Textbooks

[-ooO-(GoldTrade]

Riskreward>carry and optionality <

This is the realm of Courtney D. Smith.

Riskreward>Can somebody recommend .. I mean straight textbook not a trading book.<

When you say textbook, do you mean read boring. This brings to mind 3 books. Two of which I read in the public library before I bought them.

Futures Spread Trading: The Complete Guide !by Courtney D. Smith (Hardcover - May 2000)

Courtney Smith's textbook is specifically and comprehensive about spreads. His whole book is about spreads and nothing but spreads. Probably the most useful from the fundamental perspective.

A Complete Guide to the Futures Markets: Fundamental Analysis, Technical Analysis, Trading, Spreads, and Options! by Jack D. Schwager (Author) (Hardcover - June 1984)

Schwager's textbooks while not specifically about spreads are comprehensive and complete about futures. This book has a small section about trading commodity futures spreads.

Seasonality: Systems, Strategies, and Signals ! by Jake Bernstein (Author) (Hardcover - April 1998)

Jake is a trader but this is not a trading book like Ross’s Spreads and Seasonals!. Jake explains how Seasonal patterns are the heart of consistent profits in trading spreads. As long as summer follows winter, we will have tradable cycles.

Those are the textbooks but you should include Trade Your Way to Financial Freedom ! by Van K. Tharp,

Tharp is about Winning. Chapter 5 has a section on Spreading as well as Seasonal Tendencies.

 

[-ooO-(GoldTrade]

Do you recommend Superstar Seasonals: 18 Proven-Dependable Futures Trades for Profiting Year After Year by John L. Momsen?

It just came out February of this year and he had a previous book in 1999: "Ultra-Reliable Seasonal Trades"

Aloha Shih,
So, few books have been written about seasonals in general and spreads in particular, that just of fraction of the premiums earned from one spread can buy all of them. JM’s work would have had more impact if he could have gotten it published when he first thought it up.

By all means, absorb the philosophy and the perspective of seasonal traders whenever you get the opportunity.

In olden times, traders had spread relationships handed down to them by their fathers and their grandfathers. They just knew generally that at a certain times of the year they would park funds not currently involved in campaigns, in spreads to take advantage of seasonal patterns.

These were secret taps into the income stream of the markets. Jake Bernstein theorized and later Steve Moore actualized that computers could be used to isolate these patterns so that they can be compared to each other by various criteria.

Momsen probably had this book in him for a long time. He just wanted to get it out before his time was up.

Step one was revealing these secret patterns exist. It is now generally believed that seasonal patterns exist.

Step two is finding seasonals based on various variables and comparing these against others in real time. I don’t know if JM gets into it. Today computers give us a map of not only when a trend is likely to emerge but also where it is likely to go and how long it will probably take to get there.

Good research will tell us how much we will need for margin, and chart expected relative gains on each trade. Seasonal spread trading is becoming more like map reading and following.

Step three Researchers today are finding correlations today that we knew nothing about just a short time ago. We are now using correlations studies aid our trading.

If we are looking for 18 seasonals, you can easily find a link to 50 on the Internet that have been refined and tested in real time as recently as last month.

What we gain by reading from the minds of old masters is perspective. It’s like having a chat with a master. There is much more to gain than a few historical tips. So I would say do it!

Spread Trading “What do I do now?”

 

[-ooO-(GoldTrade]

andrasnm> your statement - that all spread trades are seasonal....

Everything is a spread against something. But not all spreads are seasonal. Seasonality the Book! Helps you put natures reoccurring patterns forces into the mix.

 

[-ooO-(GoldTrade]

"Complete Guide to Spread Trading," by Keith Schap

ISBN: 0071448446

The greatest American chess champion still alive once wrote a book on how to play chess. After explaining the game, he simply teaches you how to kill. Similarly RossÕs Spreads & Seasonals teaches the game simply, and dives straight to the heart of how you can place your first winning seasonal spread trade.

Mr. Schaps textbook is much more complex. It is written for the already active trader, who may want to switch to or try new spreads. Advanced traders, practicing spread traders, mathematicians, and employees of hedge funds and financial firms, will find this book useful. As a result it covers everything, and updates the older spread books into this century. Mr. Schaps works for the CBOT. He does not see a conflict of interest is suggesting that traders rely on brokers for research, I do.

