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122

Trading By The Book - Part VI

The more long-term you desire to trade, the more money you need in your margin account to withstand the choppiness of the markets. If you had a big enough account you could virtually assure that you would rarely lose. You coutd just sit tight and wait for the market to prove how "right" you are. You could wait for the market to go your way. Its tike a hen sitting on an egg. Most of the time that egg wilt hatch.

I personalty know a trader who has been sitting on the silver market for two years, waiting to be "right." He knows that if he sits on that egg long enough, it will hatch. One of these days, silver wil! make its move and he will take millions to the bank. In the meantime, he has several hundred thousand dollars tied up in margin money and he has had to rot! over his contracts every few months. But as he says, "If you have enough money, you are always right."

Q. Do you keep a diary or journal of your trades?

A. Absolutely. That is how I was able to write this book. Here is what I keep track of every day after I have posted my data to my charts:

. The futures contract and month in which Im trading,

, How the weekly oscillator segment looks, e.g. \, /, or

. If I have a position on:

. My current position Long/Short. . Where the stop(s) is{are). . Todays Close.

. If Ive called in an order: . Buy/Sell

. Where the stop(s) is or are to be placed.

. Status of the order, e.g., open order, day order.

. Nature of the order, e.g., stop, stop limit, etc.

. If Im contemplating the breakout of an envelope, I mark down the envelope limits like this: (34130 33320}.

. If Im contemplating the breakout of a ledge, I mark down the upper and lower limits like this: [2240 2180].

. My score. +/- points, and +/- $.

Once a month I total my winning points, losing points, winning dollars, and losing dollars. I compute the ratio of points won to points lost, and the ratio of dollars won to dollars lost.

I also compute the largest draw-down that Ive had. Finally, I compute the percentage of win/loss dollars to margin.

Q. Its not entirely clear as to when you create the ledge. When do you do it?



Trading By The Boole - Part VI

A. As soon as you notice that two price bars separated by at least one day have highs or lows that are separated by not more than two points. Then you draw a line connecting them. Then you wait for the opposite side to come either even, or not more than two points apart. In some cases, looking bacl< you will see that it has already happened, (i prefer that at least one side of the ledge be even, but that is not a hard and fast rule.)

Quite often you will notice that two highs or two lows separated by at least one bar have occurred that are within one or two points of each other. If it happens that way, make a note of it, and then, as soon as the opposite side comes even, draw the ledge.

You have to get used to doing this. At first you will not have much faith in it. You wil! be hesitant, and your heart will be in your mouth every time you do it. That is because very often the breakout will be counter trend. After awhile, when you see how often this works and how well it works, you will do them all the time.

Q. I dont have a computer (and dont want one), and I dont have time to keep moving averages and oscillators on more than just a few markets. How can your book help me?

A. Futures trading takes work and effort, but I have given you at least three methods that can be done just by looking at a newspaper and never even drawing a graph. And another that can be done just by subscribing to the least expensive charting service that you can find. They are:

1. Trading the breakout of a trading range,

2. Trading 1-2-3 breakouts - needs chart,

3. Trading from a Ross hook.

4. Trading from a ledge.

Heres how to trade the envelope from the newspaper;

Look up the contracts for the markets that you want to trade. Then select the contract month with the second largest open interest.

Mark down the season high and the season low. Multiply each figure by .236, and that is your envelope. Place an open order with your broker to buy 1 tick over the high of the envelope, and to sell 1 tick under the low of the envelope. Then sit back and wait for the market to take its course. You can do that for every market listed. The whole exercise wont take more than an hour. Sooner or, later some of those markets will break out, and then you can monitor them on a daily basis. When the back month becomes the front month, then slide back to the month with the second highest open interest, cancel all your open orders, and then call in new orders for the back month. Dont forget to put a stop loss at a point that you can be comfortable with. Also, put in a profit objective type of stop, 10 points, etc. You will be pleasantly surprised with the results.

Heres how to trade from a ledge using the newspaper:



Trading By The Book - Part VI

Record the daily high and low for all of the contracts that you want to follow. When two of them come either equal or within two points of each other, note it down. Then, when the opposite side comes equal or within two points of each other, call in an open order. Be sure that you keep in mind that you will be in the trade only a couple of days, so keep a tight stop. Ptace a profit objective order for however many points you think you can make. When filled, double your stop on the other side so that it will be a reversing order, in case the trade goes against you.

You wilt win more often than you lose.

Heres how to trade from a Ross hook using the newspaper:

Record the daily high and low for all of the contracts that you want to follow.

Notice when a contract is making consistently higher highs. As soon as the contract makes a lower high, you have a Ross hook. Call in an order to buy 1 tick above the highest high. Place a profit objective order for however many points you think you can make. Place a protective stop one tick below the tower of the last two days, including the day you enter the trade.

Notice when a contract is making consistently lower lows. As soon as the contract makes a higher low, you have a Ross hook. Call in an order to sell 1 tick below the lowest low. Ptace a profit objective order for however many points you think you can make. Ptace a protective stop one tick above the higher of the last two days, including the day you enter the trade.

Q. Are you totally against seasonal or cyclical trading?

A. No! Im not against them, t simply dont use them as my primary entry or exit criteria. I see absolutely nothing wrong with adding them as an additional fitter to the ones I am already using, especially if it helps my confidence level. In fact, anything that helps anyone to have more confidence in trading is a good thing.

Probably the reason why more traders dont win is lack of confidence. Why? They simply dont have the courage of their convictions when entering and monitoring a trade. This is because they dont realty know why they are in the trade in the first place. Either they are blind-trading a mechanical system, or they are blindly following someone elses advise. It may be an advisory, or their broker, or whatever. They dont understand the basis for the trade, and so they have no real faith. Faith comes from experience. You see the same thing happening over and over again. You begin to sense the reliability of what you are doing. Then when you enter a trade where everything says "Go," you have the courage of your convictions. You can take the losses, even strings of losses and stitt have the courage to go on.

A good example of this is my nephew. Together we have developed a horse racing method. By betting this system at the track, he has come to see and experience as many as 12 losses in a row. Yet, through the proper money management set forth in the method we advocate, he has seen the method come back time and time again, and that over alt he is a net winner. By starting out small, with a small bank and small bets, he has accumulated enough money that he is now earning $3,000 a month at the track. That wili grow, as his bank increases and the courage of his conviction - faith - grows.



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