Teacher and consultant to the futures industry since 1983
Teacher and consultant to the
futures industry since 1983
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Items you need to improve and protect your FCM or IB... 1. Very important and useful forms and letters for different applications for the FCM and the Introducing Broker. Visit our "forms" page. |
TRADING TIPS Be comfortably margined. Be careful not to "over-margin" your account. When you have some winners going, it is easy to get carried away and take on too many positions. Make sure that as a more conservative trader you only use about 40% of your equity for margin. As an aggressive trader, you still shouldn't exceed 75% to 80%, and even that can be a killer. Don't use even-numbered stops. It would be nice if you were a bit of a psychic here. Do the floor brokers chase the stops? Of course they do. It is called "Clearing the Aisles" when the stops are hit and all the "weak" traders are blown out of the market. If you knew where the majority of the stops were, you could place your stop far enough away from that area so you would not be "hit" when the aisles are cleared. This takes more equity since you will have to be willing to sustain a greater loss if you are on the wrong side of the market. The "up-side" is the fact that even if the stops are chased, you will not be hit when the market resumes it's normal direction. Be careful with this, but take a look at the price movement in the markets you trade and you will see the normal amount of movement when the aisles are cleared. Remember that all orders are day orders. I recently received a couple of email messages from "on-line" traders that entered stop orders, and two days later lost about four times the amount they thought they would. Remember that when you place a protective stop you must make it a GTC order so that it will remain in affect for as long as you need it, and without having to re-place it each day. Review your orders each day. This goes hand-in-hand with the above tip... If you place Good-Til-Cancelled orders, you had better review them each day to be sure you still want them in place, and cancel them if you don't. If you had a GTC protective stop, then took profit on your position, you no longer need the stop order, but IT IS STILL THERE! It doesn't just go away by itself simply because you have taken profit. You must remember to cancel the GTCs that are no longer needed. Of course you didn't get filled on your limit... It has to go through the limit. I receive a lot of email from traders, new and experienced concerning this issue. Many say how upset they are that they set their limit price and the market got to their price and traded there several times, but they didn't get their fill... and it's just not fair! Well, that's the way it is, fair or not. In a normally operating market, you are not entitled to a fill on your limit order unless the price trades through it. Remember, there are trades ahead of yours, maybe thousands, and they may be filled during the time the price trades at your limit price. If you want to be sure to get a fill, then use an MIT or just go to the market. "Oh, I only use mental stops, that way 'they' don't go after them". I know that sometimes it seems personal, and "they" are out to get you and your stop price. Believe it or not, it's not just you they are after. The traders will go after stops anyway, and whether your stop is actually placed or if it is a mental stop, the price will probably still be triggered. You are using the stops to prevent disaster, so place them and take that smaller loss rather than holding a mental stop, and having to make a very difficult decision to lose more or stay with a disastrous losing position. Another look at "trailing" stops. If you've been lucky enough to be long the unleaded gas, where do you exit your positions? Where and when will this tremendous move up come to an end? You shouldn't care. You should simply place those trailing stops and let the market take you out when the price does come down. You will leave a little "on the table" when you are stopped out, but you sure will maximize your profits. There really are Bear markets! It is a bit scary to think that many of the young traders... even up to 25 years old (or more) have no concept of what a bear market, or even what a major correction is. Will this make the next one more destructive? Like the stock market guys, be sure you are not caught with all your equity in the markets when it comes. Watch the Fed actions. With the fine job he's done on the economy, even he is nervous. If you've paid attention, you've seen Mr. Greenspan try on several occasions, to slow the movement in the stock markets. He makes a statement like the markets appear overbought and the markets have one mediocre day but then continue on upward. So he tries again by threatening an interest rate hike... the markets pull back for another day then move higher again. He feels it is important to slow this train, so what will he do next? Be careful. Be very diversified. The last four tips have been expressing worry about the economy and fear of a correction in the stock markets. Well, like it or not if there is a major stock market correction, the futures prices will also suffer. If you don't believe that, check back on what happened during and after the 1987 correction. The days following were devastating for commodity traders. The way to avoid any problems if and when this happens again is to be diversified in non-correlated markets. Watch the action outside the pits. Many changes are taking place off the trading floor in Chicago these days. Today your broker may be with the brokerage firm of Churnum, Burnum & Barium, and tomorrow they may be with Dewey, Stickum & Howe. There are many mergers and buy-outs happening in the futures brokerage. Be sure that if it happens to your brokerage firm that you want to be with the new firm. If you don't, simply find the firm you wish to be with and transfer your account. Don't be afraid to tape your trades. When you speak with your broker the conversation is usually taped. So, don't be afraid to tape the conversation yourself. Be sure to inform the rep that you too are taping, (that makes it legal). Now if any errors occur in the handling of your orders, the proof of where that error occurred will be easy to find. What is "not-held" and is it common? In this tip I'll address "not-held" as it applies to Exchanges. On the NYMEX in particular, and I believe (but don't hold me to it), the Chicago Board of Trade, you are NEVER really entitled to a fill on your order. Even if the market trades through your limit price, in a normally trading (not "fast"), market, you thought you were entitled to a fill, but not so anymore. Generally you will get a fill, but if you don't, they accept no complaints. Doesn't sound fair, but then you know what "they" say about fair. What is "not-held" in a "fast market"? The "Fast market" is an official condition when something like a rumor (or fact) has hit the trading floor and the activity picks up to where the floor governors believe that mistakes could easily be made. When that happens the governors call a "Fast". During the fast, the broker is not responsible to fill any orders, (not held). Remember this in case you have an order in a market that goes "fast", and the market price goes through your order price. You are not entitled to a fill, so don't even try to argue the point if the floor tells you that nothing was done on your order. Get in touch with us by
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