FutureSource Fast Break

May 19, 2005

Welcome to the tenth edition of Fast Break "Ask an Expert." Today's market expert is John Walsh, President of Walsh Trading.

John started his career in the futures industry in 1986 working for well-known trader Willard Thiesen. From there, John worked in different positions, most notable at Continental Grain in the futuresand options division. John will trade all markets, but concentrates his efforts in the agricultural sector. His trading methodology is based on fundamentals and a personally designed technical system. [more]

Complimentary Audio Commentary from Walsh Trading!

Walsh Trading provides intraday audio market comments right over your computer! 27 different times a day Walsh brokers share their insight and market comments in an audio format from the Walsh Trading website. The majority of markets and market sectors are covered, including breaking news. Sign up here for this great service from Walsh Trading!

A trader from Colorado asks:
"For a small trader without experience and 5,000 to 10,000 dls. to invest in futures markets which one is the best way to start."

The best way in my opinion is to have a specific plan in a specific arena. Enter the market with an objective and a quantifiable risk. If the market goes your way, exit at your objective, and do not raise the objective if it is reached. If you are wrong, exit and accept the small loss and look for either a new trade or a new entry!

To expand a bit on this, it is also important to understand your own tolerance for loss and your expectations for gain. Remember to trust your own ideas. Find what works for you and remain consistent with those patterns.

A trader from Indonesia writes:
"I am a beginner trader in commodity exchange. I have some questions, as follows: How to use pivot point for prediction? Is there other technical analysis to predict market price? How to predict limit price up and down?"

I personally do not utilize pivot points. However, I do know many traders who may incorporate pivot points in their approach. It is important, I think, to look at any of these technical indicators as tools.

There are many technical approaches to the market. If you have an interest in technical analysis it seems important to understand which may best suit your own personal approach. Therefore you need to take the time to study many approaches or indicators. Perhaps you would like to start with some of the broader ideas and then work down more to the micro scale. The more one understands the better off you are.
In terms of limit up limit down? I do not know of anyone who can predict those types of moves.

A trader from Florida asks:
"What is the best commodity to either buy or sell with the lowest risk."

All commodities present great risk, there is where the potential to profit lies. If you have a small account consider mini contracts.

I suppose one could break commodities down relative to current volatility and quantify risk relative to how one perceives volatility. If you think high volatility increases one's risk then look for markets with low volatility that may have an opportunity for some reason to have a significant move in volatility. The best to control risk is to quantify what is your risk on a given trade.

A trader from Illinois asks:
"All traders are wondering what's going on with the Dow...Well I think that with everything going electronic we are going to see volatility like we have never seen before... Everything is changing..."

"The more things change the more they stay the same!" I wish that one was mine! Again "There is nothing new under the sun!" I am not trying to be sarcastic. Do not believe those who say that things are out of whack. Someone is always making money despite volatility like we have never seen before! It seems to me that electronic trading is more efficient than open outcry and attracting more participants. These two facts bode well for less volatility not more. In spite of what people who do not trade think, the actual act of trading commodities is a very efficient system. This does not speak to manipulations or the like. BUT the ability for individuals, companies, and any other entity to lay off risk and potentially profit is fantastic. This is a very key ingredient in the success of our economy as a whole.

A trader from Wisconsin asks:
"I am a day trader. I use Bollinger Bands, Exp. Moving Sv. 4, 9, 18, 100 MACD, Relative Strength Index, Slow Stockastics. On paper I do fine. When real money is involved I LOSE. Any help?

Welcome to the real world. It is possible that when real money is on the table you change your parameters. It is impossible to tell unless one can see the comparative trades. I personally do not believe in day trading. However, there are many people out there who do it.

In your situation it seems to though you need to make an honest comparison between real and paper trading.

A trader from New Mexico asks:
"How do you find a futures broker to work with?"

You call Walsh Trading (800) 993-5449. Ask yourself. Full service or discount?

A trader from Texas asks:
"Where is the best place to learn to trade commodities?"

