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Spread
Scan Issue: October 31, 2007 - Volume 168
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Today we consider an equity spread in the currencies: long December '07 British Pound and short December '07 Swiss Franc (625*BPZ7 – 1250*SFZ7). After testing $18,000 in September '07, the spread moved up strongly at the beginning of October. After a pull back in the last few weeks, the spread seems to be ready to move higher.
Traders may want to enter the spread at a value of $21,330 or higher. Initial margin for the spread is $1,400. Suggested risk is $1,500. Initial projected objective is $1,500, then a move up to $23,250 or higher. Basis is seasonal (app. 10/15 – 12/3).
On October 14 we told subscribers of our professional daily spreads & position trading newsletter Traders Notebook, "Consider entering a calendar spread WN8 – WH8 at MOC on Monday 10/15. Initial margin for the spread is $1,620 (reduced margin). Suggested risk is $1,500. Initial projected objective is $1,500, then higher. Basis is seasonal (app. 10/25 – 1/28) and a RH. Comment: The high risk is because of the high volatility of the wheat market. "
Here's how we suggested managing this trade:
10/15 In? Suggested stop at -210.
10/16 Suggest moving stop to -205 ½.
10/18 Suggest moving stop to -198.
10/19 Be careful if you want to exit the spread. You have to check if one of the contracts is limit up or down before you execute your order.
10/24 Suggest moving stop to -196.
10/25 Suggest taking some money from the table tomorrow and moving stop to -191.
10/26 Trade hit first suggested target. Suggest moving stop to -174.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, what is the correct way to trade the markets?"
Andy: There isn't one “correct” way to trade the markets. While it may be tempting to emulate your favorite “Market Marvel”, in the end it’s really crucial to match your trading style with your personality. Some traders are methodical and almost compulsive in their tactics, carefully backtesting their strategies, scrutinizing all possibilities and taking sound precautions to ensure success. Other traders are more laid back, taking risk and uncertainty in stride, confident enough to formulate trading plans as they go along, finding opportunity as it happens. Again, there is no best approach. The approach you use to trade the markets depends on your unique personality and what you are comfortable with.
Above all, to trade successfully, the critical requirement is self-confidence. Developing a sense of confidence requires the accumulation of real life experience – becoming acquainted with various market conditions and discovering how you react to them. Once you have rock solid confidence based on copious experience, the way you approach trading is a matter of preference.
It is vital to your performance to be yourself, and not try to be someone you aren’t just because you think there’s ultimately a “right” way to trade. You must discover what works best for you, and what you need to do to trade profitably. The only standards that matter are your own.
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Disclaimer:
The Commodity Futures Trading Commission has asked us to advise you that trading spreads or outright futures 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!