Category: MarketClub Techniques, Tips & Talk

The IRREFUTABLE LAWS of Trading

Six STEPS Every Trader MUST KNOW to Succeed

Step 1. A move begins with the sponsors who have insider knowledge as it relates to a particular stock or futures market. This information will move a market up or down depending on the insiders information. (These buyers are very smart and recognize opportunities early.)

Step 2. Occurs days, weeks and in some cases, months after a move has started. There may be a mention in the electronic media (radio, cable, TV) that a market has moved. (Public hears for the first time and starts getting interested. Does not buy.)

Step 3. A blurb of information appears in the print media (yes, believe it or not, a lot of people still read newspapers and magazines). (Public begins to get interested and starts to buy a little.)

Step 4. Wall Street and LaSalle Street brokers go into full hype mode and hawk the market to their customers. (Public begins buying in earnest.)

Step 5. A full blown article appears about the particular market or stock in one of the major financial newspapers or magazines. This can be six months after step one and after a market has shown its greatest appreciation. (Heavy public buying/possible frenzy as all media, brokers, gurus start to tout the market.) Remember the dot-com bubble?

Step 6. The sponsors and early insiders begin to move out of the market and take their profits off the table when Step 5 is underway.

Dear Traders Blog reader,

Last month we revealed the results of our Q1 “Trade Triangle” signals. Judging by the early feedback we've received, it seems like many of our members were delighted with their returns.

Over the weekend I had some time to catch up on my reading, so I picked up a copy of BARRON’S newspaper (March 31st). I had purchased the paper two weeks ago because of an article on the commodities run-up entitled, “Guess Who's Behind The Commodities Boom.” You may have seen and read the article.

If you still have the paper you will be able to independently confirm what I am going to share with you now.

After I read the article on commodities, I started thumbing through the rest of BARRON’S and happened to run across the trading results of 2000 of the largest hedge funds in the world.

I said to myself that these hedge funds must've done extraordinarily well during the last 12 months. So for fun I started searching through their results for triple digit returns.

What shocked me was that over the last nine months, MarketClub’s “Trade Triangle” results far exceeded the results of the top 2000 hedge funds in the world and not by one or two percentage points either.

The best return I could find by any hedge fund in the last 12 months was 217.33% and that was by the Balestra Capital Partners, LP. That’s a great return but we managed to do better than this top performing fund.

Okay, if 2000 of the top hedge funds couldn’t match our returns who could?

So I carried on perusing through BARRON’S looking for answers. It was there in the very same edition of BARRON’S that I ran across the results of the top 300 FUNDS of FUNDS.

Now to the FUNDS of FUNDS... I have always thought this was a dorky idea which puts another layer of fees on top of another layer of fees. The basic FUNDS OF FUNDS concept is to reduce risk through diversification (a good thing) and increase profitability. Unfortunately, when you reduce risk like the FUNDS of FUNDS you reduce profitability.

So with that in mind, I took the time and waded through the 300 FUNDS OF FUNDS data and found that the Merriwell Fund was the top performer with a 39.28% in the past 12 month period.

Good, but no cigar. MarketClub’s “Trade Triangles” were still in the poll position.

Also buried on page M54 of BARRON’S, I found the results of the top 200 Commodity Trading Advisors. Now this is more like it as these guys are smart, very smart and usually outperform the hedge funds and the FUNDS of FUNDS.

I was right! The top performing CTA was a commodity pool named AIS Futures MAAP (3x-6x) Composite with a return of 142.93%. Now this is a great performance and one of only two CTAs to crack triple digit returns in the past 12 months.

So there you have it. The best of the best in all three categories and they all came in short of MarketClub.

I was shocked, absolutely shocked as I thought everybody was doing extraordinarily well during this huge run-up in commodity prices.

MarketClub’s “Trade Triangle” approach far exceeded the biggest gains of the 2000 top hedge funds. Far exceeded the gains of 300 of the biggest FUNDS of FUNDS. Lastly, it outperformed 200 of the top Commodity Trading Advisors in the world.

Now you can see why I am in shock.

See how we managed to generate signals that show a return of 243% over past nine months. I think you'll be surprised at just how simple this approach is, and how you too can become the master of your own fate and stop paying fees to advisors.

I can't promise that you’ll make 243%. In fact, I can't guarantee that you’ll make any money. Not even the best hedge fund and FUNDS of FUNDS can do that.

The bigger the risk the bigger the return. That's how it's been since the beginning of time and that equation is never going to change.

I've just finished a very short video that shows how we managed to have such great returns. The video we put together is in theater style so you can watch the whole show or watch the results of individual returns.

You can check it out today. There is no charge and there’s no registration required.

If it all makes logical sense to you, then you’ll know what to do next.

Thanks for taking the time to read this longer than normal post.

Every success in trading and in life,

Adam Hewison
President, INO.com

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Room Full of Traders

If you ask a room full of commodity traders which skill is the most important in becoming a successful trader I wonder if anyone would respond the ability to take a loss? I doubt it, because taking a loss is considered a negative. Who wants to talk about the right way to lose money? I think every trader should!

I believe that possessing the mental toughness to accept a loss, and the ability to know when a loss should be taken, are traits I believe to be at the foundation of being a profitable commodity trader. Let us understand each other right now. If you trade commodities some of your trades, if not a majority, will be losers. If you are to be a profitable trader, I believe you must recognize this basic fact and have a bad trade exit strategy determined even before you put on any trade.

