Iron Condor

The advantage of spread betting, as opposed to buying shares, is that it offers one of the simplest ways to bet on markets moving downwards, as they have in recent months. Moreover, bets are free of stamp duty, while any gains are not subject to capital gains tax (CGT).
Most regular readers will be fully aware that the best way to enhance their trading account is to trade with leverage. In days gone by, the only way to leverage an equity position in the UK market was to buy or sell individual share futures or take on a call or put position with options. These days it would seem that the undisputed heavyweight for the trading community are the fantastic derivatives like spread betting and cfds. That is all well and good for short-term traders and spread betting is certainly an instrument that most of us can use to great success with the speculative part of our portfolios, but every individual should have a multi-faceted approach to wealth creation – above and beyond solely trading.
Spread betting is a useful vehicle for the occasional down-bet although I have to admit I am not an advocate of short-selling. I feel that the very high profile loudly shouted aggression with which some ’shorters’ hit a completely undeserving share these days is destructive and its effects are sometimes very long-lived, long after the short-sellers have taken their profit and gone. Folk get frightened, and if a stock has just been hit, won’t buy for fear it will happen again. In the medium term, a company can be so severely damaged that it can’t raise funds other than at fire sale prices, and suffers even more because investors have lost confidence in it.
However, there are situations where a stock gets so far ahead of itself that it’s daft. A down-bet can be useful here if you are convinced that the share is about to be re-rated in a downward direction. I have tried it numerous times and in most cases it has worked a treat!
Also, one can use spread bets as a way of adding to an existing long-term holding at a lower cost than buying more shares, rather than betting on short-term stock market movements, let alone ex-divs…
So popular have these products become that they have been estimated to account for more than one third of total trading volumes on the London Stock Exchange. CFDs and spread bets are deals between the client and his or her broker so do not themselves go through the exchange, but the hedge that the dealer puts in place to cover his position does result in an exchange trade.
This shift away from share trading to dealing in derivatives concerns some observers as it takes takes liquidity out of the cash market, particularly for smaller stocks. Gavin Oldham, chief executive of the Share Centre, a retail stockbroker says ‘They say it is backed up by the [hedging] business that goes through the stock market but the volumes are netted off.’
At the retail level spread betting is growing faster than CFDs. Anyone who spread bets thinks they are going to win so they don’t want to pay the tax and in the UK there is no capital gains tax on spread betting gains. Because you do not hold a contract (share) but bet on the outcome makes it a gamble. Otherwise the procedure is very close to trading via a futures broker. All firms are regulated in the UK (unlike Forex). People that fail at spread betting will most likely fail trading via a conventional futures broker. If you live in the UK and are not into scalping for ticks, then spread betting can be a lot more beneficial due to favourable tax laws, which indeed can change tomorrow, next year, after 10 years, etc.
There has been a move among retail investors over to spread betting from CFDs but few go the other way. Among institutions no-one uses spread bets because the corporate pay tax.

