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<DIV><FONT face=Arial size=2>I changed the subject, hopefully a larger audience
will participate in this discussion since I address a whole range of issues in
the "spirited response" Norman expects. </FONT></DIV>
<DIV><FONT face=Arial size=2></FONT> </DIV>
<DIV><FONT face=Arial size=2>Newer members, please note: Nothing like a
trade in a market he follows to raise Norman Winski's hackles
<g> The only time he stops is if a tropical hurricane is looking him in
the eyes.</FONT></DIV>
<DIV> </DIV>
<DIV><FONT face=Arial><FONT size=-1>>Why aren't you still short Crude
Oil? </FONT></FONT></DIV>
<DIV> </DIV>
<DIV><FONT face=Arial size=2>A few reasons - but I think I need to explain some
background before going into that:</FONT></DIV>
<DIV> </DIV>
<DIV><FONT face=Arial size=2>I must be more specific about my trade timeframe
henceforth, which I will be. This method is publicly available and therefore I
figured it would generate topical interest.</FONT></DIV>
<DIV> </DIV>
<DIV><FONT face=Arial size=2>Then there are some big picture SWOT issues
(Strength Weakness Opportunity Threat, with the first two being internal to
me - and therefore controllable - and the latter two controlled by the
external environment):</FONT></DIV>
<DIV> </DIV>
<DIV><FONT face=Arial size=2>1. Picking turning points in a trend is a weakness
for me. I must protect my account from my weaknesses.</FONT></DIV>
<DIV> </DIV>
<DIV><FONT face=Arial size=2>As far as I am concerned, Neptune retrograde or
not, this trend's momentum is up until proven otherwise. Once proven, I will
trade short-only setups as position trades.Until then, all counter-trend trade
(short) setups are being approached as short term trades as the price discovery
process creates a trading range, a new downtrend or resumes the uptrend on
momentum buying of new 10/20/50 day high Donchian breakouts and then fails on
what are known as Turtle Soup sells, or double tops, or triple
tops.</FONT></DIV>
<DIV> </DIV>
<DIV><FONT face=Arial size=2>2. I am very cat-on-a-hot-tin-roof nervous around
outright futures positions and prefer to trade spreads, or find ways to lay
off my risk on outrights using a combination of options and futures as
opportunity arises. You know the game, you are a grandmaster at it yourself
and I am just in Trading 101 </FONT></DIV>
<DIV><FONT face=Arial size=2></FONT> </DIV>
<DIV><FONT face=Arial size=2>The crude option vols went up Friday and I did not
want to buy or hold on to vol ahead of a weekend - only to have it erode by
Monday AM. This logic applies to the specific trade posted on the
list.</FONT></DIV>
<DIV> </DIV>
<DIV><FONT face=Arial size=2>3. I do have an open Short June Long July spread
position which is profitable since my entry at 48 cents for the spread - which I
legged into on Thursday. If crude is to enter a bear or a trading range market
from now to June expiration, this spread will come in to zero. If it doesn't
happen by June expiration the July-Aug spread and others in the back months will
come in, maybe even go to a discount. I also have some other spreads and option
positions, the details of which I would rather not go into on this forum.
</FONT></DIV>
<DIV> </DIV>
<DIV><FONT face=Arial size=2>We will see. Neptune is a slow planet, we have had
a fast run up in this market, there will be more opportunity to participate
without needing to expose the portfolio or the position to
unnecessary volatility in the interim. I would prefer to make haste slowly,
probably just a trader's choice.</FONT></DIV>
<DIV><FONT face=Arial size=2></FONT> </DIV>
<DIV><FONT face=Arial size=2>I prefer spreads since they are less volatile
and require less margin per unit (esp in the back months) so I have the choice
of using more of them and/or participating in the trend from a less
stressful perspective.</FONT></DIV>
<DIV> </DIV>
<DIV><FONT face=Arial size=2>4. On this trade I wanted to be flat for the
weekend. </FONT><FONT face=Arial size=2>This setup is a small, independent
portion of a larger chess game and I treat it as such, with this trade
not being the sole determinant of the eventual PnL outcome for the
portfolio. Ditto this setup traded for the June Swissie last week in the
opposite direction.</FONT></DIV>
<DIV> </DIV>
<DIV><FONT face=Arial size=2>Specific to this trade:</FONT></DIV>
<DIV> </DIV>
<DIV><FONT face=Arial size=2>1. The price action met my initial objective of
testing the 20 Day EMA at 1778 basis Friday open. (the low and its multiple
intraday retests around the 90 area, both within 10 ticks of the 20
ema is good enough for me).</FONT></DIV>
<DIV><FONT face=Arial size=2></FONT> </DIV>
<DIV><FONT face=Arial size=2>On 2 of the past 3 short term
counter-trend setups during this rally from 11.41 basis Apr contract,
the decline has stopped at the 20 EMA and the original uptrend has resumed.