Read a lot, if possible take courses and the most important thing is "trust thine own self." This is an industry full of experts. The reality is that only a small percentage of people make money, real money, over the long haul. Therefore consider carefully if you actually want to be involved.

A Word From Our Fast Break Author

Complimentary Audio Commentary from Walsh Trading!

A trader from Ireland asks:
"Where can I get second by second volume for the S&P500, besides the vix, and paying and arm and a leg for this information."

Certain online trading platforms can provide this. If you call Mike Liautaud in our office he will assist you!

A trader from Illinois asks:
"Day trading the mini Dow futures is just a game that only the very best win don't you think??..."

All trading is a business where only the best win or make money, especially over a protracted period of time. In terms of Day trading, I personally do not believe in it.

A trader from Indonesia asks:
"I am a beginner trader in a commodity exchange. Here is my question: How to predict and analyze gaps?"

This is a matter of trading styles and/or beliefs. Many macro minded traders will use a gap to enter a market in the direction the market is moving, and look to leave the gap. Some short-term participants may choose to sell/buy looking for a retracement to fill a gap. You have to know your expectations and set parameters around them. There are some books written on market theories that directly relate to this subject. One more comment about this: I believe it is important to understand what the psychology of the market you are trading in.

A trader from Canada asks:
"How long will the grains be in a trading range?"

While I believe it would be nice to be able to answer this question for you, each market has its own time frame. It is our job to be there when/if it breaks out. It seems important to remember this is an imperfect science and the market continuously teaches us patience.

A trader from Virginia asks:
"How do you recommend determining the best index or sector to trade in? Is there any research that shows whether a trader is more likely to be successful trading in the same futures market/sector exclusively versus using some type of sector rotation?"

All sectors are relative and "the best". I personally believe in concentrating efforts in one arena and understanding as much as possible, which is difficult. In my opinion it takes a special trader to be able to trade many markets successfully. One with more talent than I!
I also believe all markets have their own personality. It is important to understand how your personality matches the market you are trading.

A trader from Canada asks:
"If there is at least 95% of the market players, who lose their money, buying futures & options, tell me then, who is the market, and what is it for?"

The market is here for many reasons, and all participants have their own reasons for being involved. The reality is that the majority of the money is made or controlled by the few. Therefore, it is imperative to accept and understand these risks. If risk is not in your makeup, do not trade commodities. The objective is to be one of the few. This is true in all business! The original concept of the market however is a place to hedge risk. This risk is what we as speculators assume to be the potential profit.

A trader from Malaysia asks:
"Could we have (or is there a special setting) a list for setting RSI for all products esp: grains, metals, forex. In other words, is there a standard setting?"

There are no specific settings. This is for you to decide. It is your job to find out what works best given the markets you are trading.

About the Author

Background: John Walsh started his career in the futures industry in 1986 at Barnes and Company working for well-known trader Willard Thiesen. From there, John worked in different positions, most notable at Continental Grain in the futures and options division.

Trading Approach: John will trade all markets, but concentrates his efforts in the agricultural sector, more specifically in the relationships revolving around the soybean crush. His trading methodology is based on fundamentals and a personally designed technical system.

For Our Fast Break Readers

Complimentary Audio Commentary from Walsh Trading!

Disclaimer

The Commodity Futures Trading Commission has asked us to also advise you that trading futures is not without risk. While there is opportunity for incredible wealth building, there is also the risk of losing even more than you invested. Of course, that's not unlike most other businesses. But informed traders are the best traders! Opinions expressed by Fast Break authors are not those of FutureSource.

Look to identify protracted opportunities in the market and become consumed with attempting to catch a percentage of the overall move. Please refer to your Walsh Trading broker for specific daily insights.

-John Walsh

Indices/Minis
Grains
Currencies/Forex
Financials
Food/Fiber/Softs
Metals
Energy
Meats

Looking For a Broker?

Did you know that FutureSource has a Broker Search Page, designed to connect you to the broker that best suits your needs?

Check it out!

FutureSource.com
Real-Time Workstation
Real-Time Xtra
About FutureSource
Contact Us