Would you like to make money from trading but don’t know how to trade?
Have you heard of others making a killing on the markets and wished yourself in their position?
Trading covers a multitude of sins, or at least a multitude of markets. Mention “trading” to a non-trader and they’ll probably think of stock and shares but there are many other markets you can trade in. These include commodities, futures, indices, CFDs and options. They all have their pros and cons and some require specialized knowledge.
The most popular markets used by traders are stocks, commodities, futures, indices and forex. Some traders switch between markets, others stick to just one. Let’s highlight some of the similarities and differences between them.
Shares
In the USA there are over 40,000 shares so you have a lot of markets to choose from. You can’t deal in all of them so you need to home in on those that offer good trading opportunities using whatever trading methods you decide to use.
When buying shares you usually have to put up all the money at the time of sale. That might seem obvious but it’s not so with all markets. Some brokers offer a 50% margin with shares which means you can trade to the value of twice the amount in your account. This seems like a good deal but if your shares start to go down you’ll get a “margin call” and will either have to put more money in your account or sell the shares at a loss.
Shares are normally traded in lots of 100. If you want to trade an expensive share – and some shares are very expensive, particularly in the US markets – you need a considerable amount of money in your account.
It’s not easy to sell shares short. Selling short is a strange concept to many people who think of buying shares at a low price and selling then at a higher price. But it’s often easier to predict that a share will fall rather than rise so what you’d like to do is to sell it at a high price and then buy it back later at a low price. The net result is the same whatever the order of the deals – buy low, sell high.
However, you can’t sell something you don’t own so in order to sell shares short you must “borrow” them from your broker. This is not quite as straightforward as buying and not all shares are available for selling short.
Finally, share dealing takes place during market hours so if you don’t live in the country where they are being traded you must adjust your trading hours to suit.
Futures, commodities and indices
Commodities are goods such as corn, copper, crude oil, orange juice, oats, gold and wheat.
Technically, a futures contract is an agreement to make or accept delivery of a commodity on a certain day at a certain price. In practice this rarely happens unless you’re a manufacturer who actually wants the goods. The vast majority of futures traders are simply speculating on whether the price will go up or down and never take delivery of an item.
Futures contacts include commodities and also stock market indices such as the S&P 500, Dow Jones and the Russell. Indices are simply a composite of securities that provide an overall reading of the market or some section of it.
The S&P 500 (Standard & Poor’s 500) tracks 500 of the largest companies in the US market. The Dow Jones Industrial Average tracks only 30 of the largest and longest-established companies while the Russell 2000 is an index of smaller stocks.
Essentially, commodities and indices are futures and traded in much the same way although traders may use the terms interchangeably.
Unlike shares, futures can be sold short just as easily as they can be bought. Each futures contract has its own fluctuating price and many traders deal in just one lot contracts.
Brokers usually charge a flat fee commission per contract, often expressed as a “round turn” which is one buy and one sell transaction. This may be a few dollars, often less than the value of a point or two on the contract. If you’re trading a long time frame the commission is negligible but if you’re day trading and scalping for a few points here and there it becomes a considerable part of the cost.
Futures brokers usually offer a margin of around 20% of the value of the underlying instrument so you can control $10,000’s worth of a contract for maybe $2,000. However, the same rules apply – if you over-leverage your account you’ll receive a margin call or your positions will be closed at a loss. Margin and leverage are a two-edged sword.
Many brokers offer a demo account so you can get used to the trading platform and test your trading strategies before you put real money on the line.
Forex Currency Trading
Currency trading, foreign exchange or forex as it’s more commonly known, has fast become one of the most popular markets for private traders in recent years.
As its name suggests, it involves buying and selling foreign currency. The most commonly traded currencies are referenced against the US Dollar and are sometimes referred to as a “currency pair” even though you are only trading one instrument. For example, the GBPUSD is the UK Pound/US Dollar pair. A value of 1.7625 would mean that the one Pound is worth 1.7625 Dollars. Other popular pairs include the Euro (EURUSD), the Swiss Franc (USDCHF) and the Japanese Yen (USDJPY) although there are others.
So unlike shares and futures, you don’t have a mass of markets to choose from, but there is variety within forex currency trading to give you a range of markets to trade.
The value of each pair differs slightly but the minimum movement – called a “pip” – is worth approximately $10. The GBPUSD has been averaging 100-150 pips per day which would be $1000-1500. Many brokers let you trade half or even quarter-size lots which are useful when you’re starting out. Also, many brokers offer a demo account so you can practice before risking real money.
The total value of the forex market is worth trillions of dollars per day, far larger than shares or futures. It is also a truly international market with dealing taking place all around the globe 24 hours per day from Monday to Friday. You can, therefore, trade at any time of the day or night at times to suit you. It’s worth noting, however, that the bigger moves generally occur during the US and European trading sessions.
You can sell short forex just as easily as you can buy and brokers offer highly-leveraged accounts too – but the same warning regarding margins apply here as well.
Brokers tend not to charge a commission for trading forex and you will often see adverts for “commission free” trading. However, they make their money on the spread which is the difference between the buying price and the selling price. The spread is usually between 3 and 5 pips although some brokers may offer a 2 pip spread on some pairs, and some less-popular pairs may have a larger spread.
Paying on the spread is particularly useful when trading mini lots. A 3-pip spread on a quarter lot will be about $7.50 whereas on a full-size lot it would be $30. Again, the spread is more important when trading short time frames where you’re only aiming to make a few pips per trade. You need to build the spread into your trading system so you don’t overestimate the amount you might make per trade.
One interesting aspect of forex currency trading is that there is no central clearing house where absolute prices are quoted, unlike shares and futures. So it’s quite possible to see different brokers quoting slightly different prices for the same pair. As the market has become more efficient, this difference has reduced, in most cases, to a few pips but it highlights the importance of checking that the data you are using for analysis is the same – or close to – that used by your broker for placing your orders.
The market you decide to trade will depend on many things, not least of all, your budget, but also how many markets you want to look at and what hours you want to trade. There are trading vehicles to suit all preferences and pockets.

