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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
"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-
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
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.
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
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.
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
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
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?"
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 firstname.lastname@example.org
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
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.
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
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.
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
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
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
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.
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
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
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
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.
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
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
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
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
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
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.
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
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
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
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
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
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
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
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
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.
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
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
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
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
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
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
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"
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 email@example.com. 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.
"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
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
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
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
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
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
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
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
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
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
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.
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
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
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
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.
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
"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.
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.
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
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
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.
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
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
I'd be trading against the trend. Anyway, timeliness and accuracy are of utmost value in these highly
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
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
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
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.
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
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
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:
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.
What are typical bid/ask prices in T-Bonds?
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?
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
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 -
"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
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!
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
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?
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
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
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
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
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
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
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.
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:
•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
•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.
•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
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-
Wonder -- "I don't have the foggiest idea what this is, but I like it, and I want to learn." -- Open and
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
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
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
cease, yet he still refused to provide admissions and corrections to those who rely on his data for trading
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
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
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
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
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
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
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
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
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.
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.
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
pending Commission review of his application. Scott's clients, the respondents, have joined his
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
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
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
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
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
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
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
". . . 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
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
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
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
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
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
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
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.
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
Editor's Note: Due to space limitations we were forced to shorten the article.
A Member is looking for feedback on Steven Cox and Natural Order Educators - reply via CTCN
Joseph Light - firstname.lastname@example.org 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.
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.
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