . . . He kept losing
money."

Bernstein found an easier way to get rich. Instead of just trading futures he would trade on investor
gullibility. In 1996 he starred in an infomercial that has aired on nearly 400 TV stations. It hypes a video
course ($180) called Trade Your Way to Riches. In it a farmer named Harold Henkel tells viewers how
well Bernstein's approach has worked for him. Henkel, however, now admits that he lost money trading in
1996 and 1997 while using Bernstein's products.

On his website Bernstein offers to set up customers with his "personal" brokers at Fox Investments, a
division of the Chicago brokerage firm Rosenthal Collins Group.

Suppose you take Bernstein's recommendation and set up an account at Fox with $5,000 -- the minimum
that Bernstein says you need to become a trader. Your commissions would be $60 to $80 per trade, about
three times more than savvy retail customers pay. Bernstein's weekly newsletter offered 195 recommended
trades last year. At that rate, a small trader's commissions alone might amount to more than double his or
her original investment. Needless to say, Bernstein receives a slice of the brokerage's commissions. A Fox

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broker appeared in Bernstein's infomercial, touting his seasonal trading approach. Says Bernstein: "There's
no arguing with history." Say we: Where are the regulators when you need them?

Commodity Shark - William Green

JAKE BERNSTEIN is not alone. Another prominent purveyor of hype is Ken Roberts, a college dropout
and former life insurance salesman. Roberts convinces neophytes that they can become successful traders
with a grubstake of only $1,000.

In 1983 he self-published The World's Most Powerful Money Manual & Course, a mail-order book that
intersperses tips on futures with platitudes about getting "everything you want (mentally, physically, and
spiritually)." He claims to have sold more than 300,000 copies. At $195 each, that adds up to nearly $60
million.

Roberts, who touts futures trading as "the world's one perfect business," charges $2,695 for his advanced
trading seminar. He hawks trading charts, a course on options, a newsletter and his novel, The Rich Man's
Secret. He also owns a piece of a California brokerage firm, Main Street Trading. It charges commissions
so high -- $95 a trade --they virtually assure that most small active traders will lose money. The hype has
paid off for Roberts. It has brought him tens of millions of dollars and an Oregon mansion with a cigar
room. But where are the customers' mansions?

Read more: By William Green - Management, Strategies, Trends - From March 9, 1998 Issue

A Brief History of PEPS & Kurt Amacher's 3-D System - John Mack

We were both wrong! I didn't pay $95 but $495 for PEPS in September '86. After that, I cut out his ads in
Futures Magazine (with all those charts studded with astounding buy and sell signals), and they show him
(Ramesh Veghela) began charging $695 in October '86 and $985 before April '87. From April '87 on, the
price seems pegged at $985.

You were right about the indicators he used: a 9-day slow stochastic and a 9-day RSI. He compared their
movement to the price movement of the underlying commodity and sought divergences between them. He
told me he got the idea looking at charts in Commodity Perspective. He saw this pattern repeat over and
over -- possibly even when it was absent! He made a trading method out of it, and the rest is profits.

Before buying, I recall asking him why he was selling such a hot idea. "Ah, well, you see, John, this is a
very good question . . ." and off he'd go into how he was a struggling grad student in Wisconsin, trying to
collect enough funds quickly to set up a super-duper computer system to test this idea thoroughly and
develop even better ones. Yes, he wanted my money to test the idea he sold me! Confidence, man.

When I bought the "system," I was annoyed how much his signals lagged the market, so I called and asked
how he overcame this bothersome feature. He began the Dance of Multiple Indicators, paternally advising
me not to put all my eggs into his single (ill-woven) basket. We didn't talk after that, but I continued to
collect his ads, remarking in each how brilliantly PEPS performed last month. One couldn't ask for a better
rear view mirror.

My recollection of paying $95 was correct, but it was for Kurt Amacher's 3D system. This one looked for
divergent behavior between current and forward deliveries. In reality, it was a loss-leader intended to entice
you to buy his $2,400 system, Predictor. I did and it used a novel way of drawing triangles on price charts
to pinpoint the day that prices would reverse. I still think it's pretty clever, although one can generate so
many triangles, you don't know which ones to believe. Worth the money? Hell, no.

That'll do it for now. It was great talking with you! I'm glad to hear you're doing well, and I hope the "Real
Success method" works out well for me, too. I'll keep you posted on my progress.

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 Day Spread Trading of T-Bonds - Stephen Goldfarb

I have been considering a conservative trading idea involving day spread trading of T-Bonds. There may be
other futures on which this concept may be better adapted. I would be interested in getting feedback about
this idea. Let us say that the spread between the near month T-Bond and the next 3-month period (e.g.,
June/September) varies during the day by a small, but tradable amount.

For example, the two contracts may, at the narrowest spread, be 8-tics, and the widest spread, 12-tics. That
is a 4-tic spread. Each tic in T-Bonds is worth $31.25. The idea would be to enter an order to sell the near
and buy the far at an 8-tic or less spread, and liquidate by buying back the near and selling the far at a 12-
tic or better spread. That would be a gross profit of $125 less, say a $25 spread commission for a net of
$100.

If the liquidating spread price is not reached, one assumes liquidation at the close. For purposes of the
example, I assume that one could get out at least even, or perhaps with a 1-tic profit to pay the commission.
Reality may differ.

The concept does not depend on anticipated disparity, as might occur when a spread is entered between two
different contracts, such as S&P 500 and Value Line, and held for an extended period. It depends on non-
directional intra-day undulation.

The spread variance in the example should be considered hypothetical. The spread appears to vary on any
given day.

I have no meaningful experience with this kind of trade. I would be interested in the mechanics of the trade,
and opinion of the feasibility of doing the trade. Some questions:

1. Can one enter a spread trade based on the size of the spread, without specifying specific buy/sell
prices? That is, to enter when the spread between contracts is 8-tics or less.
2. What are typical bid/ask prices in T-Bonds?
3. Assuming the near and far contracts reach the anticipated spread at which one wishes to trade,
how capable are floor traders at identifying the spread, and entering the trade as specified? How long
must the spread persist for the floor trader to act?
4. This concept is based on expectation that spreads will not, on an intra-day basis, become wildly
disparate. Therefore, no stop loss points would be entered. How realistic is that expectation?
5. Does anyone trade in a way that is similar?

Any general comments and contributions on this concept would be welcome. Steve 510-658-1050
Voice/Fax or e-mail address: CMVD52A@Prodigy.com

Losing Sight of the Long for the Short - Rick Ratchford

Short-term or long-term? Which do you subscribe to? If you are a short-term trader, you obviously like to
get in and out of a trade in just a matter of a couple of days or so. If you are a long-term trader, you want to
ride a move for most of its duration, allowing counter moves (retracements) to temporarily erode your
paper profits in expectation of the market resuming its move in the direction you want to go.

Which is better? Well, that is debatable, and also depends on individual skills.

If you have the skill to time short-term moves, you can make a good return short-term trading. However, if
your timing is not that precise, you may find that long-term views of the market can make you richer. Even
short-term traders, like myself, know the value of catching a long-term move.

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Do you miss some good long-term moves because you focus too closely on the short-term gyrations? I
know I have many times. And the funny thing is that the long-term move many times turns out exactly as I
imagined it would, except I had imagined that I'd be in it when in reality it got away from me.

Consider that you time a weekly turn to perfection, then you go to the daily charts and time the very day to
enter this new weekly move. Now, you get in the trade, and soon come upon a daily reversal. As a short-
term trader, you might exit and wait for the retracement to end, once again affording you opportunity to get
in at a better price.

Maybe you do this with precision once or twice, but on the third reversal, the market changes its mind and
takes off in its original position instead of providing that pullback entry you wanted. Now you are missing
the big move you knew was going to happen because you wanted to shave a few points off the top. This is
what I call "Losing sight of the long for the short!"

Longer-term moves provide you with a higher probability of profitability. If you know that a certain market
is likely to move up for a few weeks, why not just enter and hold for a few weeks? Well, the mentality of
the short-term trader is to extract more from that move by not allowing it to move against his position then
reenter. Of course, there is that risk of missing the rest of the move.

Don't lose sight of the Long for the Short. If you are a short-term trader, and want to take advantage of the
more profitable long-term trades, you simply need to use a good strategy.

Enter your trade with multiple contracts if your account can margin it, and when you come to a retracement
forming, merely exit part of the position while letting the rest ride the counter move. Once you suspect the
move will resume into profitability, you can add those contracts back on. In the event it gets away from
you, you at least are making money anyway.

Starting with multiple contracts is usually safer if you are properly margined, rather than pyramiding on
each retracement. The latter can make your position top heavy and one bad counter move can wipe the
whole cupboard clean. Start off with x-number of contracts first, then remove a percentage after profits
during a retracement, and finally getting back in with the same number you started with allows you to play
BOTH games, the short and long of it.

Learning Trading the Hard Way & about Ken Roberts, Curtis Arnold,
Turtle Method, Elliott Waves, Robert Miner, etc. - Albert Castro

It seems that all successful traders go through a phase of learning the trade business usually within 3-5
years. We all seem to learn the hard way by losing money in the market. Some of us do quit trading after
losing money. But some of us persevere and try to learn what we did wrong especially when we initially
made money, but end up losing most or all of it later. Let me tell you what happened to me in the past 3-
years and see if any thing I say may have or relates to you in any way.

I got interested in trading commodities back in December 1995. I kept receiving a brochure in the mail
from Ken Roberts over and over again for about two-years prior to 1995. I finally became interested after
being convinced about all the advantages of owning a business with no employees, no payroll, no
inventory, short hours, small investment, and opportunity to make money. I used to own a business that had
all of the above except short hours and making money. So you can see why I became attracted to this and it
was only $200 to buy his course. I did not know too much about commodities at that time other than it was
a risky type of investment and many people had lost money.

I received Ken Robert's package called "The World's Most Powerful Money Manual." I read his book and
viewed the video and heard his audio tapes. One month had past by and I still did not understand his
method. I started to use his alert line over the phone which alerted to the formations which had been
described in his course. However, I could not get this information from the phone fast enough, so I bought
a tape machine to record what was being said.

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This still took too long and was costing me a large telephone bill, so I paid Ken Roberts $95 to receive a
lifetime fax printout of this information. This was much easier, although it took me about an additional 2-
months to understand what he was talking about. Well, of course, the fee of $200 was only for a 3-month
trial so I had to extend the subscription for another 3-months. That's right you guessed it, this extension was
for an additional fee. There is just no way that you can learn his method in less than 3-months. Unless of
course, if you do not have a regular job, a wife, no kids, no friends, no other interest, and are willing to
devote all of your time learning this. At this point, I was about to quit being frustrated in not understanding
his method of trading. But I am not a quitter, although I could see why many people would quit at about
this time. I would guess that over 95% of students quit by this time. Ken Roberts does offer seminars,
workshops, and additional videos to help you understand. But this is for an additional charge and much
more than the initial $200 investment.

