Edition 313 Wednesday, August 25, 2010
Edition 313 Wednesday, August 25, 2010 |
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Commentary by Andy Jordan
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Weekly Spread Scan ExampleThis week we look at 100*GCZ0 – 50*SIZ0: long December 2010 Gold and short December 2010 Silver Today we consider an inter-market equity spread in the metals: long December 2010 Gold and short December 2010 Silver (100*GCZ0 – 50*SIZ0). After being in a downtrend in July, the spread turned around at the beginning if August and has been showing a lot of strength since then. Will this strength continue on September, and will seasonality (08/30 – 09/15) help by moving the spread even higher? This spread might be only for those with a large trading account. In my opinion, it requires a risk of about $1,500 or even more per spread contract. Please note: because of the different values of each unit move of the Gold and the Silver, 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. |
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On August 17 we told subscribers of our professional daily spreads & position/swing trading newsletter Traders Notebook, "Consider entering an inter-market equity spread: long September Soybean Meal and short September Soybean Oil (100*SMU0 – 600*BOU0) on a close above $5,500. Suggested risk is $1,000; initial projected objective is $1,000, then higher. Basis is seasonal (8/19 – 8/30). Comment: This spread trade is high risk due to high volatility, and you can easily end up losing more then only the suggested risk!"
Here's how we suggested managing this trade:
08/18 In at approx. $5,900; suggest exiting at a close below $5,000 (same day).
08/19 It was possible to cash in the first lot around $6,600
(see e-mail). Suggest exiting on a close below $5,100 (same day).
08/23 Suggest exiting on a close below $5,500 (same day).
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© 2010 by Trading Educators, Inc. Re-transmission or reproduction of any part of this material is strictly prohibited without the prior written consent of Trading Educators, Inc
Walk-Forward Testing
Walk-forward testing is the first real step in testing any system on live data. A trader should be somewhat confident that the system or method can produce results in line with the hypothetical results received from back testing.
At this stage of testing, it’s important to watch a trading system or method run over live data for a period of weeks or months until a large, statistically valid universe of sample trades have been reviewed. By using a walk-forward trading process, you can gain a better understanding of the intricacies involved in making sure that the system is successfully executed in real-time.
Many trading systems or methods seem to work well during back testing, but fail miserably when it comes to live trading. Therefore, any trading method has to be tested under real market conditions before going live with real money, by using a simulator or a paper account.
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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.
Be sure to "white list" us to 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 inform you about additional educational services and products to help you grow as a successful and profitable trader.
Educator for Spread & Swing 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. Andy is the founder and president of Jordan Trading, S. A. 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 preference. 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 an online course in spread trading, "Trading Mentoring - 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 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.
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™, and has set new standards for low-risk trading with his concepts of "The Law of Charts™ " and the "Traders Trick Entry™." 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 trading approach.
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 (now including Antarctica) is huge. As one tutoring student, a successful trader, wrote: "You have no idea how much improvement in my life and in my trading efforts have those three days with you brought to me."
Joe Ross, the CEO of Trading Educators, 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 the primary author and Editor-in-Chief of the company's newsletters: Chart Scan™, Spread Scan™, Options Scan™, and Traders Notebook™. 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.
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