Stalking the first big trend

[China Diapers]

Some posts by a trader who has been a big influence on me, somebody starting out interested in longer term trading might find it useful.

I know that you can start trading successfully (with a reasonably small chance of ruin) with less than 30K. But, limitations to your flexibility are inevitable.

There are basically 6 asset classes in futures. Trade one highly liquid contract per asset class with either one contract or a "synthetic future" which you've tailored for your personal risk profile. Requirement ~ 30K

Or trade the subgroup of the most volatile of the six with a method which capitalizes on the efficiency of being in the most aggressive market possible. And then rotate the markets traded as another takes the lead position. Requirement ~ 20K

Yes, this may require more effort, but if you have more potential effort than actual capital at the moment, it is a solution.

Or you could just trade one market poised in a special situation--- like sugar, which is likely to make a large move in the future because of being locked in a small range for a long time. Trade it until it has the outsized move and then you should have enough extra capital to jump to the next level. Requirement ~ 10K-15k

The tradeoff for not having a lot of money to trade is more time passing before the arrival of your desired success.

Leonardo

http://www.tradingblox.com/forum/viewtopic.php?t=2359&highlight=capital

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 “respectable”.)

9 months went by with a number of small losses, and much frustration while other markets were swinging around making others money.

One day, after trading near the middle of the previously mentioned range for weeks, cotton opened lower nearly 100 points. The price was now only 25 points above the bottom of the range, which had 3 bottoms, all of which were many months apart. Even though my whole trading plan was centered on buying new highs; because of Cotton’s upward bias, I thought this was an extremely low risk situation. All I had to do was buy at the market with a sell-stop under the triple bottom for protection.

Instantly, I told my broker to place the order to sell 4 cottons on a stop below the bottoms and then another order to buy me 4 at the market. Risking $500 on this trade, I didn’t have enough margin available to hold more than maybe two overnight, but I figured if I had to I could sell 2 off by the close. After putting in my orders, the market continued to fall---to 1 tick above the previous bottoms (making a fourth bottom, and only 6 ticks from my stops), sat there for 5 minutes; and then in a huge swoop went to unchanged on the day. It traded around there for the rest of the day and then closed up 50 points. It took 3 hours to get my fills (nothing has changed in all these years) and it turned out I got filled on all 4 contracts 3 ticks off the low of the day. I now had enough money in the contracts alone that I could hold them all overnight.

A week went by and cotton was trading 25 points under the high of the (now) 3-year range. I had reservations to go on a 4-day skiing trip in Michigan, so I wasn’t going to be able to watch it personally for the potential breakout. I put in my stops to buy 4 more 5 ticks into new territory.

Of course, the first day I was skiing, the breakout occurred. I checked with my broker every 15 minutes by phone and even though I didn’t know my fills yet, I placed my stops on the 4 at the day’s low. It turned out that this was a real breakout and the market didn’t look back for months.

After my trip, all I did for weeks was buy new highs after 2-3 day congestions. Before the move was over I had ½ of 1 % of the open interest in the contract I was trading. I used a simple trendline-trailing stop to exit.

I have been breakout trend trading ever since. (Another boy wonder )

What I just described can easily be accomplished by trading the turtle method today. Pick one market with low current volatility, like corn, or oats (which has been in a very narrow range for a year) and keep attacking it from the long side. In an inflationary environment, like we find ourselves now, you have an increased edge automatically. Keep putting in the orders, and fund it from recurring cash flow if you have to. Calculate what you can afford, and then go for it.

It does take size to make money trading. Money is made in chunks. You can’t save $1,000,000. You have to MAKE it.

---Leonardo---

http://www.tradingblox.com/forum/viewtopic.php?t=2385

 

[China Diapers]

Or you could just trade one market poised in a special situation--- like sugar

And have a look at a chart what Sugar looked like shortly after he made this post.