After about 5-6 months had past viewing his videotape again and again, paper trading, and following his
method, I finally got a grasp of what his method was. It is simply a bottom and top formation strategy.
There was a problem with this method in that there weren't too many trading opportunities. I was paper
trading everyday looking for opportunities which were far and few between. Also, when you entered a
trade, the protective stops were wide with the possibility of losing $3,000-$5,000 on each trade.

Well, I decided to put real money in the market. I started with $5,000 and had a open long position to buy
one German Mark and one short position to sell one US Dollar Index contract. I waited about 3-weeks
before the DM rallied and the US Dollar fell quickly. I made S3,000 in one day. That was easy money and
it felt really good. I became excited and decided to purchase his Option Manual, which I read and studied
for about 2-months. I now took action to buy options. In addition, I purchased another book called -
"Capturing Full Trend Profits In The Commodities Futures Market" by Collin Alexander, even taking it on
my vacation to read. Before I left on vacation, I decided to have open trades using his methods and one
with Ken Roberts method. When I returned from vacation in one week, I had lost $5,000. Ken Roberts
discussed protective stops but as mentioned, his stops were too wide and you can lose $3,000 easily on
each trade if the market goes against you. I did not get a chance to read about protective stops in Collin
Alexander's book before I took the trades. Also, later I lost about S2,000 trading options which expired
worthless. Now I was feeling depressed and now realized that I needed to know more about the markets
before I traded again.

I often wonder why Ken Roberts' counselors were working for him since they could have easily made so
much money using his method. It wasn't too long that I realized that trading was a business that required
knowledge, skill, and money to make money. It was no different than any other business other than you
don't have the same headaches that I previously mentioned.

Using his method is fairly simple and if you had his money and enough patience, you could probably make
money. You should trade with an account of $25,000 or more and this money should be money that if you
lost it would not change your lifestyle. I feel that I am generally a patient person, but waiting for his
formations to develop does take a lot of patience. I required just a little more action.

Well, by this time I became very interested in trading and I wanted to learn as much as I could. I purchased
an excellent book called Curtis Arnold's PPS Trading Systems. This was an easy book to understand, it was
fun to read, and he showed you a real proven system. However, you also have to show a lot of patience to
use his system which is conservative and does not take in the big moves. You generally enter in the middle
of a trend.

I also read Schwager Technical Analysis on Futures. This was a very difficult book to understand and had
so much information about many things.

I also read the Turtle Method which is nothing more than trying to catch the breakaway of a trend. This is a
very simple method to apply, but you will have many more losses than winners. However, you will always
be able to get into the beginning of a big trend which you hope will eventually make up for the many
losses. Trends don't occur as often as you would like. In fact, trends only occur about 15% of the time.

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I read about technical indicators and Oscillators such as the Moving Averages, Divergence, and others. I
learned about Elliott Waves by attending a seminar provided free by AdvanceGet who is selling an Elliott
Wave software program. Elliott Wave is by far the most difficult concept I have ever come across. It has
taken me about one year to learn and apply this method.

Editor's Note: It's surprising and also curious, why so many traders try to use Elliott Waves in their
trading, when they appear so difficult to use successfully. It seems counting market waves is far from an
exact science! It's believed if you show a number of traders the same chart and ask how many waves they
see, you probably would get almost as many answers as there were traders. This is due to the definition of a
wave being highly subjective.

Now where am I, now after losing already $7,500. By the way, you can write off this as a loss in your tax
return at $3,000/year, but you can also write off all of your expenses if you use Schedule C. I suggest you
read The Traders Tax Survival Guide by Ted Tesser, to learn more about this. As you can see, I read many
books, attended seminars, and paper traded. I also have a software program called MetaStock and I receive
data from Reuters for all my commodities. This is an excellent program for the price.

I tried using Omega TradeStation software for a month trial, but it was too difficult to understand and apply
so I had to return it. I also tried the Elliott wave software Win Wave, but it was just too expensive for what
it gives you in return.

What am I doing Now? Well, 8-months ago, I purchased a book by Robert Miner, called Dynamic Trading.
This is an excellent book, but has taken me about that long to understand and apply. This method is
uncanny and accurate and allows you to look at the market from an overall perspective. He provides free
Internet information on how to trade his method and he sells a software program to make your trading
easily. He also sells a weekly newsletter to show you what trades he has taken and why. He uses the Elliott
Wave, Time and Price Projections which is amazing to me how it really works. However, it will take you
6-12 months to learn and apply his method.

I believe that this will be the last stop for me. I will be using Robert Miners Method, but will keep my eye
out for breakaways from the Turtle method, and patterns from the PPS system. I am working on the trading
plans and rules on when to enter and exit a trade.

It is very important that you understand what your trading philosophy is (are you a short-term trader, day
trader, position trader, etc.) and develop a trading plan and rules to achieve positive results.

I have learn the hard way to trade so far, but I have persevered and now I feel I am about to take off. This
has been a long and expensive education for me but I know it will pay dividends from now on. I have a lot
more confidence today than ever before and I have developed a "feel" for the market which can only be
received by studying, learning and practicing the markets.

I realize you must look at trading as a long-term journey and picture what kind of money you will make in
the next 5-10 years, not within 30-days. Look at where you would be now if 10-years ago you successfully
traded for that time period. It won't be long when I will be in a position to trade with $25,000 capital
(money I can afford to lose without changing my life style), but will already have the knowledge, skill and
confidence to trade the futures market.

"What Goes Around Comes Around" - J. L. from Wimauma

I've always observed that we come into this world on 4- wheels on the trip from the hospital, get our first
tricycle, then a bicycle, then in retirement a tricycle, and yup, the hearse has 4 wheels. Reminds me of my
trading when my first trade 15-years ago (a day-trade) made me $1,800 -- like hitting the jackpot on the
first pull. So naturally I tried options, scale trading, swing trading, back to options two months ago and now
back to day-trading 2-days ago. As I've said before, it's awful to know how to make money and not be

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willing to. When I make money for my friends, I tell them "Don't worry, I'll trade your account the same
way I do mine." They should worry. I should trade mine like I do theirs!

Examples: A ten-year-old could learn how to buy a cheap commodity with enough capital behind him, and
make a pile by just rolling over and eventually taking the profit! A twelve-year-old could learn scale
trading and, properly done, make more than Dad in the stock market! I'll say it again. Commodities are at
the same time the greatest investment in the world and the riskiest trading instrument there is.

Talk about the ultimate "Know thyself!" I couldn't have guessed that I am really a hopeless "researcher"
(from "search again"). Finding something that works forces me to find something else that works! A trader
friend says, "Don't bother me with details. Teach me to press a button and the money rolls in." I've got to
know the whys and wherefores and "It ain't the money." My Catholic upbringing probably had one thing
right. "Money (per se) never made anybody happy" (so why not just give it all to us).

My decision to go "back to my roots" wasn't a whim. When copper twice and now the Canadian clobbered
me overnight, I say enough. (Tip -- If someone had told me I could place an overnight stop in the EFP
(Exchange for Physical) market, I'd be $1,000 richer today!) Ignorance is so expensive!

When a market must do one of two -- two-bar patterns in order to reverse, I'm seeing that intra-day bars
work the same as dailies. We've all heard of Buy-Sell price envelopes, but what about TIME envelopes?
The intra-day bar stuffs the daily bar stuffs the weekly bar stuffs the monthly. Can someone out there do
something with that? Like for instance, signals within signals? (Tip -- My "3-strikes and out" means that if
within 3-consecutive bars that you're trading, prices don't go your way, hit the Exit button -- if you haven't
already been stopped!) No more hoping and praying allowed!

Well enough rambling. I tend to put down computer "nerds" who get too involved with their programs, but
I'm no different if I'm also in it for the "entertainment." It seems to me that the guy with enough "surplus"
money can afford this "hobby," and the guy who really needs the money can't afford to trade! Is that crazy
or what?

I think I've got it! If making money at something is called a "job" and hobbies usually cost us money, still
many of us would prefer a hobby! "Fun" is rarely free. (Would you give up your boat or your golf?) If
Larry Williams could teach us his incredible WILLINGNESS TO PROFIT, he'd really have something. Get
to work on that, Larry! I leave you with: "Your next trade is the first trade of the rest of your life and your
account." Therefore, don't base it on your last trade. I know I ask the impossible. Healthy trading to all!

Plan the Trade, Trade the Plan - Rick J. Ratchford

Working with as many traders as I do you tend to spot many different attitudes toward trading the markets.
Those who seem to remain in the game for more than a brief visit have a certain "type" of attitude, while
those who are here today and gone tomorrow have yet another "type" of attitude.

Although all traders are unique in personality and how they address/view the markets, after some time of
reading messages sent to me or the membership forum, it becomes somewhat apparent what 'group' a trader
likely falls under. This article is not meant to deal with the varying groups as it were. Rather, to point out
some observations I've made over the years of working with many different kind of traders.

For example, there is a group of traders that fall under the heading of "No Time/Effort." These are ones
who want to trade their own accounts, rather than letting someone else do it for them, yet do not have or
want to take the time to do the necessary homework to plan their trades. Instead these traders want someone
to tell them what to trade, when and how, every step of the way. In other words, they want to trade
someone else's plan without letting that individual do it for them. It is this trader's opinion that these traders
are confused, for they want to initiate the trades which are not theirs to begin with, but someone else's, and
feel it is their own. Futures trading is not likely the best forum for these traders to dabble in.

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One person trying out our membership for the first time, after just two weeks, wrote and said that he had
no time for following the markets and dismissed himself. It became clear in his message what group he fell
into, and you can only wonder why he would pick futures trading and all its volatility to put his money into
if he wasn't going to put in any time at all to plan his trades.

It appears from much evidence that those who continue to trade beyond their first year or two are traders
serious about learning how to make their own trading decisions, so they can plan their trades and trade their
plans. They know that some homework is required prior to each trade, and that there has to be a reason for
putting on a particular trade (plan). These ones soon learn that when they jump into a trade without proper
planning, that they end up getting their account chewed up some.

In our membership we have different types of traders. There are those who have been with us several
months to nearly 2-years, and there are those who come and go, and come back again, trying out different
methods here and there. Also, we have the quick here today, gone tomorrow trader, who can't keep focused,
but is looking for a get rich quick scheme. Yes, we see all kinds here.

