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Spread
Scan Issue: April 18, 2007 - Volume 140
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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 inter-market equity spread in the metals: long June 07 Gold and short May 07 Silver (100*GCM7 – 50*SIK7). After making a 1-2-3 low, it looks like the spread will now start its seasonal up move. The seasonal time window is very small (app. 4/16 – 4/27) for this spread which, by the way, can move really fast. The April low at -$1,500 could be a good place for the initial stop. The spread has a ratio of 1:1.
Traders may want to enter the spread Market on Close (MOC) today. Please ask your broker about the margin. Suggested risk is $1,000. Initial projected objective is $1,000, then a move to +1,000 or higher.
On April 01 we told subscribers of our professional daily spreads & position trading newsletter, Traders Notebook, "Consider entering an inter-market currencies spread BPM6 – SFM7 at $19,510. Margin for the spread is $1,428 (reduced margin). Suggested risk is $1,000. Initial projected objective is $1,000, then a move to $22,000 or higher. Basis is seasonal (app. 4/5 – 4/16) and a RH. Comment: Be careful with currencies spreads. They can move really fast. Only for well capitalized traders."
Here's how we suggested managing this trade:
04/02 In?
04/03 Remember, currencies spread can move very fast and we are in front of a long weekend. Suggest taking out some profits tomorrow or Thursday (if possible, depending on your entry).
04/09 Suggest moving stop to 19,644.
04/13 Suggest moving stop to 19,850.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, in the most recent Spread Scan you show a spread with a lowest low indicator overlaid. Do you typically use the 8-day low as a trail stop in your spread trades? If not, what's the significance?"
Andy: I use it in addition to my "natural trailing stop". Sometimes the place for my natural stop (low of the last hook for example) is too far away and I need something else, so I use an 8-day low instead. I don't always use 8 days, sometimes just 6 days for fast moving spreads, and sometimes 10 days for slow moving spreads. To find out how many days fit best to my current spread, I just look at what happened in the past. I start with a 6-day lowest low, then 7, and so on. I am not overly worried about the precise number because I know that I am not able to find the perfect stop in any case.
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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!