You may think you know what a CFD, a currency pair, or an option is, but you probably don’t know anywhere near as much as you should. For example, trading a CFD and an option using the same outlay can result in two completely different scenarios; the CFD can take out your initial outlay, plus more sometimes resulting in a margin call (if you know what one of these are). Bad traders can have their entire capital wiped in very short time if they’re not careful.
An option on the other hand can only ever go to zero; in other words, you can only lose your initial outlay, but with options there is a thing called time decay, which simply means, the longer you hold an option, (all else being equal), the less valuable your option becomes. CFD’s don’t have time decay, but they do incur interest when bought for every 24 hours you hold the position open.
Options also have various components that go into making up their price, including time (already mentioned), and intrinsic value, not to mention a few others. A lot of newbie options traders are bewildered when they see the underlying asset go up in price yet their call option does nothing. For some reason it escapes these people that it may be a good idea to learn what an option is.
So if you decide you think the little green bar is going to keep going up, what do you buy an option, CFD or just the stock? Then there are market makers and brokers, regulators, and laws which differ greatly between just these two derivatives markets. You can’t trade CFD’s in the US, so what happens if you get sold on a real great trading system promising huge returns only to find out that the owner of the system lives in the UK and trades his system with CFD’s?
Then you have Forex, the market where people think they can start with a measly $10! Unlike all other markets, Forex has two opposing forces at play. By buying the EUR/USD, you are in fact buying the Euro currency with US Dollars, and if you live outside the US, then you’ve got to factor in the currency exchange rate between the US dollar and your own currency, otherwise you have no idea what you’re risking.
Another example; if I live in New Zealand and I decide to go short the CAD/JPY pair, how do I work out my risk for the trade? Well for starters, going short the CAD/JPY means I am buying Japanese Yen, with Canadian Dollars. How many of these Canadian Dollars am I willing to risk so I only risk ‘X’ amount New Zealand Dollars?
This is not to mention that fact that CFD and Forex markets are unregulated. If you think you’re getting the same price at any given time as someone else on the other side of the world, think again, because you aren’t!
Futures and Commodities; Ah, the big juicy bull market that no one seemed to care about when our little friend with the bow tie was singing from the rooftops to an empty street. Of course now that our favourite money channels can’t stop talking about them everyone else seems interested. Have you ever seen the little pop up ad claiming an 80% success rate trading Oil? Well that’s all good and dandy but unless you have the capital to trade Oil, it’s absolutely hopeless to you. The standard method of trading one Oil contract requires you have about a $4000 margin. Check out the margin requirements to trade all the other commodities in the news lately, Wheat, Corn, Sugar, and Gold.
Rest assured, now that we have a bull market in commodities, the ways in which one can trade these markets will explode allowing smaller margins and more retail traders to experiment (yes that’s what the majority will be doing even if they don’t know it). However, these instruments all have their own characteristics that you need to learn.
Every market is different, it has different characteristics, different laws and regulations (if at all), they act differently, and they have different driving forces fundamentally. Pick one or two markets to learn and get comfortable with them, but for goodness sake, pick the markets that will suit you and your goals and allow you to trade with the limited resources you have available.