The focused trader needs only to identify a good methodology that fits their personality and time frame
(i.e., short/medium/long-term trading.) Then, when such a methodology proves to be effective, to work
hard at it, give it proper amount of attention and time, and become good at it.

What it comes down to is that the trader needs to learn how to plan the trade, then trade the plan. Must stick
to a strict method of approaching the market. What does the methodology require? Figure out
support/resistance maybe? Note two or three indicators possibly? Some of each?

Whatever it is, if you do it consistently when evaluating the markets prior to putting on the trade, you are
then "planning the trade." If you then put on the trade based on your consistent use of your current
methodology, then you are "trading the plan." This is the formula for a successful venture in futures
trading. If you do not have the time to do this, find a good money manager for a mutual fund or stock
portfolio and forget about futures trading.

Having someone trade your futures account is a frightening thing to consider. You could see your capital
vaporize before the ink of your signed contract even dried. Want to trade futures, then prepare to learn how
to trade first and develop an approach. That approach then becomes your means of developing a plan for
each trade. From there, after you plan the trade you wish to make using the methodology template of your
choice, stick to it! Trade your plan exactly as you had earlier decided you would. Don't deviate on the fly!
Don't modify! If you are for some reason not sure of what you are doing, then get out of the trade. Once
you do that, you can think with a clear head on whether your planning needs tweaking.

If you feel you are currently in the group of traders who do not want to take time to do the homework, the
planning, but would rather have someone else tell exactly what to trade, sits back and re-think this desire.
What are you trying to achieve? Long-term capital growth? Short term speculation? Just maybe you are
looking in the wrong arena for what you are trying to do. Get rich quick? Forget it. You will need to make
your own decisions and trade them yourself if you want to get rich, and not so quick at that in futures
trading.

Reality sinks in rather quickly when your account is cut in half. No plan means no money. Therefore, for
those who have decided that trading futures is the way to their personal goals, then here is what must be
done.

üLearn a method of approach -- Sometimes this requires that you contact others who have been using the
method and see how they are coming along with it. Regardless of the method, no two traders will have the
same results. Some fail with a winning method, so it will take homework on your part to separate the
methods from the traders themselves to get a good idea of whether you are willing to try it out. In any
event, find and learn an approach to the markets.

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üFocus on that method until you build confidence in it. -- Once you find that the method itself is good, you
still need to learn it. There are simple methods, and more complicated methods. Simple is not necessarily
good, nor is complicated necessarily bad. Enough time and effort is needed to test a method and build
confidence in it. Especially when the method is different than that which is used by the majority, it takes
time to get past the doubts by seeing it in action a few times. Test the idea without investing your money,
such as in paper trading. Of course things change when you start using real money, but you will at least see
if the method works or not, and you just have to work on you when it comes to real money. Stay focused on
the method and don't let your eyes keep wondering from one method to another.

üPre-plan your position trades, or your approach during day trading, so there is no confusion when it comes
time to trade. -- Trading on a whim is bad form. Gut feeling may be good for some, sometimes, but it
hardly is effective for the majority. If you are a day trader, or are working towards this, you want to get it
fixed in your mind what it will take to initiate a trade. This requires having decided how you will make the
decision to buy, sell or exit, in advance. If you are going to position trade, then you need to plan the trade
before the market opens, and then look for the situation to enter based on your pre-planning. Then, when
the time comes, there will be no confusion how you should act.

üTrade the Plan -- Believe it or not, but even after a well-thought out plan, some still abandon it right at the
time of decision because of fear, greed or both. Self-sabotage starts here. The purpose of the plan is to
remove the emotional factor that has ended many a trading career. Stick to your pre-planned strategy or
stay out of the trade! When you wrote out the plan, your head was clear, you were calm and comfortable.
Now that the markets are opened and you are watching the prices move, you may start to second guess
what you planned, or forget the details of your plan, and other emotional bombardments going off in your
head. Trade the Plan! If you have a good methodology, the plan will call for an escape move in the event
the plan was wrong, and the loss should be small. Don't rewrite the plan on the fly! Your whole trading
career could rest on your ability to follow this one simple suggestion.

Do not be in a hurry to learn. If you are impatient, you will not fare well. Take your time and learn to do
the planning right. If you are involved in learning a new method and don't understand something, make sure
you can get answers to your questions. If you cannot, then you better find a different method. There should
be no questions how to approach the market when you are forming your trading plans.

Some new traders feel that they will be different from those before them, and that they don't feel it is
important to "plan the trade and trade the plan." Maybe some can get away with it. But just remember this
if you are still trying to get a grip on trading and have yet to do so. Remember when your parents would try
to teach you something and you felt you knew better. Now you are likely a parent, or at least older now,
and can see how foolish your thinking was back then. Experience dictates that you need to take time to
learn, to build confidence, to plan the trades, and then to follow through. Don't make that same mistake
again.

Chicago Board of Trade Floor Traders Know Where the Stops Are -- Bob McGovern

The activities of the Chicago Board of Trade (in a recent 2-week period) have negated any rational thought
processes regarding the fundamental and technical aspects in Soybeans, Wheat, and Corn. What is
occurring seems to be this: The "heavy" interests start the chaos by initiating a large, perhaps 5 to 20
million bushel sell-short-at-the-market order, which in turn, causes the bids to be lower, triggering
commodity fund stop-loss selling. The floor locals know where the stops are, so they also sell short to drive
the price even lower. The locals can short tremendous amounts of a particular contract, as they aren't
required to have any margin, just as long as they are out by the close each day.

The commercials, who always scale buy on the way down, and scale sell on the way up, normally take the
buy side of this activity. By this time, the market is in full retreat.

The small traders' stop-losses are hit by now, with the originators of the rout and the commercials taking
the buy side on the scale down. Finally, the market, after losing 8 or 10-cents in a few minutes, stabilizes.

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Locals have cleaned out all stop-losses in the immediate vicinity, and they cover their short sales by buying
from the last of the stop-loss sellers.

The heavy-duty interests, who started the debacle, have covered their short sales on the scale down, and are
net long by now. To add to the fun, they buy 5-20 million bushels at-the-market! And up the market goes!
This is seen by the jackals (Oops!), locals, who once more smell the blood of stops above the market this
time, and they load up now on the long side.

That does it for the Harvard boys at the commodity funds! Their black box stop-buys trigger in, causing the
market to go further up, with the commercials selling on a scale up, all the positions they bought originally
on the scale down. CNBC, FNN and DBC get on the TV and Internet, spoon-feeding listeners something
about El Nino, or cold weather. By now the Account Executive with the commission house has finally
gotten around to call poor Joe Doe to inform him that he was stopped out of the market to the downside,
but the market looks good again, and he better go long again because it looks like it's going to the moon!

Joe Doe takes the hook again, buys just as the last sell orders are executed by the heavies, commercials, and
locals. At this point the market is back to unchanged for the day! The heavies have made a bundle on both
the downside and upside. So have the commercials and locals. Let's see. Did I leave anyone out?

Barriers to Learning - Chris Majer

Many people miss opportunities to learn something worthwhile due to various mental barriers. They may
fall under one or more of these categories:

• Characterizing oneself as unable to learn.

• Attitude that you already know the information.

• Lack of Self-Confidence/Resignation

• Isolation from Others

Trading is a very broad field in terms of the amount of things you can learn. So many different theories,
methods, techniques and directions one can go in learning how to analyze, trade or forecast price action.
Different major fields, such as Technical Analysis or Fundamental Analysis, or a combination of the two.
Indicators or systems, real-time or delayed, long-term or short. Fibonacci or Gann (or both). Fixed or
dynamic cycles (Fdates), astronomy or chaos theory, and so-forth.

Say you like to use indicators and chart formations. There is a big following in that type of analysis.
However, by close examination you will find that the majority who use this type of analysis are also not
succeeding. Actually, the majority in just about any method is not succeeding. Some methods are esoteric,
not of the mainstream. Do you find yourself, as an indicator type analyst, having a negative view of
methods that are so different then the one you find yourself currently comfortable with? Do you think that
wise if you are not succeeding with your comfortable way of analyzing?

Here are several reasons why many people miss opportunities to learn something that may improve their
trading.

Characterization of Ourselves or Others

Many of us perceive our incompetence as a permanent feature of who we are. We fall into stories such as:

• I don't have the aptitude

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 • I don't have the talent

• I don't have the knack

• I'm not smart enough

In these stories, there is no Possibility for learning.

Already Knowing

The biggest barrier to learning is knowing. When we live in a story of already knowing, we cannot see that
which is new as new.

I already know this, this is just another way of saying/doing______.

This is the same as ______.

There is nothing new for me here.

This is a form of arrogance and blindness. We assume that the world can only be the way we see it. This
stance precludes you from being on the lookout for opportunities to learn.

There are thousands of examples of how business opportunities were lost because people saw what was
new as more of the old. IBM offers us two classic examples. They did not see anything new or special
when they were presented with the first photocopier. This missed opportunity became Xerox.

Similarly, 20-years ago, IBM saw that the future of the computer world was in hardware. They saw
software as being an ancillary consideration, so they decided to contract out for this service. The contract
went to a little company called Microsoft.

Lack of Self Confidence/Resignation

We also close ourselves to learning because, even though we see the new as new, we fall into:

• I could never learn this

• I'm not smart enough to know this

• I'm not good enough to know this

• This is too complicated for me

• This is too hard

I could carry on with an endless list of reasons behind which we hide when learning opportunities occur.
The main theme for each of them is "There is something wrong with me." This is a common, yet tragic,
interpretation that is universally ungrounded and inhibits people from creating the lives they want or to be
able to trade successfully.

Isolation From Others

A classic mistake is to think that we can learn on our own. One of the unfortunate realities of our business
world is there are two conversations that are unofficially forbidden -- or at least we act as if they were. The
first is "I don't know," and second is "I made a mistake." In the absence of permission to have these
conversations, we find ourselves hiding our lack of competence and attempting to attend to it on our own.
This shows up as:

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• I don't need a coach, I can get this from a book.

• I don't want anyone to know that I don't know, I'll do this on my own.

Learning is a social phenomenon and is best accomplished with others.

How To Be An Effective Beginner

The first step in the process of learning is to acknowledge that we don't know.

• To learn is to be introduced into the unknown; we accept we do not know.

• When the instructions don't make sense to us, they don't make sense because we don't know. We don't
know because we are beginners.

The second step is to authorize a coach, to find someone from whom we can learn, someone who can teach
us.

• The only way to move when we don't know is to trust the coach and to follow his or her guidance.

• We grant this person authority and trust.

• When we grant authority, we are saying that we are willing to submit ourselves to this person's guidance
and accept instruction.

The third step is to accept and be at peace with being a beginner.