While 20 may just be a number for a moving average, I have come to respect its
ability to lend support across a variety of market uptrends.</FONT></DIV>
<DIV> </DIV>
<DIV><FONT face=Arial size=2>While this specific setup did not reign for all of
the following tests of the 20 ema, take a look:</FONT></DIV>
<DIV> </DIV>
<DIV><FONT face=Arial size=2>Apr contract:</FONT></DIV>
<DIV> </DIV>
<DIV><FONT face=Arial size=2>2/26, 3/1, 3/2. </FONT><FONT face=Arial
size=2> </FONT></DIV>
<DIV><FONT face=Arial size=2></FONT> </DIV>
<DIV><FONT face=Arial size=2>This became the thrust for the whole 8
dollar rally after Crude made an extended double bottom at the 10.75 (Dec) -
11.30 (Mar contract) level and decided to put the $8 barrel crude forecasters to
shame in one of the smoothest uptrends I've seen since the Oct 8 low and 5 month
rally in the NDX.</FONT></DIV>
<DIV> </DIV>
<DIV><FONT face=Arial size=2>May contract:</FONT></DIV>
<DIV><FONT face=Arial size=2></FONT> </DIV>
<DIV><FONT face=Arial size=2>4/8</FONT><FONT face=Arial size=2>,
4/14</FONT></DIV>
<DIV> </DIV>
<DIV><FONT face=Arial size=2>June contract:</FONT></DIV>
<DIV> </DIV>
<DIV><FONT face=Arial size=2>4/8 (overlaps May contract), 5/7.</FONT></DIV>
<DIV> </DIV>
<DIV><FONT face=Arial size=2>LBR calls this the Holy Grail. </FONT></DIV>
<DIV><FONT face=Arial size=2></FONT> </DIV>
<DIV><FONT face=Arial size=2>Whatever, but it has proven itself to be a strong
enough magnet for trend continuation tests in my eyes in many markets and I pay
attention to it.</FONT></DIV>
<DIV> </DIV>
<DIV><FONT face=Arial size=2>2. The shelf life of this particular setup itself
is very short. My reasons for entry were:</FONT></DIV>
<DIV> </DIV>
<DIV><FONT face=Arial size=2>a/ Short term historical volatility being
sub-normal form its normal behavior. </FONT></DIV>
<DIV><FONT face=Arial size=2>b/ Range contraction confirming the prelude to
volatility expansion</FONT></DIV>
<DIV><FONT face=Arial size=2>c/ The Inside day was just the trigger for
entry.</FONT></DIV>
<DIV> </DIV>
<DIV>
<DIV><FONT face=Arial size=2>This situation has been corrected.
</FONT></DIV></DIV>
<DIV><FONT face=Arial size=2></FONT> </DIV>
<DIV><FONT face=Arial size=2>Not many markets continue to form 2 inside days in
3 bars, with the middle bar not being a range expansion bar (some do, Nike
is a present example). Some markets even form inside days, wide range reversal
day, inside day, wide range day, wide range day, inside day with no net
net change in closing prices from start to finish (examples galore on Spoos
and NDX charts for the past 2 months). These are aberrant behavioral patterns,
in my experience.</FONT></DIV>
<DIV> </DIV>
<DIV><FONT face=Arial size=2>If Crude is to conform to traditional pattern
evolution, we should expect trend continuation or reversal, and violently since
we are coming out of a low histvol environment - for the intermediate term of
the next 7 - 10 daily bars. Which means range expansion bars followed by range
expansion bars in the same direction, preferably with a gap or two thrown
in.</FONT></DIV>
<DIV> </DIV>
<DIV><FONT face=Arial size=2>This will push up vols. even further. But I have
some issue with the traditional histvol calculation:</FONT></DIV>
<DIV> </DIV>
<DIV><FONT face=Arial size=2>The Natenberg book for calculating historical
volatility advocates the use of stdev of log of changes in CLOSING prices. There
is an inherent weakness to that calculation:</FONT></DIV>
<DIV> </DIV>
<DIV><FONT face=Arial size=2>It is possible for price to have a 2 sigma move
within a bar, yet close unchanged relative to previous close. This phenomenon
can express itself for days together as the market gets unsure or there is a
last minute paint-the-tape (as some specialists print the last trade on some
stocks or see Dow Friday close on 10 minute chart) or short covering rally after
trading down most of the day esp ahead of a weekend in a typically is a
downtrending week (across markets).</FONT></DIV>
<DIV><FONT face=Arial size=2></FONT> </DIV>
<DIV><FONT face=Arial size=2>This will show up as sub-normal vol in the present
moment on eod histvol charts, which is hardly true.</FONT></DIV>
<DIV><FONT face=Arial size=2></FONT> </DIV>
<DIV><FONT face=Arial size=2>I have therefore modified the concept to be