Let’s face it, derivative trading is risky. Period.
Derivatives such as futures and options are leverage instruments and by virtue of being leverage instruments, derivatives inherently carry more risk and exposure than pure and simple stock trading. Leverage instruments are risky because leverage allows you to do more with the same amount of money than you would normally be able to. Yes, leverage instruments such as futures and options have the potential to generate over 10 times more profit on the same move on the price of a stock than just buying the stock itself.
What most beginners to derivatives trading do not take into consideration is the fact that leverage is a double edged sword. Just as it could help you generate over 10 times more profits on the same move, it could also incur as much losses should the stock move against your favor. This is also why many beginners to futures or options trading lose their shirts so quickly and go broke.
So, why is futures and options trading still so popular then?
Very simply, most beginners with only a small fund and wants to build up a significant fund quickly could not depend on simple stock trading for a start. They need more leverage and they can afford to take more risk since the amount at stake is usually pretty small. With this in mind, the only question that remains is, which is safer for beginners? Futures or Options?
To determine which is riskier, we need to ascertain certain the qualities that constitutes “Risk”. For derivative instruments, the main qualities that constitute trading risk are: Leverage, Liability, Liquidity and Versatility (fulfillment obligation is usually not a concern in trading as traders rarely hold till expiration).
Liquidity in the stock futures and stock options market is definitely lower than the stocks themselves but is enough for the trading purpose of retail beginners and shall be excluded in this discussion.
Leverage
Leverage of futures and options is the multiplication effect on your money versus buying the underlying stock itself. We shall not go into detailed discussion on how leverage is being calculated for futures and options here. It suffices to know that the higher the leverage, the higher your potential profits and losses becomes. Leverage in futures is a lot higher than the leverage in stock options due to the much higher lot size and low margin requirement. This makes futures trading riskier than options trading in terms of potential losses due to leverage.
Find out how leverage is calculated in options trading at http://www.optiontradingpedia.com/options_leverage.htm .
Liability
Liability here means the maximum amount of loss you bear when things go wrong. Yes, we all make wrong investment decisions all the time and derivative trading is no exception. When you buy stock options, the maximum loss you can sustain is the amount of money you used in purchasing those stock options. When things go wrong, those stock options become worthless and you can lose no more than that. However, in futures trading, you are exposed to unlimited liability and will be made to top up your trading account with the daily loss amount in what is called a “Margin Call”. As long as your position continues to go south, you continue to top up your losses until you go broke or the stock gets to the bottom. Either way, you could have lost all your fortune in one go. That risk along with the fact that you have higher leverage in futures trading makes futures trading a lot riskier than options trading.
Versatility
Versatility here refers to the ability to profit in more than one direction. Logic says that if you can profit in more than one direction, risk is much lower than when you can only profit in one direction, right? Yes, stock options trading is highly versatile as there are options strategies that can be created to profit from 2 or more directions! Futures trading is basically single directional. You are either the short or the long. Never both, unless used in combination with the underlying stock, which increases capital requirement and defeats the purpose of leverage.
Get a full list of Options Strategies at http://www.optiontradingpedia.com/options_strategy_library.htm .
In conclusion, futures trading is riskier than options trading for the retail beginner to derivatives trading because of higher leverage, unlimited liability and lower versatility. This is also why options trading is slowly taking over as the derivative instrument of choice for the beginner derivatives trader. To learn all about options trading, please visit http://www.optiontradingpedia.com .

Many private traders deem that options are thought to be traded by experts with good mathematical skill. There are two reasons why many private traders think so, that are. trading options are too risky and difficult. Many private traders think that it is easier to just trade stocks or futures. So, a simple question, if trading futures or buying stocks looks so much easier and less complex to do, then why options are available to be traded? The actual reason is that options, which are unlike other trading vehicle, can offer a trading edge to the private traders and allow them to cover almost any investment strategy and risk profile with flexibility. In many ways, options are the most superior trading vehicles that many traders use nowadays. To trade options, you certainly do not need to be an expert in financing.

In the book “The New Market Wizards” written by Jack Schwager, concludes that nobody can win without an edge, even you have the world greatest discipline and money management skill. If you trade futures on the All Ordinaries Share Price Index (SPI), you have to know exactly what is your trading edge; particularly, if you are a professional floor trader. With the trading edge, you should able to see the buy and sell orders that coming into the trading pit and also who is buyer and seller. Besides, the speed of execution of your orders and the transaction costs also should able to see. The popularity of the stocks, options and futures is increasing; therefore, many people trade these products. Only a small proportion of these traders apply a real trading edge. The main reasons for the unsuccessful of many private traders in the financial markets are due to the lack of a trading edge, poor risk management and insufficient capital. The key point here is to find an edge, utilize it consistently and use the right risk and money management techniques. When the odds are in your favor, it is better that you learn how to trade options. It is also importantly when the odds are not in your favor, make sure you stand aside. You are doing yourself with the best possible chance of success if you doing so. Trading systems are as many as traders. We won’t trade a system if it doesn’t provide us with some sort of edge. If you have a system, which is able to give you an edge, why not further enhance your edge by trading options in a right circumstance. Before placing a trade, try to get as many factors that going in your favor as possible. By practicing this, you provide yourself with a much greater chance to success in the long run.

