The Traders Notebook Guide

Let’s view a typical entry consideration from Traders Notebook (TN). Just click on the different subjects (bold) and you will jump to the right position in this document:

We’ll now go step-by-stop through the trading suggestion given above:

“Soybean Complex”

This gives you the information for the market we will consider entering. We trade mainly the Chicago markets using CME and CBOT. There are reasons why we prefer these markets:

- Chicago markets are more trader friendly, i.e., if you give a market order in Chicago, it has to be filled in a specific amount of time, that time being, to the best of our knowledge, 5 minutes. Such a rule does not exist in the New York markets, which can be extremely detrimental your fills.

- In the Chicago markets you usually get much less slippage than in New York. Attempts to leg in via a market order in any energy spread often results in huge slippage fills. Even if the markets are liquid, you can get a terrible fill in New York.

- Exchange rules in Chicago are much stricter than in New York, meaning you get much better treatment at the exchange. Chicago traders are held to more stringent standards.

- We are not following ALL possible markets. We concentrate on the grains, meats, soy complex, interest rates, and the currencies, and this is really enough. For our own trading we like to have enough markets available to find good trades, but we also devote much time in trying to understand each market's individual behavior.

Back to example

“SF6 – SK6”

A trade recommendation in the form of A – B means, long (buy) A and short (sell) B. If not stated otherwise, all recommendations are 1:1, which means buying and selling the same number of contracts.

Sometimes you will find a recommendation using multipliers. For example: 400*LCJ6 – 500*FCH6. This does NOT mean we recommend buying 400 Live Cattle and sell 500 Feeder Cattle! When you see the multipliers, they tell you that this is an “equity” spread. When the legs of the spread have different values, the only way you can track them in dollars is to make both sides of the spread equal in value. This is done by multiplying each side of the spread by the dollar value of a full one-point move (Unit Value).

We use the multipliers only to track our spread with the right value in US$. Live Cattle has a value of $400 and Feeder Cattle has a value of $500 per unit move. Multiplying each leg of the spread by its Unit Value gives us an “equity spread.” Please let us know if you have any problems with “equity spreads”.

Unfortunately there is no standard for the symbols used in the different charting packages. You will find all symbols and other useful information about the markets under http://tradingeducators.com/resources/futures_contracts_specs.htm. Your own trading software may use different symbols than you find at our website.

Back to example

“Close above -10”

This defines the suggested entry point, and if not stated otherwise it means the following: Wait until the spread moves above the suggested entry on the close and enter the trade the next day around the open (MOO). We recommend you do the same with the Stops. Wait until the market moves below your stop level on the close and exit the trade the next day around the open (MOO). We enter and exit all trades around the open of the pit market, even if we trade the electronic market. Please have a look at the following table. It shows when markets are liquid and the recommended times for our entries or exits. Recommended times are not set into stone. You should always talk to your broker about the best entry or exit times!

MOO = recommended times to use for Market on Open

Back to example

“Margin”

Calculating the margin is sometimes very tricky. In our Spread Toolbox you will find all the links to the minimum margin requirements of the various exchanges. Please note: Not all brokers use the minimum margin requirements from the exchanges; some charge more. To be certain about margin, you have to talk with your broker.

Back to example

“Suggested risk”

Calculating risk is a very individual decision, so we can give you only a recommendation that makes sense to us. Of course, this depends a lot on your trading strategy and your personal trading plan. Some traders prefer to give more; others give less room to a trade. Please understand, we cannot go into details of money management here, but here are some simple steps you can follow:

- Always use the same percentage of your trading account on each trade. For example your trading account is $20k and you want to risk 6%. You would use $1,200 on each trade.

- Calculate the number of contracts you want to trade. Let us assume you are willing to risk $1,200 and the trade requires a risk of $400 for each spread. You will be able to trade 3 ($1,200 / $400 = 3) contracts.

Back to example

“Initial projected objective”

Using the same initial objective as the recommended risk is just an idea, and varies from trading plan to trading plan. But we have seen that it works quite well, and is easy to use. We recommend trading at least 2 spread contracts (better 3 spread contracts) when possible. This makes it easier for you to manage the trade.

Back to example

“Basis”

The basis defines the “main reasons” for our trading idea. We normally choose between seasonal correlation and simply “the chart pattern looks right” trades, and use the Ross Hook and the 1-2-3 chart pattern for the entry.

Back to example

“First Notice”

We recommend exiting the trade one day before First Notice or Last Trading day. Depending on the market, First Notice day may or may not come before the Last Trading day. Which comes first is something you will just have to learn. You will not find information for First Notice day available in all markets. Some markets do not have a “First Notice day.” To be sure, look in the Spread Toolbox. There you will find links to the calendars where you can get all the information you need.

Back to example

“Is there anything else?”

Trading Educators has a more complete, higher quality spread-education program than anyone else in the world!

Check it out:

• Traders Notebook our daily spread trading and position trading advisory. A subscription to Traders Notebook gives you access to online coaching by Andy Jordan!

• “Introduction to Spread Trading” – a free introductory course to reveal the rationale behind spread trading.

• Manual – “Trading Spreads and Seasonals.”

• Futures Spread Trading Online Video Seminar with Joe Ross.

• Private tutoring in Spread Trading with Joe Ross.

• Online Mentoring for Spread Trading – 1-week individual training with Andy Jordan, our top-notch professional
spread trader (one of the world's best.)

• E-mail support for your questions.

• Free weekly Futures Spread Trading Newsletter: Spread Scan

Please do not hesitate to contact us anytime you have a question or comment.

All the best in your trading,

The Staff at Trading Educators, Inc.
andy@tradingeducators.com

© 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.