how to set stop for spreads trading

[Synonym]

Again, you are failing to take into account that you are working with a leveraged investment. The margin you have in your account is only a fraction of the value of the investment you are making.

Using GT's figures, a $300 margin allows you to control $1,000,000 worth of investment. Your leverage is therefore a massive 3300 (rounded down for convenience!) If you invest $1,000,000 and make 0.03% your profit is $300... But since you have only "risked" $300 your rate of return on capital used is 100%.

I think the best way for you to look at it, given the more traditional approach you seem to be viewing it from, is that you are not investing $300... you are borrowing $1,000,000 with a guarantee to repay, and then you are investing the million.

If your investment is a good one, then when you close out you pay off the $1,000,000 loan and what's left is yours to keep. If your investment goes sour, then when you close out you have to find the cash to pay back the full $1,000,000. The $300 margin is just a deposit that you give the loan company in case you make a loss.

Yes, you can lose the entire $300... very often... and sometimes you can lose more... but the upside is that you can win a lot of money as well.

Only put into a leveraged product the amount of money you are prepared to lose (completely). Because the amount of money you could lose (theoretically) is 3,300 times that.

No you are still missing my point.

I understand that trading futures and particularly spreads (given their lower margin requirements) can involve a huge amount of leverage. I understand leveraging and what this means for position size,and risk and money management. This does not mean that you should only use cash that you are willing to completely bomb. How can you possibly ensure that you are trading with the most effective level of exposure to ensure the best, most consistent yet sustainable growth in your wealth?

Quote from "Spreadtrading" by Howard Abell (not about spreadbetting by the way),
"One of the fatal flaws many traders make is to relax their money management criteria because they are trading a spread. Spreads can and do have large moves that can surprise the unwary.

It cannot be said too often or too loudly that the approach to successful spread trading has to be the same as the approach to successful outright trading."

Abell makes it very clearly in his book that clearly defined money and risk management are both fundamental to successful spread trading.

Obviously with an approach of only spread trading money you can afford to lose, you are not going to go completely broke. However, with a bad run you could wipe out your entire trading capital and have to refund it with cash from elsewhere. Also, it doesn't appear to be an approach that truely owns and understands and manages the risk reward relationship in your trading. Neither does it seem to be an approach to ensure that you are in the game as long as possible and are utilising your capital and leverage to the most effective yet sustainable level possible.

 

[-oo0(GoldTrader)]

Average-Up

Because calendar Spreads are fully hedged you can run very tight margins.

No you are still missing my point.

Usually it can be touch and go for about a week. Nevertheless, when that seasonal thrust starts, you can average-up and use new equity to add diversification.

 

[-oo0(GoldTrader)]

Safe Investing

2008

Also, it doesn't appear to be an approach that truly owns and understands and manages the risk reward relationship in your trading.

Warren Buffet (Berkshire Hathaway) -43%

Ken Hebner (CMG Focus Fund) -56%

Bill Miller (Legg Mason Value Trust) -50%

I have a very clear understanding of money and risk management in other forms of trading.

Ken Griffin (Citadel) -44%

Carl Ichan (Icahn Enterprises) -81%

T. Boone Pickens: -68%

Also, it doesn't appear to be an approach that truly owns and understands and manages the risk reward relationship in your trading.

Kirk Kerkorian: Down $693 million on Ford stock alone.

 

[Synonym]

2008Warren Buffet (Berkshire Hathaway) -43%

Ken Hebner (CMG Focus Fund) -56%

Bill Miller (Legg Mason Value Trust) -50%Ken Griffin (Citadel) -44%

Carl Ichan (Icahn Enterprises) -81%

T. Boone Pickens: -68%Kirk Kerkorian: Down $693 million on Ford stock alone.

Hi GoldTrader
As you know. I'm in the process of looking into trading spreads as it looks a very appealing way of trading to me and something that i definitely want to add to my own trading.

Risk and money management is not something readily covered in spread trading literature. Although i have found quite a few respected trading authors, Able & Schwager for two, that swear by a clear and prudent approach to money management when trading spreads. Let's be honest, with 2 positions, if they both go against you, you could in a position to get hammered!

Seasonal's seem to be your bag and clearly seasonals often have fantastic win/loss track records. Obviously, this can give opportunity for less prudent approach to money management and position sizing. When i mention spreads i am referring not only to seasonals but other spreads too. Perhaps this is one (if not a major one) of the reasons where we are finding differing views and opinions on this subject.

From your listings of big investors' performances in 2008, it's clear you pay more attention than i do to their careers. To be honest i haven't heard of all of those you mentioned, and of the ones i do, i know very little about them. However, Warren B is a value investor than a trader and so leaves himself quote exposed to short/mid term market movements. He accept this in his approach as he's in it for the long run.

Clearly, you have to take risks in order to be there to take the profits. That's trading. It's just that i see money management as a really fundamental element of trading and as yet i still cannot understand you're approach to it with regards to trading spreads. It will probably come clear to me the more i learn about seasonals.

By the way, how'd the bean oil trade work out? You still in?

 

[-oo0(GoldTrader)]

Rom

Before computers, family’s of floor traders used too keep there unused trading capital in spreads at certain times of the year.

I'm in the process of looking into trading spreads as it looks a very appealing way of trading.

This was proprietary and kept secret. Jake Bernstein, Steve Moore and a few others, unearthed these activities by tracking the "prices against time." As these patterns become more widely known they will probably lose their usefulness.

you have to take risks in order to be there to take the profits. That's trading.

What part of risk and reward did Reminisces not cover?

 

[arabianights]

Goldtrader, I like your posts so is there any chance you could post in a more normal font, or at least a slightly larger font - what you use at the moment is prety hard to read

 

[Synonym]

What part of risk and reward did Reminisces not cover?

I've not yet read Reminisces. I been reading the newly bought spread trading books i told you i ordered. I will read it though and thanks again.

You still in or has your stop been hit?

 

[-oo0(GoldTrader)]

One thousand and one

Aloha, arabianights.

Goldtrader, .. is there any chance you could post in a more normal font, or at least a slightly larger font.

I have been thinking about what you said. I am enclosing a screen shot of my computer’s screen. It looks to me like the font that I am using is slightly larger than yours. :innocent: Maybe I can try it not in bold, for a size comparison. Do you suppose the resolution on your screen might have something to do with it?

What does normal mean?