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When industries first start out there can be enormous profits going to the pioneers and innovators. Profits become marginal as business becomes more institutionalized. Rockefeller was very careful not to let people know how profitable refineries were until he and his brothers got strong control. Similarly so much baloney has been fed to the public about speculation, that trading based on something as consistent as climate is unbelievable.
Philosophy of trading
First you will need a through grounding in Reminiscences of a Stock Operator (A Marketplace Book). If you feel like you can handle this kind of lifestyle. Get out your yellow marker and go through it again.
It is going to take is a lot of reading and more than a little experimenting with your own capital.
Seasonal Spreads?
Early on you should read Trading Spreads and Seasonals. This is what you will be coming back to as you become confident in the many facets of the game.
You need to learn everything that is behind what teacher Ross` is explaining. You need to learn its parts somewhere else. Just like an automobile is build all over the world and then assembled in one place. Ross is the assembly plant. Learn it then return here to fit it into the big picture.
Insider Trading?
In olden times trading families knew of spreads that they could put on year after year, harvesting premiums. Today The Encyclopedia of Commodity and Financial Spreads (Wiley Trading) provides computerized research.
Profits out of thin air
When you actually do start trading you may find it is much easier to consistently make winning trades than it is to pull large amounts of income out of the market. When that time comes you will need Trade Your Way to Financial Freedom
Speculation Counsel
In Investment Advising there are those who tell people what and how to buy, Sell or hold. Then there is Investment Counsel that must base recommendations on a person's total assets.
Similarly there are commodity people who tell you what to buy sell and hold. Spread Trading: Low-Risk Strategies for Profiting from Market Relationships * And then there is Tharp who teaches you why you must base your recommendations on your total trading assets.
Now Tharp’s book seems haughty, like it was written for George Soro’s and his friends. Well it probably was. What you need to do is see your way through to get the essence of the theory. Scale up the leverage to meet your goals. Apply what you are learning to all of your speculative activities.
Percent of what?
If they can consistently pull profits out of random sequences of numbers just think what you can do with historically high probability Seasonal Spreads.
So lets say you are risking 5% of your trading capital on one group of spreads. If you are running a trailing stop. You could buy the number of contracts 5% of your capital will allow using the risk between todays close and your stop loss. As long as you are in the Seasonal Time Window and you are not stopped out you will be keeping a 5% position on.
Because your spreads closing prices change at a rate different than your stops, you will need to change the number of contracts necessary to keep your position size. So the thing is, it is not the number of contracts but the amount of risk you allocate to each spread that determines the size of your position.
Would you feel comfortable in the insurance business?
Spread trading is really an insurance business. Once you set up a logarithm that you are comfortable with.
The market will tell you what to buy, when to buy it, how long to hold. Your equity will tell you how many to buy, and when to sell. All you are doing from then on is adjusting, and fine-tuning, and polishing.
As long as you avoid having clients, your job is to go to the beach, check the Internet daily, keep your stress levels low and remember to place your orders before you try to sleep.
A newbeginning
We are at the beginning of an industry that systemizes the smoothing of prices through the use of spreads. Business is willing to pay a fee for this service. The risk premium that they are willing to pay, we call profits.
Due to the advent of computers, we are now aware of how to trade, trends and tendencies that were recently closely held by only a few wealthy families.
Due to the freedom of knowledge made available to us through the use of computers and the Internet we can not only isolate seasonal trends but also rank them according to expectancy and probability.
Box break out
Tharp might argue that a lot of what you are about to learn is unnecessary. Maybe so. But if you are going to earn a living at this you had better know it anyway.
How I Made 2,000,000 in the Stock Market Will very simply teach you about the most fundamental of all chart patterns. Darvas uses horizontal lines to define his box. Soon you will see that the lines defining a congestion area can be horizontal, trending or sidways. They can be wedges opening or closing. They can do almost anything people can imagine.
When spread closing prices break out to the upside in a seasonal window you need to get your position on. Darvas explains the pure form of the “Box Break Out.”
How Indicators work
All the other books on oscillators and indicators assume you understand New Concepts in Technical Trading Systems . Read it for yourself then apply it to your trading.
Seasonality
What we are trading is Climate.
Trading can be done in a purely technical manner. Nevertheless, there is no reason why while you are sitting there with consistent profits that you cannot at least become familiar with the big picture. Seasonality: Systems, Strategies, and Signals (Wiley Trading) If you really want some deep reading from one of the oldest books in the world. The I Ching or Book of Changes The Ching takes as its very premise that predictive cycles are at the basis of human behavior.
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