• This is stage in which we will be awkward, make mistakes, appear foolish, etc.

• There is nothing graceful about being a beginner.

When considering to learn any methodology, you want to make sure that someone will be available to
assist you every step of the way to facilitate your learning. Learning from a book is fine to get the basis and
terms down, but nothing beats experience, and that is where a coach comes in. You wouldn't try to learn
Karate from a book alone, would you?

Establishing Supportive Learning Community

• Isolation is a barrier to learning, so it's important to find or build a community of people with
whom you can learn, speculate and think.

• Creativity rarely happens in a vacuum.

• Understanding can occur in private. Learning is a social process.

Practice, Patience and Perseverance

Practice, patience and perseverance are the three hallmarks of a committed beginner.

• Practice - The way to embody a new competence is through DOING again and again and again.

• Patience - Being at peace with the fact that learning takes time.

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• Perseverance - Continuing to practice in the face of doubts, bad moods, other people's assessments,
being willing to endure through our own negative assessments.

Moods and Postures of Learning

Success in learning depends in part on how open we are in our mood and posture.

Arrogance -- "I already know. I don't need to learn. There is nothing you can teach me." -- Closed posture

Confusion -- "I don't understand this, and I don't like it, so please give me the answer." -- Rigid or
paralyzed posture

Perplexity -- "I don't know what's going on, and I don't know if I like it or not, so tell me more." -- off-
center posture

Wonder -- "I don't have the foggiest idea what this is, but I like it, and I want to learn." -- Open and
centered posture

Ours is a world where learning is no longer a luxury. It is now a necessity, but also an opportunity to
explore new possibilities and the rich and tremendous rewards that the learning process has to offer -- as
well as the results we can create along the way. Anyone can learn a method new or different to them, if
their learning posture is open and centered.

Extra Stuff About Internet Based Futures Trading, Data & Trading Books
George Famy from France

Here are a few things I'm working on or thinking about. Maybe some CTCN readers can help me.

1. Internet based Futures trading -- I'm familiar with most of the companies offering the service. But until
you actually try to put real orders into the pit (S&P 500 in my case) you can't know the effectiveness of the
system. I say it because most of the Internet trading platforms offer "practice" sessions where you can enter
hypothetical orders, etc. Although this is worthwhile to understand the order entry process, it doesn't
answer my biggest fear. I understand orders passed via the TOPs routing get executed by brokers standing
next to the (order producing) machine in the middle of the pit.

The big problem is when it's busy these TOPs routed orders build up in the machine and your "market
order" may be behind a long queue. This is called "queuing up" and I'm wondering how bad can it get. Has
anyone traded using ZAP Futures, or any other of the Internet based platforms during BUSY PERIODS
when the market was "moving?" What is your impression of the "latency" of your orders arriving in the pit?
I daytrade the S&P 500 and obviously this is of utmost importance.

2. Anyone trading the Mini S&P? How are the bid-offer spreads when you go to trade and how are the
fills?

3. Forex Data -- I'm looking for 20-years of daily Forex data, i.e., major currency pairs and crosses. I'm
referring to 24-hour cash Forex data with London opening. Does anyone knows where to go for this?

4. Let's stop talking about it and JUST DO IT! I'm all for the library (book) exchange. These damn books
are just getting more expensive by the day. There are many books over $150 now. I know because I have a
few of them! A book exchange would be good because you can always buy the books you read and liked or
those "must have" books that you don't want to wait to borrow. Otherwise the book exchange lets you read
everything and spend your money on data, software and hardware.

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By the way, two modestly priced books I've recently read and found above average were Perry Kaufman's
"Smarter Trading" & Cynthia Kase's "Trading with the Odds." Both are written by "street smart" traders,
but also have some interesting mathematics applicable to trading & managing risk.

"Pitbull" by Marty Schwartz is really a fun book to read although I wasn't able to "decipher" more than just
the general concept (approach) of his trading method.

Anyone read Advanced Trading Strategies by Connors? Is it worth the fancy price tag?

5. I've seen two interesting Internet based Forex trading platforms from CMC and GNI both in London.
You receive real time data and have a few seconds to "deal" (trade) on the quotes given to you by the
dealer. It doesn't get any better (more fair ) than this. My problem is that I trade futures also. How many
platforms does a trader need? I'm in the process of upgrading my equipment and it's too darn complicated
to figure out my software and hardware needs for the next couple of years. Isn't possible to have one
software (trading platform) that has a real time data feed and where you can execute Forex and futures?

6. I'm being told that the fastest and most dependable connection to Internet is a '"T3" connection directly
to the "backbone" of the Internet. Which Internet service providers (ISP) give this type of connection in the
U.S.? Anyone tried a cable hookup to Internet using a cable modem? How well does it work and who offers
it?

I'd appreciate any helpful comments from CTCN readers. Contact me at azurGT@aol.com

"Bad Data": About Glen Larson & Genesis Financial Data Service Issues
"Limited Recall" - Tom Beno

As many of you know (and for others who don't), I've been "negotiating" (arguing) with Genesis Financial
Data of Colorado Springs since April regarding Genesis' continued sales of Pricing Data known to contain
numerous errors. During the process, I've been lied to, put off, re-directed, challenged, threatened and
ignored by Genesis' president and owner, Glen Larson.

In May, Larson threatened me with legal action, as he tried to buffalo his way past my discovery and
exposure of his Bad Data. When I showed him proof of my claims, the threats suddenly disappeared and an
email parade (80+) began.

I documented the errors to Larson and met with wall after wall of denials, finger-pointing, excuse after
excuse, before he twice - in writing - finally admitted them. It turns out that Larson had know about the
errors for up to a year prior to my talks with him. Therefore, he's been scamming the public for about 18-
months, possibly longer.

I requested that Larson notify the marketplace that the product he's selling is faulty. (Note that I have no
financial stake in this issue. I returned the bum data long ago and got my refund. I'm on record that if any
financial benefits are derived from this situation, every penny will go to a non-involved charity). I'm
insistent that Genesis responsibly admit the errors and stand behind their product. Larson has refused. His
position is effectively "Customers are on their own. It's not my problem."

I don't agree. I've repeatedly requested to Larson he answer my claims openly - on the forums and
newsgroups where I've posted my complaints, where Genesis customers, potential customers, and
interested but unbiased observers can decide, and I would abide by the majority opinion. We could both
openly state our positions and let the public determine if he's scamming and covering up or if I'm wrong in
exposing him. Larson refuses.

I began occasionally posting my unpleasant and on-going experiences with Genesis to several chat forums
as we continued discussions. Larson didn't like the negative Internet exposure, asked me several times to

1068
cease, yet he still refused to provide admissions and corrections to those who rely on his data for trading
analysis.

On June 9, I offered that if Larson would agree to make a contribution to a federally-recognized, fully tax-
deductible charity in a neutral state, I would stop exposing him on the Internet. He led me to believe that
we'd struck an agreement. I should have known better.

Larson reneged on the contribution to the charity, and instead on June 26, he tried to buy my silence with
another tactic. His ploy: "Since you are very good at finding data errors, I would like to offer perhaps a
proposal that will benefit both of us. I would like to offer you free updating as long you need. All you need
to do is let us know immediately of any errors that you may find."

Such a deal. I (politely) told him where to stick it. On July 9, the offer was this: "I would like you to have
the data ... I hate to admit it, but the most critical people of data are just those we need using or looking
over our data... "I told him no way, I didn't want any more of his Bad Data, and I wouldn't use it under any
circumstances. (Would you?)

He shipped it to me anyway, trying to "close out our problem." It's still sitting here, unopened. Larson
danced, dodged, and delayed his way thru yet another month of BS with me, resolving nothing. On 8/5, he
again offered: "I would request if there isn't someway that we could compensate you, using our data
services and products." I again refused. (Would any readers of this ridiculous saga be comfortable in
dealing with this company?)

I began increasing the number of Internet postings, and copied Larson on them. It hasn't been enough to
force him into an ethical, responsible solution to the problem, but it served to raise public awareness of it
and to advise people to watch out.

In September - as I promised Larson - I started to seriously attack this scam in public, actively posting my
experiences with Larson and my opinions about it to a variety of newsgroups and financial forums. This
one is also being copied to Futures Magazine, Stocks & Commodities, Investors Business Daily and the
Wall Street Journal. Whether it gets printed or not, I don't know. But the dishonesty is blatant, and I'd like
for others not to be taken in by it. In my opinion, this deliberate deceiving of the public by selling a product
with known defects is fraud, and Glen Larson is the owner and perpetrator. When the smoke clears and I've
exposed him sufficiently on the Internet and in trade publications, I'll turn my findings and documented
discussions over to federal and Colorado State authorities. Maybe they can ask him some questions and
explain to him what the terms "ethical" and "responsible" mean.

Larson has refused to respond to my messages since Sept.12, but I continue to send him copies of my
Internet postings anyway (including this one). I offered to withdraw or make adjustments to my claims if he
could disprove any of them. He's declined (even though I sent him notification of my intent by Certified
Mail).

Behold -- early last week I get a meek little form letter in the mail from Genesis. Larson is still pointing
fingers elsewhere - anywhere - everywhere this time at Omega Research, and only for certain products -
even though (on May 11) he said "I didn't think we have a relationship with Omega for several years."
Right, Mr. Larson - so then how exactly are they responsible for you selling Bad Data?

But at least he's finally and publicly acknowledged that there's a problem with his data. He won't refund
your money, of course - he's only offering to "replace" the Bad Data with - what else? More of his Bad
Data.

The "scam" continues. Call Mr. Larson, if you'd like, but expect whines, denials, complaints, dances,
finger-pointing, and other excuses not to give you a refund. He's a sweet-talker, but, the "facts" are as
you've read them (above). Perhaps Larson can explain why its taken 80 emails, 6-months and relentless
Internet pressure for him to make right on his own product and he still won't give customers their money
back.

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His form letter is undated. It finishes with "If you have any questions about this offer, please call us (800-
808-3282)." If you email him directly (GLarson@GFDS.com), bring your hip-waders.

A Hard Look at Daytrading

Technical Traders Bulletin

We receive more requests for articles and advice on day trading than on any other topic. Beginning traders
are especially interested, particularly those that have been attracted by the glamour and intensity of the pit
traders who seem to be constantly jumping in and out of the markets and reaping enormous profits.

It seems like almost all traders have tried day trading at one time or another. After all, it is very tempting to
try and slug it out with the pit traders. Every tick is exciting. Every rumor or news item that affects the
market either creates euphoria or is another nail in the coffin. When you have a position on, you can't stand
the pressure, but if you're not in the market you tear your hair out every time prices act the way you
predicted. Your heart pumps fast, your adrenaline surges, and you feel like you've finally arrived in the
wild and woolly world of fast-paced futures trading.

