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Spread Scan Issue: July 16, 2008 - Volume 203
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Otherwise, welcome to this week’s issue of the Joe Ross Spread Trading Newsletter.
The Spread Scan weekly newsletter is designed to assist you in becoming a better, more complete trader by showing you, within the context of the markets, how to trade spreads.
In this newsletter you will see applications of spreading in the futures and commodity markets. Spreads are applicable to all futures markets including currencies, commodities, financial instruments, and stock indexes. It is even possible to trade spreads in the all-electronic intraday market using day trading techniques.
Spreads are based on seasonality, correlation, backwardation, chart patterns, and simple observation. Spreads follow the Law of Charts™ and can be implemented using the Traders Trick™ entry.
In each issue of Spread Scan, you will find an upcoming spread trade for your consideration in the following week. You will also find a review of an existing or closed spread so you can see and learn how spread trades are managed.
Spreads offer you the most efficient use of your margin account of any other way to trade. Many traders find they like them so much that spreading becomes their primary way of trading.
Each week we present spread trading examples and opportunities to help you become a more professional spread trader, and we provide you with helpful content of interest to traders:
- Andy Jordan's Trading Bites
- Spitting into the Wind - by Joe Ross
- Opportunity knocks: Traders Money Club is here now...
- Next Joe Ross Live Chats for Traders: Wednesday, July 16, 2008
- About Joe Ross and Andy Jordan
- TE TRADERS FORUM
- Contact Us
Be sure you receive all your issues of Spread Scan so that you can continue to enjoy learning through the best free educational trading information available, and so that we can keep you informed about additional educational services and products to help you grow as a successful and profitable spread trader.
Andy Jordan's Spread Scan Example:
This week we look at 100*SMZ8 – 50*SX8: long December '08 Soybean Meal and short November '08 Soybeans (ECBOT)
Today we consider an inter-market equity spread in the Soy Complex (ECBOT): long December '08 Soybean Meal and short November '08 Soybeans (100*SMZ8 – 50*SX8). After being in a downtrend market since April '08, the spread changed its direction once again at the March low of about -$39,000. Will seasonality (7/14 – 8/15) move the spread higher? This is a high risk trade and recommended only for those with deep pockets.
Traders may want to enter the spread at a value of -$36,300 stop on close. Initial margin is $2,970 (reduced). Suggested risk is $2,000. Initial projected objective is $2,000, then a move to -$30,000 or higher. Basis is seasonal (7/14 – 8/15) and a 1-2-3 low. Because of the different values of each unit move of Soybean Meal and Soybeans, we have to multiply the buy side by 100 and the sell side by 50 to get the right equity chart. The spread is 1:1.
On June 29 we told subscribers of our professional daily spreads & position trading newsletter Traders Notebook, "Consider entering a Live Cattle (CME) calendar spread LCZ8 – LCM9 at -0.75 limit. Initial margin is $540 (reduced). Suggested risk is $500. Initial projected objective is $500, then a move to 2.0 or higher. Basis is seasonal (6/20 – 7/29) and a 1-2-3 low. Comment: LCM9 is not very liquid, that’s why I would only enter via limit order (open outcry)."
Here's how we suggested managing this trade:
06/30 Suggested stop on close at -1.75.
07/01 Suggested stop on close at -1.65.
07/02 Suggest cashing in the first lot today if possible. Suggested stop on close at -1.55.
07/03 Suggested stop on close at -1.50.
07/07 Suggested stop on close at -0.90.
07/09 Suggested stop on close at -0.80.
07/11 Suggested stop on close at -0.45.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 account size do I need to start trading spreads?"
Andy: This is one of the “most popular” questions I answer almost every week. But without knowing the person, his/her trading abilities or financial situation, I am not able to give a precise answer. Without knowing all the details, I would say $10k is a starting point, $20k would be much better. Trading a small account means you have to risk a larger proportion of your money on each trade. When your account is larger, you can trade at least 2 lots or more and still be risking a smaller proportion of your account. When trading a small account, I suggest you stick to calendar spreads. They are less volatile, involve less risk, and you will always get reduced margin. Later, when your trading account gets bigger and you are more experienced in spread trading, you can also look into inter-market spreads.
by Joe Ross
Sometimes you feel as though you can throw caution to the wind. When I was aboard ship, I learned that sometimes it’s okay, as long as you don’t spit into the wind!
One satisfying aspect of trading can be identifying a market or trade that is undervalued, at support, trending, breaking out, or behaving seasonally – and then seeing it continue to behave as expected. When it does so, it pays to be aggressive – boldly assuming positions, and sometimes even adding as long as the market continues to move favorably. The rewards can be emotional as well as financial.But I have learned that afterwards, you must respect the market even more. You have to make extra effort in the area of self-control. Why should you do that?
