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Spread Scan Issue: June 06, 2007 - Volume 147

Today we consider an inter-exchange spread: long December 07 Kansas Wheat and short November 07 Soybeans (KWZ7 – SX7). This spread usually starts its seasonal up move a bit later (app. 06/20 – 10/01). But with the possible 1-2-3 low and the double low at around -340, it looks quite attractive. I personally would use a large stop of about $2,000 per spread. More active traders might consider placing the mental stop much closer.

Traders may want to enter the spread at a value of -306. Margin for the spread is $2,600 (no reduced margin). Suggested risk is $2,000. Initial projected objective is $2,000, then a move to -200 or higher. Basis is seasonal (app. 6/20 – 10/1) and a 1-2-3 low.

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Important Trading Tips from Joe Ross

THE TRADE DECISION

1. Never add to a losing position.

2. Always determine a stop and a profit objective before entering a trade. Place stops based on market information, not your account balance. If a "proper" stop is too expensive, don't take the trade.

3. Remember the "power of a position." Never make a market judgment when you have a position.

4. Your decision to exit a trade means you perceive changing circumstances. Don't suddenly think you can pick a price. Exit at the market.

THE MARKET HAS CHARACTER

5. In a Bull market, never sell a dull market; in Bear market, never buy a dull market.

6. There are times, because of lack of liquidity or excessive volatility, when you should not trade.

7. Trading systems that work in an up market may not work in a down market.

8. There are at least three types of markets: up trending, range bound, and down trending. Have different trading strategies for each.

9. Up market and down market patterns are ALWAYS present, it is just that one is more dominant at any one time. In an up market, for example, it is very easy to take sell signal after sell signal, only to be stopped out time and again. Select trades that go with the trend.

10. A buy signal that fails is a sell signal. A sell signal that fails is a buy signal.

11. It is always easier to enter a losing trade.

12. In the "blowout" stage of the market, up or down, risk managers are issuing margin call position liquidation orders. They don't check the screen for overbought or oversold; they just keep issuing liquidation orders. Don't stand in front of a runaway freight train.

13. If you are superstitious, don't trade if something bothers you.

NEWS

14. Buy the rumor, sell the news.

15. News is important only when the market doesn't react in the direction of the news.

16. Read today's paper tomorrow. When you read yesterday's paper each day, with the knowledge of what the market already did, you will affirm that this morning's paper with yesterday's news has nothing to do with today's market.

A TIME TO TRADE

17. On the open, never enter a new trade in the direction of a gap. Never let the market make you make a trade. (Closing an existing position is obviously ok.)

18. The first and last ticks are the most expensive. Get in late and out early.

19. When everyone is in, it's time to get out.

20. Never trade when you are sick.

Next week in Spread Scan - the rest of this list of Joe's tips, including sections on Tracking your Trades, Market Opinions, and Some Final Thoughts.

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