All of this sounds like fun, but as you might imagine, there are many, many pitfalls along the way. We've
come to realize, after talking to numerous traders who have attempted or are about to begin day trading,
that most traders who start are not fully aware of the scope of the problems they face. To some readers the
following discussion may be redundant, but we suspect that many of our subscribers may be embarking on
a venture with only a limited grasp of the basics.

Cost of Doing Business is High

The day trader enters and exits trades during the same market session, normally a period of only four to six
hours from opening to close. The very short term nature of day trading presents both advantages and
disadvantages. The major advantages are the lower margin requirements and the absence of overnight risk.
The disadvantages are the bad odds, time and effort required, the limited profit potential, and the
burdensome costs of frequent transactions.

The transaction costs consist of both commissions and slippage. The commissions are a large and obvious
cost of doing business. However the slippage is much more difficult to quantify. The trader might have a
mental image of trading at the prices shown on a computer screen, but in reality he must continuously buy
at the offered price and sell at the bid price. The spread between the bid and offer becomes a very
substantial but hidden cost of doing business. In addition, as most of us have learned many times over, it is
unrealistic to expect stop orders to be filled at our stop prices.

In the meantime, to offset these unavoidable costs, the day trader is limited to very small profits when he is
correct in his analysis and completes a winning trade. Under even the most optimistic scenario, the day
trader's potential profits are limited to a portion of the price range that is likely to occur within a few hours
of trading.

Let us assume that our day trader has negotiated a discounted rate on his day trades and is paying twenty
dollars per trade. Next let's be optimistic and assume that the spread between the bid and offer amounts to
ten dollars buying and ten dollars selling. In order for the trader to complete a trade that nets $100 he must
be smart enough to identify a move of $140 according to the prices on the screen he watches.

On the other hand, when his timing is wrong by only $140 he is going to lose $180. It doesn't take a Ph.D.
in mathematics or an M.B.A. from Harvard to figure out that this is far from an ideal business environment.
In fact, even the professionals on the floors of the exchanges must be intelligent, highly disciplined traders
just to survive.

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The public doesn't realize how many of these professionals fail in spite of the advantage of being on the
floor and paying only minimal costs per trade. Imagine how small the odds for success must be for an off-
the-floor trader faced with the costs we have described.

To have any hope of success, the day trader must strive to maximize the profits on the winning trades so
that he can overcome the tremendous disadvantage of both the obvious and the hidden transaction costs.
Unfortunately, the day trader has very little control of the potential profit to be obtained because the extent
of the price range during the day absolutely limits the maximum profit that can be realized.

No trader can reasonably expect to buy at exact bottoms or sell at exact tops. A very good trader might
hope to be able to capture the middle third of an infra-day price swing. That means that to make $180, the
total price swing must be three times this amount or $540. How many futures markets have a daily price
range of $540 or more? Very few. How many futures markets can produce a $180 net loss? Almost any of
them.

Don't forget, the trader that is smart enough to find markets with $540 price swings and then smart enough
to trade them correctly so that he nets $180 is only going to break even unless he has more winners than
losers. To make money in the long run, the day trader must have a percentage of winning trades that is far
better than 50% or he must somehow figure out how to make more than $180 on a $540 price swing. (or
best of all, do both) This also assumes that the trader is smart and disciplined enough to harness his
instincts and emotions and carefully limit the size of the losses.

Beating Tough Odds

As you can see, the day trader is faced with an almost impossible task. We would venture a very educated
guess that less than one out of a thousand day traders make money over any sustained period of time. Our
best advice is to not even attempt it unless you are one of the many traders who is actually trading for the
recreation and mental stimulation rather than the money.

If you are serious about making money, your time and energy will be much better spent perfecting your
longer term trading skills. Even if you should succeed at day trading, it is difficult to reinvest the profits
and continue to compound them. Day traders can only operate efficiently in very small size so don't expect
to make your fortune at it, it's only a very enjoyable but hard earned living at best.

In spite of our sincere warning, we know many of our readers will attempt to beat the odds and become day
traders for a while. Fortunately, the lessons learned while day trading can be applied to more serious and
productive trading later on. In the meantime, we will do our best to explain as much as we can about day
trading and hopefully make the learning process less costly.

Obviously, we don't have all the answers ourselves or we wouldn't have such a negative outlook on the
probability of success. We certainly have learned a great deal about this subject over many years of trading
and the fact that we have elected to no longer play this game simply demonstrates our personal preferences
in the allocation of our productive time. We hope whatever hard-earned information we can pass along
proves helpful.

Selecting Best Markets For Day Trading

As we pointed out earlier, there are very few markets that have wide enough infra-day price swings to make
them suitable candidates for day trading. Because they must monitor the prices so closely, day traders
generally prefer to concentrate their efforts on only one or two markets. In addition to the fact that the
prices must be watched continuously, there are very few markets that are suitable even if we had the
capacity to follow more of them. Presently, day traders seem to have given up on pork bellies and tend to
favor the stock indexes, bonds, currencies, and energy markets. From time to time other markets may
become candidates for day trading because of temporary periods of high volatility.

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We ran a test (several years ago) to see what percentage of the time various markets had a total daily range
of $500 or more between the high of the day and the low. There were only five markets that had a $500
range at least two days a week or 40% of the time.

In addition to looking for a wide daily range, liquidity and the size of the minimum spread should also be
factors to consider when selecting suitable markets for day trading. Our previous example of costs included
paying a spread of only $10 on each side of a trade.

In the S&P market a minimum spread would be $25 each side while in the bond market a 1/32 spread is
$31.25. If you are day trading bonds with $20 commissions, you must overcome total costs of $82.50 added
to losses and subtracted from gains. Your average winning trade must run $165 farther than your average
loss just to break even. This assumes a 1-tick spread which is the best case possible.

The element of liquidity comes in to play in determining the number of ticks in the spread between bid and
offer. A one tick spread is the best you can hope for and most markets have a wider spread than that.

You can usually assume that the higher the average daily volume, the tighter the spread. For that reason,
you will want to concentrate your day trading in only those markets with very high volume. Otherwise, you
can be making good timing decisions and still be assured of losing money.

Part 1 - Why Are Futures Traders So Grim? A Collection of Satire and Stuff
about the Futures World (and you might even learn a thing or two) - Ted Nash

INTRODUCTION

Futures trading can be a grim affair

with fear and greed flying everywhere.
Of course I realize to a certain degree,
as a noble pursuit, it has to be.

This constant whirl of emotion in motion

needs some relief, so I took up the notion
to apply some humor that might provide
a satirical look at the lighter side.

There's also some straight advice to explore

that can help if you're still a sophomore.
And even you wizards might appreciate
some of these attempts to infuriate.

If you're ready to begin this poetic journey,

come by yourself without an attorney.
But the party you don't want to leave behind
is your good companion - an open mind.

CHARTING FOR THRILLS

You study your charts and you work out trades

that conform to your technical analysis.
Then your anguish flares and your courage fades
as you freeze in your tracks with paralysis.

When this comes about, review your findings

so that nothing is left undone.
Then shake out your goggles, check your bindings

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and push off for a breathtaking run.

With your thighs burning at the bottom of hill,

your face aglow with pleasure -
you'll look back on your course and relive the thrill
that your memory will always treasure.

If you don't take risks, forget your schemes,

for they'll never come to pass.
Just carve your course in the race to your dreams
and then listen to the anthem of brass.

SUGAR

What's a nice, sweet, little market like you

doing in a place like this?
With all these unsavory characters -
it's hardly a state of bliss.

There are all those mines with their squalid digs.

The oil fields with their grimy rigs.
The cattle carcasses hanging on their hooks.
The copper crowd with their manipulating crooks.
The lumber ravagers with their sawing and hauling.
The greasy pork bellies with products appalling.

So, my sweet sugar - you're just too refined

for these blue collar clods, so subpar.
Hang out with your coffee and cocoa kind
and stay as sweet as you are.

BOTTOM FISHING

The price dropped a lot

and from this you thought
that it looked like a buy
so you gave it a try,
but you had good cause for concern.

For bottom fishing

will have you wishing
that you'd held off a bit
before making your hit
as it's better to wait for the turn.

For instead of reversing

it was only rehearsing.
The momentum hadn't died -
your oscillator lied
and your stomach started to churn.

You thought you caught'em

right at the bottom,
but after a pause,
it's another lost cause -
from this may you finally learn.

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A VOTE OF THANKS

You've read all about those market wizards

with their powerful systems and high profit scores. But more important are the market lizards
scurrying and shouting on the trading floors.

They're never invited to appear on TV

and those "How to Trade" books they won't write,
but they maintain the markets to a fine degree
that allows our trading to expedite.

With their dramatic song and dance routine,

these traders set the tempo for the whole orchestration.
For their featured roles in this resounding scene,
these lizards deserve a standing ovation.

The United States of America & The U.S. Commodity Futures Trading Commission
In the Matter of CFTC Docket No. 97-12
Curtis McNair Arnold & London Financial, Inc., Order...

The attorney first retained by respondents in the above-captioned case has filed an application for
interlocutory review of an order by the Administrative Law Judge ("ALJ") debarring him and his firm from
further representation of Curtis M. Arnold and London Financial, Inc. in this matter. The attorney, William
Sumner Scott, who heads The Scott Law Firm, P.A., also asks that proceedings before the ALJ be stayed
pending Commission review of his application. Scott's clients, the respondents, have joined his
application.

The Division of Enforcement ("Division") has filed a response opposing the requested stay, but taking no
position on the sanction imposed by the Administrative Law Judge (ALJ).‚

The ALJ, acting sua sponte, debarred Scott and his firm upon finding that Scott willfully made false and
misleading statements in a motion filed on behalf of respondents seeking leave to submit their answers to
the complaint out of time. The ALJ determined after a hearing that Scott falsely represented that he did
not learn when the complaint was served on respondents until after the deadline for filing an answer had
passed and ‚ that the Division of Enforcement ("Division") did not advise him in a timely fashion that it
would consent to an extension of time for answering the complaint.

The complaint was issued by the Commission on July 30, 1997. The ALJ held that Scott knew on August 1,
1997, that the complaint had been received by respondents and knew on August 4, 1997, that the Division
would consent to an extension. (ALJ Bench Order of 9/10/97). The record in this matter supports these
findings.

The ALJ debarred Scott pursuant to Commission Rule 10.11(b), 17 C.F.R. § 10. 11(b) (1997), which
authorizes this sanction against an attorney or other representative for contemptuous conduct. Scott
promptly sought interlocutory review pursuant to Rule 10.101(a)(2), 17 C.F.R. § 10. 101(a)(2) (1997).

