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GEORGE ANGELL KEYS IN ON VOLATILITY AND LIQUIDITY
Volatility and liquidity are the two elements independent trader George Angell looks for in a market to trade. Currently,
Angell exclusively trades the S&P 500 futures, putting on intraday trades only, never holding positions overnight.
"Liquidity and volatility are the two things you have to have. You can't day-trade something like oats--it wouldn't work"
Angell said.
Back in the early 1970s, Angell first became interested in the commodities markets. "I bought sugar and it went limit up ...
then I bought copper and it went limit up, so I bought some more. Then it went limit down. I called my broker and told him to
sell and he said to whom?" Angell said. "That's when I realized I had more to learn," Angell added.
In the early 1980s, Angell headed for the Chicago trading pits. He was a local trader at the MidAmerican Commodity
Exchange, focusing primarily on gold. While Angell now trades for himself, off-floor, from a screen, he called trading on the
floor "an invaluable experience."
"People on the floor are very short-term oriented" Angell said. "It taught me to get in, capture the trend, get your money and
leave" he said.
Now, however, Angell prefers off-floor trading. "I'm alone in a room trading. When I'm on the floor there are thousands of
people. It's a social event. People want to talk about their positions, they want to have coffee. You lose your concentration... you can't see the forest for the tress," Angell said.
Technology has revolutionized the capability of off-floor traders in the past 10 years, according to Angell. "The playing field
has been leveled," Angell said, explaining that technology has decreased the advantage the floor trader was once seen as having over an off-floor trader. "The key beneficiary is the public trader. The public can't scalp, but they can day-trade," he explained.
Angell disregards fundamentals, relying on technicals "100%." He has developed two proprietary trading systems: LSS and
Spyglass, which he utilizes in his day trading, along with "discretion and personal judgment."
"Everybody needs some sort of mechanical system. It enables you to take the difficult trades you wouldn't normally take on
the seat of your pants" Angell noted.
Also, "every day I go in without an opinion ... and I let the market tell me where it wants to go ... opinions are what get you in
trouble," Angell added.
While "a lot of people don't have the discipline to trade without stops," Angell said he doesn't use them. "The problem with
stop trading is that you get out at the worst possible moment. Instead of stops, I use action points. That means when it hits that point I'll get out, but I'll wait for the bounce (if the market is going down)" Angell explained.
Angell has traded the bond market as well. He keys m on his two key elements of volatility and liquidity when judging
markets. "Occasionally, markets die on you. For instance, in 1980 we had a big gold market. It had gone to $850 per ounce...but volatility dried up and then liquidity dried up. At that point I went to the bonds," Angell said. When the S&P 500 contract was launched at the Chicago Mercantile Exchange, Angell started trading that market. However, he noted after the stock market crash of 1987, liquidity dried up in the S&Ps, and Angell moved back to the bonds for a time.
"Big institutions are trading bonds and there are thousands to buy and sell at every tick. Nobody can play with that market.
Nobody can manipulate it. That's why orange juice goes limit up all the time-because there is nobody to sell it," he said.
When asked about GLOBEX trading, Angell said, "I don't pay any attention to it, because there's not enough liquidity there.
On Eurodollars," Angell noted, "there is huge liquidity but not enough volatility to make money."
On the differences between markets, Angell noted that "all the markets have different characteristics and you have to know
your market very well. On the floor, a guy who trades lumber isn't going to trade the S&P. And traders trade the markets
differently. People are known according to how they trade. This guy is a scalper. This guy trades back months. This guy is a
spreader. This guy is a position day-trader. The novice trader needs to know he's got to be a specialist."
When asked why many futures traders don't succeed, Angell pointed to three main factors. "One, a lack of discipline. Two,
they are underfinanced. Three, they don't know what it's all about. They don't know about paradoxical even" Angell said.
The dictionary definition of "paradox" is an apparent contradiction, which is nevertheless somehow true, Angell explained.
One example of this in the markets is that "the whole game on the floor is to run the stops" he said.
"In the market, everyone thinks it's going up, but everyone won't make money," he added.
Advice that Angell has for beginning traders? "Be well-enough financed with risk capital that you can afford to lose. Don't think
about the money, drink about the market, and the money will take care of itself," Angell concluded.
3
JAKE BERNSTEIN: PSYCHOLOGIST TURNED TRADER
Jake Bernstein, one of the futures industry's best-known traders, started trading "by accident" he told FWN.
Bernstein was a psychologist who responded to an ad in the newspaper regarding "ag futures." A broker started calling him
and Bernstein opened an account.
"I had quick success, which turned into quick failure," Bernstein said, acting at the time solely on his broker's
recommendations. Then Bernstein "regrouped, did research, and started trading on my own." An active trader now, he trades strictly according to technicals - off the floor from a screen.
"My work has always been technically oriented, using price patterns, seasonality, and cycles."
Bernistein initially "developed my own method and timing. I didn't have the money to trade it, so I sold advice." Eventually,
he built up enough capital and began trading via his own method.
President of MBH Commodity Advisors, based in Winnetka, IL., Bernstein has authored more than 20
books. He is the publisher of the MBH Weekly Futures Trading Letter, which has been in continuous publication since 1972, and
he leads workshops on specific trading topics. Bernstein is also a panelist on the "All Star Traders Hotline."
"I love the teaching. Every time I teach, I learn something new and it reinforces the belief I have in my own methods,"
Bernstein said. Also, "there is so much disinformation out there for traders, I feel good teaching something that I know works,"
he added.
Bernstein favors participation in the most active futures markets - energies, financials, and the S&P contract. However, "I
trade anything that moves in any time frame," he said.
Very thin markets, such as palladium and orange juice futures, are markets Bernstein usually avoids. "I don't like the way the
orders are executed there."
When asked if the value of technical analysis is eroded as more and more traders learn the same types of chart patterns,
Bernstein said, "Chart patterns are as much art as science. I try to stay with things that are crystal clear. If 10 people look at a
chart and all 10 of us come to the same conclusion - those are the types of things I am comfortable with. I like to be objective."
Bernstein pointed to Elliott wave analysis as a type of technical analysis that tends to be more "subjective," as the wave counts
are open to individual interpretation.
The long-time trader has established his own home page on the World Wide Web and is fairly upbeat on the impact of the
Web on the trading community.
"I think the Internet will allow for faster distribution of information and will allow more people throughout the world to take
part in the markets. It will increase the opportunities for everyone."
On the future of the exchange trading floors, Bernstein doesn't believe electronic trading will replace open-outcry pit trading
anytime soon. "So far, I'm not impressed," he said, regarding speculation on the eventual demise of pit trading. "I think there is
still a place for the floor trader and the pit broker, and as long as the broker is being effective there will be a need for him."
Bernstein, however, has always been a "screen trader," suggesting he is "much too short" to be a floor trader as "people would
take advantage of me down there," he said. On the current state of the futures markets, Bernstein believes a new inflationary era
is on the horizon.
"I think we are in for one of the biggest inflation moves we've seen since the 1970s. We will see a big move in the precious
metals. We are already seeing rises in the grain complete ... the energies are going crazy-and that suggests more inflation. We are
going to see interest rates rise and a big bear market for interest rates," he predicted.
Advice Bernstein has for beginning traders: "Start with enough capital; diversify; trade for the bigger moves and manage
risk."
4
TOM BIEROVIC USES DISCRETION ON TOP OF HIS RULES
Off floor trader Tom Bierovic, trades according to a set of rules he has developed over the years, but uses his own discretion
on top of these rules. Bierovic believes he was lucky because he was introduced to the futures business at a very young age. His
father was a trader at the MidAmerica Exchange and Tom would plot daily and weekly bar charts of the agricultural contracts for
his allowance money.
"We didn't have computers ... I'd get the afternoon newspapers and get the closing prices every day," Bicrovic explained.
Additionally, during the summertime, Bierovic worked on the trading floor for his father. "I would keep 15-minute intraday
bar charts and I did a 10-period simple moving average of the 15-minute closes," he explained. "My dad would trade in the
market scalping ... but the only difference is that he would only take trades in the direction of what I told him the 15-minute trend
was," Bierovic added.
After plotting charts by hand for years and doing manual calculations for exponential moving averages, stochastics, RSIs,
ADX and MACD, Bierovic said, "I don't do anything by hand anymore." But, he added "I think that it is very good for when you
are learning."
Bierovic is strictly a technical trader. In fact he "makes a deliberate effort to not know anything about fundamentals" he said.
"All the fundamentals are summarized perfectly in the current price of the market," Bierovic explained.
"Technical analysis is applied social psychology. It's just crowd behavior-hope, fear and greed," he said.
Currently, Bierovic trades from his home in suburban Chicago and manages "a couple of million dollars" calling himself a
"discretionary trader with a very specific methodology… I have all my rules written down exactly and carefully. So somebody
else could trade my system. But, I deviate when I choose to."
However, he is not a CTA and abides by the restrictions of not soliciting funds and limiting the number of people that he
trades for to under 15 in a 12-month period, he noted.