The author explains spreads from the left hemisphere of the brain. Anything that can simply be shown to both sides of the brain in a picture, graph or chart, is instead reduced to a complicated array of digital formulas and intricate equations.

ÒSpreads É produce better results than outright trades in futures or stocks.Ó

General principles as well as advanced ideas in the various ways to spread are taught. You do not have to read it straight through, but you can move to the areas that address your current interests. Besides futures, he goes on to cover Option spreads.

ÒSpreads trade around long term means É they work back towards the mean.Ó

Instead of using the normal spread charts, where all a trader has to seek is the spread differential to go up. Schaps takes it two levels deeper with exhibits of columns of numbers, formulas, and statistics. If you donÕt use arithmetic every day, run far, far away from this book and its complicated mathematical explanations of otherwise simple concepts.

ÒIt is a good idea to focus on the spread as a whole, not on the individual legs of the spread.Ó

In normal spread teaching, the long contract is stated first the short second. Schap because he is using rows of numbers, has to remind you what is widening and what is narrowing for each type of commodity. You buy the widening or sell the narrowing. Any mix up as to what widening means and you can find yourself on the opposite side of the spread.

ÒA valid spread must have a structure that ties it to the economic reality you are trying to capture.Ó

While other writers may use simple charts showing the historical tendency. Schap examples show a much shorter period of only one or two years. Where Schap does use charts, he shows two lines instead of one. Usually he uses exhibits with columns of numbers, as an alternative to charts.

ÒPrice has no history. Only spreads have history.Ó

Spreads carry messages about how the market needs to draw supplies into and out of storage. ÒThe price differentials of the spreads help the markets to regulate the flow of goods into and out of storage.Ó A carry (contango) market (price plus storage), wants product to go into storage. An inverted (backwardation) market (penalizes storage), wants product moved out of storage.

Schaps dispenses with the confusing terms of inter and intra delivery, but uses terms like Òcointegration,Ó and Òyield curve shift.Ó

A ÒNormal yield curve shows a healthy economy, inverted curve, near yield higher than far yield shows slower growth. How it is changing widening or narrowing is the question. When it is widening suggests increasing demand for credit. When the yield curve is narrowing, suggests that the fed is cutting back on the amount of credit it is creating relative to the demand for credit.Ó

Because spreads isolate the effect of change in the width of the yield curve spread. Yield spreads carry information in advance.

Unlike many spread books that may suggest vague trade dates, for spreads. Schaps has an overview and advanced concepts of spread groups for traders to refer to before making a spread trade in a new commodity. He takes you to deeper layers with the widening, & narrowing. Deeper still the effect it has on storage.

Many spread books have been criticized for using optimized trade dates. Schaps often uses unoptimized exchange expiration dates to exit many of his spreads examples.

Many books may have a chapter about spreads. Only a handful of books are about spread trading. Anyone who takes trading seriously would want to have access to all of the Spread Trading books in his personal library. One successful spread trade could buy the whole lot! In a case like that, Schaps book must be included.

This book is not for the beginner or uninitiated spread trader. As a preview to the experienced mathematician about to trade a new futures group, "The Complete Guide to Spread Trading," by Keith Schap is indispensable..

 

[-ooO-(GoldTrade]

Kroll
Consistent gains
The first thing that impressed me was how much Kroll's Dragons felt like and reminded me of Jessie Livermore's How to Trade in Stocks.

Memoirs
I knew for sure this would be something special because Stanley was not trying to make a textbook or have somebody else write it for him. Unlike many books written for no one in particular, Kroll assumes readers know how to read charts and has had some experience speculating. This book is inner Kroll. Dragons supplements Reminiscences.

Risks
Not written to praise the market or pay homage to his experiments with technical analysis. Dragons covers the essence of speculating whether it is securities that require the greatest risk margin like stocks, minimum margins like futures, or practically no margins at all like calendar spreads.

Strategies
It is clear that Kroll dabbled with fundamentals. He got over that. Then he may have gone a little to far with technical analysis. But it is clear that he honed in on his true contribution to trading with Dragons. Stanley finely figured it out. He had to draw on none other than Sun Tzu to pull it all together with a little help from Partridge. Traders should be more concerned with an overall profitable operation than catching tops and bottoms. The most expensive loss effecting success, is the loss of confidence.