The ALJ's action did not constitute an abuse of discretion. A presiding officer enjoys wide latitude in the
conduct of proceedings before him. See Rule 10.8(a), 17 C.F.R. § 10.8(a) (1997). ƒScott submitted a
written document to the ALJ that contained misleading statements. His misconduct was not mitigated
simply because his misrepresentations concerned procedural matters that did not necessarily bear on
outcome of case.

Scott acted improperly by seeking to mislead the court as to the reason for seeking an extension of time to
answer the complaint. Any prejudice to respondents from the order is slight since Scott was dismissed from

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the proceeding at an early stage. In light of the foregoing, the petition for interlocutory review is granted
and the action of the ALJ is affirmed. The motion to stay is denied as moot.

IT IS SO ORDERED. By the Commission (Chairperson BORN and Commissioners DIAL, TULL,

HOLUM and SPEARS).

Catherine D. Dixon - Assistant Secretary of the Commission - Commodity Futures Trading Commission -
Dated: October 17, 1997

1. The application for interlocutory review, styled "Notice of Appeal and Motion for Stay," states that it
was filed on behalf of Scott, his firm and respondents "by their attorneys, Donald F. Mintmire, Esquire, and
Mintmire & Associates. . . . "Notice of Appeal and Motion for Stay at 1 (Sept. 16, 1997). Though it
describes Scott and his firm as "Former Legal Counsel," passim, the application was signed by both Scott
and Mintmire. Id. at 14.

2. Scott and respondents subsequently filed a motion for leave to reply to the Division's response, and
submitted the proffered response. The Division filed an opposition to the motion. The motion is granted.

3. See generally In re Ferragamo, [1990-1992 Transfer Binder] Comm. Fut. L. Rep. (CCH) 24,982 at
37,597-98 (CFTC Jan. 14, 1991) (discussing the ALJ's broad discretion in the conduct of enforcement
proceedings).

Editor's Comment: Mr. Scott is the Florida Attorney CTCN once hired (and fired) partly due to his failure
to notify us about his prior disbarment involving the CFTC. Of course, if we would have known about his
earlier disbarment for "willfully making false and misleading statements," we would have never hired him
in the first place!

"The CFTC Wants You Offline" By Scott Bullock - Institute for Justice

The ability to speak and publish freely is the birthright of all Americans. But not if Commodity Futures
Trading Commission (CFTC) gets its way.

The CFTC wants to license individuals who publish about trading commodities. Anyone who for
compensation offers opinions, analysis, or even general information about this subject must register with
the CFTC as a "commodity trading advisor (CTA). Registration involves fingerprinting, submitting to a
background check, paying fees, filing reports with the CFTC, turning over subscriber lists, and being
subject to on-demand audits. CFTC officials have the awesome force of law behind them -- anyone not
registered who publishes on commodities violates federal law, and faces $500,000 in fines and up to five
years in jail.

On July 30, the Institute filed a First Amendment lawsuit on behalf of five commodity newsletter
publishers, software developers and Internet users, and five of their subscribers, seeking to end
government-compelled registration of those who offer impersonal analysis and advice about commodities.
The suit, filed in the US. District Court for the District of Columbia, aims to preserve both the right of
individuals to communicate truthful information and the ability of willing listeners to receive important
information to guide their economic decision making.

CFTC is federal agency charged with regulating the commodity & futures markets in United States.
Unfortunately, rather than assume a discrete role for government regulation to protect individuals from
fraud in the marketplace, the CFTC seeks to maximize its power at every turn. Not content to simply police
individuals and firms actively managing investor accounts, in 1995 the CFTC asserted power over
everyone who publishes about commodities for a fee, demanding that they register as CTAs. The agency
extended its broad reach even to persons who neither offer personalized investment advice nor invest
customer funds.

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In the 1980s the Securities and Exchange Commission (SEC) attempted to do the exact same thing to
individuals who provide information on stock trading. But in 1985 the U.S. Supreme Court unanimously
held that so long as individuals merely publish about securities, rather than trade them, they cannot be
required to register with the SEC. As a result of that decision, the SEC returned to its authorized mission of
rooting out fraud rather than harassing publishers. Importantly, this

precedent did not hamper the ability of the SEC to go after the "bad guys" in the financial business, but
instead led to a proliferation of new sources of information for people interested in stock trading.

Now CFTC has expanded beyond traditional publications to regulate computer software and information
online. The CFTC has filed lawsuits to stop unregistered developers of computer software from offering
their products. Moreover, while national attention focused on the Communications Decency Act and
government's attempt to regulate indecency on the Internet, CFTC last year quietly attempted to regulate
the Internet with potentially damaging consequences for all of society.

The CFTC's proposed Internet rule could mark the beginning of a new chapter of government regulation
online. While the Communications Decency Act sought to regulate the Content of speech online, the CFTC
wants to regulate who may provide information. The proposal spares virtually nothing on the Internet from
agency oversight and regulation -- websites, user groups, and hyperlinks come under the CFTC's assertion
of jurisdiction. Anyone who establishes one of these tools must register as a CTA, complete with all the
ramifications that entails. Although currently the CFTC has suspended enforcement of the rule pending
further review, the proposal heralds the intrusion of the heavy hand of government into this vital emerging
technology.

At its heart, the CFTC's policy is a policy of ignorance. The agency seems to believe that the less
information people have about commodities, the better. Yet First Amendment and the tradition of open
inquiry in this country are premised on the exact opposite principle. More information, more robust debate,
and more speech create a marketplace of ideas where listeners, not government officials, choose which
information is valuable and which speakers are worthy of listening to. Through its campaign, the CFTC
stifles this marketplace and keeps consumers in the dark about valuable economic information. With hope,
the lawsuit filed by publishers and readers of commodity publications will close another sordid chapter in
government's continuing campaign against free speech.

Scott Bullock is an Institute for Justice staff attorney. Check out http://free.ij.org

OPTIONS & SPREADS: Spanish Treasure, Swamp Gas & Phone

Monsters - Greg Donio

A bit of Yiddish folklore from the Old World: A neighbor knocked on the door and asked to borrow a tin
spoon. The next day he returned two tin spoons. "Why two?" the lender asked. "The one that you loaned
me was pregnant and gave birth during the night. So I am returning both parent and offspring."

A madman or a fool, the lender thought. Nevertheless, he accepted both. The next day, the borrower
showed up again and asked for the loan of two expensive silver candlesticks. The way this man's mind
works, pondered the candlesticks' owner, tomorrow he will bring me four of these expensive silver pieces.
So he gladly loaned them.

The next day, the borrower did not bring back the items, nor the next day or next. Angrily the owner went
to his neighbor's house and demanded their return. "They died during the night," the borrower explained.
"Ridiculous, fool! How is it possible for candlesticks to die?" "Simple," replied the borrower. "If you
believed that spoons can birth and you accepted them, then it is also possible for candlesticks to die. May
they rest undisturbed."

Another old story from the Philadelphia men's wear trade: A man enters a shop and asks to buy a suit. The
haberdasher responds, "You shall have the finest custom-tailored suit. First we bring in an entourage and

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they take your measurements, then your measurements are flown to England. Then we phone Turkey and
order them to shear fine fur from the Angora goats. The wool is flown to a French weaving mill where it is
woven into the best mohair. Then the cloth is flown to England where it is custom-tailored into a
masterpiece of a suit based on your measurements. Then that gem of a suit is flown here."

"But you don't understand!" the customer protests. "I need this suit by tomorrow evening."

The men's wear-dealer replies, "Don't worry. You'll get it."

An old Irish joke: At the end of the work-week, Clancy opens his pay envelope and finds it $10 short. He
complains to the foreman who says, "Your pay envelope last week was $10 over, but you didn't complain
about that." Clancy retorts, "Well, anybody can make one mistake, but two in a row is intolerable."

A slice of New England history: Author and philosopher Henry David Thoreau was also a surveyor. He
would explain to a client about there being more than one method of surveying. Inevitably the first question
was not, "Which is most accurate?" but "Which will get me the most land?"

Incident in a barber shop: Angelo put down his scissors for a moment and said, "Hey, Mike. Look at this
thing I bought." He held up a hardback volume entitled Winning Big in the Casinos. The customer in the
chair reacted, "Angelo, you know why the guy wrote that book? To get back the money he lost."

From the newspapers: Dear Abby in her advice column quoted some story or explanation she did not
believe, then added her own remark, "If you can buy that, I have some swampland in Louisiana to sell
you." She was deluged with letters from readers wanting to invest in the Louisiana swampland. Even
though it existed only in her wisecrack.

The desire and effort to cadge profits may be less universal than breathing, but only slightly. With the
variety of forms that these take come the variety of risks and unknown factors, and always there are risks
and unknown factors. So if one's taxi is to stop at the bank and not the bankruptcy court, the questions must
be addressed: Do you know the risks and unknown factors in your particular hunting copse? Can you spot
and deal with them?

Everybody says yes, and yet! One need not know quantum physics and differential calculus to trade
successfully. Yet one must grasp the intricacies relevant to the hunt. The fact that each speculator is in
effect a one-person business carries a hazard: It is nice to be your own boss but dangerous to mark your
own test papers and keep giving yourself a hundred. That is precisely what many traders do on the matter
of "grasping the intricacies," of gauging the risks and unknowns.

Nobody thinks himself a moron or a borderline-incompetent, but the high casualty rate in the financial
trenches casts ample doubt on all those "I can't lose!" self-evaluators. The roulette-player with the "can't
miss" system never seems to ponder why the world does not swarm with people who got rich doing what
"can't miss." He knows that a casino has millions of dollars in expenses and yet he feels certain that it will
not come out of his pocket. Clancy could believe in a magic pay envelope that would add a sawbuck to his
wage but not in accountants who would have to make things balance out. Many traders on the stock
exchanges and futures exchanges and options exchanges similarly "believe in magic" and appear just plain
blind to the realities of the accounting ledger.

Those farther up the mental ladder can also stumble. The Yiddishman was a thinker and had tin-spoon
evidence to support his theory. Yet he trusted his valuables to a man whom he labeled either a madman or a
fool (the possibility of "cunning swindler" apparently did not occur to him). He expected this odd-ball to
deliver repeated profits of 100% overnight with the dependability of the Bank of England.

It is possible to profit off of a madman, but not as a steady income. A psychotic may think himself John D.
Rockefeller and pay you a philanthropic donation, then think himself Jack the Ripper tomorrow. Then
again, there may be a method to the supposed madness. A fox guards your tool shed without pay "just to be
nice," then volunteers to guard your henhouse. Did you see the scam coming when the borrower sacrificed

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a tin spoon and then asked for a loan of expensive silver? Too many traders win some tin and then expect
the market to pour silver into their laps, quickly and effortlessly and repeatedly -- yes, very repeatedly.
There just ain't enough sterlingware for everybody who wants or expects this.