Bierovic has developed what he calls a "momentum retracement trading method" which "involves knowing the direction and
the quality of the trend, knowing how to measure countertrend reactions and when the trend has reasserted itself and knowing
what to risk and knowing how to risk it," he said. In terms of time frame, "I trade basically still off the daily charts, but I do
watch the markets intraday and do trail my stops intraday," Bierovic said.
He focuses on trending markets and is not shy about taking profits. One example of the type of trade he might put on is "If I
get in today, I'd get out tomorrow if the market returns to today's high," he said. "I won't take a trade unless the market has
recently had a strong directional trend ... to go long I'm looking for a real rice upthrust in the market," Bierovic explained.
"I think it's important to take profits because markets take them away nine out of 10 times," he said. "I just try to be right on at
least 40% of the time using a 2:1 reward/risk ratio. There is a very good living in that," he said.
"I take profits and look for an opportunity to re-enter," he noted, saying he is usually in his trades two to four days. This is one
area where Bierovic said he sometimes uses discretion over his rules. "I deviate on exits. I say, 'Gee if I've made enough money.
I just might take profits on the close.' To me, a good trade is when I doubled what I risk," Bierovic added.
As a chartist, Bicrovic doesn't favor one market over another. "I really treat them all the same," he said. However, "My
favorite market is the most recent market in which I had a winning trade and my least favorite market is the one is which I most
recently lost in" he joked.
He does, however, focus on the more liquid markets. "The bigger the market, the better your fills are and the better technical
analysis works" Bierovic said. "I stay in liquid markets. I don't trade lumber or pork bellies, palladium or the Australian dollar,"
he noted. "In a little market like pork bellies - it is not difficult to control the market - a big fish can move a little pond," he said
explaining that "in a smaller market, technical analysis might not work as well" if the hopes, fears and greed of the masses aren't
being reflected.
Specifically, Bierovic credits Chuck LeBeau-"he taught me to look at markets with a (minimum) average daily volume of
5,000 and total open interest of 20,000 or more ... but I can fudge on that a little bit."
Bierovic advises beginning traders to "develop a trading style compatible with your own psychological make up ... some
people can day-trade the S&P and some people can't. A trading style has to be congruent with your own personality," he said.
"A beginning trader should concentrate on learning technical analysis and trading rather than the dollar gain or dollar loss...
Keep losses small so you don't get knocked out of the game.
"Don't get overly excited about winning trades and don't get overly despondent about losing trades ... you shouldn't feel like a
hero after one winning trade and you shouldn't feel like a bum after a losing trade. Just hang in there and keep trading."
"The whole battle is to have a trading method and to follow it," Bierovic concluded.
5
WALTER BRESSERT READS MARKET VIA CYCLES & OSCILLATORS
Walter Bressert earned a college degree in economics, which taught him "economists don't know much about the way the
world works." An active trader for many years, Bressert relies on cycles and oscillators in his intraday futures trading, in which
he primarily focuses on the S&P 500 contract.
However, Bressert does use all form of technical analysis, but he calls time cycles "the glue that holds everything together-it
gives me a time frame that nothing else gives me" he explained. "By studying cycles, I became familiar with the rhythm and
every market has its own rhythm," he said.
Back in the late 1980s, Bressert realized there was a dearth of written materials on cycles and oscillators. So, he decided to
write his own book, entitled Power of Oscillqtor Cycle Combination.
"Cycles give you the time. But, by looking at a chart, you can't see if it's overbought or oversold. Oscillators pick up that type
of energy. If it's over 80-90 it's a probable top or if its below 30 or 20 or 10, it's a probable bottom," Bressert explained. "But, you
have to know the bigger picture-what is the trend?" For this, Bressert, looks back to cycles. For example, "the trend for the daily
chart is determined by the weekly cycle."
Early in his career, when Bressert was trading on the floor "an old guy came up to me and said: 'Trading is really easy-when
the trend is up, you buy dips, when the trend is down, you sell rallies.' Being young, I thought, 'What does he know?' But, about
ten years later, I realized he had handed it all to me."
Bressert stressed the importance of trend. "Know the trend and trade with the trend or anticipate the trend reversal," he said.
Currently, Bressert is actively trading the S&P contract on an intraday basis and occasionally other markets. He favors the
S&P contract because "it's liquid and can handle volume. It has sizable moves intraday and there are a lot of players-meaning the
floor can't control the market," he explained. Bressert believes there are only three markets suitable for intraday trading: the S&P
500 contract, T-bond futures and the Swiss franc.
Using cycles and oscillators has allowed Bressert to develop a mechanical type of trading system, which helps remove the
emotional element of trading for him. "The market is emotion. It pushes all your buttons of fear and
greed ... it ferrets out all your weaknesses," he explained. "The emotional part is what I had to control. I found out I was not too
temperamentally suited to be a star trader. The way I found to overcome that was to find mechanical entry and exit patterns."
Bressert doesn't ignore fundamentals. He uses fundamentals to "look at the big picture" and to see "if the market acted the way
it should have on good news." Also, he doesn't hold positions heading into big reports. "To me, that's gambling. A big report
takes away the odds-because the unexpected can happen."
Looking ahead in the markets, Bressert is extremely bullish on the grains complex. "We should see a spectacular rally…we
could see moves similar to the '70s," he said. "Grains could continue to rally into the summer, with the possibility of an
intermediate term top in April ... Beans should continue above $8," he said. "There is very little grain available now," he
explained.
Farther out, "We could take out $13 in beans over the next two years and could seen $6-7 corn ... the drought cycle is due to
hit," Bressert speculated.
Bressert thinks the bull market in stocks will continue. "We should go substantially higher into April and the summer," he
noted.
In the precious metals arena, Bressert looks for gold to trade sideways to lower in April, "which will provide a buying
opportunity in the second half of April."
In conclusion, Bressert's advice for beginning traders is "study, study, study to identify things that work before they ever put
their money where their mouth is. 90% of the people who trade commodities lose money. It's because they didn't do their
homework."
6
TOM DEMARK RELIES 100% ON MARKET TIMING
Trader and consultant Tom DeMark has invented dozens of proprietary technical indicators over the years and relies strictly
on the technical principles of market timing for his research and trading.
In fact at one point in his career, DeMark went through the CFA program (certified financial analyst), but chose to never
complete it. "Markets over the long term are controlled by fundamentals. But, my indicators measure psychology--that's what
technical analysis does," DeMark explained.
DeMark's first step into the financial world came after graduate school in both business and law, when he joined National
Investment Service, based in Milwaukee, Wisconsin, as a fundamental analyst in the early 1970s. The firm managed roughly
$300 million in pension and profit-sharing assets, investing in primarily fixed-income securities and equities.
National Investment Service's strength was market timing. But DeMark said of his first job, "I was a professional gofer .. I
was low man in the company, but I ascended quickly because I was good at market timing."
"My goal was to be involved with a small group of people who were progressive," DeMark said. The firm "avoided the stock
market crash in 1973 and 1974," and assets under management grew to $6 billion.
"1974 was severe ... (The Dow Jones Industrial Average) went from over 1000 to 570 during the political crisis with Nixon.
There was a 50% decline in the stock market," DeMark remembered. However, the firm avoided that debacle through market
timing. "They just gave me a license to do whatever I wanted to do," he said.
"I went off on my own and traded commodities. My bosses didn't mind if I diversified for my own account," DeMark said. In
general, DeMark believes "the commodity side (of the business) has the more creative people-because the leverage involved is so
big."
In 1978, DeMark set up a financial markets consulting division within National Investment Service. "We had a Who's Who in
the industry list of clients," DeMark noted. "I diversified, supplying stock and fixed-income commodity timing ... the profitability
of the subsidiary was greater than the parent," DeMark said.
However, in 1982, DeMark broke away and continued his consulting. "I had $120 billion in assets collectively following my
bond calls," DeMark said.
Just ahead of the U.S. stock market crash in 1987, one of DeMark's indicators posted an equity sell signal. Shortly thereafter,
he joined Paul Tudor Jones's firm for a stint as an executive vice president and continued his market research and systems
development there.
Regarding the basis of his research, DeMark said, "market timing is 100%. It's anti-trend, it's contratrend, it's pattern
recognition and price exhaustion." DeMark believes his technical indicators differ from others because "they are totally objective
and mechanical and they are against the grain of most technicians."
One of DeMark's well-known technical indicators, which he has trademarked-Sequendal--"is a cyclical approach to market
analysis, determinant on the market itself," DeMark explained. "People who work with cycles generally take slices of time and
make them equal. I'm saying that some trading days in the market are irrelevant. I try to mark comparisons with price activity and
activity of days ago," he added.
In a year-long series in Futures magazine, beginning in August 1995, DeMark authored articles outlining many of his
technical indicators, which readers can refer to for more in-depth details. DeMark also authored a book entitled The New Science
of Technical Analysis, published by John Wiley & Sons, Inc. in 1994.
DeMark is putting the finishing touches on a book called New Market Timing Techniques: Innovative Studies on Market
Rhythm and Price Exhaustion, which he expects to be published in the spring of 1997 "I'll be releasing 20 new indicators. Four of
them were some I traded while I was at Tudor-plus the ones I created with Larry Williams," DeMark said.
