You will find that the “looser “ a trading method or system is, the longer it will last before the market tears it up. The ups and downs will be milder. For example, let's start with a simple 30 bar moving average. Most commodity futures traders would laugh at it, but this is one way to keep you on the right side of the market. Don’t get me wrong. It’s a poor indicator for buy and sell signals over time, giving close to break-even results. But if used with a shorter-term indicator that only takes trades in one direction as the moving average, it can be a good start to a larger method.
So what’s this have to do with being different from the crowd? The commodity futures market is a paradox. Simple is complex and complex is simple. A simple moving average is available to everyone. It’s as common as a bar chart. But when a futures trader uses his own unique combination to set himself apart from the crowd, magical things begin to happen.
For example, how many people are trading with a simple moving average? Probably many. You can tell by running a simple computer back test to see the mediocre results. This is also because it is not optimized and curve fitted, so the performance is generic. But now add in another indicator and you have selectively reduced the number of futures contract traders using the method. There are some interesting methods that can be put together with simple indicators.
The point I’m making is to think outside the box. The stuff you see for sale everywhere can give you good ideas sometimes. These can be good seeds for thought. But you need to develop your own custom method that becomes your own. And be ready and flexible to change it or toss it out if the futures contract markets change enough to make it a constant loser. Be ready to bring it back when the market favors it again. The commodity futures market is always changing. Remember that and reduce your pain.
We need several trading methods to handle different types of markets. This is assuming we want to trade more than one type of futures market action. We have chopping, bear and bull markets; so that makes at least three. Personally, I find the characteristics of a bull differ greatly from a bear. That’s why all my models are separate for bull or bear markets. I also have a chop market model. The words, “model” or “system” really mean the same thing. “Model” is cooler sounding and used by fund managers. “Systems” are the stuff you see for sale in the magazines ads… (smile) More coming. . .
Part Three of Three, Next!
There is substantial risk of loss trading futures and options and may not be suitable for all types of investors. Only risk capital should be used.
Thomas Cathey directs the managed futures division of Thomas Capital Management, LLC. Get FREE, the complete 44+ lesson, “Thomas Commodity Trading Course" by visiting: http://www.thomascapitalmanagement.com/commodity/welcome.htm It's brand new. . . a “street-wise" trading e-course. Get an edge trading futures, day trading e-mini's and selling options. Also learn how “TimeLine Trading" and rare “Ninja trades" can improve your trading results. For more helpful trading info, visit the main Thomas Capital Management trading website at: http://www.ThomasCapitalManagement.com