Day Trading & Forex Forum

Let's go back to 1979 and fast-forward a few months after the Boston Commodity Broker from Hell episode. I occasionally glanced at the commodity futures contract quotes in the Wall Street Journal and noticed sugar kept climbing. So did gold. I couldn’t take it anymore and decided to drive down to Merrill Lynch and walk out with some Krugerrands. I walked into the cigar smoke-filled office. Gold closed at $420 an ounce that day. I met Max, the sole commodity futures broker among a sea of stockbrokers.

Max was a serious looking, dark haired guy of about 45 years old who sat in the corner. He looked like he had been around the block a few times. He would become my commodity futures and options broker for the next year or so. I liked Max. They say the main reason you do business with a broker is because you like him. Making money is secondary. Strange but true.

Being a commodities futures broker, he said I should buy gold futures, not coins. (of course) I opened an account and funded it with $15,000. Commodity commissions were somewhat better at $100 a trade. Gold was quiet and in a correction, so I switched to cattle. I spent the next few weekends at the library looking up cattle prices and charting them. I drove the librarians nuts running up and down the cellar stairs pulling out the old Wall Street Journals. Poor things. But, I wanted to be a “meats” trader!

Max called the shots and after getting permission for each trade, put in the futures day-trades for me. Over the next month or so he made about 25 losing futures trades in a row. All were small day trading losses. I was down about $3,000. I told him this couldn’t go on. He agreed, but what could he do? Now that I think about it, most of the loss was made up of commissions. Twenty-five trades times $100 = $2500.

One thing that stands out to me is the flow of commodity news we traded on. This has to be the most confusing way to trade. I would sometimes stay on the phone for an hour as he gave me the results of the trade. Just like a horse race. One day I went short cattle futures because of some oversupply report on his noisy little real-time mechanical commodity ticker machine. I could always hear it rapping in the background.

The cattle futures market started to rally against me. He told me the news ticker said it was raining in the Midwest and, “the cattle were in the mud and couldn’t be brought to market!" I covered at a loss and went long. I don’t remember the reason today, but that trade was also a loser. Then we decided to “diversify.” I went long soybean oil because a hot story came through about soybean “crush” shortages. The futures market started dropping like a bomb and I was losing again.

He told me the commodity news ticker said a major crop processor had discovered a large quantity of soybeans that had been unaccounted for. It had potential to flood the market. I panicked out for a loss. Minutes later he said the report turned out to be a rumor and the futures market was rallying big. I bought back and lost again, of course. Max always held my hand after a loss. Whenever I had a winner, he always gave me credit and would say, ‘you’ made a great trade. When there was a loss, it was, “we” got hit. I always remembered that.

Then there was the time when I had more nerve than sense. I bought two futures contracts of cotton at limit down! I didn’t know any better of the risk. But as dumb luck would have it, the futures market opened limit up and did so for three days in a row! I made a cool $5,000 on that trade. I had arrived! I made all the Max losses back and finally had a profit - all in one trade. And I did it myself! That was the turning point for me. I started reading and looking for anything I could find on commodity futures trading. In those days there was very little. The trading system promotional hype, books, internet, computers programs – they were all to come much later.

A few months later things started to evolve quickly. I had my business programmer write a commodity price swing program on my Radio Shack TRS-80 computer. It took a month, but when it was done, it gave automatic buy and sell signals with swing objectives. This was in 1980! It was like magic to me and I couldn’t wait to see what it would spit out each day. Actually it was based on the Trident commodity trading system, for those of you who know it.

The first time you work with an automated computer system, it's magic! You feel like this artificial intelligence knows all and the market MUST listen! In the beginning, each recommendation that comes out gets followed religiously. After a number of losses, we then get more skeptical and start second guessing it. It's fun for a while though. More on the dangers of optimized systems in later articles.

The first night this new system was working, it printed out a buy recommendation for the British Pound, the Swiss Franc and German Mark - all at the same time. I had no idea how the concepts of diversification or redundancy applied here. I didn’t realize these three currencies were like buying the same thing. They all moved pretty much together.

The next morning at the open I rushed in and bought two futures contracts of each. The price skids were horrendous, as if everyone was trading Trident that day. I bought the highs of the day on the open - in all three. I got stopped out for a $4,500 loss by the close. This was my stiff entry fee into systems trading. Back to the drawing board!

Good Trading!