When asked if there are some markets DeMark prefers over others, DeMark responded in the negative. "Everything I've done
has application to all markets," he explained.
"I try to address every aspect of technical analysis and leave some of the variables open so people can research on their own,"
DeMark said. Nonetheless, his indicators are "99% mechanical, objective and simplistic," he added. However, DeMark admits
there is more to successful trading than just good indicators or system. "Money management and discipline are more important
than the system," he said. In fact "good discipline, a knowledge of their (personal) limitations and good money management are
more critical than the system or indicator," DeMark said.
Advice DeMark has for beginning traders? "Read a lot. Test a lot. Don't trade until you've done your homework. Make certain
you've made your technique objective-it should be a definitive process," DeMark concluded.
7
GEORGE FONTANILLS INCORPORATES OPTIONS TO LOWER RISK
Trader George Fontanills first began utilizing options in order to go "delta neutral" on his futures positions, which would
allow him to "still sleep well at night." Since he began using options in conjunction with his futures trading, Fontanills believes
he has found a way to accelerate his profits while decreasing his risk.
Fontanills began his professional life as a certified public accountant, but "decided that being a CPA wasn't for me." After
earning a degree at Harvard Business School, Fontanills got involved in the real estate market, but then "the real estate market
died."
In 1988, with a few other partners, Fontanills decided to give the futures market a shot. "We hired a couple of guys. They
happened to lose 10% of our money in 30 days and I thought 'Hey, I could do that," and Fontanills began to explore trading on
his own.
In a systematic fashion, Fontanills studied the market. "I was probably one of the first users of Omega TradeStation and I
started writing programs to try and figure out all the variables that were involved in a trade," he explained.
"The first thing I figured out was that volatility and movement in a market meant that everyone was confused," he said. To
this day, Fontanills says he searches out markets with high volatility in order to place his trades.
Originally, Fontanills began as a day-trader, believing he could better control his risk in that fashion. However, he began to
believe that he was missing a lot of the moves, which occurred overnight. At that point, Fontanills began to study options
strategies. "I learned how to use options and how to become delta neutral so I could hedge myself in both directions and still
sleep well at night and that's when I really started to accelerate my profitability," he said.
"Delta, by definition, is the rate of change of a price of an option to the rate of change to the price of the future," Fontanills
noted. "It's how fast an option will change, relative to the speed of the futures."
"Delta neutral means whether the market goes up or down, I'm in a position to make money," Fontanills said.
For example, "I'm short wheat and long two wheat calls, at the money. If wheat goes down, I'm making money on my short
wheat position and eventually the rate of change will allow me to make more money on that position."
While he notes that some traders tend to be scared away by the perceived complexity of options, Fontanills said "someone
who can figure out how to make money with options can make money easier and safer than just using futures."
In terms of fundamental factors, Fontanills said, "I don't ignore fundamentals because I like to see what other people are
thinking. Most of my money is made being a contrarian to what everyone else is thinking. The masses are usually wrong."
In searching out his current trades, Fontanills said, "I look at the momentum of what is happening. If volatility and momentum
goes to a certain level of what is way out of line, I'm looking for a reaction in the other direction and then I put on a trade ... my
greatest returns are made when something is really out of whack."
The main future markets Fontanills trades are gold, oil, agriculturals (soybeans and wheat), S&P 500, interest rate markets and
currencies. "I'm looking for fast, volatile markets and the S&P and bonds are definitely up there," he said.
Typically, Fontanills said his trades last "thirty days, at most."
Advice he has for beginning futures traders: "Trade small--until you learn what you are doing.
"Everyone overtrades at the beginning. I probably lost 20% of my account on my first trade," Fontanills admitted.
"Learn how to use all the methods that are out there to trade ... learn how to use options, because every successful trader I
know, knows how to use all instruments. Why reinvent the wheel? Follow the (methods) of people who have been successful," he
said.
He does note, however, the importance of "whatever methodology you use, it has to fit your personality."
Finally, of course, "learn how to limit your risk ... if you can stay in the game long enough, you will learn how to become
successful," Fontanills said.
8
LEE GETTESS FOCUSES ON CONTROLLING RISK
Trader Lee Gettess focuses on risk control as a major factor in determining his success in the commodity markets.
However, it wasn't always that way. Gettess received his introduction to the commodity futures markets via a telephone call
from a broker. "He told me how Omar Sharif had made $50 million in the sugar market, with a $50,000 account," Gettess said.
The broker said the same pattern that occurred in sugar and made Sharif that bundle was occurring again.
"So I gave him $10,000 and three weeks later, he gave me $3,000 back," Gettess said. "But I realized if I could lose the money
that fast, I could make the money that fast," he added. He launched into a study of the futures markets.
At the time, Gettess had a computer background. "I tried to read everything I could get my hands on ... and the technical side
was more appealing to me: I guess I'm more of a left-brain person," he explained.
He "dabbled" in trading in the mid-'80s, but didn't begin trading, from off the floor, full time until Oct. 12, 1987-just days
before the stock market crashed. "The only thing I knew how to trade was the S&Ps," he said. However, Gettess escaped
relatively unscathed from the crash. "I was on the wrong side of the market ... I lost $1,500 ... But, you can take a loss and be
absolutely wrong and can congratulate yourself for doing the right thing," he said referring to getting out of the trade at the right
rime and risk control. "I was able to take a $1,500 loss--that was a good trade," he added.
"Back then everyone told me commodities were too risky and the ones to definitely stay away from were the S&Ps and pork
bellies ... so that's what I decided to trade. You want to be where the action is ... you want to be where the profit potential is ...
but a trader's job is to control risk," he explained.
Gettess has used his computer background to develop over a hundred systems over the years, including one about 10 years ago
called the Volpat Trading System, which was picked by Futures Truth as "one of the top 10 trading systems of all times."
'The acronym "Volpat"' stands for volatility and pattern recognition. "Volatility-in that you need an active market. If a
market isn't moving, you can't make any money," Gettess said.
The patterns are "short-term stuff .. that are objective enough that you can tell a computer to look for them ... you can test all
kinds of combinations of things," he said. "One of the patterns-a big outside day, closing on the lows ... most market lore says
this is very bearish. What I found is if the market starts up the next day you probably want to buy it. It was observational-this
should be really ugly, but I'm looking at the market and it doesn't look so ugly," he explained as the thought process behind
picking out par- term for computer testing.
Gettess typically puts on trades that last from one to three days and he favors markets with liquidity. "Lumber and orange
juice don't interest me too much," he said referring to two thinly traded markets.
"My favorite market today is the bond market. It is so big and so liquid I can move any type of size with good execution,"
Gettess said. Also, "I can control risk better there than in the S&P pit," he added.
Everything comes back to risk for Gettess. "The only thing a trader can control is risk. If you go into a market and you say, 'I
don't want to lose more than $1,000 on a trade'...there may be overnight gaps and slippage, but you can be pretty sure you won't
lose more than $1,000 on a trade," he explained.
"I know how much I'm willing to risk, but I have no idea how much the market is willing to let me take out of it-if all the
market is going to give you is $500, you have to take it," Gettess added.
"My whole focus is that you've got to control the risk ... that's what all the top traders do," he concluded. However, while
Gettess uses protective stops for his position, he doesn't always have a stop-loss on a trade. "I follow the markets during the
course of a day and in front of a news report I won't put my stop in-because the markets can go nuts for a brief period of time
after the news ... and after that I can decide if I still want to be in," he said.
However, on the use of protective stops he cautioned, "Risk (control) doesn't mean using outrageously tight stops-a floor
trader can sneeze and the market moves $100. My research indicates that you want to give the market a fair amount of room for
higher chance of success."
In terms of advice for beginning traders, Gettess warns, "Don't have unrealistic expectations."
"People ask me what's the best way to trade-that's an impossible question. I can't tell you what's going to suit you," Gettess
said, implying that each trader needs to find a trading method that fits his or her particular personality.
"It's the ultimate job as far as I'm concerned. When I was working for General Motors, they had a great benefit plan, and
everyone told me this was a great, secure company to work for. But, then one morning, I woke up and I didn't work for them
anymore even though they liked me and gave me good reviews. It made me realize that security is based on self- reliance,"
Gettess finished.
9
CYNTHIA KASE RELIES ON PROPRIETARY TECHNICAL INDICATORS
Trader and consultant Cynthia Kase relies on a series of proprietary technical indicators that has developed for her trading
signals. Kase makes her trading decisions strictly based on these technical indicators and doesn't rely on fundamental analysis at
all.
Kase was first exposed to trading in August 1983, when her employer at the time-Standard Oil of California-transferred her to
the trading department as part of a management development program. With a background in chemical engineering, Kase
brought a new perspective to the trading room.
"Two things happened in 1983 that were interesting and important for oil trading," Kase noted. "In 1983, the crude oil contract
was introduced and also the other thing that happened was that the PC finally made its way into the business," she added.
"I got them to put a computer in the trading room," Kase said. "For a trader (in the early 1980s), I was fairly computer literate
because I had an engineering background," she explained.
Some of the early lessons Kase said she learned regarding trading were that "you have to be a bit of a loner if you are going to
trade well. You can't listen to what everyone else thinks. I think it is important to stay focused, get enough sleep, remain calm and
everything else will fall into place. You can't care too much."
