On this page you will find past comments
on commodities futures trading by The Texas Trader. Most of these
comments have been saved from the Comments section on the "Current Positions"
page in answer to some of the questions asked about my trading. Some
comments reflect the ideas of others and I have attempted to give credit
when that is the case. Generally, comments have to do specifically
with commodities futures trading; however, every now and then something
personal and occasionally profound (?) might creep in. So, for what
they're worth (they're FREE of course) here's
T3's comments.*
ABOUT THE COMMENTS
If you follow my trades you should be aware that I keep track of my
trades based on local exchange time, not Central Time where I live.
That will always be the case when I give a time - always market time
- and, as I am "Old Navy" (and I mean real old,
as in 1960-1990) I am accustomed to stating time in military parlance (0900
for 9:00 AM; 1400 for 2:00 PM; etc.) and old habits are hard to break...also
easier to type. Thought you might like to know. May help to
understand my comments.
Also, in updateing my positions page - if I can get everything done
and posted before about 1900 (7:00pm) I usually have no problems.
However, after that time, when the West Coast computer folks get on line
to update their GeoCities web pages, it is sometimes impossible to get
into the "File Manager," get my changes posted, preview them, and then
save them without losing my internet connection and having to start over
again. Hence, if I can't get it done before 1900 (7:00pm) I usually
just wait until after 2200 (10:00pm) when things ease up a bit.
T3
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THE MOST IMPORTANT RULE IN TRADING
A failed signal is among the most reliable of all chart signals.
When a market fails to follow through in the direction of a chart signal,
it very strongly suggests the possibility of a significant move in the
opposite direction.
The novice trader will ignore a failed signal; i.e., the charts or
other indicators signaled that the commodity price would go up/down, but
when the market opened it paid no attention to the "signal" and went the
other direction. Instead of getting out the novice will ride his
position into a large loss while hoping for the best, failing to recognize
that the market pays no attention whatsoever to his wishes, prayers, needs,
etc.
The more experienced trader, having learned the importance of money
management, will exit quickly once it is apparent that he has made a bad
trade. However, the truly skilled trader will be able to do a 180-degree
turn, reversing his position, at a loss if market behavoir points to such
a course of action.
NOTE: The above thought, although not verbatim, was attributed
to Jack Schwager in his book A Complete Guide To The Futures Markets
by Steve Briese, Editor of Trends in Futures. It is
an excellent rule, one which I am having a lot of trouble incorporating
into my thinking.
T3
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TRADING IS A LOSER'S GAME. HE
WHO LOSES BEST WILL WIN IN THE END
Remove a position early if it doesn't prove correct. Do
not wait until proven wrong. If the market does not prove
your position correct you must take action immediately, without exception.
Do not wait to be stopped out (i.e., do nothing until you are stopped out)
for when you are stopped out it is not your decision - it is the market's
decision to get you out and get your money at the same time.
To state this another way: When your position is right you have nothing
to do except take your profit when the time is right. When your position
is wrong, however, you must take action immediately and get out.
Although you do not just wait until stopped out when your position is not
proved correct, you will nevertheless always set a stop-loss
to protect you from sudden market moves which could wipe you out when you
are not looking.
EXAMPLE: You buy (go long) June T-Bonds at 119.00 and set a stop-loss
at 32 points or 118.00 (which equals a loss of $1,000 should the market
suddenly go against you). You don't plan to wait to be stopped out
at 118.00 and lose $1,000 if you see the price is going down from 119.00
instead of up, but you set the stop-loss because you know that sometimes
the price can drop suddenly and drastically in 15 minutes (not usual, but
it does happen). But if immediately after entering the market at
119.00 the market drops to 118.30 this is a signal that you have probably
made a bad trade. If the market drops another 2 points to 118.28
you will have already lost $125.00 plus commission and fees for a net loss
of about $200.00. Get out of the market with the $200.00 loss rather
than watching your positioon erode and hoping against hope that the market
will turn. By the same token, if the market bounces 2 points up and
2 points down, etc., etc., it would be best to get out as best you can,
taking loss of commission and fees, and then move on to something else
which promises to be more profitable. Even when a profitable trade
begins to move a point or two against you it is usually wise to liquidate
your position, take your profits, rather than hold on and hope the market
turns back in your favor (it seldom does). Profits can quickly vanish
while you wait (voice of experience!).
