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A great time to learn more about how to trade successfully is to start learning more today - Singing Praises for CTCN - Extremely difficult because a large percentage of vendors prey mercilessly upon consumers greed and laziness. Everybody wants the quick buck.
The problem arises when a serious student is on a quest for legitimate and quality information. Here is where Commodity Traders Club News really shines. Ironically enough, I have learned more about the reality of trading and vendors by reading Commodity Traders Club News back-issues for free than I have spending thousands of dollars on the self-proclaimed experts!
I like the way you publish an opinion about a method or product and then a contradictory opinion will follow.
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I like the way you publish opinions written by end-users rather than the vendors themselves. How can the reader gauge the validity of a certain product when the only information available is from the vendor himself?
Finally, by following the Futures Truth wars, I gained a realistic idea about the packaging, marketing and manipulation of many trading products.
In short, if I had found CTCN sooner, I would have saved thousands and my learning curve would have increased exponentially.
P.S.: I realize you can't really publish this statement because you are trying to sell a product - not give it away. However, I wanted you to know and thank you anyway. The truth is you put a huge number of complete text back issues on the website in my opinion, too many! By the way, awesome newsletter.
Editors Note: Thanks Paul, for giving us the option of not publishing your comments about giving too much away free on the Web. However, we prefer to publish everything, even things which may seem to be non self-serving in nature.
Our goal is to give as much free information and knowledge to traders as possible and also make our websites the number one source of commodity trading knowledge on the web.
By the way, the fact we have most of our back-issues free online should not effect our sales as many traders prefer our printed booklet format. This way they can read them while at the kitchen table, in bed, laying around the house, or outside, something which is difficult with online publications.
In addition, we have the full-text of 32 CTCN Back-Issues online FREE, the rest are available with a lifetime ezine subscription .
Futures traders can use all our free online knowledge to get on the road to trading success.
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Drawdown Minimizer Money Management - MH
Read your article in the Commodities Futures Trading Knowledge Network about our Drawdown Minimizer (Logic) money management method. Its a method I figured out some time ago and always use.
Had a question though - you mention "maximum adverse movement (excursion) of past winning trades." When you back-test to establish the optimum drawdown for each commodity, aren't all trades winners?
We do not really care about the adverse negative excursions on the old losing trades as we assume the losers would have been filtered out by the recommended stop loss numbers in use, based on the winning trade adverse excursion statistics. The resulting stop-loss is much smaller by not using losing trade excursions, only winning trades.
You have to assume you are right about direction (up or down) and test to see the required risk. I have a printout on the wall with "Average Risk" "Optimum Risk" and "Alternate."
These are the levels of risk corresponding to different percentages in various commodities. i.e.: Gold gets an average risk of $34 which clicks 58% of the time. An optimum risk of $101 for 97% wins and an Alternate risk of $1, which believe it or not brings in 40% wins - on days when there is no adverse move away from the opening.
As to methodology, I tested in a bear market and may get different results in a Bull market. Since we are in a Bear market (or an "extraordinarily prolonged bull market" as Greenspan blathers) I dont have current data yet. I used between 10 and 120 trades in each commodity - the different numbers were because I selected trades for high volume and high liquidity (open interest). Some commodities (like rice) have poor open interest and thus had fewer meaningful samples to test.
It Is not a great idea to risk more than you need to, unless you have a bottomless trading account. For instance, my sampling of Bean Oil was 115 trades and the average risk to win was $40, which made $4,648 with 71 wins, (62%). $500 stops made $9,498 but so did $250 stops.
In fact, the smallest stop required to make the highest money of $9,498 was $211, which I listed as optimum. As it happened with this sampling, $211 stops brought in 100% wins. The difference here is $4,600 in risk to gain $4,648 (average) and $24,265 to gain $9,498 with the optimum stops. Alternate risk of $12.50 costs $1,437 in risk for $3,644 in gain.
Major differences become apparent here. If you consider the amount you risk on stops as investment money, the return on investment for Alternate stops is respectable, prohibitive on Optimum stops and the healthiest for your trading account with the Average stops.
All this assumes you have the movement direction correct and doesnt address commissions or fees. When you factor in commissions and fees, the study shows there are some commodities to stay away from - at least in bear market.
An interesting result of this testing was that an $11 (or $101) stop is a large percentage jump better than $10 (or $100). This being because it is slightly different to a natural number, selected by various means by most people. Of course, if Corn is 206.50 you cant use a $31 stop, the way my printout shows for an average. You have to round it up to $37.50, because of the increments in which grains trade. Having this printout on the wall does take the guesswork out of stop placement, but I am still influenced by support and resistance lines.
It is useful to look at both methods of stop placement, knowing that many other folks know how to read charts too and edging the stops just a little more than the chart says. If there is a large disparity between the two methods, I usually look for other opportunities. Looking back at the end of the day, I seldom regret standing aside.
Slightly off the subject, but perhaps of interest is one matter Ive observed about close-in stops. On the bigger money commodities, floor traders probably seem to gun for stops about an hour after opening. They sell off to create a buying climate for themselves or vice versa.
In the process, nearby stops get filled. I found I have to pussyfoot around and stay away from their favorite targets around an hour after day-session trading starts. Or you can go with them and ride their coat tails, once you identify where they are operating.
These are small movements and nothing to get rich with. I assume it is floor or local traders operating. There is not much profit in following them and it would hardly be worth the while of anyone who has to pay commissions.
Probably none of these observations are new, but I thought I would pass them on in case they are a blinding revelation to someone.
The above articles appeared in Commodity Traders Club News are very informative and educational. You can read more articles.