stalking the first big trend when starting out

How do you know when a trend has started? Ended? This forum is for discussions about trend indicators and signals.
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leonardo
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Truth in trading--

Post by leonardo » Tue Jan 20, 2004 5:33 am

c.f.--

I know you did the right thing when you told the unvarnished truth about trading. It does take money, and/or many correctly applied trades to have a reasonable expectation at profiting from trend trading. By being forthcoming about the realities of trend trading, you can only gain in credibility with those to whom it will matter the most.

To trade long term you have to be able to probe (read: spend money attacking a market) over and over until a trade gets under way that you can ride for a little while.

Timing is everything. That is, the time you start this whole process might be just before a lot of markets start exhibiting trending behavior, or a couple of years before they move. If your timing isn't very good (which is normal---no one knows for sure when profitable trades are going to happen in advance or the markets in question wouldn't exist) you make up for it with capital and persistence.

There is one way I know of to get started trend trading with small capital that almost assures victory. It is the method that I used to get started trading over 25 years ago.

Like most in this forum, I was not born to money.

It was the early '70's. I started my own business when I was 18, reclaiming silver from fixer solutions, x-ray films, printing developing chemicals, etc. Due to the obvious monthly fluctuations of selling the physical silver that I separated from the chemicals, I realized that there was a lot more money to be made by buying and selling silver in the futures markets at the right time than just the reclaiming alone.

Silver had great trends in the late '70's but in the early '70's it swung wildly back and forth while the Hunts were manipulating the prices and quantities for delivery.

This was an era when there was very little easily available information about trading. I did find books by Gann, and read about Stanley Kroll’s exploits and research by Donchian, which verified my own ideas about trading breakouts.

I had been researching markets for many years anyway, mainly ags, and then as now I realized that the only way you could deal profitably in the markets was by having sufficient capital. At the time, "sufficient capital" was $20K to $40K.

I only had $600. After numerous wins and losses in silver, beans and wheat, I was able to increase that stake to $1800.

I decided that to build a stake I would have to find a market which would inevitably have a large trending move. And low enough volatility to start with so I could build a relatively large position quickly with little money. I settled on one market that had a very long term upward bias but had been in a sideways range for more than 2 years. Cotton.

Things turned out better than I expected.

I was only interested in an up move, so the intent of my plan was to buy breakouts at new highs and if the breakouts didn’t hold on the day of the breakout I would exit by the close and wait for a new high to enter again. I was willing to keep at this for as long as it took, even if it took 5 years.

Cotton had been trading in a 2½ cent range for those 2 years and was dull as puddle ice. No one at the brokerage house I traded at had ever traded cotton and they all thought I was an incredible idiot for watching it, much less trade it. (If I would have traded pork bellies and beans more I would have been considered at least somewhat “respectableâ€

LeapFrog
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Re: Truth in trading--

Post by LeapFrog » Sat May 22, 2004 12:51 pm

[quote="leonardo"]c.f.--

I know you did the right thing when you told the unvarnished truth about trading. It does take money, and/or many correctly applied trades to have a reasonable expectation at profiting from trend trading. By being forthcoming about the realities of trend trading, you can only gain in credibility with those to whom it will matter the most.

To trade long term you have to be able to probe (read: spend money attacking a market) over and over until a trade gets under way that you can ride for a little while.

Timing is everything. That is, the time you start this whole process might be just before a lot of markets start exhibiting trending behavior, or a couple of years before they move. If your timing isn't very good (which is normal---no one knows for sure when profitable trades are going to happen in advance or the markets in question wouldn't exist) you make up for it with capital and persistence.

There is one way I know of to get started trend trading with small capital that almost assures victory. It is the method that I used to get started trading over 25 years ago.

Like most in this forum, I was not born to money.

It was the early '70's. I started my own business when I was 18, reclaiming silver from fixer solutions, x-ray films, printing developing chemicals, etc. Due to the obvious monthly fluctuations of selling the physical silver that I separated from the chemicals, I realized that there was a lot more money to be made by buying and selling silver in the futures markets at the right time than just the reclaiming alone.

Silver had great trends in the late '70's but in the early '70's it swung wildly back and forth while the Hunts were manipulating the prices and quantities for delivery.

This was an era when there was very little easily available information about trading. I did find books by Gann, and read about Stanley Kroll’s exploits and research by Donchian, which verified my own ideas about trading breakouts.

I had been researching markets for many years anyway, mainly ags, and then as now I realized that the only way you could deal profitably in the markets was by having sufficient capital. At the time, "sufficient capital" was $20K to $40K.

