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In "The Supertrader's Reference Manual", the author (Frank Taucher)
mentions a strategy that is somewhat difficult to test in any mechanical
way, but I wonder if anyone has a comment on, or experience with, this
strategy:
He calls it the "FND Slammer" and it supposedly goes like this:
1) For a commodity in a bear market, you need to identify an upcoming FND
or LTD [To newbies-> "FND"=First Notice Day and "LTD"=Last Trading Day]
2) As FND or LTD approaches, find a logical place to sell. Taucher is
non-specific on how (and I actually respect him for that) but that could
mean selling breaks to new lows or selling thrusts upward for an expected
downturn.
3) Close the position before FND or LTD [Like, duh]
4) To follow up, one may wish to play the long side on the next contract
for a post-FND bounce.
Why?
Taucher claims that the public likes to go long to bottom fish in bear
markets. The public feels the market HAS to go up. In many cases they may
be right, but wrong in their timing.
Because long positions are subject to delivery notice, these somewhat weak
long players must exit. Brokers pressure their clients to get out or roll
over to another month, not necessarily because of the extra commission, but
because a client in delivery is a pain in the butt. This pressure
supposedly reveals itself in increased margin requirements as FND
approaches.
And often, Taucher says, the next month over will experience a significant
bounce as the longs create buying pressure for the next month out.
In a totally unrelated part of the book, Taucher also talks about contracts
expiring in general and encourages trading in the logical direction of the
trend because price changes can be magnified significantly in the last few
days. This, Taucher says, occurs when supplies are extremely short
(magnified move to the upside), supplies are ample (magnified move to the
downside) or because contracts are in the hands of weak, inexperienced
traders [not us, of course]. He also cautions, however, that margins will
be much higher than normal, so the expected magnified moves may result in
the exact same rate of return on margin.
Any thoughts on this/these strategies?
-Richard
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