Without doubt, with any form of trading, there are no absolute guarantees. You can’t help compared to the many of the people who do not know anything about options and trade without an edge. But, you have a better chance to succeed in the long run and reach your financial ambitions. Flexibilities that can be offered by options are as follows:

i) Profit gained from an accurately anticipating rising or falling market. ii) With a relatively small disbursement, your potential returns can be greatly magnified.

iii) If the market goes to the way that you anticipate, you have unlimited profit potential, whilst you limit your risk by choosing an amount that you afford to risk.

iv) Profit still can be gained by correctly picking options where the market will not go.

v) Profit gained from flat or non-trending phases markets.

vi) Profit gained by letting the time passes by.

vii) Profit gained at an increasing rate when the market moves further in your favor.

Extremely flexible trading tool is option. You can use options trading strategies that are precisely suit your view of market, whilst sewing them closely to your personal risk tolerance level.

People who trade options for a living and as their business will try to understand and apply the principles, which have been outlined in this article. They do so because they know that there is an edge for then to be gained compare to the people who don’t. They are similar to the typical casino gambler if they do not trade with edge; their money will be destined to be lost ultimately. They are exactly like the casino itself if they trade with trading edge. For those people who trade the markets to make their living, you probably don’t have the chance to talk with them. Their occupation looks exotic and these people are imagined as weird mathematical geniuses who could give their money to Kasparov to run it in a chess tournament. The flair of occupational options traders couldn’t be going beyond from the veracity. Although many of the professional options traders who involve in the financial markets are intelligent people, they were not in the genius category. Nevertheless, they have one thing in common among them. They knew and applied certain unique principles in their options trading. The principles that they utilized offered then an edge to successfully trading in the market. Therefore, throughout their options trading life, they earn a good living.

You don’t have to be a professional options trader. The edge offered from the principles to the professional options traders also available to the private traders as well. Practically, these principles can be learnt and applied by yourself and the odds can be helped to put it more squarely in your favor. All the advantages that most of the professional options traders have may not be possessed by you. By using the same principles that they used, you can learn to make your trading more selective. In this way, you too can benefit from a trading edge.

Day trading videos and tutorials for beginning day traders. Trading systems and strategies for experienced day traders. Topics such as day trading basics, brokerages, trading and charting software, trading psychology, technical analysis indicators, and market profiles are all covered in detail. The day trading blog offers information and advice from a professional trader, a weekly economic calendar with volatility expectations, and weekly market reviews and forecasts.

What should you do to maximize your profits in day trading stock tips and avoid losses. The answer is very simple – follow day trading tips or Have a Great Mentor to trade with like Apextrading

If you are a new comer, then buy some books on day trading or follow Apextrading’s live trading videos on you tube. There is a plethora of books on stocks and day trading. You can really benefit from them as there are some beginners guide for new day trading enthusiasts. To get you started you can receive 2 free ebooks from Apextrading’s website. Plus you will also experience great pleasure reading these books if you are a bookworm and like to read books on financial markets and stocks. You can also start watching business news channels that offer invaluable inputs about the market. The business news channels offer direct information on the minute to minute happenings.

Information is the key to success in day trading. Try to gather as much information as you can because if you have the latest updates on the stock prices, then you will be able to take right decisions on which stock to buy and which stock to sell. You will have ample knowledge on which stock is rising and which is falling.

If you can religiously follow the above-mentioned day trading stock tips, then you will really be able to reap its benefits. Stock market is a volatile place and you have to be street smart if you really want to remain floating in this market and do not want to get drowned.

Why not try out Apextrading’s Free trading room.

