Making a Living while Cruising

[Delfin]

Originally Posted by Cormorant

We're thinking we can probably scratch up enough capital to do all the WSC trades, which are about half of the full slate.

I notice that in 2011, the ALL Spreads batch produced a marvelous $69,000 profit while the WSC actually had its only annual loss (-$2888). Somehow the WSC list got all the bad trades and missed a few of the really good ones.

So I got to wondering how often the two diverged.

Here's a rough summary, based on my already rough estimates:

WSC vs ALL Spreads

WSC made more than ALL: 3 years
WSC made the same as ALL: 1 year
WSC made >1/2 but less than ALL: 3 years
WSC made less than ALL: 5 years

So 7 on the good side, 5 to the bad. About what you might expect from random chance. But it gives me hope that we might do okay for a few years trading just the WSC until we can build up our capital and begin trading all.

In any case, thanks again Delfin. Never would've found this without you. It's a very interesting opportunity.

The WSC trades are Jerry Toepke's attempt to outsmart the simple statistical analysis of historic trends. The inability of that approach to do so illustrates my point that over the years I've learned its best just to close your eyes and go with the averages. Kind of like golf. It feels so good when you slam the ball 280 yards, that even though it usually results in a vicious slice when you swing so hard, you keep doing it. I'm reminded of this by a game I had with a 75 year old woman who plunked the ball a max of around 120 yards for her drive, then plunked two or three times more followed by a one putt. As I recall, she beat me by about 10 strokes.

For what it's worth, I'd follow the program, perhaps sticking with the straight leg spreads as described and build up to participation in all trades consistently over time. That approach I know works. Others, I can't vouch for.

[ImaginaryNumber]

I will have to employ some sort of triage too. Without any experience in spreads to guide me, some of the charts don't look so appealing to me. For instance, this year's spread for the "free" March trade isn't following the same pattern as the 5-year and the 15-year average spread. To me, this seems like a good trade to sit out. But I'd be happy to be corrected by someone with more experience than I...

[Caribsailors]

Just Me.

I started looking at spreads in the early 80's and found them very intriguing, but a life changing accident diverted that path.
I would like to thank the OP for this thread, as I will have to agree, from my recollection the returns were very similar.
But as OP said it has to be money you won't miss.
Thank you again for twigging my interest in spreads.

[Delfin]

Originally Posted by ImaginaryNumber

I will have to employ some sort of triage too. Without any experience in spreads to guide me, some of the charts don't look so appealing to me. For instance, this year's spread for the "free" March trade isn't following the same pattern as the 5-year and the 15-year average spread. To me, this seems like a good trade to sit out. But I'd be happy to be corrected by someone with more experience than I...

Sometimes you will be correct in your analysis, sometimes not. One of the problems with cherry picking is that occasionally the spreads that look REALLY good turn out to be disasters, while those that look not so good turn out to be big winners. If you don't enter both, you lose the chance to make up the loses with unexpected gains. Case in point. How do you feel this spread of gasoline over crude oil is stacking up? Would you feel ok entering it since it is varying from the 15 year average, like the sugar spread also is?

[ImaginaryNumber]

Originally Posted by Delfin

Sometimes you will be correct in your analysis, sometimes not. One of the problems with cherry picking is that occasionally the spreads that look REALLY good turn out to be disasters, while those that look not so good turn out to be big winners. If you don't enter both, you lose the chance to make up the loses with unexpected gains. Case in point. How do you feel this spread of gasoline over crude oil is stacking up? Would you feel ok entering it since it is varying from the 15 year average, like the sugar spread also is?

Why do I feel a noose tightening around my neck? I’m sure your next post will include February with the spread blasting through the roof. Nevertheless, my intuition says that if I have to choose between two trades I’d rather pick the one in which for the last few months the current spread is making similar moves to the historic trends.

However I still might be more reluctant to buy the sugar spread than the Gas/Crude spread because
a) at the entry date the sugar spread is trending down, whereas the Gas/Crude spread was starting to trend up
b) if the current spread tends to move towards the historical averages, the gas/crude spread will want to move up, for a profit, whereas the sugar spread could stay flat and still be moving towards the rising historical average.

I understand that MRCI selects which spreads they will feature three or more months in advance. That means they don’t have the option of reviewing how well the current spread matches the historical spreads over the last three months. Maybe that doesn’t matter? It seems to me that it might.

