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Spread
Scan Issue: November 14, 2007 - Volume 170
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Today we consider a calendar spread: long February 2008 Crude Oil NY and short January 2008 Crude Oil NY (CLG8 – CLF8). As we all know, Crude Oil moved up like a rocket in the last few months. Because we are looking at a bear spread (nearby month is on the sell side), the spread moved down in the same time period. Now it looks like the spread could break out to the up side, after being in a trading range for a few weeks. Will a breakout to the up side be the beginning of its seasonal up move? I personally would wait for a nice breakout of the range on the close, and then enter MOC the next day. Suggest entering into the elec. contracts.
Traders may want to enter the spread at a value of -0.75 or higher. Initial margin for the spread is $400 (reduced margin). Suggested risk is $320. Initial projected objective is $320, then higher. Basis is seasonal (app. 11/1 – 12/10) and a breakout of a trading range.
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.
11/01 Suggest moving stop to -171.
11/02 Suggest moving stop to -163.
11/02 Suggest moving stop to -161.
11/06 Suggest moving stop to -159.
11/07 Suggest moving stop to -148.
11/08 Suggest moving stop to -138.
11/09 Suggest moving stop to -133.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, I have seen you use seasonality for your trade selection in Spread Scan. Is seasonality as effective in all markets, or do you think some markets behave more seasonally than others?"
Andy: You can find seasonality in all markets, but I personally think there is a big difference in “reliability” or “strength” of seasonality in the markets. I personally think seasonality is strongest in the commodity markets. In all markets where you have a physical product, you have a production cycle during the year. Because the production cycle is always the same, you get typical seasonal behaviors in these markets. Other markets, like the indices, also show a seasonal pattern, but I don't think it is as strong as in the commodity markets. Anyway, seasonality is only one criteria in addition to others, and I would never recommend any entry based only on statistics. You have to look at the current chart of the current spread to see what is going on. That’s what we have to trade!
Resurrection Time for Successful Traders
Are you about to order Joe Ross' manual "Trading Is a Business?"
If so, then let us quote the warning that Joe printed in the front of this book:
This is a nasty book.
It will take you apart at the seams, point out your weaknesses as a trader, and then attempt to resurrect you as a successful, self-disciplined person who can control his trading in a businesslike manner.
However, if you cannot stand constructive criticism, or if you do not wish to succeed as a trader, Joe suggests you don't consider buying it in the first place, and ignore this.
So what will YOU do?
Trading is not a problem for most of the participants in the market. Most traders know how to trade, BUT they don't have the right mindset and approach for trading the markets. 80% of traders are on the right side of a trade when they enter the markets, and yet, according to statistics, only 10% end up being successful in this business; the rest lose their money. Where do they go wrong? Joe Ross will answer this and many more questions, plus, in Trading Is a Business, he shows how YOU can become a successful trader. He shows you how to properly manage your trades and yourself.
Trading will become much easier, more pleasant, and more relaxed. Why? Because you will understand the markets and what is really going on. Follow this link to our tradingeducators website for more information about this CLASSIC: "Trading Is a Business... "
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