Joe Ross' Spread Scan Newsletter

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Spread Scan Issue: December 12, 2007 - Volume 174

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Otherwise, welcome to this week’s issue of the
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.

Andy's Spread Scan Example:

This week we look at RBG8 – RBJ8.

Today we consider a calendar spread in the energy complex: long February 2008 RBOB Gasoline and short April 2008 RBOB Gasoline (RBG8 – RBJ8). After being in free fall in November, it seems the spread has now stopped its down move close to the June low. Now we get a possible 1-2-3 low right on time. The time window for a possible seasonal up move goes from 12/11/07 to 01/04/08. This means you might have to hold the spread over Christmas and New Year.

Traders may want to enter the spread at a value of -16.20. Initial margin is $250 (reduced margin). Suggested risk is $550. Initial projected objective is $550, then higher. Basis is seasonal (app. 12/11 – 1/4) and a 1-2-3 low. Comment: Daily volume of RBJ8 is not very exciting. Please check bid/ask of RBJ8 before you enter the trade. I would recommend taking the trade in the electronic market.

Previous Trades:

Andy Jordan's Trading Bites

Student's Question: "Andy, we are almost done with 2007. Any ideas on how I can get ready for 2008?"

Andy: If you have a trading journal, there is plenty for you to do. If not, you should get one for next year. Here is what you can do while going through your trading journal:

- Look at the big winners and the big losers. What caused the good trades to become big winning trades? And what happened with the big losers? Is there any way to avoid them?

- What is your winning percentage (comparing the winning trades to the number of all trades)?

- What is your win/loss ratio (divide your average winner by your average loser)?

- How was your trade management? How does the winning % and the win/loss ratio change when you manage your trade differently? For example: did you exit 1/3 of your position at the first target, 1/3 at the second target, and 1/3 using a trailing stop? What would have happened had you used a different strategy for your exits? What happens to the winning % and the win/loss ratio when you exit ½ at the first target, and ½ using a trailing stop? Try to play with the numbers to find your personal exit strategy.

- What about your risk management? Did you always risk the same % of your trading account on each trade? Or did you use a risk of 10% on some trades and only 5% on others?

- Did you follow your trading plan with enough discipline? Did you get out fast enough on your losing trades, and did you stick to the winning trades?

As you can see, we can learn a lot for the future from the past. The trading journal is essential in helping you to improve your trading. If you don’t keep one – start one!

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