Larry and anyone else. I,ve been reading a lot on commodities trading ( jack Schwager ect.) My questions are 1; is any one out there trading commodities succesfully or is it all hype 2; what are some good sorces of information ( traders helping traders site SEEMS to be reliable, but I don't know). Thanks in advance for any help. Rodney E

Rodney,

No, it’s not hype. But most people lose their shirt because there is a lot of leverage involved. And most people can’t (or won’t) manage money, so they lose.

Where do you start to learn? Anywhere. Read anything you can get your hands on. Read Schwager, Tharp, Livermore, all of them. Read the books that I’ve recommended in previous SMR’s. Ask questions on this forum and other forums.

But whatever you do, Rodney, don’t touch the futures markets until you are very comfortable that you know what you’re doing and you have a well thought out position sizing plan. Otherwise, I guarantee you’ll lose. And you can not only lose your trading capital, but you can lose much more than that.

So I would have a plan to study for about a year. And then, if you still want to do it, start very small.

Larry

Trading is a tricky business. I have been trading the currency markets for quite some time and had to learn some very expensive lessons. Pay close attention to everything that Larry said. I also want to add a couple of suggestions from my own experience.

1. Read, re-read, and read again "Reminiscences of a Stock Operator". The lessons learned in that book are timeless, even the bucket-shop brokerage houses that cheated Jesse Livermore are alive and well today in the form of online trading and in some ways get away with more than they used to because of the anonymity that the internet provides.

2. Make sure that you practice trading in a demo account until you have a proven track record of making money. Be sure that your trading plan will hold up during all sorts of market conditions. After all, the market is designed to fool most of the people, most of the time. After you've shown yourself that you can make money consistently, start trading with a small amount of real money and build your account from there. Would you rather lose your hard earned money from your job or the house's money? The answer should be obvious, but a lot of people start with big accounts and blow it. You can start with a few hundred bucks and be able to leverage the hell out of it because you won't be scared of losing your money... because you can always come up with some more until you know what you are doing. If you don't know what you are doing, you might as well take your money to Las Vegas because you'll have a lot more fun losing it there.

3. Don't let the high amount of leverage scare you. Leverage is your friend in this business... but only if you know how to use it.

4. This business is 90% money management. Figure out how not to lose money, and eventually you might make some.

5. Out of all the markets to trade, I have found the spot forex market to be my favorite. Basically no slippage (which is horrible in other commodities), a 24 hour market that you can trade, and very high liquidity. Also, you can get free data feeds and free charting through FXCM, REFCOFX and several other brokerages. I won't recommend any brokerage over another because I honestly find all of them to be crooked in one way or another. The brokerages are not your friends. All the other stuff is pretty much the same. They claim there are no commissions, but the spreads actually cost more in the long run than commissions do in other markets, so that claim is somewhat misleading.

6. Don't spend any money on fancy software! The secret to trading success is inside of you and nowhere else.

7. Don't get caught up in the technical analysis crusade. Most of that stuff is rubbish. You might as well go ask a gyspy fortune-teller to tell you which way the market is heading, because no-one has a crystal ball... that is, except for my fortune teller.

I'll step off of my soapbox for now, unless you want me to firehose you with more info sometime.

--Ben

I agree with what Ben said -- Ben has really come a long way since he first started posting -- except for the part that technical analysis is rubbish.

I would agree that technical analysis taken to extremes is not particularly useful. For example, trying to trade by recognizing some arcane technical patterns and expecting them to repeat. However, using charts to recognize resistance and support -- which is supply and demand -- is not only useful, but absolutely necessary.

For example, for the last couple of weeks I’ve been posting a long-term chart on the dollar that shows that there has been demand in the 79 to 82 area in 1991, 1992, and 1995. And I don’t think it’s a coincidence that the dollar found support in that area this week and staged a significant rally. So charts are useful to find important reversal points (also, consider VTO and QQQ/Bollinger Band systems).

Also, how are you going to recognize trends without the use of charts? You can’t, unless you want to take the position that trends don’t exist, which would be tantamount to saying that the world is still flat.

What is your alternative to technical analysis? Fundamental analysis? Sentiment analysis? Sentiment analysis is very useful. But you must find an edge some way. And anyone who thinks they are going to find an edge in fundamental analysis is either naïve or misunderstanding the competition.

Let’s take the example of picking stocks through the use of analyzing financial statements - classic fundamental analysis. A few months ago I was asked to develop a new seminar to teach non-financial executives of corporations how to understand their companies’ financial statements. So I know financial statements and financial ratios backwards and forwards. But when it comes to personal investments, forget it. How are you going to get an edge by trying to find an edge in analyzing the financial statements of publicly traded companies? You’re competing with the research departments of the leading firms on Wall Street. Are you actually going to find something that they haven’t noticed? So whatever you come up with will already be in the market. You can’t compete with those guys. And even if you find something -- which is possible with small stocks that Wall Street doesn’t follow -- then you still have to wait until there is interest in the stock to make any money. So you’re back to supply and demand.