While Kase calls herself strictly a technical trader now, "I didn't start to trade technically until 1985," she said. "Technical
trading is a lot more complicated that it seems on face value," she added.
"It takes a lot of work-it's not like-take two days to read John Murphy's book and go trade," Kase said, referring to Technical
Analysis of the Futures Markets by John J- Murphy, often considered the "bible" for market technicians.
Over the years, Kase began to develop her own technical indicators, which she now offers to her clients. Currently, Kase
trades for herself, but also acts as a consultant to about three dozen corporate clients.
"I am a mainstream technician in that I use pattern, momentum and trend," Kase explained. However, "my indicators use
statistics, as opposed to empirical observation,"' Kase noted.
Two of Kase's statistically based tools are the PeakOscilltor, a momentum indicator that can be cross-compared between
markets and Dev-Stop, a volatility-adjusted stop technique.
Kase authored a three-part series in the April, May and June 1996 issues of "Futures Magazine" that readers may refer to for
more details on her technical indicators.
In terms of time frame, Kase said she does not trade intraday, but that her average trade lasts three to 10 days.
"My trading techniques are very focused on exit strategies, not entry points," Kase said.
"I take profits more quickly. I take a lot more winning trades, but the wins are smaller…I take partial profits on danger
signals, such as reversal patterns and momentum divergences," Kase said.
"It is more important to be right than to make that big win," she added.
Kase currently only forecasts the energy markets, but notes that her technical indicators work in all markets. In her personal
trading she prefers "to trade physical versus financial futures, as they are too influenced by random and political events," Kase
explained.
On advice for beginning futures traders, Kase said, "the only way to learn how to trade is to trade."
However, Kase warns that potential traders "have to ask why? If it's because you want to make a lot of money, you'll never
succeed," she said.
For a private trader, "I would never recommend that anyone trade without $50,000 to throw away and two year's income set
aside. Make sure money is not an issue," she said.
"If you can't afford to work for two years without making a cent, then you shouldn't be trading," Kase added.
"For young people, I'd recommend working for a broker, for a trading house. Personally, I think your odds of success are
better," she said.
Kase concluded, "The three most important things are one: you can't listen to other people; two: there is no easy way. There is
no Holy Grail. Hard work and application is what is going to make a good trader and three: it has to be fun."
10
GEORGE LANE STILL TRADING OFF STOCHASTICS AT AGE 75
George Lane completed his 47th year of trading in December 1996 and is still going strong. After many years of trading in the
grain pits in downtown Chicago, Lane has shifted to screen trading during his "retirement" in a small community about 80 miles
south of Chicago.
However, retirement means different things to different people, as Lane was up until 2 a.m. trading Italian bonds the night
before he spoke with this reporter. Lane said, "I was having fun! ... it beats working for a living!"
Early in his life, Lane was set on becoming a physician-as his father had been. But, then "I was out roaming around Chicago
one afternoon. I wandered into a building to buy a cigar and I heard a bunch of noise upstairs. I went up and saw these men
standing around yelling," Lane said.
"All of a sudden, I was hooked and medicine dropped from the picture," Lane said.
While initially Lane worked as a broker, he said "that didn't work out very well ... because as a broker you want to give
customers advice that is in their best interests. Sometimes what you think goes against what the firm thinks."
In the late 1950s, Lane purchased a membership on the Chicago Open Board of Trade for $25 and started trading the grains.
The Chicago Open Board of Trade, now known as the MidAmerica Commodity Exchange, was originally founded in 1868.
At first, Lane said, "I wasn't doing very well. An old timer came over to me one day after the dose and asked me how I was
doing. Every night after trading, he and I went down to the local tavern and as long as I bought the whisky, he taught me
everything he knew about the markets."
"He introduced me to the Taylor trading method, which is a three-day trading cycle" Lane explained.
Lane began to pick up trading and started to see some success in the pit. He eventually became the president of the Investment
Educators Inc. "I'd trade all day and then we'd meet at night," Lane said. In that capacity, he invented 64 "stochastics," a widely
used momentum indicator.
"Stochastics measures the momentum of price," Lane explained. "If you visualize a rocket going up in the air- before it can
turn down, it must slow down. Momentum always changes direction before price ... It is a very sophisticated tool," he said.
According to John J. Murphy's book Technical Analysis of the Futures Markets, stochastics "is based on the observation that
as prices increase, closing prices tend to be closer to the upper end of the price range. Conversely, in down-trends, the closing
price tends to be near the lower end of the range. Two lines are used in the Stochastic Process-the %K line and the %D line. The
%D line is the more important one and is the one that provides the major signals."
"We had %A and %B-we went through the whole alphabet twice, working on things. Then we discovered %K and then %D
and the darn thing worked. So, we quit the research and went into the pit every day and started making a living," Lane said.
He calls himself a strictly technical trader. "I read the fundamentals, but the fundamentals are not the way to trade---the
technical side is so much more lucrative."
But, "it is hard work if you are going to be a trader- you've got to be looking at your computer five to six hours a day," Lane
said.
Currently, in his "retirement" Lane trades "about four to 12 times per day." His time frame is "45 minutes to 1 1/4 hours," with
average gains of "$150, $350, $750" per trade. "They all add up at the end of the day."
"You can make $5,000 a day trading one-lots," Lane said. From his screen, Lane trades primarily off of three-minute, 15-
minute and 30-minute charts, relying on "stochastics, volume and trendlines."
Recently, Lane has been trading the S&P 500 futures contract at the Chicago Mercantile Exchange. He sticks to liquid
markets, avoiding thinly traded contracts such as pork belly futures or lumber.
Lane doesn't confine himself to U.S. markets, however, estimating that 20% of his trading extends to foreign futures markets.
"German bonds and Italian bonds trade very actively," Lane noted.
However, Lane said he never trades without a stop-loss order protecting his position. "That's the secret to making money in
commodities-control the size of your losses."
Lane recommends that beginning futures traders read "John Hill's three books on charting basics-if you are a good chartist-the
charts talk to you."
"You can learn how to do it yourself," Lane said. "Brokers are salesman. Never take advice from a broker. Because, then you
are admitting that you don't have enough smarts to make your own decisions."
Asked what was a key factor in success in commodity trading, Lane replied "greed."
"Trading is fear and greed and if you have enough desire to have a successful financial life-you can do it," He concluded.
11
GLENN NEELY BUCKS TRADITIONAL ELLIOTT ANALYSIS
Glenn Neely locks horns with traditional Elliott wave theoreticians and has developed his own approach to trading the
markets, which he calls NEoWave™ Theory.
Neely first encountered the Elliott wave theory back in the early 1980's while he was working off-shore in the oil industry. At
that time, Neely became interested in the stock market and read many books on the subject, "but that wasn't quite exciting
enough" he said, and he started exploring commodities. His first actual experience trading in commodities was via a trading
system.
"I had paid a few thousand dollars for this magical Holy Grail trading system ... My first big lesson was that no matter how
much you spend for a system, it doesn't guarantee success," Neely said.
Neely continued to study on his own. "For about a year, I had studied all sorts of stuff. I just came to realize that it was a lot
more complicated that I had thought," Neely said. However, "it just clicked right away when I read the synopsis of Elliott wave,"
he said.
Traditional Elliott wave theory says that markets advance or decline with five waves-three up (or down) waves with two
intervening corrections, according to Technical Analysis of the Futures Market, by John J. Murphy.
Neely immediately honed in on Elliott wave. "I started studying everything I could get my hands on ... but I realized there was
a great deal missing," he noted.
"There are just too many ways to interpret this. It's not objective. It's not scientific ... I couldn't stand the flexibility of it. I've
spent most of my career so far adding techniques to make it objective," Neely said, describing his initial frustration with
traditional Elliott theory.
"My primary focus for most of my career has been perfecting a form of technical analysis that is logical, systemic and not
open to interpretation," Neely said.
"Elliott wave is primarily based on Fibonacci relationships and price patterns-the visible appearance of price patterns.
NEoWave adds on top of that a whole process of logic, with some connection to vector physics," Neely explained.
In order for Neely's NEoWave theory to work properly, "you have to pick markets that fit certain criteria," he noted. First,
"you need a market that is a nonconsumable item-that has perpetual life. Corn-it's grown, it's eaten, it's gone," he said.
Other factors are that "current value builds on past, time does not automatically have a negative effect on value, affordable to
thousands and prices readily available," Neely explained.
Additionally, Neely believes "for wave analysis to be accurate, you have to use cash data." Many traders and analysts use
futures price data in their Elliott wave analysis, but "a great deal of the confusion related to Elliott wave is that they are using the
wrong kind of data," Neely said.
In terms of time frames for this trading, Neely doesn't have any hard and fast rules. "The time frame I want to trade is the time
frame that is the clearest to interpret," he said. "I let the market dictate the time frame. I don't want to force wave counts when
they aren't justified," he added.
A key to successful trading is that "you need to be able to control your emotions".
"It took 10 years to comfortably manage emotions," he noted. "Which for me, can only be done by having a concrete
understanding of how markets behave and knowing how much to risk."