Mort
Dragons is light on Livermore the trader, heavy on Sun Tzu the philosopher. It is not so strange that many people expound on a philosophy as life itself draws to a close. Do you suppose this acceptance precedes death?

Forces
The long shot pays better, but the favorite is the way to bet. Presuppose that every with-the-trend trade will be the big one. You maintain your potential for profit when you hold on, build positions, and sell your losers. Buying strength and selling weakness applies to portfolio management, right thru selection of markets to the time differences between contracts. Buy what's going up, sell or even short what's falling.

Oscillator/ Indicators
Stochastics – entry
Parabolic – pyramid and stop
Macd – trend confirmation
Bollinger Bands – volatility

Moving Averages
Kroll suggests that moving average crossover systems, combined with the slope of the moving average are good enough to confirm a trend. Stanley reinforces a theme that has made has been taught before by Joe Ross in his excellent "Trading Spreads," and by Wells Wilder in "New Concepts," by Jake Bernstein probably in "Seasonality," and spread guru Jerry Toepke of "Moore Research." It does not matter what technical studies that you use, as long as you are comfortable and use them regularity.

Control losses and allow profits to run
Limit risk – percent of exchange margin
Avoid overtrading – churning or too large a position relative to capital
Cut your losses – advance your stops

Parabolic
The most difficult part of developing a trend following system is fine-tuning your stops. Using a percentage of exchange margins has the advantage of being related to the volatility, risk, and the profit potential of each market. Another strategy is to advance your stop after each week. You have to develop a method to reenter lost positions as well as build your position in a trending market.

Spreads
In the early 80's Stanley told me that he did not specifically trade spreads, but sometimes they showed up to advantage requiring fewer margins. Kroll notes that Spreads advantages include higher profits. Here Kroll shows spread charts from the mid eighties and has a whole chapter on spreads in Dragons. Kroll suggests traders watch spread differences as an accurate indicator for managing positions.

Spread Orders
Stanley does not mention market on close spread orders (MOC), preferring instead to leg in and out. But he does suggest giving your broker the spread order. Stanley details the three reasons that you might want to place a spread, switch, or straddles order.

Entering a new trade,
Shifting forward (rollover)
Spreading a losing position

Wisdom
Kroll's tactics remains about the same as he marketed a decade before with Wells Wilder. You can see this in his long-term winners, short-term losers philosophy.

Tactics
Kroll sets up for a major move entering with-the- trend positions, and try's to stay with them as long as possible. Diversification with the addition of China stock indexes. Price based entry signals, no longer optimized. No long side bias. Stop placement that allows time & space for long-term trades to develop. Kroll may get in late on an entry signal that is showing a loss, but when he gets stopped out prematurely he would get right back on board a day or two later, when the trend resumed.

Regardubg Oruce Keveks?

Just as Stanley likes to quote Jessie, following are some quotes from Kroll's Dragons:

I am a long-term trader on my winning positions and a short-term trader on my adverse ones.

Scores of brilliant or lucky market operators have had the heady and envious sensation of closing a position with a million-plus-dollar profit. I too, on a few occasions, have had the good fortune to be included in this exclusive group.

The traders who make money on a consistent basis are the long-term position traders.

One of the traits of successful operators is to close out losing positions and stay with, and even add to, the winning ones.

In two related markets, you should buy the strongest acting one and sell the weakest acting one.

The most important tactic for consistent and successful speculation is to control losses.

A long-term holder speculating with the trend should not try to capture small counter-trend profits by trying to get in and out.

I might lose my position, and with it the certainty of making a big killing with the big move. It is the big swing that makes the big money for you.

If you exit a trending position, regardless of the reason, and on the close of the next two days the trend is still in the original direction, you should get back on board.

The most damaging loss, and the one to be avoided at all costs, is the loss of confidence and belief in your ability to trade with consistent success – you must avoid that loss at all costs.

Dragons - ISBN-10: 0201420848
Speculation, Sun Tzu, Strategies, Tactics, Philosophy

-ooO-(GoldTrader)-Ooo-