The bottom line is that it’s all about supply and demand. If you know a way to measure it in some other way other than the use of charts, more power to you. But the charts tell you where the buyers and sellers have been in the past and, therefore, where they are more likely to show up in the future.

Oh, I do have one more small point of disagreement. The slippage is not horrible in other commodities other than spot forex. It just sometimes seems that way because of the leverage. A lot of futures markets are very liquid. Otherwise, the commercials wouldn't be able to use them.

Larry

One last thing -- technical analysis is the study of price. That's exactly what Livermore did.

Rodney E

go here: http://www.originalturtles.org/

click on "their system"

print it out - learn THAT. it's an entry & money mgmt system.

like ben said, it's not the software it's the trader that makes money - find yourself in the market (i.e. find a strat that "feels" right and makes sense to YOU) - remember that taking losses is just the cost of doing business, it doesn't mean that you're dumb or that the market is rigged or that your system is broken.

never stop learning.

good luck to you.

-ja

p.s. why not start with stocks & EFT's first? less leverage, less damage while you make rookie mistakes. just a tho't.

Joe,

I have been looking at the turtles system, but I have never tried to implement it or demo account it, but I am planning to in the future. (I am still messing the +10% gap down and hold for 30 days strategy) Have you done it with etf's etc.? If so any success/pointers? If you mentioned this on a previous post can you point me to the post to save you time

Thanks

Heath

Larry,

Thanks for making those corrections/clarifications on my posting. You're right, I have come a long way since I started posting. My learning curve has been incredibly steep because I've been learning non-stop the last couple of years.
Anyway, when I said "TA is rubbish" I was mainly referring to the practice of relying on technical indicators to make all of your trading decisions. I most definitely read charts and follow trends and I am right with you in knowing that fundamental analysis is basically useless in trading (but not investing). Also, I guess I'm being a bit hypocritical because I need to point out that the only way that I now know where to put my stops and limits is from doing a lot of chart reading. I guess I never thought of chart reading as technical analysis.. that's all. I've just met too many people that "go overboard" on following indicators and sitting in front of their computers. Ever since I started watching price action instead of relying on technical indicators, I started making money instead of losing it. Almost like when Luke Skywalker let go of the controls in his X-wing so that he could rely on "the force" to blow up the Death Star. Geesh. I can be such a geek sometimes.

Anyway, when I started out trading I sucked big time. I am very pleased to say, though, that I've come a really long way in my trading results and I've been making good money these days through discipline and strict adherence to my system. Oh, and one other thing... I've learned a TON from reading the postings and articles in your forum! What I haven't learned from here, somebody in this forum has inspired me to read a book or go to a website that has taught me what I needed to know at the time.

Thank you!

--Ben

heath, do i trade the turtle system? - not per se. that is, i don't use the same parameters they do. also, i don't trade futures at all.

however, that system teaches about buying breakouts, watching price & volume action and position sizing. yes... i DO trade using that info. however, like ben said, sometimes i "let go of the wheel". meaning, i look at technical and fundamental info, interpret it, then trade my belief. however, i think it's good to start out strictly mechanical. i.e. follow the rules to the letter. once you have some real trading experience you can begin to trust you gut. some people NEVER trust their gut and do just fine, btw.

for me: i'm not a slave to indicators. indicators work for me... i don't work for them.

trading is taking and managing risk. you can't make money without taking ANY risk and you will lose money if you don't properly manage risk. just find a set of parameters that you like that, over time, makes more money than it loses.

i think the turtle system is a great place to start... but if it were me, i'd use it to trade ETF's first. they're more forgiving than futures.

-ja

Ben,

Why is fundamental analysis okay for investing, but not for trading? And, for that matter, what is the difference between trading and investing?

I'm not trying to challenge your opinion. I'm just asking a question for discussion purposes. I've been doing a lot of teaching lately, so I'm in my professor mode.

Larry

If I understand the turtle system right they use a 2 X ATR stop. Larry or others: do you think that is too tight for ETFs or other liquid stocks?
h

for stocks i find a low risk entry (a break-out or a pull-back) then i put an 8% stop on it. if it goes against me - i'm out. if it goes my way i'll add to the position, figure my new average buy price and maintain an 8% risk. once i'm "loaded" i'll allow for a wider stop. i look at 3 things...

i'll figure what 2 ATR's below the current price is, the 10 week MA line price & the weekly parabolic sar dot price. i then make a "gut" judgement call as to which of these is the best to use as a stop. they are often very near each other. sometimes one of them is more than 25% below the current price. i don't like to have a stop that far away - 20% is okay as long as it's above my breakeven point.

i look at those indicators then decide which one i want to use - i do it case by case.