Volatility and liquidity are the two elements independent trader George Angell looks for in a market to trade. Currently,
Angell exclusively trades the S&P 500 futures, putting on intraday trades only, never holding positions overnight.
"Liquidity and volatility are the two things you have to have. You can't day-trade something like oats--it wouldn't work"
Angell said.
Back in the early 1970s, Angell first became interested in the commodities markets. "I bought sugar and it went limit up ...
then I bought copper and it went limit up, so I bought some more. Then it went limit down. I called my broker and told him to
sell and he said to whom?" Angell said. "That's when I realized I had more to learn," Angell added.
In the early 1980s, Angell headed for the Chicago trading pits. He was a local trader at the MidAmerican Commodity
Exchange, focusing primarily on gold. While Angell now trades for himself, off-floor, from a screen, he called trading on the
floor "an invaluable experience."
"People on the floor are very short-term oriented" Angell said. "It taught me to get in, capture the trend, get your money and
leave" he said.
Now, however, Angell prefers off-floor trading. "I'm alone in a room trading. When I'm on the floor there are thousands of
people. It's a social event. People want to talk about their positions, they want to have coffee. You lose your concentration... you can't see the forest for the tress," Angell said.
Technology has revolutionized the capability of off-floor traders in the past 10 years, according to Angell. "The playing field
has been leveled," Angell said, explaining that technology has decreased the advantage the floor trader was once seen as having over an off-floor trader. "The key beneficiary is the public trader. The public can't scalp, but they can day-trade," he explained.
Angell disregards fundamentals, relying on technicals "100%." He has developed two proprietary trading systems: LSS and
Spyglass, which he utilizes in his day trading, along with "discretion and personal judgment."
"Everybody needs some sort of mechanical system. It enables you to take the difficult trades you wouldn't normally take on
the seat of your pants" Angell noted.
Also, "every day I go in without an opinion ... and I let the market tell me where it wants to go ... opinions are what get you in
trouble," Angell added.
While "a lot of people don't have the discipline to trade without stops," Angell said he doesn't use them. "The problem with
stop trading is that you get out at the worst possible moment. Instead of stops, I use action points. That means when it hits that point I'll get out, but I'll wait for the bounce (if the market is going down)" Angell explained.
Angell has traded the bond market as well. He keys m on his two key elements of volatility and liquidity when judging
markets. "Occasionally, markets die on you. For instance, in 1980 we had a big gold market. It had gone to $850 per ounce...but volatility dried up and then liquidity dried up. At that point I went to the bonds," Angell said. When the S&P 500 contract was launched at the Chicago Mercantile Exchange, Angell started trading that market. However, he noted after the stock market crash of 1987, liquidity dried up in the S&Ps, and Angell moved back to the bonds for a time.
"Big institutions are trading bonds and there are thousands to buy and sell at every tick. Nobody can play with that market.
Nobody can manipulate it. That's why orange juice goes limit up all the time-because there is nobody to sell it," he said.
When asked about GLOBEX trading, Angell said, "I don't pay any attention to it, because there's not enough liquidity there.
On Eurodollars," Angell noted, "there is huge liquidity but not enough volatility to make money."
On the differences between markets, Angell noted that "all the markets have different characteristics and you have to know
your market very well. On the floor, a guy who trades lumber isn't going to trade the S&P. And traders trade the markets
differently. People are known according to how they trade. This guy is a scalper. This guy trades back months. This guy is a
spreader. This guy is a position day-trader. The novice trader needs to know he's got to be a specialist."
When asked why many futures traders don't succeed, Angell pointed to three main factors. "One, a lack of discipline. Two,
they are underfinanced. Three, they don't know what it's all about. They don't know about paradoxical even" Angell said.
The dictionary definition of "paradox" is an apparent contradiction, which is nevertheless somehow true, Angell explained.
One example of this in the markets is that "the whole game on the floor is to run the stops" he said.
"In the market, everyone thinks it's going up, but everyone won't make money," he added.
Advice that Angell has for beginning traders? "Be well-enough financed with risk capital that you can afford to lose. Don't think
about the money, drink about the market, and the money will take care of itself," Angell concluded.
3
JAKE BERNSTEIN: PSYCHOLOGIST TURNED TRADER
Jake Bernstein, one of the futures industry's best-known traders, started trading "by accident" he told FWN.
Bernstein was a psychologist who responded to an ad in the newspaper regarding "ag futures." A broker started calling him
and Bernstein opened an account.
"I had quick success, which turned into quick failure," Bernstein said, acting at the time solely on his broker's
recommendations. Then Bernstein "regrouped, did research, and started trading on my own." An active trader now, he trades strictly according to technicals - off the floor from a screen.
"My work has always been technically oriented, using price patterns, seasonality, and cycles."
Bernistein initially "developed my own method and timing. I didn't have the money to trade it, so I sold advice." Eventually,
he built up enough capital and began trading via his own method.
President of MBH Commodity Advisors, based in Winnetka, IL., Bernstein has authored more than 20
books. He is the publisher of the MBH Weekly Futures Trading Letter, which has been in continuous publication since 1972, and
he leads workshops on specific trading topics. Bernstein is also a panelist on the "All Star Traders Hotline."
"I love the teaching. Every time I teach, I learn something new and it reinforces the belief I have in my own methods,"
Bernstein said. Also, "there is so much disinformation out there for traders, I feel good teaching something that I know works,"
he added.
Bernstein favors participation in the most active futures markets - energies, financials, and the S&P contract. However, "I
trade anything that moves in any time frame," he said.
Very thin markets, such as palladium and orange juice futures, are markets Bernstein usually avoids. "I don't like the way the
orders are executed there."
When asked if the value of technical analysis is eroded as more and more traders learn the same types of chart patterns,
Bernstein said, "Chart patterns are as much art as science. I try to stay with things that are crystal clear. If 10 people look at a
chart and all 10 of us come to the same conclusion - those are the types of things I am comfortable with. I like to be objective."
Bernstein pointed to Elliott wave analysis as a type of technical analysis that tends to be more "subjective," as the wave counts
are open to individual interpretation.
The long-time trader has established his own home page on the World Wide Web and is fairly upbeat on the impact of the
Web on the trading community.
"I think the Internet will allow for faster distribution of information and will allow more people throughout the world to take
part in the markets. It will increase the opportunities for everyone."
On the future of the exchange trading floors, Bernstein doesn't believe electronic trading will replace open-outcry pit trading
anytime soon. "So far, I'm not impressed," he said, regarding speculation on the eventual demise of pit trading. "I think there is
still a place for the floor trader and the pit broker, and as long as the broker is being effective there will be a need for him."
Bernstein, however, has always been a "screen trader," suggesting he is "much too short" to be a floor trader as "people would
take advantage of me down there," he said. On the current state of the futures markets, Bernstein believes a new inflationary era
is on the horizon.
"I think we are in for one of the biggest inflation moves we've seen since the 1970s. We will see a big move in the precious
metals. We are already seeing rises in the grain complete ... the energies are going crazy-and that suggests more inflation. We are
going to see interest rates rise and a big bear market for interest rates," he predicted.
Advice Bernstein has for beginning traders: "Start with enough capital; diversify; trade for the bigger moves and manage
risk."
4
TOM BIEROVIC USES DISCRETION ON TOP OF HIS RULES
Off floor trader Tom Bierovic, trades according to a set of rules he has developed over the years, but uses his own discretion
on top of these rules. Bierovic believes he was lucky because he was introduced to the futures business at a very young age. His
father was a trader at the MidAmerica Exchange and Tom would plot daily and weekly bar charts of the agricultural contracts for
his allowance money.
"We didn't have computers ... I'd get the afternoon newspapers and get the closing prices every day," Bicrovic explained.
Additionally, during the summertime, Bierovic worked on the trading floor for his father. "I would keep 15-minute intraday
bar charts and I did a 10-period simple moving average of the 15-minute closes," he explained. "My dad would trade in the
market scalping ... but the only difference is that he would only take trades in the direction of what I told him the 15-minute trend
was," Bierovic added.
After plotting charts by hand for years and doing manual calculations for exponential moving averages, stochastics, RSIs,
ADX and MACD, Bierovic said, "I don't do anything by hand anymore." But, he added "I think that it is very good for when you
are learning."
Bierovic is strictly a technical trader. In fact he "makes a deliberate effort to not know anything about fundamentals" he said.
"All the fundamentals are summarized perfectly in the current price of the market," Bierovic explained.
"Technical analysis is applied social psychology. It's just crowd behavior-hope, fear and greed," he said.
Currently, Bierovic trades from his home in suburban Chicago and manages "a couple of million dollars" calling himself a
"discretionary trader with a very specific methodology… I have all my rules written down exactly and carefully. So somebody
else could trade my system. But, I deviate when I choose to."
However, he is not a CTA and abides by the restrictions of not soliciting funds and limiting the number of people that he
trades for to under 15 in a 12-month period, he noted.