While even the experienced traders seldom beat the odds of the 50/50
win/loss ratio, by getting out of a bad trade as quickly as possible they
keep their dollar losses low on their bad trades and keep profits high
on good trades. It's the only way to survive in commodities futures
trading.
T3
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WHERE DO YOU SET THE STOP?
How do you determine exactly where to place your stop-loss? I
don't know if there is a hard and fast, never fail rule written down somewhere.
If there is I haven't found it. I have some guidelines I use, although
I imagine there are as many methods as there are traders in the market.
Things you must consider such as the particular market you are in, it's
volitility, the condition of your account, the amount of risk you can afford
to take, etc., will determine your guidelines.
I like to look at the "reasonable" profit of the trade I'm considering.
If I suspect the market will likely move enough that my profit will be,
say, about $500, then I certainly don't want to risk $1000 by placing my
stop too far away from my entry point. But you also must consider
the normal movement of the market. For instance 30 year Treasury
Bonds will move at least 32 points from the day's low to the day's high
on almost any given day. When I first traded bonds I would make what
turned out to be a good buy (or sell), but because I placed my stop at
12 points or so, I would usually get wiped out even before the first day
was over only to watch the price turn and close at what would have been
a $400 or $500 profit. (NOTE: T-Bonds move this way most of
the time so the rule about getting out immediately when the market turns
against you would keep you out of that particular market about 100% of
the time. That's the way bonds move.) So, study your charts
and see how far apart the highs and lows are on most days and then give
your trade room enough to move a little without wiping you out. Of
course, if you could get in at exactly the high or low point of the day
it would be a different story. But if you or I had the ability to
do that we would be millionaires pretty soon and wouldn't have to be so
concerned about stops. (We would probably be sending out tons of
junk mail trying to get other traders to buy our "secret." Now tell
me: If you had discovered such a method would you have it printed in a
cheap paper back with thick pages and try to sell it for $100 a pop?
I don't think so.)
Back to setting stops. Study the market you are considering trading
and see how much "space" or "breathing room" you must allow so you won't
be stopped out in the first hour. Consider the risk/reward ratio
and see if it's worth it. And always base your buy/sell decision
on some good indicators which will give you at least a better than 50/50
chance of making a profit.
That's basically how I do it.
T3
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DON'T BELIEVE EVERYTHING YOU READ
As you get into the trading business, like in most other businesses,
you will find a host of people wanting to offer their "expert" advice (for
a price, of course). Problem is, who do you believe? What advice
can you listen to? There are so many saying so much...and if you
pay attention and compare what they are saying you will find that their
"tips" or recommendations vary greatly, sometimes (most times?) being at
complete odds with one another. Some advice, upon close scrutiny,
doesn't even seem to fit into the market you and I are looking at.
The broker service I currently use offers an "advisory service" or whatever
on their web page where one of the well known gurus of the futures trading
world gives recommendations for that day's trading - what to buy/sell,
in what price range, where to place stops, take profit, etc. - in day trading,
short term, trend trading, long term, etc. (At the bottom of the
page there is a disclaimer which says this particular guru has probably
never traded real money and probably never will, or words to that effect.
Real encouraging!) I also receive a couple of newsletters in snail-mail
and a couple of daily e-mails. I have compared these various recommendations
and found that in many, if not most instances, they do not seem to agree
with one another. It has also been interesting to track some of their
recommended trades and see how you would have done had you followed their
advice.
Well, you would certainly want to use what knowledge you have of the
market, your charts, past experience, etc., to balance their advice before
investing your money. But what about the "great ones?" Do you
need their advice? I don't know about you, but I personally like
to get some "outside" input...find out what others think about something...which
more often than not will point our something which may cause me to change
my plans or at least to stand aside until I understand more about the market.
At times I have followed someones advice and ending up making money and,
of course, there have been times when acting on such advice cost me.
SUMMARY: Don't believe everything you read just because you had
to pay for it, or even if it was free, but take advantage of every bit
of information you can find (or afford) to help you understand the market.
In time you will cull out some and stick with others. Hey, maybe
one day you will send out your advice.
T3
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IF YOU DON'T KNOW WHERE YOU ARE GOING
YOU WILL NEVER KNOW WHEN YOU HAVE ARRIVED.