What was your take on the haberdashery store episode? It is the kind of gag in which much of the audience
does not "get the joke" or "gets it" in a way entirely different from the next person. A person of theoretical
or fanciful thought may assume that the joke takes place in a surrealistic world where super speed is a
humorous hypothetical. Someone more alert to the seamy side of the real world would say, "The suit's
coming off the rack. That men's wear merchant is palming off the hard-to-get-rid-of stuff from the back
room." The latter would make a more capable trader.

Speculation -- anything involving financial risk -- is a poker game in which one of your opponents plays
honestly, another plays honestly and smartly, another cheats and still another tries to pick your pocket.
However, it works to your advantage that the rogue's repertoire is usually not lengthy. Did you ever read
the "Business Opportunities" classified in any newspaper? So why does the seller want to get rid of the
business if it is the Fort Knox that he alleges? "Selling due to illness" or "'Owner retiring" or "Partners
disagree" or "Owner has other interests." As repetitious as "The dog at my homework."

Yet plenty of adults believe it as though it were the government's guarantee of bank interest and principle.
To add a teardrop, the gullibility extends to stocks, futures and options. You can make steady profits if you
are well-versed regarding both the natural hazards and the banditry. Counterfeit gilt-edge stock certificates
sold door-to-door a century ago have disappeared but the de Mille-sized crowd scenes in the bankruptcy
courts have not. According to the Wall Street Journal (8/8/98):

"Securities regulators from four states have acted to shut down what they called a nationwide network of
"boiler room" sales offices promising investors big returns from the currency turmoil caused by the Asia
crisis.

". . . Nine employees of Options Trading Group Inc. were arrested July 30 based on warrants issued in
Idaho, where some of the steepest investor losses occurred, according to state regulators in Texas and Ohio.

"Options Trading and its employees stand accused of cheating roughly 1,000 investors out of many
millions of dollars. State officials allege that the company used high-pressure sales techniques and high
transaction fees to exploit headlines about currency turmoil in Asia, and convinced these investors that
there was money to be made on futures options for Yen, Marks and Swiss francs."

Boiler rooms. High-pressure telephone sales. With many firms the patsy answering the phone is a retiree or
other person on a limited income. How many even heard of futures or options before the hawker mentions
them? How many of that small percentage have a relevant book or two on the shelf? Talk about
infinitesimal numbers! Obligatorily under law they hear that risk exists and losses occur. But does anybody
inform them that the financial survival rate is somewhere between gladiators and Alamo defenders? "I need
those profits by early next month." "Don't worry. You'll get 'em."

As an option spread strategist, I suppose my laments could be compared to those of an undertaker trying to
look sad at a spare-no-expense funeral. The "fat" that gets "burned off" in a spread is other people's hard-
earned capital. The "armor" that gets "shot up" protecting my capital is other folks' money. A spreader's
profits are those of a bookmaker, a bankruptcy lawyer, a coffin-maker. A boiler room huckster is a recruiter
who says to Grandpa Gus, "Here's a submachine gun. Tomorrow's the battle. Win medals. That there is the
trigger. It's real easy." Although I pocket a dead man's gold, I still prefer to keep grandpops and picnickers
out of the Verdun trenches. A well-trained gun hand has a chance. A "Fortune awaits you!" phone-call-
receiving Vanderbilt does not.

Let us not blame everything on the novice. Few activities other than trading are so crowded with
financially-scarred veterans who get caught in the same ambushes again and again. One relative of mine --
now a retired professional musician--was wiped out completely three times in his life. The cause? Heavy
use of margin in buying of stocks. Everybody knows on day one that margin can double the bad news as

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well as the good, but it took three massacres to make him "feel the significance" way down deep. Like
speculators in many categories he lived on the hope of a turn-around until the pealing of the monetary
funeral bells.

It happened to him with stock shares over a period of about two decades. The teardrops would have come
in quicker succession had his "thing" been options or futures. In what other pastime does the dollar-amount
of the bait so often exceed that of the trout? Even with anglers who have been at it for years. "Pastime"? An
old adage states "When a habit starts to cost money, it is called a hobby." Is your trading a habit, a hobby,
a gamble, a business?

Everybody likes to think of his speculations as a "business" because nobody likes to think of himself as a
player of government-approved three shell games or an on-the-charts model plane flyer going over budget.
At the fantasy-level, trading confuses too easily with the conquest of Everest, the capture of Geronimo, the
discovery of the Star of India Sapphire. It needs more business kinship with a furniture dealer, a camera
shop, an actual jewelry enterprise. If you know your small gems and carats and financial details, you may
get a chance to bid on the Hope Diamond. If you expect to swell $1,000 into $1,000,000 rapidly via some
marked-deck techniques applied to the Exchanges, such is the barstool angler at it for years; a string of
emptied bank accounts.

Regarding the financial details: Let us assume that you have a 50-50-chance of doubling your money,
whether poker or roulette, stocks or options or futures. This means you have one chance in four of doing it
twice in a row, one chance in eight of three consecutive bull's eyes, one in 16 of four, and so on. $1,000 has
to double only 10 times to become $1,000,000. So how come the world does not swarm with millionaires
who began with a grand? The odds against 10 such hits in a row are one in 1,000. Half of those who began
won once, half the winners got eliminated when they tried to repeat it, half the surviving quarter got
chopped on the third attempt, and so it goes. Needed is more business, less repeat coin-toss, especially for
those who expect to be at it for any length of time.

Regarding the mental approach: The basic purpose -- being in business for a profit -- is too easily
consigned to a back burner if not the wastebasket in the thinking of many speculators. In recent issues of
CTCN, J. L. from Wimauma wrote, "It ain't the money" and he stressed the feeling of "Accomplishment"
with a capital "A" as "the source of all human pleasure." Although I read J. L. as avidly as theater-goers
used to go see John Barrymore, on that particular point I wish to take a diametrically opposing stand.
Traders should be "in it for the money."

Traders should be "in it for the money" because the most widespread alternative is so dangerous: Being in it
for the entertainment -- the thrill, the suspense, the fascination. Those relishing fascination or thrill simply
tolerate too greatly the holes that speculation shoots in their wallets, month after month and year after year.
The example worth repeating: The horse-player who has been losing for years but who cherishes the
excitement of post time. Had he banked those chunks of gambling money he could hire a limousine on the
interest. But the gradual accumulation of interest does not electrify and jazz up his nervous system like the
horses rounding the far turn. Myriads of his counterparts react likewise to the buzz of the Exchanges. This
is business?

Years ago in pre-casino Atlantic City, my parents had as neighbors a retired cab driver and his wife. The
fellow whom I shall call Sam was continually rah-rah about the stock market. If an acquaintance
approached him on the street and asked him about stocks, Sam would pull papers from his shirt pocket and
read off data. He reveled in armchair gabs about shares and their performances. Once as he talked in my
parents' parlor about his buys and sells, my father asked him, "Sam, what's your over-all outcome been in
recent years? With so many thousand here and so many there, what's the over-all tally? Gain or loss, a
ballpark figure."

Sam replied, "Broke even." Breaking even is a kind of loss, my father thought, since certificates of deposit
or a money market would have brought several percent gain. Another time, Sam's wife walked in from the
kitchen where she had been chatting with my mother and said to him, "When I hear you talk about the
market, it makes me sick!" Subsequently she said during a private conversation that, far from breaking

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even, he took beating after beating. Hearing him gab on about investments griped her because a hefty part
of what he lost was her money.

Yet I had to admit that Sam was happy and entertained, as much as any sports fisherman rhapsodizing
about sunrise over the lake or the large-mouth bass that put up a fight. The trouble is, securities investing
costs far more than bait and tackle. Dictionaries define a "fish story" as "a lie or exaggerated tale."
Claiming that he "broke even" may be the trader's perennial fish story. Sam and his wife would have
suffered far less financially had his enthusiasm been about chess or backyard telescope astronomy or Indian
arrowheads or Joe Miller's Jests or lighthouse lithographs or Damon Runyon Era sports legend. Speculation
can be a sound business but use it as a win-the-prize funhouse and you can lose the United States Mint.

Again we arrive at the hazards of self-evaluation, the tendency to mark one's own test papers and declare
oneself a Rhodes Scholar. Everybody says, "I'm a scientific trader but he's a crap-shooter. I'm the Andrew
Mellon of my specialty but he's Charley Horseplayer." You mark more accurately if you remember the
past. Keep in mind: If it were possible to make money consistently that way, somebody would have done it.
People made money consistently mining for nuggets and sailing a Spanish galleon to the Spice Islands,
wholesaling or retailing sporting goods or plumbing fixtures. But the slot machine or keno player or
Exchange coin-tosser on a big budget?

A Grand Canyon of a gap lies between taking a profit and taking it consistently, and what winner does not
cherish another go at it? You know the racial slur that means temporary prosperity accompanied by big
spending. The terminology would be fairer if "nigger rich" were "honky in a horse-parlor rich" or "necktie
whitey with a broker dares it all rich." Temporary prosperity. A 50-50 chance of gaining once, one chance
in four of twice, one in eight of three times, with a Russian roulette exposure of capital on each venture and
15 of 16 chambers loaded on the fourth try. Would it be unfair to the red man to call this a tomahawks-&-
scalps mathematical progression? "I broke even" conceals a multitude of tears.

This does not appear to register in the thinking of the trader who expects to multiply his capital again and
again, and with seven-game series rapidity. Knowing that it has been tried plenty of times before, he does
not pause to wonder why similar thoughts and attempts in the past did not spill forth plethoras of
millionaires, why the files of high-turnover brokers are crammed with no-longer-actives instead of Andrew
Carnegies.

Psychologically, we all have a certain satisfaction with and even a fondness for the way our minds work.
When you are out driving, anybody who drives faster than you is a "speed demon" and anybody slower is
"overly cautious." What is an over-sexed person? Anybody who wants it one time more than you do. What
is a glutton? Anybody who wants another dinner helping after you feel full. Just about everybody admits he
is less than perfect but that does not prevent just about everybody from using Nice Guy Me as a measuring
stick for the world. Practically everybody from the real Einstein to his alleged "reincarnation" in the
psychiatric hospital thinks

that way. Often this is harmless but in the realm of speculation, many shot-up bank accounts are what
sledge-hammer the way to a trader's second thoughts about how his mind works.