A good trade, and especially a successful "campaign," can make you feel invincible. Markets can be generous, but they are far more willing to part the foolish from their money. Further, you do not easily or often identify a really good trade – and have the market behave as expected. Especially after a successful trade, it is too easy to "take a shot" at a marginal trade. To do so can be to spit into the wind.
Speaking of spitting into the wind, I can’t help noticing that governments and banks everywhere have been spitting into the wind for a very long time; that spit is about to return to hit them right between the eyes. When it does, the spatter is going to hit us all as well. Let me tell you what I see happening — there is no question in my mind that what is evident is going to have global ramifications.
The U.S. has been spitting into the wind for years, and is now facing national bankruptcy. We are already in the midst of financial chaos, but so far all we’ve seen is the tip of the iceberg. We will all begin to see more of it when the U.S. election is over in November. There is no way that any human being can reverse what is coming. Regardless of where in the world you are reading this issue of Spread Scan, you need to be planning now for the economic storm that is building.
It is not as if we haven’t been warned. The alarm is being sounded, but it seems there are few who are paying attention. Most have thrown caution to the wind. The things you need to know you will not see in the mainstream media. Vital information that can let you ride out the storm in relative safety is not going to be on CNN, Bloomberg, CNBC, or in any media magazine or newspaper.
Check out some of the warnings that have been largely ignored:
Former U.S. Treasury official Paul Craig Roberts recently said: “Financially, the U.S. is not an independent country…the U.S. is bankrupt.”
Two months ago, former Federal Reserve Bank Chairman Paul Volcker stunned conferees of the New York Economic Club with this comment about the emerging dollar and bankruptcy crisis: “You don’t have to predict it. We’re in it.”
In March the Wall Street Journal editorialized: “In the credit panic that began in August, we have now reached a point of maximum danger…when a global run on the dollar can become a rout.”
Forbes magazine columnist David Dreman concluded last month: “We are in a liquidity crisis the magnitude of which we have not seen since before World War II.”
A recent edition of the Safe Money Report adds: “For the first time since the Great Depression, the Fed has bailed out a major broker-dealer and opened the Fed’s Emergency lending facility to primary dealers.”
If you’ve been reading Chart Scan, or reading some of the items I’ve posted in the “Things You Need to Know” section of our Trading Educators Forum, you no doubt are aware of some of my concerns. Perhaps I’ve expressed them even further in our weekly chats (see our chat logs).
It takes a lot of my time to monitor what is happening around the globe, and I simply cannot tell you all I want to tell you by scattering it here and there on our website, and in this weekly newsletter. That is why I am announcing the "Traders Money Club."
I am truly concerned about what I see. The U.S. is running out of “magic” tricks that can keep it going. There are some emergency actions the administration has performed, and is now performing, to keep the U.S. going at least until after the elections. But there are not many rabbits left in the U.S. hat that can be pulled out to save the nation from what ultimately must happen, and to save the world from the repercussions of what seems to be inevitable. The only thing you can do is to save yourself, and that is what the Traders Money Club™ is going to be all about.
The Federal Reserve Bank has primed and pumped over a trillion additional “funny money” dollars into the U.S. financial system. When the stimulative effect of that money wears off, there is going to be lots of trouble. Put another way, the government is printing money "like there is no tomorrow" to buy up bad debts from large numbers of banks that would otherwise be insolvent.
In his book “The Second Great Depression,” Warren Brussee, in 2004, warned of the coming housing crash and what it portends for the economy. You are seeing it in both the U.S. and the U.K.
Don’t think you are safe from the troubles in the U.S. Deutsche Bank in Germany has already had to write off double-digit billions in bad U.S. investments. The same goes for Union Bank of Switzerland. The Chinese have lost multiple billions in bad U.S. investments. Other nations have as well. What is happening here is going to have global ramifications.
Recently, the FDIC, a federal bailout agency, has quietly issued an emergency recall to retired auditors to gear up for a massive wave of bank failures coming in 2008-2009 and beyond. Keep in mind that many banks outside the U.S. are linked to banks within the U.S. I think future historians will read about such warnings and shake their heads in disbelief at the massive world-wide complacency that has preceded this coming debacle.
The worst is yet to come, and you need to be ready. You don’t want to get caught throwing caution to the wind or spitting into the wind.
I want to do all I can to help. I am pricing the Traders Money Club™ at just about what it will cost us to produce it. It’s going to take more than my two hands; it’s going to take more than my two eyes. A lot has to be done, but I have been preparing for what's coming for a very long time. I truly hope you will join us as survivors. I am very optimistic in my belief that we don’t all have to go down with the ship. Follow this link and I'll tell you more about it....You don’t have to be a victim.
I believe we can be winners in the coming chaos.
The Traders Money Club Is Here NOW!
WHOEVER SAID YOU CAN'T GET SOMETHING FOR NOTHING DIDN'T KNOW ABOUT OUR SPECIAL OFFER...