Here are some more spreads that I might not take if I couldn’t take all of MRCI’s recommendations. I’ve not included the name of the commodity because these charts might be considered proprietary.


This is a better example than the Sugar spread of how the current spread maybe is too far from the historical spread, even though the pattern of the current and the historical spreads are similar


In this chart the 15-year trend is up, while the 5-year trend is down. I don’t understand why MRCI would suggest that as a good setup?


Both the 5-year and the 15-year charts bottom out in the early part of March. I don’t understand why MRCI recommends buying in the latter part of February? Does MRCI look at something other than chart pattern matching?


In this chart the 15-year trend was consistently up from before the recommended entry date, while the 5-year trend was consistently down from well before the entry date. Again, I don’t understand why MRCI would recommend this trade?

These are just my uninformed hunches. I would be most grateful for any experienced wisdom sent my way.

[Delfin]

Originally Posted by ImaginaryNumber

Why do I feel a noose tightening around my neck? I’m sure your next post will include February with the spread blasting through the roof. Nevertheless, my intuition says that if I have to choose between two trades I’d rather pick the one in which for the last few months the current spread is making similar moves to the historic trends.

However I still might be more reluctant to buy the sugar spread than the Gas/Crude spread because
a) at the entry date the sugar spread is trending down, whereas the Gas/Crude spread was starting to trend up
b) if the current spread tends to move towards the historical averages, the gas/crude spread will want to move up, for a profit, whereas the sugar spread could stay flat and still be moving towards the rising historical average.

I understand that MRCI selects which spreads they will feature three or more months in advance. That means they don’t have the option of reviewing how well the current spread matches the historical spreads over the last three months. Maybe that doesn’t matter? It seems to me that it might.

Here are some more spreads that I might not take if I couldn’t take all of MRCI’s recommendations. I’ve not included the name of the commodity because these charts might be considered proprietary.


This is a better example than the Sugar spread of how the current spread maybe is too far from the historical spread, even though the pattern of the current and the historical spreads are similar


In this chart the 15-year trend is up, while the 5-year trend is down. I don’t understand why MRCI would suggest that as a good setup?


Both the 5-year and the 15-year charts bottom out in the early part of March. I don’t understand why MRCI recommends buying in the latter part of February? Does MRCI look at something other than chart pattern matching?


In this chart the 15-year trend was consistently up from before the recommended entry date, while the 5-year trend was consistently down from well before the entry date. Again, I don’t understand why MRCI would recommend this trade?

These are just my uninformed hunches. I would be most grateful for any experienced wisdom sent my way.

I didn't mean to sandbag you, but yes you are right that particular spread is up a ridiculous $11,800 as of close today. The point was merely that I have spent years trying to be smarter than the historic trends, which move like the proverbial drunk most of the time - weaving back and forth before getting to wherever they ultimately end up. So I can only tell you that Moore's model is only to recommend trades that if entered and exited on the dates suggested would have returned a profit, I think 80% of the time, but it might be a bit more than that. Someplace on their site they explain it.

I guess my main message is shaped by my own failure to improve on simply following every trade (except currencies in my case) and taking the wins with the losses. The fact that I haven't improved on the averages doesn't mean someone else isn't smarter than I am. The time I finally decided to give up and just follow the darn recommendations was when I started trading for family members. I simply didn't want to take the responsibility for effing things up, and it was then that the method began to provide very solid returns very consistently. Not consistently on a trade by trade basis, but consistently on an aggregate basis over months of activity.

Best of luck with your efforts and as I said, perhaps open a trial account with Interactive Brokers and do the trades with play money and see how things work out.

[millstb]

Well ... for my $.02 worth ... I day trade for 2 - 3 hours each day I'm in port (San Carlos, MX). It has been a real struggle. No matter your intelligence level or grasp of market data; the emotional element is the hardest part to get right. I've been following an on-line mentor that charges $2000. a year; while pricy she does deliver. Since I've gotten my system together and keep to my 4 solid rules I've been averaging about $1500. a month trading a $35,000 account. Like I said, I paid dearly for the lessons learned and the the curve is steep. Here are my rock solid rules.

1. No Speculative trades EVER !!! (These used to kill me all the time e.g. XXX stock can't go any higher; time to buy some puts.)
2. No chasing. Just because XXX has gone up 8% in the first 10 min of trading does not mean it will go up further. You have to literally hunt your entry targets.
3. Level-to-level trading only. Equities generally go up or down and consolidate at certain points ( previous day's high, a fibonaci level, a 50 moving average cross etc.) You need to stalk these entry and exit points.
4. Do your due diligence. I generally spend an hour before market open to set up conditional trades for the day. Helps me to stay focused.