slightly more representative of price action the present moment.</FONT></DIV>
<DIV><FONT face=Arial size=2></FONT> </DIV>
<DIV><FONT face=Arial size=2>As far as this price action setup is
concerned,</FONT></DIV>
<DIV> </DIV>
<DIV><FONT face=Arial size=2>- either there will be follow-through in the
direction of the last hour breakout/ daily chart breakdown (which will push up
price volatility)</FONT></DIV>
<DIV><FONT face=Arial size=2>- or there will be an even more violently sustained
end of day reversal to the upside (which will push up price
volatility)</FONT></DIV>
<DIV><FONT face=Arial size=2>- or market will go sideways within a 75 cent - 1
dollar range (which will bring in vols. or just keep them steady around their
longer term mean).</FONT></DIV>
<DIV> </DIV>
<DIV><FONT face=Arial size=2>For all of the above 3 scenarios, my reaction plan
is different, and until 1905 basis June is proven difficult to be taken out, I
must guard my position against the upside breakout/downside pressure churn that
we will inevitably get in the next 2-3 days.</FONT></DIV>
<DIV><FONT face=Arial size=2><FONT face=Arial><FONT
size=-1></FONT></FONT></FONT> </DIV>
<DIV><FONT face=Arial size=2><FONT face=Arial><FONT size=-1>>I don't see
where anything has changed, i.e. Neptune just</FONT></FONT> <BR><FONT
face=Arial><FONT size=-1>>went Retrograde, and an approx. $1 drop in Crude
Oil is a substandard correction. </FONT></FONT> </FONT><FONT
face=Arial size=2></DIV>
<DIV>
<DIV><FONT face=Arial size=2></FONT> </DIV>
<DIV><FONT face=Arial size=2>1700 basis June contract is the last "swing" high
that got decisively penetrated to the upside enroute 1905, and will eventually
get tested if this downdraft is to continue. Early days yet, but I can always
get back short, right? </FONT></DIV>
<DIV> </DIV></FONT></DIV>
<DIV><FONT face=Arial size=2>></FONT><FONT face=Arial><FONT
size=-1>Additionally,</FONT></FONT> <FONT face=Arial><FONT size=-1>Oil had a
rally of approx. $8. A Fibonacci analysis of this range would imply that a
minimum .382 retracement would cause one to expect a $3.05 >retracement from
the $19.05 high to $16.00. Taking</FONT></FONT> <FONT face=Arial><FONT
size=-1>too small of profits is the same as losing money. <FONT face=Arial><FONT
size=-1>You are not being properly compensated for the risk you are
taking</FONT></FONT></FONT></FONT></DIV>
<DIV> </DIV>
<DIV><FONT face=Arial size=2>All I can say, in light of the author's experience
behind this statement, is this:</FONT></DIV>
<DIV> </DIV>
<DIV><FONT face=Arial size=2>Compensation for taking risk is a business
cost-benefit decision. We live with the choices we make:</FONT></DIV>
<DIV><FONT face=Arial size=2></FONT> </DIV>
<DIV><FONT face=Arial size=2>- Maybe the market will gap down to 1600 on Monday
morning and I will have missed an opportunity for a picture-perfect (or a
Fibo-perfect) trade. </FONT></DIV>
<DIV><FONT face=Arial size=2>- Considering that the NYMEX will remain open for
trading after that cataclysmic event, as will my account equity should
Crude gap UP to $22 on Monday morning, I will have plenty of other opportunities
to make good on this "opportunity cost" that I chose to bear for a
weekend's worth of peace.</FONT></DIV>
<DIV><FONT face=Arial size=2>- Basis any contract (Apr, May, June) 2/17/99
lows: For all the tests of the 20 day EMA listed above, NOT ONE retraced 0.382%
of the highs then set. Bulls 3 Bears 0. </FONT></DIV>
<DIV><FONT face=Arial size=2>- I guess "this time it is different" since we have
a Neptune inspired situation where it will be an exciting Knicks-Miami Heat 4th
quarter, but trading for me is not a game that ends with any one single quarter
or year. I always go into a trade thinking that my best trades are ahead of
me, and I sure plan on being around for the next 28 years, like you have been
for the past 28...</FONT></DIV>
<DIV> </DIV>
<DIV> </DIV>
<DIV><FONT face=Arial size=2>- Apart from that, a lot of small 20 cent moves are
equal to the same one big 3.05 cent move that you speak about. We young blood
traders believe in spreading the commission wealth, while taking in some of our
own from the 20 cent trading ranges that developed intraday (fire up a 10 minute
chart on FREE quote.com for June Crude). At the end of the day, money looks the