Bierovic has developed what he calls a "momentum retracement trading method" which "involves knowing the direction and
the quality of the trend, knowing how to measure countertrend reactions and when the trend has reasserted itself and knowing
what to risk and knowing how to risk it," he said. In terms of time frame, "I trade basically still off the daily charts, but I do
watch the markets intraday and do trail my stops intraday," Bierovic said.
He focuses on trending markets and is not shy about taking profits. One example of the type of trade he might put on is "If I
get in today, I'd get out tomorrow if the market returns to today's high," he said. "I won't take a trade unless the market has
recently had a strong directional trend ... to go long I'm looking for a real rice upthrust in the market," Bierovic explained.
"I think it's important to take profits because markets take them away nine out of 10 times," he said. "I just try to be right on at
least 40% of the time using a 2:1 reward/risk ratio. There is a very good living in that," he said.
"I take profits and look for an opportunity to re-enter," he noted, saying he is usually in his trades two to four days. This is one
area where Bierovic said he sometimes uses discretion over his rules. "I deviate on exits. I say, 'Gee if I've made enough money.
I just might take profits on the close.' To me, a good trade is when I doubled what I risk," Bierovic added.
As a chartist, Bicrovic doesn't favor one market over another. "I really treat them all the same," he said. However, "My
favorite market is the most recent market in which I had a winning trade and my least favorite market is the one is which I most
recently lost in" he joked.
He does, however, focus on the more liquid markets. "The bigger the market, the better your fills are and the better technical
analysis works" Bierovic said. "I stay in liquid markets. I don't trade lumber or pork bellies, palladium or the Australian dollar,"
he noted. "In a little market like pork bellies - it is not difficult to control the market - a big fish can move a little pond," he said
explaining that "in a smaller market, technical analysis might not work as well" if the hopes, fears and greed of the masses aren't
being reflected.
Specifically, Bierovic credits Chuck LeBeau-"he taught me to look at markets with a (minimum) average daily volume of
5,000 and total open interest of 20,000 or more ... but I can fudge on that a little bit."
Bierovic advises beginning traders to "develop a trading style compatible with your own psychological make up ... some
people can day-trade the S&P and some people can't. A trading style has to be congruent with your own personality," he said.
"A beginning trader should concentrate on learning technical analysis and trading rather than the dollar gain or dollar loss...
Keep losses small so you don't get knocked out of the game.
"Don't get overly excited about winning trades and don't get overly despondent about losing trades ... you shouldn't feel like a
hero after one winning trade and you shouldn't feel like a bum after a losing trade. Just hang in there and keep trading."
"The whole battle is to have a trading method and to follow it," Bierovic concluded.
5
WALTER BRESSERT READS MARKET VIA CYCLES & OSCILLATORS
Walter Bressert earned a college degree in economics, which taught him "economists don't know much about the way the
world works." An active trader for many years, Bressert relies on cycles and oscillators in his intraday futures trading, in which
he primarily focuses on the S&P 500 contract.
However, Bressert does use all form of technical analysis, but he calls time cycles "the glue that holds everything together-it
gives me a time frame that nothing else gives me" he explained. "By studying cycles, I became familiar with the rhythm and
every market has its own rhythm," he said.
Back in the late 1980s, Bressert realized there was a dearth of written materials on cycles and oscillators. So, he decided to
write his own book, entitled Power of Oscillqtor Cycle Combination.
"Cycles give you the time. But, by looking at a chart, you can't see if it's overbought or oversold. Oscillators pick up that type
of energy. If it's over 80-90 it's a probable top or if its below 30 or 20 or 10, it's a probable bottom," Bressert explained. "But, you
have to know the bigger picture-what is the trend?" For this, Bressert, looks back to cycles. For example, "the trend for the daily
chart is determined by the weekly cycle."
Early in his career, when Bressert was trading on the floor "an old guy came up to me and said: 'Trading is really easy-when
the trend is up, you buy dips, when the trend is down, you sell rallies.' Being young, I thought, 'What does he know?' But, about
ten years later, I realized he had handed it all to me."
Bressert stressed the importance of trend. "Know the trend and trade with the trend or anticipate the trend reversal," he said.
Currently, Bressert is actively trading the S&P contract on an intraday basis and occasionally other markets. He favors the
S&P contract because "it's liquid and can handle volume. It has sizable moves intraday and there are a lot of players-meaning the
floor can't control the market," he explained. Bressert believes there are only three markets suitable for intraday trading: the S&P
500 contract, T-bond futures and the Swiss franc.
Using cycles and oscillators has allowed Bressert to develop a mechanical type of trading system, which helps remove the
emotional element of trading for him. "The market is emotion. It pushes all your buttons of fear and
greed ... it ferrets out all your weaknesses," he explained. "The emotional part is what I had to control. I found out I was not too
temperamentally suited to be a star trader. The way I found to overcome that was to find mechanical entry and exit patterns."
Bressert doesn't ignore fundamentals. He uses fundamentals to "look at the big picture" and to see "if the market acted the way
it should have on good news." Also, he doesn't hold positions heading into big reports. "To me, that's gambling. A big report
takes away the odds-because the unexpected can happen."
Looking ahead in the markets, Bressert is extremely bullish on the grains complex. "We should see a spectacular rally…we
could see moves similar to the '70s," he said. "Grains could continue to rally into the summer, with the possibility of an
intermediate term top in April ... Beans should continue above $8," he said. "There is very little grain available now," he
explained.
Farther out, "We could take out $13 in beans over the next two years and could seen $6-7 corn ... the drought cycle is due to
hit," Bressert speculated.
Bressert thinks the bull market in stocks will continue. "We should go substantially higher into April and the summer," he
noted.
In the precious metals arena, Bressert looks for gold to trade sideways to lower in April, "which will provide a buying
opportunity in the second half of April."
In conclusion, Bressert's advice for beginning traders is "study, study, study to identify things that work before they ever put
their money where their mouth is. 90% of the people who trade commodities lose money. It's because they didn't do their
homework."
6
TOM DEMARK RELIES 100% ON MARKET TIMING
Trader and consultant Tom DeMark has invented dozens of proprietary technical indicators over the years and relies strictly
on the technical principles of market timing for his research and trading.
In fact at one point in his career, DeMark went through the CFA program (certified financial analyst), but chose to never
complete it. "Markets over the long term are controlled by fundamentals. But, my indicators measure psychology--that's what
technical analysis does," DeMark explained.
DeMark's first step into the financial world came after graduate school in both business and law, when he joined National
Investment Service, based in Milwaukee, Wisconsin, as a fundamental analyst in the early 1970s. The firm managed roughly
$300 million in pension and profit-sharing assets, investing in primarily fixed-income securities and equities.
National Investment Service's strength was market timing. But DeMark said of his first job, "I was a professional gofer .. I
was low man in the company, but I ascended quickly because I was good at market timing."
"My goal was to be involved with a small group of people who were progressive," DeMark said. The firm "avoided the stock
market crash in 1973 and 1974," and assets under management grew to $6 billion.
"1974 was severe ... (The Dow Jones Industrial Average) went from over 1000 to 570 during the political crisis with Nixon.
There was a 50% decline in the stock market," DeMark remembered. However, the firm avoided that debacle through market
timing. "They just gave me a license to do whatever I wanted to do," he said.
"I went off on my own and traded commodities. My bosses didn't mind if I diversified for my own account," DeMark said. In
general, DeMark believes "the commodity side (of the business) has the more creative people-because the leverage involved is so
big."
In 1978, DeMark set up a financial markets consulting division within National Investment Service. "We had a Who's Who in
the industry list of clients," DeMark noted. "I diversified, supplying stock and fixed-income commodity timing ... the profitability
of the subsidiary was greater than the parent," DeMark said.
However, in 1982, DeMark broke away and continued his consulting. "I had $120 billion in assets collectively following my
bond calls," DeMark said.
Just ahead of the U.S. stock market crash in 1987, one of DeMark's indicators posted an equity sell signal. Shortly thereafter,
he joined Paul Tudor Jones's firm for a stint as an executive vice president and continued his market research and systems
development there.
Regarding the basis of his research, DeMark said, "market timing is 100%. It's anti-trend, it's contratrend, it's pattern
recognition and price exhaustion." DeMark believes his technical indicators differ from others because "they are totally objective
and mechanical and they are against the grain of most technicians."
One of DeMark's well-known technical indicators, which he has trademarked-Sequendal--"is a cyclical approach to market
analysis, determinant on the market itself," DeMark explained. "People who work with cycles generally take slices of time and
make them equal. I'm saying that some trading days in the market are irrelevant. I try to mark comparisons with price activity and
activity of days ago," he added.
In a year-long series in Futures magazine, beginning in August 1995, DeMark authored articles outlining many of his
technical indicators, which readers can refer to for more in-depth details. DeMark also authored a book entitled The New Science
of Technical Analysis, published by John Wiley & Sons, Inc. in 1994.
DeMark is putting the finishing touches on a book called New Market Timing Techniques: Innovative Studies on Market
Rhythm and Price Exhaustion, which he expects to be published in the spring of 1997 "I'll be releasing 20 new indicators. Four of
them were some I traded while I was at Tudor-plus the ones I created with Larry Williams," DeMark said.
When asked if there are some markets DeMark prefers over others, DeMark responded in the negative. "Everything I've done
has application to all markets," he explained.