And one maxim - "The market rewards the specialist not the generalist" I only follow 4 - 8 equities at a time. I get to know them very well... Currently this includes; Apple, Google, Netflix, Bidu. S&P futures, oil futures and the Euro.

[Zonker]

That is a little bit too easy ... :-)

Just face it, probability you get away successfully with your kind of trades (directional !) is about 20% (buy 50%*sell 50% - commissions). That fits perfectly to the stats which say 89% of all retail traders lose long term. If you are making profit, it might be because the markets go straight up recently. But be aware of the times the markets get turbulent. I really wish you all the LUCK - cause it's all rigged and if you are not super clever, you gonna hit the wall. It's just a matter of time.

PS : why should a mentor want you to make money or to be successful ??? Think more then twice about that !

[bottomend]

Originally Posted by Delfin

I would agree that virtually all traders lose money because virtually all traders do not have the discipline to stick with a diversified strategy that minimizes risk, or the humility to recognize that they cannot be smarter than the market. Losing traders place bets on single stocks, or single industries or single commodities. That is not what I was referencing or suggesting, but to each his own. I only know what has worked for me consistently for years, and day trading certainly isn't the program because day trading is the riskiest kind of trading I can think of, which just for your information, is why most traders get their heads handed to them.

Most of the spreads I trade range in duration from a couple of weeks to a few months. All follow historically consistent patterns which work most of the time. Some win, some lose, but since the spreads cover all available categories of commodities, risk is reduced about as low as it gets and on balance the returns are consistent.

But as I said, to each his own.

My rule of thyumb is try to maintain minimum 5000 or 1000share trades with minimum .20 to .30 spreads from shortly after opening bell to just before closing bell highs. Generally stocks that pay little or no divs have the best spreads/margins on a daily basis. I should say it is important to sometimes hold a stock longer than one day to make a profit /net amount so it is never wise to just make 1 big trade and hope it works out unless you know it is a lock, some recent exampleas are csco was in at 20.51 and out at 20.63 and that is not the rule but bs luck and i would not buy in at theses recent highs since feb 25th unless long term holdings, another is GILD and or NVS{ before div of 2.53} gild pays no div and recent selloffs on cnbc indicate waiting for an entry point. NVS recovered quiet quikly after going EX_dividend despite some analyst views and will continue to rise ,HPQ which has been a day trader paradise along with RIMM now BBBR and DELL are now done in my opinion except HPQ if it comes back down ,Still time to get in on MRVL and MU as much day trading is being done on the daily spreads/margins there and neither stock is risky in my opimion if you get stuck with it for a while due to sudden market downturns or volitility, And this business takes alot of homework as KRamer says on CNBCs "Mad Money" "Do your homework before you lose your money" Many have lost in one of kramers recommends namely AT which is subject of recent lawsuits. And TVIX is at recent 52wk lws if your interested in getting some volitility insurance as it recently spike 1.87 before settling back down around 4.15. A 1000 shares of TVIX is allways great to have for those market corrections or ZIV or XIV,Then again just put your cash in the bank at 2% and relax, cheers

[Teknav]

When cruising, you should not be worrying about making a living. How are you going to enjoy cruising, if you bring work with you? You might as well not bother cruising. The stock market on a cruiser's forum...yikes! Cruising and working are mutually exclusive! Mauritz

[Aargau]

Originally Posted by Delfin

I would agree that virtually all traders lose money because virtually all traders do not have the discipline to stick with a diversified strategy that minimizes risk, or the humility to recognize that they cannot be smarter than the market.

Saying this shows you may not understand risk. Exactly how are you measuring diversity and risk? How are you measuring measurement accuracy itself, ie what percent of your measurement is signal, and how much is noise?

Trading like this is like walking into a professional poker tournament off the street. If you look around a table and can't find the rube, it's you.

[bottomend]

Originally Posted by millstb

Well ... for my $.02 worth ... I day trade for 2 - 3 hours each day I'm in port (San Carlos, MX). It has been a real struggle. No matter your intelligence level or grasp of market data; the emotional element is the hardest part to get right. I've been following an on-line mentor that charges $2000. a year; while pricy she does deliver. Since I've gotten my system together and keep to my 4 solid rules I've been averaging about $1500. a month trading a $35,000 account. Like I said, I paid dearly for the lessons learned and the the curve is steep. Here are my rock solid rules.