same color on the account statement :)</FONT></DIV>
<DIV><FONT face=Arial size=2>- With Crude trading between 1790 and 1810 all day
Friday, the June 1900 option sold for 11 cents. The at the money usually has a
32-38 cent premium. Go figure </FONT></DIV>
<DIV><FONT face=Arial size=2>- The Heat Crack has no option with a zero strike
price, and the heat crack closed Friday very close to zero. Either the refiners
are not making any money, or there is free heating oil coming down the pike as
they battle for Unleaded market share in the summer. From a chemical standpoint,
heating oil is the same thing as diesel fuel, with a color added to diesel
courtesy EPA regulators. </FONT></DIV>
<DIV><FONT face=Arial size=2>- Either way, the 2-1-1 crack has been the cheapest
it has ever been in history, and I am short a few in August from a buck above
here and riding the trend until it stops me out. Cracks give you the same $10
per tick, require less than half the Crude/Product's margin, and are far less
prone to gaps, REGARDLESS of how high or low they open Crude come war, new
oil fields, or EPA bans on reformulated gasoline.</FONT></DIV>
<DIV> </DIV>
<DIV><FONT face=Arial size=2>In sum, the beauty of physical commodity markets is
that there are more than one ways to trade them. And a trade is a trade, there
are plenty more where they come from. I see no reason for desperation behind a
single trade's profit/loss. There is also the undisclosed element of daytrading,
of futures trading around a core options position, and of playing chess into
relative eternity versus playing 9 innings where you can only have 3
strikes or 4 balls to make your day.</FONT></DIV>
<DIV> </DIV>
<DIV><FONT face=Arial size=2>Different strokes for different folks.</FONT></DIV>
<DIV><FONT face=Arial><FONT size=-1>. </FONT></FONT></DIV>
<DIV><FONT face=Arial><FONT size=-1>>I look forward to your spirited
reply.</FONT></FONT></DIV>
<DIV> </DIV>
<DIV><FONT face=Arial size=2>Hope you got what you were looking for. This
started more as an exercise for public evaluation of a popular author's methods.
I am glad we evolved it to an examination of some other core issues lurking
in a learning trader's brain. </FONT></DIV>
<DIV> </DIV>
<DIV><FONT face=Arial size=2>We know experienced traders live here. It would be
nice to have some other ways of taking apart this trade - for educational
purposes - be expressed - using options or other methods of entry/exit, or even
other timeframes.</FONT></DIV>
<DIV> </DIV>
<DIV><FONT face=Arial size=2>Regards</FONT></DIV>
<DIV><FONT face=Arial size=2>Gitanshu</FONT></DIV>
<DIV> </DIV>
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</x-html>From ???@??? Sat May 08 11:24:08 1999
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Reply-To: cthomp@xxxxxxx
Sender: owner-realtraders@xxxxxxxxxxxxxx
From: Thompson family <cthomp@xxxxxxx>
To: RealTraders Discussion Group <realtraders@xxxxxxxxxxxxxx>
Subject: Brain Test
References: <199810122304.QAA29979@xxxxxxxxxxxxx>
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As this was a thread a few months ago and since it is
relevant to trading I thought I'd share this with the
group. I have a simple but yet fascinating 20 question
'brain evaluator' in terms of determining whether you
predominantly use your 1)right hemisphere (creative) or
2)left hemisphere (structured) and in what proportions and
as well whether you process information primarily 1)visually
or through 2)auditory sources and again in what
proportions. A personal evaluation is given at the end of
the test. There are no right or wrong answers on the test.
This 'test' was created by 'Synergistic Learning
Incorporated' and is of course 'free'. No spam.
Unfortunately it requires 1.6mb ram so I can't include it in
a regular post to realtraders.
For those interested, email me PRIVATELY with 'test' in the
subject line up until 10pm Sunday pacific time US. After
this, post me again next Friday pm through Sunday pm. Sorry
but I trade full time and need to concentrate on exactly
that during the week. For those of you curious about these
things, I think you'll find it interesting for you and
everyone in your family. Jim
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