Several of you have asked me why I buy a contract, set a goal or target
for profit taking, take profit when the target is hit, and then turn right
around and sell/buy another contract in the same market and do it all over
again (as in the silver and hogs and TBonds of late). To answer that
question I would remind you of the old adage which says, "Those who
aim at nothing usually hit it with amazing accuracy." I set
reasonable profit targets for the particular market I'm trading at a particular
time and circumstance. I do this because my aim is to make a profit
of "X" number of dollars. I place a "limit order" with my broker
to counter-trade the contract when the market hits that price. Sometimes
I will adjust the target as conditions change, but usually I stick with
my original assessment. In most cases I set my target at the next
level of support (or resistance). In most markets the price, when
it hits the support level, will "bounce" a few points before going through
the support level, if, in fact, it does go through. So my target
will usually get hit right before the market bounces and reverses a few
points. Then, if I feel the down-trend will resume, I manage to get
back in at a price better than I got out at. Make sense? It
does to me because I have locked in my profit no matter what happens next.
I have hit what I was aiming for and have the satisfaction of having reached
a goal in my trading plan.
"But," someone says, "Don't you pay more commissions that way?"
Answer: Yes, but I also make more profit that way. The Bible
says, "...the dogs eat of the crumbs which fall from their master's table"
(Matt. 15:27). I'll gladly let the "dogs" have the crumbs while I
enjoy the full meal! Hey, brokers need some money too, and I've yet
to figure out how to get along without them. Think about it.
You may be missing out on profits simply because you are afraid to take
them.
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PLAN YOUR TRADES AND TRADE
YOUR PLAN
Someone else may have come up with the above phrase, a "rephrase" of
the old saying, "Plan your work and work your plan", but I latched on to
it as a part of my trading plan. When you enter a market you usually
do so and then establish your trading plan based on certain reliable signals
and your own intuition or "gut feeling." I learned early in my trading
to listen to my "gut feelings" and have found that when I do, and when
I stay with the plan, I usually make money. By the same token, when
I have diverted from my plan I have almost without fail lost money.
"Plan your trades and trade your plan." You'll be better off for
it.
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WHEN TO TAKE PROFITS
A fellow trader and frequent visitor to this page asked why I closed
out S-Francs at 6797 yesterday when the price went as low as 6775.
The answer is that yesterday I had to leave about mid-morning to go to
the doctor and could not "baby-sit" my trades as I do most mornings...so,
knowing a move of 30 points is reasonable to expect in currencies I set
a limit-stop or target with my broker and left it to work itself out.
The market hit my target, my contract was offset for what I consider a
good profit. Today, however, I stayed with the markets from opening
to closing so I played it differently. In the TBond market today
I watched the market flop around for the first hour as I considered other
markets and news and decided, around 0830 to go short and sold at 123.07.
My goal is always to hold the contract for a 32-point move for $1,000 profit,
but since I would be staying on top of the market I didn't set a limit-stop,
rather, as the market moved in my favor I trailed a stop. The market
dropped down into the 122.09/10 area around noon and then up and down a
few points all the way to closing, but never below 122.09. The last
time it hit 122.09, I believe, was about 1:30 to 1:45 pm so I called my
broker to offset "at the market" and hit at 122.10. So there's the difference.
If I can "baby-sit" a trade all the way to market closing I will attempt
to milk it for all I can; however, if I have to leave or know I will be
distracted, I will set targets and let the market close me out. Of
course, if the market doesn't get near my target and I see the opportunity,
I'll try to close with enough profit to pay the broker and make a little
myself. Depends on the market and conditions. If the market turns
solid against me I really get heated!
How do I determine my targets when I'm not closely following things?
Again, it depends on the market and how it has been moving lately and what
is happening which may effect it. But with no strong fundamental
or technical news I will usually set a target which will give me a profit
somewhere in the $300 to $500 range - bonds, maybe 16 points, 10 if things
are really slow; francs and marks, usually about 28 points; US Dollars,
30 points; Hogs or Bellies, 0.75-cents (1-cent = $400, .75-cent = $300);
Coffee, generally 1-cent ($375) which the market almost always moves in
a day's time.
Clear as mud? Hope so. The lesson in all this, as I see
it...and have learned the hard way...is to have a plan of action for each
move you make in the market and stick with your plan.