You Can Gain the Upper Hand in Today's Markets
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Gather up your questions and comments, and "meet" other traders on line. Joe Ross will answer everything he can - come and join either his U.S. Live Chat or his Euro Live Chat:
Next Chat Dates for July:
Wednesday, July 16, 2008
Wednesday, July 23, 2008
Wednesday, July 30, 2008
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Here is where you login to Joe's Wednesday Chat
You can also view our saved weekly Chat Logs in case
you missed any Chats but want to be up-to-date
Next Chat Dates for July:
Wednesday, July 16, 2008
Wednesday, July 23, 2008
Wednesday, July 30, 2008
We hope you will join us!
Here is where you login to Joe's Euro Chat
You can also view our saved weekly Chat Logs in case
you missed any Chats but want to be up-to-date.
ABOUT JOE ROSS:
Joe Ross has been trading and investing since his first trade at the age of 14, and is a well known Master Trader and Investor. He has survived all the up and downs of the markets because of his adaptable trading style, using a low-risk approach that produces consistent profits. Joe Ross is the discoverer of the Ross hook(TM), and has set new standards for low-risk trading with his concepts of The Law of Charts(TM) and the Traders Trick Entry(TM). Joe was a private trader and investor for much of his life, but a serious health situation in the late 80's caused him to shift his focus, and that is when he decided to share his knowledge. After his recovery, he founded Trading Educators in 1988, to teach aspiring traders how to make profits using his approaches to trading. Joe Ross has written twelve major books and countless articles and essays about trading. All his books have become classics, and have been translated into various languages. His students from around the world number in the thousands. His file of letters containing thanks and appreciation from students on every continent (except Antarctica) is huge. As one student, a successful trader, wrote: "I really can't thank you enough for the training you gave me...The impact you have had on my life, now and in the future, is immeasurable and I am truly grateful for having met you in this lifetime." Joe Ross holds a Bachelor of Science degree in Business Administration from the University of California at Los Angeles. He did his Masters work in Computer Sciences at the George Washington University extension in Norfolk, Virginia. He is listed in "Who's Who in America." After 5 decades of trading and investing, Joe Ross still tutors, teaches, writes, and trades regularly. Joe is an active and integral part of Trading Educators. He is the primary author and Editor-in-Chief of the company's newsletters: Chart Scan(TM), Spread Scan(TM) , and Traders Notebook(TM). He is also the host of the free Traders Live Chat, the free European Chat for Traders, and the moderator of his popular trading forum. |
Joe's philosophy for helping traders is:"Teach our students the truth in trading — teach them how to trade. Give them a way to earn while they learn, realizing that it takes time to develop a successful trader."
Joe sets forth the mission of Trading Educators as follows:
- To show aspiring futures traders the truth in trading by teaching them how to read a chart so that they can successfully trade what they see, and by revealing to them all of the insider knowledge they need in order to understand the markets.
- To enable them to trade profitably by training them to properly manage their trades as well as their mindset and self-control.
For information about Joe Ross and Trading Educators,
please follow this link...
ABOUT ANDY JORDAN:
Educator for Spread Trading and
Editor of Traders Notebook & Spread Scan Andy Jordan made his first option trade at the age of 18. Since then he has been fascinated by the world of trading. In 2002 he met Joe Ross, and became interested in spread trading. Andy was then intensively tutored by Joe Ross and personnel at Trading Educators. Even though Andy has shown through live chats and in several trading journals that he is able to day trade today's markets, spread trading has always been his favorite. In addition to his own spread trading activities, Andy is the editor of Traders Notebook. For those interested in one-on-one personal coaching, Andy has developed and instructs a one-week online course in spread trading, "Trade with a Pro," during which he demonstrates all aspects of trading from choosing the trades on through how and when to enter the trades, manage the trades, and exit the trades. Andy has developed a number of trading methods, among which are Andy's E-mini 40 and a T-Bond trading method. Andy Jordan was born 1965 in Germany, but is currently living in the Caribbean. He has studied mathematics and business administration in Regensburg and Hagen, and holds a PhD in mathematics.
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We created our Trading Community Forum for the purpose of providing positive, uplifting educational material to traders who want to participate. There is much to be gained from the collective wisdom and experiences of those who choose to participate. Let’s share what we have learned that has been helpful. Let’s all push forward to exchange new ideas and interesting concepts. |
If you are willing to share what works for you, then we welcome you. Your ideas may help someone else on their way to success. In turn, you may pick up an idea or piece of information that will help you to become a better trader.
Joe Ross has been trading the markets, virtually all of them, beginning well over 5 decades ago. He is now in his seventh decade of life, so he has the experiences of many years that he is willing to share, as he is already doing through his books, seminars and newsletters.
We hope you decide to join us in our forum to make your contributions as well.
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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!