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Spread Scan Issue: October 23, 2006 - Volume 115

Spread charts provided by Moore Research Center, Inc. (800) 927-7259, www.mrci.com

Today we consider an intra-market meats spread: long February 07 Live Cattle and short June 07 Live Cattle (LCG7 – LCM7). On the chart above, we see what is called a “correlation chart” (1 year correlation over the last 125 days to the year 1984). Will the spread stick to its correlation and move up? We never know, but we can build a trading plan around our trading idea, and the chart above can help us to find a possible stop, time stop, and target.

Traders may want to enter the spread a value of 4.25. Margin for the spread is $405 (reduced margin). Suggested risk is $300. Initial projected objective is $300, then a move to 8 or higher. Very low volume in LCM7. Please check with your broker for the best entry.

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Student's Question: "Andy, I heard that when you start out you have more losses than wins. Is it true?"

Andy: A cold, hard fact of trading is that you'll see more losses than wins, especially when you are first starting out. Yes, it is true. Trading is a business in which losses can be numerous, especially at the beginning. Feeling that you have to trade perfectly and make a profit on almost every single trade is unrealistic. It is important that you not allow yourself to become stressed to the point where you have difficulty focusing on the trades that actually will produce a big profit.

The best advice I know of is to be flexible and ready to adapt to market conditions. Markets change, and you must change with them. Joe Ross told me the concept of the Law of Charts has never changed. But the management to properly use that law does change because speed at which formations change varies with the volatility of the market. Management changes, as well, with the magnitude of move as it changes. You have to be wise in trading, and acknowledge that many times things will not go your way.

Every time you make a trade, you put money on the line. To the professional trader, money is nothing more than intangible "capital." It loses some of its significance. There is a danger to that as well. Once money loses its significance, it is easy to become careless. But to a novice trader, money represents need for essentials, like food and clothing and rent. When you think of your margin account as real money, there's a strong need to want avoid any losses at all. You are afraid to make a mistake and lose your hard-earned money. This is why no one should ever trade with money that, worst case, he cannot afford to lose - because that situation will automatically force that person to be a gambler, not a trader.

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"You have my word that you've probably heard about, but have almost surely ignored, the area of trading I'm about to reveal to you. It is unlike anything you may have seen before!

Thousands of traders purchased the first edition of my book Trading Spreads and Seasonals, and in July we started to release an updated version (May 2006) of this wonderful manual about Spread Trading."

Follow this link to find out more about Trading Spreads and Seasonals...