-ja

Howard,

No, I don't think that 2 X ATR is too tight of a stop.

Larry

Thanks everyone for all the Real World advice. As I do not know anyone who is a succsesful investor/ trader, all of your advice is much appreciated.

Ben, your post is terrific. I printed it out. Thanks for not holding back

Joearron, I took your advice and printed out the Turtles system. It becomes obvious
that money management is 90% of it, like Ben said. Also all of your other posts
are very helpful.

Larry, Thanks for the warning. I think I will work on risk controll and position sizing
for awile and less on entry and exit points.

Joe,

What settings do you use for your atr?

Heath

Larry, and others.

Fundamentals for investing vs. trading? Thanks for giving me the opportunity to demonstrate my ignorance. I hope you can teach me more about this.

From all the material that I've studied, I think that Jim Rogers demonstrates why fundamental knowledge works best for investing but not for trading. I love how he describes his investment philosophy. While he openly admits that he is a terrible trader due to his poor market timing, he says that he will look for good investment opportunities, make the investment and then sometime later on say to himself, "Look, there's a pile of cash sitting over there. I'd better go pick it up."

Jim Rogers is probably the ultimate fundamentalist as is Warren Buffet. It took me some time before I realized that they are not traders at all, but hard-core fundamental investors.

Another distinction that I would make is that trading is basically a job and should be treated with the same kind of focus. Trading forces you to be on a treadmill and unless you trade, you won't make any money. Investing will make you money even if you decide to take the year off. In my world, I like to do both.

I'd say that following the COT is way more investing than it is trading. You will make trades, but it seems more to me like managing an investment than actual trading.

I also think that the world of trend-following fits sort of in an overlap area between trading and investing. You can't be a true trend follower and survive in daytrading. Also, trend followers don't care about fundamentals at all. They mechanically try to follow a trend and disregard fundamentals completely.

As a forex trader, with my approach I don't care about fundamental data at all. I merely concern myself with price action and create systems around the behavior of price.

Would you agree with my conclusions?

--Ben

P.S. Thanks for the kudos, Rodney. Good luck with it! The upside in becoming a successful trader is way too high to not give it a serious look to see if you want to do what it takes to become successful. I still have a ways to go before I'm at the point where I want to be, but I'm willing to continue paying the price to become a true success at trading.

heath,

14 day ATR (be sure you’re using daily charts, not weekly).

ben,

I think your definition (trader vs. investor) is about as good as any I’ve heard. I always considered short-term trading as “trading” and long-term “trading” as investing. but I don’t have any specific “holding time-frame” benchmarks.

I look at mutual fund investors and see that they buy shares willy nilly with no sense of timing, they buy and hold, they dollar cost average, they diversify, & they try to match (or barely beat) the major averages. I call them investors.

People who stalk trades, time their buys & sells, concentrate their money (rather than diversify), with an eye on making money every year (regardless of the overall market or economy)… they are traders.

that’s my P.O.V.

re: fundamental vs. technical trading… I agree with larry that there’s no way for an individual to get an edge over the wall street insiders using news or fundamental info. having said that… I DO use fundamental info to confirm my buys (or to weed out stocks).

I don’t care about EPS or ROE per se… but mutual fund managers do care about these things – and it is THEY who move stocks. so why not jump onto those elephants as they blaze a trail thru the jungle? stocks don’t move because “they’re supposed to”… they move because people are buying them… i.e. there’s DEMAND!! the guys with the most money (most demand) look at EPS & ROE & PEG, etc. so I do too. I’m not looking for a fundamental edge… just a free ride

-ja

having said that... look at CME. i've been in & out of that thing all year (long only). it was good fundamentals that 1st caught my eye.

You guys are making my case for why I don’t draw a distinction between trading and investing. Everybody has a different opinion on the definition of each.

Take Rogers for example. He and Jack Schwager went back and forth on whether Rogers is a trader in the original “Market Wizards” book. Rogers claimed he wasn’t a trader. But in Schwager’s mind he is because he sells short, writes naked options, etc. I consider Rogers more of a contrarian than anything else. He also pays a lot of attention to the big picture rather than trying to pick apart balance sheets. But whatever he does, it’s very different than what Buffett does. And Buffett does more “trading” than he pretends that he does. I’ll bet he even takes an occasional peak at a chart every once in awhile.

So I don’t see the point in trying make a distinction. It’s all about making money no matter what label you want to attach to it.

Oh, and Rogers is a good example of someone who actually may be able to get an edge with fundamentals. If he wants to invest in foreign countries, he’ll just take a three year trip around the world and check it out for himself.

Larry