Http://www.apextrading.webs.com

Testing a trading Plan
Before they begin in the market, some traders find it helpful to ‘paper trade’ the market for a while. This involves taking ‘hypothetical’ positions in the market and then monitoring these to see what the outcome will be.
Before doing any physical futures trading at all, the first move is to start by paper trading. A trading plan must be able to be measured. E.g. “I’ll risk no more than 2% of my capital on any given trade”. It can’t say “I won’t use too much of my equity for margin.”
Traders whose systems are more technical in nature will ‘back test’ their system against historical market data to determine the success of the system in that particular market. A trading system can be as simple as a few rules or as complex as a Black box technical analysis package. The key is that the system matches your personal trading style. You can either create a system from scratch or buy a readymade package. Either way it is advisable to test the system with dummy trades before doing the real thing. Some experts recommend 10 years of back testing with historical data (black box systems) where as others recommend a shorter time span for the testing of a simpler system. It is very important to perform your own testing on any ‘off the shelf’ systems, and not rely purely on the seller’s recommendations.
While all of these techniques are beneficial, prospective traders need to be aware that simulated trading – no matter what its form, does have its pitfalls.
Experienced traders will often say that there is no substitute for having real money in the market. Depending upon traders own discipline, the way they react in this circumstance could be very different compared to when the trade was purely hypothetical. In addition, while a market’s past performance can provide some general clues as to its price behavior, there is no guarantee that this will be repeated in the future.
Individuality
Trading plans are individualistic, based on such factors as personal experience, education, risk capital and tolerance toward risk. For this reason, trading plans may differ greatly from one trader to another. A trading plan may work better with some people than others. Consequently, you must develop a trading plan that works best for you. Among other things, this requires patience, rigid adherence to the rules that you establish, meticulous record keeping of trading performance (which provides valuable feedback) and an open mind to try new methods. There are no guarantees of profitability in the world of futures investing, but the discipline of a trading plan goes a long way toward making you a successful futures trader.
Now let’s look at some of the
SAMPLE TRADING PLAN (GENERAL SUMMARY OF MARKET ACTION)
Trading Philosophy / Trading Psychology:
I believe that Financial Markets are 100% psychology driven.Price patterns are a reflection of the collective psychology of a large number of traders.Trading psychology also a major factor in my own trading. It is identified as my trading state. Fear and Greed are powerful enemies to profitable trading and I can overcome this by training my subconscious mind to be focused on following a defined trading plan versus focusing on wins and losses.I am a disciplined trader committed to trading only for profit strictly adhering too my trading rules, plan and standard operating procedures.My style of trading is aggressive with my preference to trade directional, and pattern set ups. I will trade full time as a day trader and also seek other trading opportunities especially dealing with Options.I will not have a bias as to where the market may or may not head, I will react to the price, patterns and my tools as they present themselves applying my trading rules.I trade what I see… Not what I think!I understand that I cannot control the market, I can control only myself. My trading state and mindset is the key to the success of trading. I must be rested, fit, healthy and mentally alert. Accepting the stress of trading by keeping focused, calm, disciplined and not distracted is essential for being a professional trader.Losses are acceptable, not desirable but I can minimize them with compliance to the rules, especially avoiding impulse trades and never being in a trade without a plan or a stop.Trading is a business and I am here for the profit.
Golden Trading Rules:
Check for Stops and targets resting in the Market then update or remove them.Look left for previous structure.Always Set a Stop Loss. Always!Maintain Discipline.Avoid impulse trading. Trade with a plan and stand by the rules.Identify, Predict, Decide and Execute (IPDE).Do not enter a market within 15 minutes after a news event.Get S.E.T. (Stop, Entry, Targets) before every trade. (Know where and how to Exit…)If I lose my ISP then call my Broker immediately and go flat, then work on the technical challenges to get back online.Keep it simple.
Money Management, Risk Reward and Financial Goals:
I will trade 4 contracts as a unit maximum for the S&P e-mini.I will trade 3 contracts as a unit maximum in the Russell e-mini.For every $5K that I add to my account I can add a contract to a unit. If I reduce my account by $2K then I will reduce the contract size.Commissions, fees, charting services, continuing education and other business related costs are considered essential to trading.Risk to Reward is preferred a 2 to 1 ratio, but waiting for the set up and trading the rules is paramount and given the opportunity this standard is a guideline. My goal is to successfully net 9 combined points per week in the market.My desire is to train for the FOREX so that I can diversify looking for the best opportunities as I see them.
Daily Routine
I will only trade on days when I am well rested, relaxed and not mentally distracted by matters that will divert my focus. I will spend at least 15 minutes relaxing to music or a form of meditation after a good nights rest before trading.Conduct a Pre-Market Analysis myself, perform a top-down review of the major markets and develop a plan of the day. The trading day is from 9:30 a.m. (EST) to 4:15 p.m. divided into a morning session, lunch and afternoon session.I do not trade for the first hour on Mondays.I do not enter any new trades the last half an hour of the market hours (1545 – 1615 EST).After I have met my goal or the market is closed I will log my journal and then spend quality time with my family.At some point before the end of the day I will revisit the S&P trading day and back test my plan and system.
Pre-Market Analysis
Understanding that 70% of the volatility occurs during the first 2



www.TransWorldFutures.com

Seasonal Spread Trade for Consistent Returns

Spread trading is a unique trading concept not all that familiar to the average commodity investor. The typical commodity trader analyzes a particular market, either from a technical or a fundamental standpoint, sometimes combining the two; makes a determination as to whether the market exhibits either a bullish or bearish bias, and then wagers by going long a futures contract or purchasing a call option, or by going short a futures contract or buying a put option. There are a number of variations on the theme, but the idea is basically the same.