I only had $600. After numerous wins and losses in silver, beans and wheat, I was able to increase that stake to $1800.

I decided that to build a stake I would have to find a market which would inevitably have a large trending move. And low enough volatility to start with so I could build a relatively large position quickly with little money. I settled on one market that had a very long term upward bias but had been in a sideways range for more than 2 years. Cotton.

Things turned out better than I expected.

I was only interested in an up move, so the intent of my plan was to buy breakouts at new highs and if the breakouts didn’t hold on the day of the breakout I would exit by the close and wait for a new high to enter again. I was willing to keep at this for as long as it took, even if it took 5 years.

Cotton had been trading in a 2½ cent range for those 2 years and was dull as puddle ice. No one at the brokerage house I traded at had ever traded cotton and they all thought I was an incredible idiot for watching it, much less trade it. (If I would have traded pork bellies and beans more I would have been considered at least somewhat “respectableâ€

leonardo
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Post by leonardo » Sat May 22, 2004 5:17 pm

-LeapFrog-

Thanks for the kind words.

It was more fun to live through it than to write it.

I do believe that one could get a start the same way again. Markets like oats, corn, orange juice, and even coffee offer similar opportunities today.

--Leonardo--

si
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Post by si » Fri Jun 04, 2004 6:36 am

leonardo wrote: I do believe that one could get a start the same way again.
Leonardo, your detailed post is very informative. The key, when you are trading small, is to pick a trend and ride it, pyramiding all the way with eyes open. As you say you bounced about in silver, beans, wheat before settling on cotton. So the question becomes what made you choose cotton?

--si.

leonardo
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Post by leonardo » Fri Jun 04, 2004 9:35 am

An extremely low risk setup in the cotton.

I knew that once cotton left its range it meant it wasn't going to look back. The subsequent trend would be durable and "rideable".

Leonardo---

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Post by bniceb » Tue Jun 08, 2004 6:16 pm

Leonardo,



Thank you for sharing this story about your first big trade in cotton. I am sure living it was a lot more fun than writing about it. I hope that breakout didn’t ruin your Ski trip. :D

For me this helps lift a little bit of fog from my mind as I am under funded and attempting something similar right now. I can see from your post patience and thick skin are necessary. Well, the thick skin part I am learning when I call my broker. Patience, the market is teaching me that. :shock:


Brian

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Post by Ghostrider » Tue Nov 16, 2004 2:16 am

Leo,
Wonderful post!

:P

leonardo
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Post by leonardo » Wed Nov 17, 2004 8:42 pm

Thanks, Ghostrider:

With the current shifting picture of world economics, similar risk/reward situations seem to be developing right now in a lot of physicals.

Software has never been better. Testing has never been easier. There have never been so many diverse products to trade.

Maybe our next generation of futures traders will get their start now. I've never seen such potential. It almost makes me envious.

Leonardo----

Jake Carriker
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Post by Jake Carriker » Thu Nov 18, 2004 10:27 am

I agree with GR and the others that Leonardo's post about stalking the cotton trade (and the controled risk plunging technique in general) is a great one. I also agree with Leonardo that it is a wonderful time to be starting out as a trader or money manager.

I notice that a lot of the LTTF systems that I test experience near historic drawdowns recently, but very much within expected bounds. I also notice that historically when this happens a period of relative outperformance occurs afterward.

As Leo noted there are several markets that have been in a multi-year consolidation that may be getting ready for something exciting. I note gold, copper, coffee, and the meats in particular, not to mention the trends already underway in many of the world currencies as they rise against the dollar. Time will tell how things turn out, but the times are looking ripe for some well considered risk taking.

Cheers,
Jake

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Post by edward kim » Thu Nov 18, 2004 2:05 pm

I agree with you Jake: it is no guarantee of course that this is the beginning. What happens if most fund managers get halfway back to their high watermark, then go straight back down to their historical drawdown levels, and stay around that level for another year? That might surprise a lot of people, and make them jump their methodology. Most of the big guys are in 18+ month drawdowns: I wonder how much longer they hold out? The smaller ones might have issues with their drawdown levels now.

dcheval
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Post by dcheval » Wed Nov 24, 2004 4:59 pm

One can only hope that some traders move away from long term trend following. The better for those who maintain discipline. One must manage the drawdowns and remain in a position to take advantage of the inevitable runs.

ES
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Incorrect

Post by ES » Fri Dec 31, 2004 9:43 pm

Brendo,

You are incorrect. The product is different. Mike gives advice on trading stocks that does not correlate to the report offered by c.f..

In law we call this misrepresentation. The State Attorney should put him out of business.

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