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Spread
Scan Issue: March 14, 2007 - Volume 135
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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.
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Today we consider an intra-market Eurodollars spread: long June 07 Eurodollars and short March 08 Eurodollars (EDM7 – EDH8). We had considered this spread in February, but it went in the wrong direction. After making a new low in late February, 07, we get a possible 1-2-3 low for a possible entry. Seasonality shows a strong up-move all the way through March.
Traders may want to enter the spread at a value of –0.415. Please ask your broker about the margin. Suggested risk is $250. Initial projected objective is $250, then a move to –0.12 or higher. Basis is seasonal (approx. 2/27 – 4/2) and a 1-2-3 low. Conservative traders can wait for the next RH for their entry.
On February 22 we told subscribers of our professional daily spreads & position trading newsletter, Traders Notebook, "Consider buying March Swiss Frank at 0.8101 stop market. Initial margin is $1,485. Suggested risk is $600. Initial projected objective is $600, then a move to 0.8320. Basis is a TTE in front of a RH."
Here's how we suggested managing this trade:
02/23 In? Trade hit first suggested target. Suggest moving stop to break even.
02/27 Spread made 3 times the risk. Maybe time to take some profits.
03/05 Suggest moving stop to 0.8139.
03/06 Suggest moving stop to 0.8165.
03/08 Out?For more information about our daily newsletter, visit our website:
http://tradingeducators.com/studentsonly.htm or 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, can you tell me something about the winning percentage? To me it seems any trading method with a winning percentage of over 80% is a real good method?"
Andy: The winning percentage alone, without all the other statistical figures, doesn’t tell you anything about the trading method. Let me give you an example: Let’s assume you have a method with a winning percentage of 80%, but you have to risk 50 ticks to make 10. In the long run you can expect to lose more then you make (expectation: 10 x 0.8 – 50 x 0.2 = -2). Now, let’s assume you have a method with a winning percentage of only 40%, but you make 2 times the risk when you win. Your expectation in the long run would be 2 x 0.4 – 1 x 0.6 = +2.
Beginning traders seem to misunderstand these numbers. Most professional outright futures trader will tell you they have a winning percentage of less then 50%. But if they win, they win at least double their initial risk or even more. They will also tell you they make the “big” money with only 3% - 6% of all their trades. This means they need very good money management to stay in the water long enough to catch the big wave!
Therefore, when you look at statistics, always look at all the important parameters at the same time. Try to see the complete picture of how the parameters interact with one another.
Futures Trading - From the Beginning
Let me introduce a great online trading course you need to study for successfully operating your trading business in today's markets. I call it "From the Beginning," but don't let the name fool you. The course has information for traders at all levels, from beginners all the way through to advanced. The course includes fundamental detailed information about this business that most traders do not know, and are unaware that they need to know. |
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IF YOU'RE LUCKY YOU MIGHT FIND THIS INFORMATION IN BOOKS
BUT you might have to read through thousands of pages to get it.
However, in "From the Beginning," you will find the answers all in one place.You can increase your chances for trading success when you know and understand the business of trading. The more you know, the better off you will be. You need to know the rules and the players; you need to know what can hurt you and what can help you.
Follow this link for more detailed information and to order YOUR COURSE "From the Beginning" NOW!
All the best to you and in your trading,
Joe Ross
© 2007 by Trading Educators, Inc
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Disclaimer:
The Commodity Futures Trading Commission has asked us to advise you that trading spreads 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!