The following demonstrates the inherent disadvantages, in the above two scenarios, of an outright futures position or the purchase of an option;

1. Size of account. The average investor has a limited account size, and can only withstand a certain amount of drawdown associated with any particular trade. The limited size of trading account necessitates the placement of a protective stop order above or below the position. The premature assumption of a position and the inherent volatility associated with commodity markets leaves the position vulnerable to a one or two day move that triggers the stop order, sidelining the trader as the position oftentimes turns back around. As the market moves in the trader’s favor, the advisability of using trailing stops, adjusting the protective stop in the direction of the trade makes sense in theory, but oftentimes the market will open well above or below the stop order, blowing out the stop and oftentimes taking away a substantial amount, if not all of the profit that was being locked in.

2. Time. In the case of an options purchase, you are basically purchasing time. As the purchaser of an option, the time clock and the calendar become your worst enemy. The value of your option depreciates as you wait for the market to move in your direction. Typically the purchaser of an option witnesses the market go up and down, as the value of his option changes, all along the remaining time value decaying on an accelerated curve as the option expiration day grows nearer.

Spread trading on the other hand, is a way of effectively combating the above two problems. Time no longer is an enemy and volatility, to a certain extent, is effectively reduced. Margins are substantially less due to the relative conservative nature of the “hedged” trade, which the commodity exchanges themselves recognize. Margin requirements, for a spread, can be reduced anywhere from 20% to 90%

Spread trading has no directional bias. The market can go up or down, the trade is based only the relationship between the long and the short position, i.e.- as long as the long side of your spread outperforms the short side you will be profitable. Spread trades can be in the same commodity with different delivery months (i.e. buy July Lean Hogs and sell December Lean Hogs), or different commodities (i.e. buy March Swiss Franc and sell March Australian Dollar). Generally speaking, both sides of the trade will have the same overall directional bias, as in being both long and short in the Grains (long July Corn/short March Corn) , or in the Meats (long Live Cattle/short Feeder Cattle), or in the Metals (long Gold/short Silver). This allows for the built in “hedge”.

Seasonal spread trading is another opportunity to take advantage of this manner of trading. As there are many seasonal tendencies associated with various commodity markets, there are also seasonal tendencies associated with seasonal spread trades. Seasonality is a seasonal cycle that forms a similar, reliable pattern every year for many years.

Reliable seasonal tendencies are all around us.

Everyone is familiar with weather seasonality. In the winter months the temperature is colder than in the summer months.

Farmers will plant crops and harvest crops at about the same time every year.

In the summer months, Crude Oil is usually higher than in winter (because people drive cars more in summer).

In the winter months heating oil is usually higher than in the summer (because more people are trying to stay warm in winter).

At TransWorld Futures, www.TransWorldFutures.com, we go back over 15 years of research and analyze high percentage seasonal spread trade patterns. If a commodity doesn’t exhibit a high seasonal correlation, it is tossed out of the data base.

Any spread trade that has been successful 80% of the time or better over the past 15 years is certainly a possible candidate for exhibiting a seasonal tendency and worth analyzing further. Once the high percentage entry and exit dates are determined, it is time to examine the trade on the technical setup. Is the spread overbought or oversold, what are the resistance points? Basically does the trade look technically as well as fundamentally sound. There are a number of advisory services that offer seasonal spread trade recommendations based on historical analysis, but, by ignoring the technical set up, may result in entering the trade too early, resulting in unnecessarily large draw downs, or in entering too late, missing the trade altogether. We attempt to alleviate the stress, and do the leg work for you. The results from this unique form of trading have to be seen to be believed. Please contact one of our friendly brokers today, and learn about one of the most consistent trade indicators.

Rob Rutger

Senior Analyst

TransWorld Futures

Rob@TransWorldFutures.com

Toll free: 1-877-843-4519

International: 011-813-241-1902

Fax: 1-813-241-1927

www.TransWorldFutures.com