"I try to address every aspect of technical analysis and leave some of the variables open so people can research on their own,"
DeMark said. Nonetheless, his indicators are "99% mechanical, objective and simplistic," he added. However, DeMark admits
there is more to successful trading than just good indicators or system. "Money management and discipline are more important
than the system," he said. In fact "good discipline, a knowledge of their (personal) limitations and good money management are
more critical than the system or indicator," DeMark said.
Advice DeMark has for beginning traders? "Read a lot. Test a lot. Don't trade until you've done your homework. Make certain
you've made your technique objective-it should be a definitive process," DeMark concluded.
7
GEORGE FONTANILLS INCORPORATES OPTIONS TO LOWER RISK
Trader George Fontanills first began utilizing options in order to go "delta neutral" on his futures positions, which would
allow him to "still sleep well at night." Since he began using options in conjunction with his futures trading, Fontanills believes
he has found a way to accelerate his profits while decreasing his risk.
Fontanills began his professional life as a certified public accountant, but "decided that being a CPA wasn't for me." After
earning a degree at Harvard Business School, Fontanills got involved in the real estate market, but then "the real estate market
died."
In 1988, with a few other partners, Fontanills decided to give the futures market a shot. "We hired a couple of guys. They
happened to lose 10% of our money in 30 days and I thought 'Hey, I could do that," and Fontanills began to explore trading on
his own.
In a systematic fashion, Fontanills studied the market. "I was probably one of the first users of Omega TradeStation and I
started writing programs to try and figure out all the variables that were involved in a trade," he explained.
"The first thing I figured out was that volatility and movement in a market meant that everyone was confused," he said. To
this day, Fontanills says he searches out markets with high volatility in order to place his trades.
Originally, Fontanills began as a day-trader, believing he could better control his risk in that fashion. However, he began to
believe that he was missing a lot of the moves, which occurred overnight. At that point, Fontanills began to study options
strategies. "I learned how to use options and how to become delta neutral so I could hedge myself in both directions and still
sleep well at night and that's when I really started to accelerate my profitability," he said.
"Delta, by definition, is the rate of change of a price of an option to the rate of change to the price of the future," Fontanills
noted. "It's how fast an option will change, relative to the speed of the futures."
"Delta neutral means whether the market goes up or down, I'm in a position to make money," Fontanills said.
For example, "I'm short wheat and long two wheat calls, at the money. If wheat goes down, I'm making money on my short
wheat position and eventually the rate of change will allow me to make more money on that position."
While he notes that some traders tend to be scared away by the perceived complexity of options, Fontanills said "someone
who can figure out how to make money with options can make money easier and safer than just using futures."
In terms of fundamental factors, Fontanills said, "I don't ignore fundamentals because I like to see what other people are
thinking. Most of my money is made being a contrarian to what everyone else is thinking. The masses are usually wrong."
In searching out his current trades, Fontanills said, "I look at the momentum of what is happening. If volatility and momentum
goes to a certain level of what is way out of line, I'm looking for a reaction in the other direction and then I put on a trade ... my
greatest returns are made when something is really out of whack."
The main future markets Fontanills trades are gold, oil, agriculturals (soybeans and wheat), S&P 500, interest rate markets and
currencies. "I'm looking for fast, volatile markets and the S&P and bonds are definitely up there," he said.
Typically, Fontanills said his trades last "thirty days, at most."
Advice he has for beginning futures traders: "Trade small--until you learn what you are doing.
"Everyone overtrades at the beginning. I probably lost 20% of my account on my first trade," Fontanills admitted.
"Learn how to use all the methods that are out there to trade ... learn how to use options, because every successful trader I
know, knows how to use all instruments. Why reinvent the wheel? Follow the (methods) of people who have been successful," he
said.
He does note, however, the importance of "whatever methodology you use, it has to fit your personality."
Finally, of course, "learn how to limit your risk ... if you can stay in the game long enough, you will learn how to become
successful," Fontanills said.
8
LEE GETTESS FOCUSES ON CONTROLLING RISK
Trader Lee Gettess focuses on risk control as a major factor in determining his success in the commodity markets.
However, it wasn't always that way. Gettess received his introduction to the commodity futures markets via a telephone call
from a broker. "He told me how Omar Sharif had made $50 million in the sugar market, with a $50,000 account," Gettess said.
The broker said the same pattern that occurred in sugar and made Sharif that bundle was occurring again.
"So I gave him $10,000 and three weeks later, he gave me $3,000 back," Gettess said. "But I realized if I could lose the money
that fast, I could make the money that fast," he added. He launched into a study of the futures markets.
At the time, Gettess had a computer background. "I tried to read everything I could get my hands on ... and the technical side
was more appealing to me: I guess I'm more of a left-brain person," he explained.
He "dabbled" in trading in the mid-'80s, but didn't begin trading, from off the floor, full time until Oct. 12, 1987-just days
before the stock market crashed. "The only thing I knew how to trade was the S&Ps," he said. However, Gettess escaped
relatively unscathed from the crash. "I was on the wrong side of the market ... I lost $1,500 ... But, you can take a loss and be
absolutely wrong and can congratulate yourself for doing the right thing," he said referring to getting out of the trade at the right
rime and risk control. "I was able to take a $1,500 loss--that was a good trade," he added.
"Back then everyone told me commodities were too risky and the ones to definitely stay away from were the S&Ps and pork
bellies ... so that's what I decided to trade. You want to be where the action is ... you want to be where the profit potential is ...
but a trader's job is to control risk," he explained.
Gettess has used his computer background to develop over a hundred systems over the years, including one about 10 years ago
called the Volpat Trading System, which was picked by Futures Truth as "one of the top 10 trading systems of all times."
'The acronym "Volpat"' stands for volatility and pattern recognition. "Volatility-in that you need an active market. If a
market isn't moving, you can't make any money," Gettess said.
The patterns are "short-term stuff .. that are objective enough that you can tell a computer to look for them ... you can test all
kinds of combinations of things," he said. "One of the patterns-a big outside day, closing on the lows ... most market lore says
this is very bearish. What I found is if the market starts up the next day you probably want to buy it. It was observational-this
should be really ugly, but I'm looking at the market and it doesn't look so ugly," he explained as the thought process behind
picking out par- term for computer testing.
Gettess typically puts on trades that last from one to three days and he favors markets with liquidity. "Lumber and orange
juice don't interest me too much," he said referring to two thinly traded markets.
"My favorite market today is the bond market. It is so big and so liquid I can move any type of size with good execution,"
Gettess said. Also, "I can control risk better there than in the S&P pit," he added.
Everything comes back to risk for Gettess. "The only thing a trader can control is risk. If you go into a market and you say, 'I
don't want to lose more than $1,000 on a trade'...there may be overnight gaps and slippage, but you can be pretty sure you won't
lose more than $1,000 on a trade," he explained.
"I know how much I'm willing to risk, but I have no idea how much the market is willing to let me take out of it-if all the
market is going to give you is $500, you have to take it," Gettess added.
"My whole focus is that you've got to control the risk ... that's what all the top traders do," he concluded. However, while
Gettess uses protective stops for his position, he doesn't always have a stop-loss on a trade. "I follow the markets during the
course of a day and in front of a news report I won't put my stop in-because the markets can go nuts for a brief period of time
after the news ... and after that I can decide if I still want to be in," he said.
However, on the use of protective stops he cautioned, "Risk (control) doesn't mean using outrageously tight stops-a floor
trader can sneeze and the market moves $100. My research indicates that you want to give the market a fair amount of room for
higher chance of success."
In terms of advice for beginning traders, Gettess warns, "Don't have unrealistic expectations."
"People ask me what's the best way to trade-that's an impossible question. I can't tell you what's going to suit you," Gettess
said, implying that each trader needs to find a trading method that fits his or her particular personality.
"It's the ultimate job as far as I'm concerned. When I was working for General Motors, they had a great benefit plan, and
everyone told me this was a great, secure company to work for. But, then one morning, I woke up and I didn't work for them
anymore even though they liked me and gave me good reviews. It made me realize that security is based on self- reliance,"
Gettess finished.
9
CYNTHIA KASE RELIES ON PROPRIETARY TECHNICAL INDICATORS
Trader and consultant Cynthia Kase relies on a series of proprietary technical indicators that has developed for her trading
signals. Kase makes her trading decisions strictly based on these technical indicators and doesn't rely on fundamental analysis at
all.
Kase was first exposed to trading in August 1983, when her employer at the time-Standard Oil of California-transferred her to
the trading department as part of a management development program. With a background in chemical engineering, Kase
brought a new perspective to the trading room.
"Two things happened in 1983 that were interesting and important for oil trading," Kase noted. "In 1983, the crude oil contract
was introduced and also the other thing that happened was that the PC finally made its way into the business," she added.
"I got them to put a computer in the trading room," Kase said. "For a trader (in the early 1980s), I was fairly computer literate
because I had an engineering background," she explained.
Some of the early lessons Kase said she learned regarding trading were that "you have to be a bit of a loner if you are going to
trade well. You can't listen to what everyone else thinks. I think it is important to stay focused, get enough sleep, remain calm and
everything else will fall into place. You can't care too much."
