T2W Trading Community

There are some effective, but simple, long-term trending methods out there. Almost any method will work at one time or another. The broadest, loosest trading methods will last the longest, while the most optimized last the shortest time. The famous “Turtles” used a break-out of the 40-day moving average for many years.

They added a filter called “n.” Two losers in a row = -2n. Two winners = +2n. A winner and loser = 0n. The more losing trades in a row, the more frustrated the masses and the more likely the next trade will be a winner. That is, if the break-out came three times in a row with a resulting false move and a stop out, (-3n) then the fourth signal will be more probable for success. Sometimes.

The commodity futures markets follow this general rule: They will bless some methods for a while, then turn in a heartbeat and take it all away. A good trader is always watching several methods at one time and will switch to the one currently performing...in a heartbeat!

It’s breathtaking to watch a certain trading method working well and then see the market find a way to destroy these same participants in one sharp move. An example is when commodity option traders are writing (selling) options over an extended period of time. They’re taking in premiums like fat cats. Happy. Quiet market. The percentages can be upwards of 90% accuracy selling way out-of-the-money futures options in a dull or choppy market. The profits are small, but consistent.

Then the day of reckoning arrives and a move way out of the standard deviation spikes like a lightning bolt. They drag some option writers out by their boots. A well known example was in 1998 when a famous money manager was selling thousands of out-of-the-money S&P 500 puts. The market took a free fall dive. He lost a big chunk of his $100 million+ managed commodity fund in a few days. I remember it well because a partner and I were long an eighty-lot of put options on the other side of his trade. We made the biggest score of our lives. But it had much to do with luck and being there at the right time. It happens at least once to everyone. Heck, just being born is the longest shot going.

Right now I love the S&P 500 futures contract (e-mini) day-trading game. I’ve traded it actively for the last twelve years. It pays to focus on one or two commodity futures markets and learn it well. This is the key to getting an edge when day-trading. Some day-traders can spread themselves out and apply similar techniques to many commodity markets. God bless them. But I find I need to learn all the patterns, habits, and idiosyncrasies of one market to be competitive. Just like doctors who specialize.

Can you imagine a heart surgeon trying brain surgery, or even doing plastic surgery? It’s the same with markets. The more you focus and specialize, the better job you can do competing against the best minds in the commodity world out there. I have some methods I will suggest in later articles to focus and better learn your favorite futures market. This doesn't mean you can't hold long-term positions of other commodities while day trading. You can do both, but for day trading itself, you should focus on only one or two markets.

As I’ve said before, it's so important to train your brain to intuitively and subconsciously identify likely turning points as they occur. With practice, you will find signals going off in your body. It’s different for everyone. Your body will let you know when it’s time to put on or take off a commodity trade. But, it takes training and looking at the right indications with a trained mind. More to come in future articles.