And set a reasonable goal and take your profits
and go to the house when you reach your goal. Remember, "Most
people aim at nothing and usually hit it with amazing accuracy!",
and "If you don't know where you are going you will never know when
you have arrived."
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REASONS FOR WINNING TRADES
Why do I have mostly winning trades? Three reasons.
Number 1: I trade a limited number of markets and
thus I usually know what to expect of them. I seldom venture outside
these markets unless something unusual happens in another market to trigger
a major move and then I will only enter that market based on reliable and
expert advice.
Number 2: I only make trades which have a very high
probability of making at least $300 profit during the trading day and am
ready to take the profit and get out. If the trade doesn't make it
or it becomes apparent the market is not moving I get out with what profit
I can or hold until the next day. If the market is moving fast in
my favor I will keep moving with it, moving my target and trailing the
stop closely as the market moves to prevent losses and maximize profits.
Number 3: Initially I only use a stop to protect
myself against sudden and extreme moves against my position. In other
words, If on the bond contracts I sold today I had set a stop of 121.25
($300+) I would have been stopped out with no chance to redeem my trades
and make a profit later. I don't like to do that - no way.
Instead I set a stop at maybe 122.15, which I feel sure a normal market
will not hit because, if I went with the trend in the first place and that
trend is definitely in my favor, it will soon turn in my favor again.
I'm not about to lose out on a minor "bounce" or correction. Make
sense? It does to me. Why get stopped out on a good trade which
in all likelihood will be profitable within a day or two? Of course,
each trader must consider his/her account balance and risk tolerance when
making a decision about stops. If your account balance is in the
area of $5,000 to $10,000 you probably shouldn't trade bonds; or, if you
do, trade only one contract at a time and nothing else. At least
that's how I would do it.
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ABOUT BROKERS
Say what you will about brokers, they are are necessary
part of this business and they can be a big help to you if
you can develop a good working or "partnership" relationship with them.
I get calls almost daily by guys trying to tell me about their new electronic
trading systems and how they can give me lightning fills, etc., etc., ad infinitum ad nauseum. Now tell me what "electronic trading system" would have
called me and said excitedly, "Hey, the currency markets are beginning
to respond big to the...news and dollars are starting to go down and francs
and marks are going up. Do you want me to do anything on your contracts?"
That's the kind of service you should get from a broker who
has your interest at heart...well, really his interest, too, because he
makes more money if you stay successful in your trades. Don't be
too quick to rush to on-line trading just to save a few dollars and maybe
a little time when it may be that a good broker who will take time to check
on your positions every now and then may save you much more in profits.
They are also a tremendous help in questioning you when you place a real
stupid order, just to make sure you really wanted to put your head up that
particular orifice - a service that we can all use more often than we would
like to admit. Choose your broker carefully - they are a most important
part of your business.
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MORE ON STRATEGY
By now you've probably caught on to my "strategy," which is to read
the markets as they move in their opening range and shortly after to try
and pick the day's direction and try for a decent entry point. Of
course, I compare the opening price with the previous day's close and also
take into consideration whatever information I have picked up on the markets
on the way to opening. Normally I won't enter the market after the
first hour or two unless the market hits support or resistance later on
and bounces off and starts a run the other direction. Also, especially
with bonds and currencies, I will continually monitor the stock market
(indexes: Dow, S&P, etc.) and news sources for any signal which may
act to change the direction of a particular commodity. You're probably
saying that this is not much of a "strategy" and certainly nothing all
that original...and I agree...but it is something which works just fine
for me and my desire to get in and out, preferably with a profit, and not
have to lay awake at night wondering where my money is going.
As I mentioned several days ago my trading strategy demands a source
of real-time or at least 10-minute delayed quotes. If you are serious
about trading and can devote the time and initial investment you can make
some nice profits day-trading. But don't try it until you have studied
your markets thoroughly and paper traded them for several weeks or months.
And definitely don't start out trying to trade more than one, two at the
most, markets at a time. After you get your account built up and
more experience you should add one market at a time according to your risk/tolerance
level. And just because several markets may be moving on any particular
day doesn't mean you should be trading them. I can almost assure
you there will be markets moving next week and next month and next year.
Don't get in a hurry!