Years ago, I made a beginner's luck bundle buying and selling call options during the boom in Atlantic City
casino stocks. Calls with gambling shares underlying yielded profit upon profit. Trouble came when I tried
to repeat my success with other underlying stocks. I thought that "playing long" or buying put & call
options to re-sell would be my life's occupation. Fortunately, it took just a couple of quick gunshot wounds
to make me realize that I was pursuing profits contra mathematical "odds against" that took no prisoners. I
detoured into (a) "writing covered calls" or selling call options on good stocks that I owned, and (b)
horizontal calendar spreads. Since then my trading life has been not one of pure gains but one of a
bookmaker favored by the odds. That solid, practical "plus" showed itself plenty over the long haul.

The time of this writing -- September 1998 -- stands as a gloomy one for Dow watchers and investors, with
the stock market having lost most of its past year's record gains. My most recent option spread position
closed with a minus, yet my crying towel remains dry thanks to the success of prior trades. Also the recent

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losing trade served to test a couple of strong points of my methodology and they tested well. Less
philosophical than some, I prefer a profit rather than "a loss with lessons attached," but a minus that can
instruct serves at least some purpose. I shall not tell that white lie worn to dingy gray about "breaking
even."

The much-publicized Viagra potency drug had me looking at the Pfizer Company's shares and options. In
early July, there was too much price gap between Pfizer's August and September options. My attention
turned to another pharmaceutical company, Bergen Brunswig, which had a near-conservative P/E and
received some publicity due to Cardinal Healthways' intention of buying it. The latter also placed some
upward nudges on the stock price which fluctuated near 50. The August 55 call options and the September
55s gaped at only about 7/8 of a point from each other, 3½ to 43/8.

I entered an order with the broker to buy 10 September 55s and sell 10 August 55s at a 7/8 point difference
or spread. Nothing done. The next day I phoned in the same order but with a full one-point difference. I
bought 10 Septembers for $4,500 and sold 10 Augusts at $3,500, a spread of a point or $1,000 plus
commissions out of my capital. One item that makes spreading perennially attractive is the sorcery of other
people's money, with the August buyer paying 3½ times more than I, financing most of my Septembers,
and the non-spreading September buyers paying 4½ times more than I for comparable options. Another
item has to be other people absorbing most of the risk, a crucial sea wall in this case.

News that the federal courts might permit the Cardinal Healthways/Bergen Brunswig merger boosted the
latter's stock to above 60 points, placing my short-end August options more than 5-points into the money,
bad news for a short position. However, I anticipated that this was just a temporary spurt and such news
could not come every day. The next day, the share price fell to the low 50s, putting my Augusts a few
comfortable points out of the money.

In August the worst happened. A federal judge nixed the merger on anti-trust grounds. Bergen Brunswig
shares fell to the low 40s and then the high 30s, shrinking the call options with 55 strike prices and
shrinking the accompanying price gap between months. To make a weeks-long story short, I lost over half
my $1,000-plus-commissions investment. Is there an instructional bright side? A couple. Those who paid
$3,500 for the Augusts lost between $3,000 and $3,500 depending on whether they sold right after the court
decision or waited until expiration hoping turn-around. The non-spreaders who paid $4,500 for the
Septembers lost varying amounts over $3,500 depending on when after the judgment they sold. Thankfully
the spreader -- the brigade in the middle -- suffers the lightest casualties while the long players on the left
and right flanks catch the most gunfire.

A second bright side: This happened at a point in my evolution when I was demanding narrower and
narrower opening spreads. I am, ashamed to admit that a couple of years ago I would have tolerated a two-
point gap at the start, jeopardizing two grand plus commissions of my own capital instead of just one.
Losing over half of $1,000 is certainly not as bad as losing over two-thirds of $1,500 or more than three-
quarters of $2,000. Half-price at the entrance gate is half the battle. Less cargo on a ship reduces the risk, as
does letting surrounding ships catch the torpedoes. You would like to see everybody reach prosperity port
but everybody will not. Brokers' statistics say most of the fleet will sink.

Since I am not too philosophical about "bright sides" on losing trades, I would not mention a third such side
unless it were really vital. An Iron-Clad Rule: Limit your loss or your exposure to loss. In my particular
strategy this translates as: Risk one but do not risk a second until the first starts bearing fruit. In the
previous issue of CTCN, I described a spread in call options of Mellon Bank. Once that moved into plus
territory and a closing out of that position was in sight, then and only then did I launch the Bergen
Brunswig position.

My plan was to consider launching another spread if and only if the Bergen Brunswig one moved solidly
and markedly into plus territory. Twas not to be. That proved an effective warning sign. The sight of
Bergen B taking on water signaled me not to send another ship into the channel. After I closed that one
out, the end of that trading day found me with no other spread positions. As typhoon and tidal wave of the

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collapsing market raged upon the water, I had no crafts vulnerable. Brunswig proved a bad investment but a
good warning light, especially for a one-at-a-time, limit-your-risk trader.

I recently began communicating by phone and fax with people who write to me. The biggest difficulty I
find is in persuading traders or soon-to-be ones to limit their risk or their exposure to loss. A happy medium
is possible between the I-can-never-win pessimist and the boxer so optimistic he thinks his opponent will
throw no punches. While too many speculators bunch up around the latter, good business locates itself
attitudinally in between. A fine business rule: Hope for the best and prepare for the worst. An alert clothier
buys wear popular with teenagers but limits his purchase because he knows the fad may die suddenly. Most
of an option spreader's ships cross safely and deliver a profit but this one may sink or partially lose cargo.

Each trader likes to think himself the businessperson, the inner office that walks, and regard others as the
chips-on-green-felt players. Everyone likes to think of his wallet as "the smart money" and others' as "the
sucker money." Remember that smart cash is limit-the-risk cash. It could grow diamonds or it could vanish
in the swamp gas. The check-writer needs to figure this and keep the amount as small as is practical.

A Wall Street Journal article (September 22, 1998) bore the title 'In the Field of Investing, Self-Confidence
Can Sometimes Come Back to Haunt You." Writer Jonathan Clemens quoted finance professor Steven
Thorley of the Marriott School of Management at Brigham Young University in Utah: "A positive mental
attitude, optimism and self-confidence are good attributes. But in the financial world, they just don't work.
You're not interacting with people. You're interacting with prices. They don't care how you feel that day. In
general, over-confidence is a negative." Such over-confidence could describe the player, whether sugarfoot
or gladiatorial, who envisions dollar-multiplications and vast fortunes, soon too, ere the bonded bottle of
shots needs replacing.

He is not ignorant of the 10-mile financial graveyard haunted by vast numbers of souls who used to hold
similar visions. Still he anticipates that the next shovel-full of earth will uncover Captain Kidd's treasure.
Viewing trading as a business means thinking in terms of a wholesale shipment of Samsonite luggage and
not long-lost Spanish doubloons; rum & molasses merchanting rather than free-booting or treasure-hunting.
Boy pirates of the Exchanges expect quick fortunes, get quick spankings.

One does not write about finance for any length of time without entering the sphere of psychology, of "why
people do" this or that. In high school, I did amateur magic in the student variety show. During school
hours, one or another fellow student would see me reading a non-curriculum booklet or catch a glimpse of
one in my loose-leaf notebook--a "magician's methods' pamphlet or a "humor for stage" patter piece--and
would insistently want to look at it. I learned something: After a minute and a half of riding a bus, standing
in line, or sitting in a cafeteria or study hall, people crave entertainment. Anything that can amuse is
psychological sparks & tinder, even trivially or momentarily.

On important matters, if trading or investing is the most interesting thing in people's lives, it often becomes
a stage show and profits get secondary status. "Secondary" usually means tossed in the wastebasket. For
example, everybody is against cheating, everybody from athletes to gamblers. Nobody writes a doctrine or
makes a speech in favor of cheating. Yet many athletes and gamblers have an even stronger dislike of
losing. They cheat because in their mental hierarchies, dislike for cheating ranks second to dislike for
losing. Among mind priorities, with desires competing against each other and numerous aversions
jockeying for first place, second place means out-of-the-money and off the edge of the earth.

When trading is the most interesting thing in a person's life, it strains under triple duty, serving as a liven-
things-up variety show and a sports event that you root for from the stands and a novel with a Byzantine
plot difficult to put down. Business and profits can become second stringers where only the first string gets
on the playing field. Let "Ain't We Got Fun?" Sam in Atlantic City serve as an object lesson. It is the
psychological lock on the strongbox that the trader have other interests, and not just mild ones.

Contrarily, I believe that those with at least some claim to being Renaissance Men and Women make the
best traders as well as the best critics. Mention has already been made of using the stock market as a
fascination-fixating, get-wrapped-up-in substitute for chess or sports fishing or astronomy et cetera. It

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would help if the active-as-a-checker-player investor were fascinated by a few other things. Also, the
accomplished pianist who studies Egyptology could add a percent to his already fine grasp of intricacies.
Judging from speculator loss reports, plenty of traders have far more need of that percent. To those who
claim that Italian Renaissance art has no relevance to modern finance, I still insist that people who
appreciate the brush-strokes and the use of light and color by Correggio or Giordano are less likely to
handle trading like sports betting. Let the spill-over be off the canvas and not Rose Bowl point-spread
sheet.

Editor's Note: Due to space limitations we were forced to shorten the article.

Member Requests

A Member is looking for feedback on Steven Cox and Natural Order Educators - reply via CTCN

Joseph Light - jolight@home.com or 941-475-4064 is interested in hearing from readers who have
purchased publications from Greg Donio - DBA Oldcastle Laboratory. Also send feedback to CTCN for
next issue, many readers are interested.

Editor's Comments

This issue includes an invitation from ZAP Futures and Rita Karpel to pay for your CTCN Membership or
for your purchase of our 1998 Real Success Trading Course.

If you are already a CTCN subscriber this offer will let you renew for 2-additional years at no cost to you.
ZAP Futures will pay CTCN $100 on your behalf for a two-year membership, either new or renewal. They
also offer to pay us $877 for you to acquire our revised 1998 Real Success Trading Manual and Video
Tape Course.

ZAP and Rita have this announcement to make: "If you open an account with ZAP Futures, the original
online trading firm, not only will you be able to use the "best" online trading software available, you will
also pay only $20 per round-turn commission (plus all applicable fees), and will also qualify for a full 2-
year Commodity Traders Club News membership and perhaps even qualify for a Real Success Trading
Course for FREE!

For all the details and information, please call Rita Karpel at 1-800-257-6842 x1852, or send e-mail to
ritak@interaccess.com"

Note: We have known Rita Karpel for a number of years and have found her very helpful and a nice person
to deal with. Please speak to Rita if you call ZAP for information on this limited time money-saving special
offer. We have also heard good things about ZAP and their order execution speed.

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