While Kase calls herself strictly a technical trader now, "I didn't start to trade technically until 1985," she said. "Technical
trading is a lot more complicated that it seems on face value," she added.
"It takes a lot of work-it's not like-take two days to read John Murphy's book and go trade," Kase said, referring to Technical
Analysis of the Futures Markets by John J- Murphy, often considered the "bible" for market technicians.
Over the years, Kase began to develop her own technical indicators, which she now offers to her clients. Currently, Kase
trades for herself, but also acts as a consultant to about three dozen corporate clients.
"I am a mainstream technician in that I use pattern, momentum and trend," Kase explained. However, "my indicators use
statistics, as opposed to empirical observation,"' Kase noted.
Two of Kase's statistically based tools are the PeakOscilltor, a momentum indicator that can be cross-compared between
markets and Dev-Stop, a volatility-adjusted stop technique.
Kase authored a three-part series in the April, May and June 1996 issues of "Futures Magazine" that readers may refer to for
more details on her technical indicators.
In terms of time frame, Kase said she does not trade intraday, but that her average trade lasts three to 10 days.
"My trading techniques are very focused on exit strategies, not entry points," Kase said.
"I take profits more quickly. I take a lot more winning trades, but the wins are smaller…I take partial profits on danger
signals, such as reversal patterns and momentum divergences," Kase said.
"It is more important to be right than to make that big win," she added.
Kase currently only forecasts the energy markets, but notes that her technical indicators work in all markets. In her personal
trading she prefers "to trade physical versus financial futures, as they are too influenced by random and political events," Kase
explained.
On advice for beginning futures traders, Kase said, "the only way to learn how to trade is to trade."
However, Kase warns that potential traders "have to ask why? If it's because you want to make a lot of money, you'll never
succeed," she said.
For a private trader, "I would never recommend that anyone trade without $50,000 to throw away and two year's income set
aside. Make sure money is not an issue," she said.
"If you can't afford to work for two years without making a cent, then you shouldn't be trading," Kase added.
"For young people, I'd recommend working for a broker, for a trading house. Personally, I think your odds of success are
better," she said.
Kase concluded, "The three most important things are one: you can't listen to other people; two: there is no easy way. There is
no Holy Grail. Hard work and application is what is going to make a good trader and three: it has to be fun."
10
GEORGE LANE STILL TRADING OFF STOCHASTICS AT AGE 75
George Lane completed his 47th year of trading in December 1996 and is still going strong. After many years of trading in the
grain pits in downtown Chicago, Lane has shifted to screen trading during his "retirement" in a small community about 80 miles
south of Chicago.
However, retirement means different things to different people, as Lane was up until 2 a.m. trading Italian bonds the night
before he spoke with this reporter. Lane said, "I was having fun! ... it beats working for a living!"
Early in his life, Lane was set on becoming a physician-as his father had been. But, then "I was out roaming around Chicago
one afternoon. I wandered into a building to buy a cigar and I heard a bunch of noise upstairs. I went up and saw these men
standing around yelling," Lane said.
"All of a sudden, I was hooked and medicine dropped from the picture," Lane said.
While initially Lane worked as a broker, he said "that didn't work out very well ... because as a broker you want to give
customers advice that is in their best interests. Sometimes what you think goes against what the firm thinks."
In the late 1950s, Lane purchased a membership on the Chicago Open Board of Trade for $25 and started trading the grains.
The Chicago Open Board of Trade, now known as the MidAmerica Commodity Exchange, was originally founded in 1868.
At first, Lane said, "I wasn't doing very well. An old timer came over to me one day after the dose and asked me how I was
doing. Every night after trading, he and I went down to the local tavern and as long as I bought the whisky, he taught me
everything he knew about the markets."
"He introduced me to the Taylor trading method, which is a three-day trading cycle" Lane explained.
Lane began to pick up trading and started to see some success in the pit. He eventually became the president of the Investment
Educators Inc. "I'd trade all day and then we'd meet at night," Lane said. In that capacity, he invented 64 "stochastics," a widely
used momentum indicator.
"Stochastics measures the momentum of price," Lane explained. "If you visualize a rocket going up in the air- before it can
turn down, it must slow down. Momentum always changes direction before price ... It is a very sophisticated tool," he said.
According to John J. Murphy's book Technical Analysis of the Futures Markets, stochastics "is based on the observation that
as prices increase, closing prices tend to be closer to the upper end of the price range. Conversely, in down-trends, the closing
price tends to be near the lower end of the range. Two lines are used in the Stochastic Process-the %K line and the %D line. The
%D line is the more important one and is the one that provides the major signals."
"We had %A and %B-we went through the whole alphabet twice, working on things. Then we discovered %K and then %D
and the darn thing worked. So, we quit the research and went into the pit every day and started making a living," Lane said.
He calls himself a strictly technical trader. "I read the fundamentals, but the fundamentals are not the way to trade---the
technical side is so much more lucrative."
But, "it is hard work if you are going to be a trader- you've got to be looking at your computer five to six hours a day," Lane
said.
Currently, in his "retirement" Lane trades "about four to 12 times per day." His time frame is "45 minutes to 1 1/4 hours," with
average gains of "$150, $350, $750" per trade. "They all add up at the end of the day."
"You can make $5,000 a day trading one-lots," Lane said. From his screen, Lane trades primarily off of three-minute, 15-
minute and 30-minute charts, relying on "stochastics, volume and trendlines."
Recently, Lane has been trading the S&P 500 futures contract at the Chicago Mercantile Exchange. He sticks to liquid
markets, avoiding thinly traded contracts such as pork belly futures or lumber.
Lane doesn't confine himself to U.S. markets, however, estimating that 20% of his trading extends to foreign futures markets.
"German bonds and Italian bonds trade very actively," Lane noted.
However, Lane said he never trades without a stop-loss order protecting his position. "That's the secret to making money in
commodities-control the size of your losses."
Lane recommends that beginning futures traders read "John Hill's three books on charting basics-if you are a good chartist-the
charts talk to you."
"You can learn how to do it yourself," Lane said. "Brokers are salesman. Never take advice from a broker. Because, then you
are admitting that you don't have enough smarts to make your own decisions."
Asked what was a key factor in success in commodity trading, Lane replied "greed."
"Trading is fear and greed and if you have enough desire to have a successful financial life-you can do it," He concluded.
11
GLENN NEELY BUCKS TRADITIONAL ELLIOTT ANALYSIS
Glenn Neely locks horns with traditional Elliott wave theoreticians and has developed his own approach to trading the
markets, which he calls NEoWave™ Theory.
Neely first encountered the Elliott wave theory back in the early 1980's while he was working off-shore in the oil industry. At
that time, Neely became interested in the stock market and read many books on the subject, "but that wasn't quite exciting
enough" he said, and he started exploring commodities. His first actual experience trading in commodities was via a trading
system.
"I had paid a few thousand dollars for this magical Holy Grail trading system ... My first big lesson was that no matter how
much you spend for a system, it doesn't guarantee success," Neely said.
Neely continued to study on his own. "For about a year, I had studied all sorts of stuff. I just came to realize that it was a lot
more complicated that I had thought," Neely said. However, "it just clicked right away when I read the synopsis of Elliott wave,"
he said.
Traditional Elliott wave theory says that markets advance or decline with five waves-three up (or down) waves with two
intervening corrections, according to Technical Analysis of the Futures Market, by John J. Murphy.
Neely immediately honed in on Elliott wave. "I started studying everything I could get my hands on ... but I realized there was
a great deal missing," he noted.
"There are just too many ways to interpret this. It's not objective. It's not scientific ... I couldn't stand the flexibility of it. I've
spent most of my career so far adding techniques to make it objective," Neely said, describing his initial frustration with
traditional Elliott theory.
"My primary focus for most of my career has been perfecting a form of technical analysis that is logical, systemic and not
open to interpretation," Neely said.
"Elliott wave is primarily based on Fibonacci relationships and price patterns-the visible appearance of price patterns.
NEoWave adds on top of that a whole process of logic, with some connection to vector physics," Neely explained.
In order for Neely's NEoWave theory to work properly, "you have to pick markets that fit certain criteria," he noted. First,
"you need a market that is a nonconsumable item-that has perpetual life. Corn-it's grown, it's eaten, it's gone," he said.
Other factors are that "current value builds on past, time does not automatically have a negative effect on value, affordable to
thousands and prices readily available," Neely explained.
Additionally, Neely believes "for wave analysis to be accurate, you have to use cash data." Many traders and analysts use
futures price data in their Elliott wave analysis, but "a great deal of the confusion related to Elliott wave is that they are using the
wrong kind of data," Neely said.
In terms of time frames for this trading, Neely doesn't have any hard and fast rules. "The time frame I want to trade is the time
frame that is the clearest to interpret," he said. "I let the market dictate the time frame. I don't want to force wave counts when
they aren't justified," he added.
A key to successful trading is that "you need to be able to control your emotions".
"It took 10 years to comfortably manage emotions," he noted. "Which for me, can only be done by having a concrete
understanding of how markets behave and knowing how much to risk."