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Spread
Scan Issue: July 25, 2007 - Volume 154
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Joe Ross Spread Trading Newsletter.Each week we present spread trading examples and opportunities in order to help you become a more professional spread trader.
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Today we consider an equity metals spread: long September 07 Silver and short August 07 Gold (50*SIU7 – 100*GCQ7). The spread has been in an up trend since June 27. The seasonal time window is very short (app. 7/20 – 7/30). Suggest entering MOC today with a close stop at -1,500.
Traders may want to enter the spread MOC. Margin for the spread is $6,750 (no reduced margin). Suggested risk is $1,000. Initial projected objective is $1,000, then a move higher.
On July 17 we told subscribers of our professional daily spreads & position trading newsletter Traders Notebook, "Consider entering an inter-market spread 500*FCU7 – 400*LCG8 at MOC tomorrow 07/18. Margin for the spread is $2,633 (no reduced margin). Suggested risk is $1,000. Initial projected objective is $1,000, then a move higher. Basis is seasonal (app. 7/15 – 9/17) and a RH. Comment: Meats are volatile and the spread can move really fast, also against you!"
Here's how we suggested managing this trade:
07/18 In?
07/20 Suggest taking some money from the table on the next up move.For more information about our daily newsletter, visit our Spread Website to find out more about Traders Notebook
Questions or Comments? Please email us: support@spread-trading.com
Student's Question: "Andy, do you feel that the Close is more important or just as important as the Open or any other time during the day?"
Andy: I think everything in trading is important — the Open, the Close and also what happens in between. But if you're asking me about spread trading, it is quite different. Personally, I do not pay much attention to what is going on during the trading day. I try to avoid looking at my charts during the day, and concentrate more on the Close. The reason is that whenever you watch the spread A - B on your chart software, you see only "Outright ‘A’ minus Outright ‘B,’" but not the spread itself. We do not get the data from the spread itself, we get only the data for both outrights. Most of the time, both contracts trade together only at the Close. This is because usually Outright ‘A’ does not open at the same time as Outright ‘B.’ It is only at the Close that you see what is really going on with your spread. Usually the two legs of your spread are not trading equally during the day. Because the legs of the spread do not trade equally, you have no true concept of what's really taking place with your spread until the Close.
Joe himself wrote about his reasons for writing this book. The text for that follows:
"Spread trading is virtually a lost art except among professionals, who, by the way, have never stopped using spreads since trading began.
I encourage every one of my students and subscribers to read this book. Spread trading is probably the best way to trade that I've ever encountered. It beats the socks off both options and outright futures trading. It is far more relaxed than day trading. Much of the stress of trading is removed with spread trading."For more information on this manual, please follow this link....
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Disclaimer:
The Commodity Futures Trading Commission has asked us to advise you that trading spreads is complex and carries a high degree of risk. While there is opportunity for incredible wealth building, there is also the risk of losing even more than you invested. Of course, that's not unlike most other businesses. But informed traders are the best traders!