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A WORD OF CAUTION
I fear some novice traders will follow my trades and get the idea that
trading is simply a matter of getting in and getting out, spending only
about 15 minutes a day planning (as some "teachers" suggest), and making
a million. They look at the...Coffee trades and think, "Hey, I could
have done that. Just buy low and sell high. Simple. Buy
when the market is at 104.50 and set a target for 120.00 and make thousands!"
Sounds great...but you must realize that making money in the futures market,
whether just a few dollars or thousands of dollars, will require more than
15 minutes a day. And to play the TBond and Coffee markets as I do
will require and investment on your part for real-time quotes, a heck of
a lot of study, and spending your day almost glued to your computer screen
with your gut in knots trying to make a thousand rather than losing a thousand.
It may be fun, enjoyable, very rewarding, but you are going to pay a price
physically and emotionally. Tracking the markets as I do gives me
a real rush when I add up the profits, but at the same time it can be so
physically draining that a day off was in order. Please understand
this aspect of trading and don't just jump in and expect to be on easy
street from now on.
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MISCELLANEOUS STUFF
Are you guys as besieged with emails and/or snailmails from brokers,
"market analysts," "advisors," "trading superstars," etc., etc.,
ad nausen, ad infinitem as I am? I imagine so...especially
if you've just started in the trading business. First of all, you've
probably checked into every trading site you could find on the internet
and then filled out all of their questionaires in order to receive the
information they offer, which is usually not worth the paper it's printed
on. Within a week or so after filling out the various forms
you began receiving telephone calls at all hours of the day and night from
eager young apprentice broker's aides wanting to sign you up. Or
maybe it was the letters from various publications offering you a "free
trial" or wanting to sell you, at anywhere from $199 to $999 or more, their
"system" which will guarantee you big bucks in anything from
gold to pork bellies or Yen. Been there, done that? I have...and
I must admit to falling for some of their sales pitches and foolishly sending
my in my money or my credit card number. Also must admit that most
of what I got for my money was pure junk (I'm being nice...it was usually
a bunch of crap and not worth the paper it took to wipe it up). The
"book" most likely was a twelve page pamphlet. I finally learned
not to fill out the forms, or at least not to tell everything I knew.
First of all, I very seldom fill out those website forms that require
all your vital statistics before they will issue you a password or send
you a sample of their product. When I do, however, I have learned
to "cheat" a little. Telephone number - they all want your telephone
number. Since I have a dedicated line for my computer which is unlisted
and used only for getting on the internet I always list that number on
these forms...and since the buzzer on that phone is turned off those who
call that number will either get a busy signal (when I'm online, which
is several hours each day) or no answer. As for name and address
I only use my real ones if it is something that must be mailed to me (but
seldom is this the case concerning trading...usually only when ordering
a pair of jockey shorts, etc.) You get the idea. The less information
you give out the less spam-type email and snailmail you're going to receive.
And the fewer people who have your telephone number the fewer calls you
will get. These telephone people really bug me - they seem to call
either while I'm trying to concentrate on my trading, eating a meal, or
on the "throne." Never fails!
One other thought: Back three or four years ago I signed up for
a "free trial subscription" to Futures Magazine and have been
receiving it regularly since then (at no cost). I find the
magazine interesting but not all that helpful as most of the market information
is outdated by the time I receive it or else way too technical for my taste.
But what I wanted to pass on is that about every six months I receive the
magazine with a special cover on it informing me that I must fill out the
"survey" and return it if I want to continue receiving the magazine.
Since I'm not too hot on completing "surveys" I've never fill out and return
the form. I'm still receiving the mag every month though, and I still
take a stack of them, along with a couple of dozen other magazines and
catalogs, to the recycling center about every three or four months.
Finally, I seem to get at least one call a week from a broker wanting
me to switch my business to his firm. They will ask all those probing
questions which I have learned not to answer.
Question: "Who is your broker?"
Answer: "I don't see that that concerns you." Or,
"What difference does that make?"
Question: "We can probably save you a lot on broker's commission.
How much are you paying now?"
Answer: "How much do you charge?" or, "Give me your best
price and I'll think about it."
The questions go on and on. What you should realize is that you
do not have to answer their questions. They expect you to and will
ask you all kinds of personal stuff. You might just tell them to
send you their stuff and you'll look it over, but then you can be assured
they will call you again and again in the future. I've finally come
to the place of telling these guys to please stop calling me and that if
I'm ever interested I'll call them. It usually works.
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