Stop-Loss Order

PAY ATTENTION! In my view this order should be used when a trade is entered into and the trader has determined a specific level of risk or loss they are willing to accept.

How Do Stops Work

An aspect of stop and stop-loss orders that often confuses some traders is the level at which they get filled once their stop/stop-loss price is hit. You see, when using stop/stop-loss orders, the order cannot - by regulation - be executed until the stop price is traded. At that point, it becomes a market order -- not a limit order set at the stop value. Let us use the example shown in the definition of Money Stop-Loss where the stop-loss price was $6.90. If the market traded as follows:

$7.00
6.99
6.98
6.97
6.96
6.95
6.94
6.93
6.92
6.91 1/2
6.91
6.90
6.88
6.87
6.86
6.89
6.90

What is the best price you could expect to get filled at? If you said 6.88, you are right. If the market was a fast market, or if the order flow was thin, you might not get a fill until 6.86. Remember, a stop/stop-loss order becomes a market order only AFTER the stop-loss price is traded.

Taking a Loss

If you are going to be a trader of commodity futures, you are going to have trades that lose money ... pure and simple. In my first booklet, “Lessons Learned”, I recounted a true story of one of my clients from years ago. He bought a contract of corn just prior to the release of a government report. The report was a bearish report, but for some reason the market did not react immediately to the government numbers. He had an opportunity to get out of the trade with only a quarter cent loss ($12.50), but he refused.

In the end, he liquated the trade and lost over two thousand dollars -- all in an effort to keep twelve dollars and fifty cents. Ladies and gentlemen, if you are going to have a chance I contend you must know how to TAKE A LOSS ... and understanding how to effectively use stop-loss orders can be a great help. Like my old account, you can pay twelve dollars and fifty cents now, or two thousand later.

Money Management

What is money management? There are a number of old sayings that I believe give a hint to the true nature of money management. One is simply, “If you are wrong, make sure to live to play another day”. One of the first old wags I learned as a rookie in the commodity business was, “The best loss to take is the first loss”, and the Chicago Mercantile Exchange came out with a popular poster that said “Risk Not Thy Whole Wad”. My personal definition of successful money management is to limit losses to acceptable levels (not risking thy whole wad) while providing the trader with an adequate opportunity to realize a profit from the trade.

What is an Acceptable Level of Risk

What is an acceptable level of risk? For me, it can be answered in two different ways. First, what is the risk-reward ratio? Secondly, how deep are the pockets of the trader? The answers to each of those questions are highly individualized, but at least one of those questions - if not both - should be answered BEFORE entering into a trade. I am not a big believer on determining stop-loss levels based upon what you can afford to lose. Why? Because what you can afford to lose has not a darn thing to do with the market or how it functions. That is why I absolutely find the money stop to limit losses to be without merit. If I feel that way, what do “deep pockets” have to do with anything? It has been my experience that the markets will give a trader several different stop/stop-loss levels of support or resistance to choose from. The depth of pockets will help determine how aggressive or conservative the trader can be in selecting the stop/stop-loss levels.

The Dreaded Mental Stop

What is a mental stop? The dreaded mental stop is usually preceded by having been stopped out of the market only to have the market reverse and go the other way, causing the trader to miss a possible profitable opportunity. That is how one comes to use a mental stop. So now let us address the question of “what is a mental stop”. A mental stop is a price determined by Trader Jack where he should accept the loss … but with no real intention of doing so. Do not waste your time fooling yourself. A mental stop is just a way to fool one’s self into believing they are practicing effective and responsible money management.

Last Piece of Advice

In my view a common mistake that is made by those attempting to use stops is placing the initial stop too close to the entry point of the trade. The initial stop in my view should be at the widest point giving the trade a chance to work and then over time progressively getting closer to the entry level.

By Lee Gaus

About the Author
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Lee Gaus is a 54 year old industry veteran of twenty-six years. Lee began his career in the livestock feed business before becoming a grain merchandising/commodity trader with a leading international company.

In 1992, Lee established EFG Group along with his two partners who are long-time friends. Since then, Lee has traveled the U.S. conducting seminars and trading meetings for retail traders and commodity offices.

Did they pull the plug on crude oil?

If they did pull the plug on crude oil, we pulled it faster using our Trade Triangle technology. We had a signal to exit all long crude oil positions on the 30th of April at 114.95 basis the June contract. It now appears that oil is on the retreat and we could see further downside erosion in this market. The 108 to 110 level is an important area for this market to regroup, if it is going to resume its upward trend.

Has gold lost its luster?

When we first announced that we had a major sell signal for gold it was if we were going against the Holy Grail. We had what literally amounts to hate email coming in from all the gold bugs saying, how could we think of selling gold given the economic uncertainties that the world faces today. But as we have stated before, we only look at what's going on in the market according to our Trade Triangle technology. What's going on right now indicates that we could see gold continue to move lower. We've already reached several of our downside target zones. Our longer-term target zone for gold is around $800. A move to the to $792 level represents a 62% pullback from golds all-time high of $1,032.58.

Watch the new video here.

I hope you find the video both entertaining and educational.

Adams Hewison
Co-Founder MarketClub.com

P.S. If you missed any of the "Traders Whiteboard" series watch them here.

We welcome syndication of our content in your blog or on your trading website. Please feel free to use our content with attribution - more details here to syndicate our content