1. No Speculative trades EVER !!! (These used to kill me all the time e.g. XXX stock can't go any higher; time to buy some puts.)
2. No chasing. Just because XXX has gone up 8% in the first 10 min of trading does not mean it will go up further. You have to literally hunt your entry targets.
3. Level-to-level trading only. Equities generally go up or down and consolidate at certain points ( previous day's high, a fibonaci level, a 50 moving average cross etc.) You need to stalk these entry and exit points.
4. Do your due diligence. I generally spend an hour before market open to set up conditional trades for the day. Helps me to stay focused.

And one maxim - "The market rewards the specialist not the generalist" I only follow 4 - 8 equities at a time. I get to know them very well... Currently this includes; Apple, Google, Netflix, Bidu. S&P futures, oil futures and the Euro.

Your advice is smart except i dont pay a guru but learned from the other guys mistakes in naked/covered call/puts and warrents, onyhow the stocks your focused on in my opinion are done, I made a small amount recently with apple but many feel it will go under 420,Google is another aapl that will peak and than slowly declone, Netflic was pumped by Icahn and IEP and will probably/maybe reach it IPO of around 300 than drop but i would rather just by IBM if looking at a 200$ share price, BIDU is chese google with a monopoly because it is in China but as same as China solar stocks i consider too risky to get a stuck with day or week trading and stay away ,,AS i heard before the sellors control BIDU price from China and probably safer to buy Samsung or Lenova on a foreign exchange and just sit on it for awhile, Some ETFs like XLF and ITB can be day-traded with sucess if you want to swing 1000share nets of these as well as intc which is a deal i figure as ARM is alongside, Samsung has poutsold all competition in the Smartphone market and Aplle has lost Jobbs ,Get ot if you bought under 420 as i figure thats the next floor aapl is falling through .Based on options purchased months ago i figure the sellors have also got aapl, just my 2cents worth and i do alot of DD {homework} ,This aint easy money like alot of people think who have an imaginary forex account and play monopoly, you can quikly lose your life savings so Caveot Emptor or buyer beware because its Carpe Diem {seize the moment} with no money=back guaarantees in stock/option trading, cheers

[onestepcsy37]

after following this discussion for awhile, i've become more and more certain that i would never invest in commodities (or foreign exchange or ownership of real estate). out cruising, the last thing i want to know about is pork belly futures. or the direction the japanese yen is taking. or worst of all, if my tenants are taking care of my properties. what i want is some income producing investment that pretty much takes care of itself.

of course, we all know that rewards are generally relative to risks. so i've prepared myself to live on lower rewards in order to take lower risks. this may not be for everyone, partly because it does require more capital in order to receive sufficient reward.

my solution is to invest in high quality medium to long term bonds and similar fixed investments. not mutual fund bond funds; individual bonds.

just my two cents....

[Aargau]

I would recommend that nobody follows the primary advice in this thread. With statements like:

"Without completely recovering old ground, spread trading is, in my opinion, a very low risk investment strategy because if done right, it covers multiple commodity categories, which results in a lower overall risk beta for the portfolio when compared to equities, bonds, or whatever."

Is really at such a shallow understanding of the markets that your odds of success are less than even.

Most artisan crafts that don't require huge, heavy, equipment are probably the best source of making a living while on board. Graphic design/contracting programming/web site generation are options if you can reply daily to customers. Outsmarting very smart people with better resources, faster reactions, and more complete knowledge is not a winning strategy.

[bottomend]

Originally Posted by Aargau

Saying this shows you may not understand risk. Exactly how are you measuring diversity and risk? How are you measuring measurement accuracy itself, ie what percent of your measurement is signal, and how much is noise?

Trading like this is like walking into a professional poker tournament off the street. If you look around a table and can't find the rube, it's you.

Yea, just go in tyhe casino and keep doubling your initial minimum bet at the blackjack table until you get your money back , No due dilegence except remembering to order "black russians" or "gin and tonics" ,And hey? if you are at a no limit table you can keep on doubling your bet till you WIN your money back OR cant afford to double your bet at blackjack again, Man i been kicked out of sooo many casionos i give them the popes name for a client card. cheers