Follow up Questions and Answers from our August 17, 2006
Commodity Chat With Trader Jim! (tm) (Jim Prince)
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Hi everyone, Trader Jim here. . .
Below are answers to questions I wasn't able to get to during our August 17 live chatroom discussion. Enjoy and if you ever have a question that needs assistance right away, please feel free to contact one of our Course Counselors at 541-955-2885, Monday through Friday, 8:30am to 5:00pm PST.
Enjoy!
I'm still somewhat confused about who "commercial traders" are. My thought is that a wheat farmer would be short wheat in a falling market. What am I missing here?
"Commercial Trader" is a classification used by the Commodity Futures Trading Commission (CFTC) for traders that use the futures market primarily to hedge their business activities. In your wheat example, this would include the wheat farmers who sell the crop, as well as the individuals/companies who buy the crops.
What are "Candlesticks" on the charts?
A candlestick is a type of chart where the open and close of each day are represented by a box, rather than a tick on the left and right side of the vertical daily bar. The box is hollow if the market closed higher than the open, and solid (usually black) if the market in question closes lower than the open. Dozens of trading strategies have been created to use with this kind of chart, but as WGB subscribers, we're more concerned with the overall appearances of formations - not necessarily the daily opens and closes.
I bought a Nov 170 OJ put option. It doesn't look too promising right now. Any comments on the juice?
On the day you submitted your question (Aug. 17), Nov. OJ futures settled at 184.70. As of today (Sep. 7), Nov. OJ settled at 180.45. Even though the market has moved in your favor the past two weeks, I hope you created a pre-determined entry and exit plan for your trade. A typical example would be to try and double the cost of your option in a winning trade, or risk half of what you paid for the option in a losing trade. Once you have a plan, let the market do its thing!
A hard part of the trading experience has been with brokers. I'm ready to open a new account and plan to position myself in the next Euroyen move. The margin is low, but I can't afford to pay high commissions. How much should I pay when trading 20 to 40 contracts? Would online trading be good enough in terms of favorable execution of trades?
Unfortunately, commodity commissions will not be as low as stock commissions in the foreseeable future. With that being said, commodity commissions today are still generally lower than ten years ago thanks to the number of brokerages competing for your business. I would call several brokerages and ask what they can do for you if you trade large lots (like the Euroyen).
I tried to call U.S. Charts one day last week and got an automated message much of the day. Is this the norm, or was it just a bad day?
Our normal business hours are Monday through Friday, 8:30 - 5:00 (Pacific Standard Time). We're on the phones first and foremost, but do have occasional meetings, system maintenance times, etc. There's also the chance you called when we were in the process of moving to our new offices. We're settled in now, but if you ever get voice mail again be sure you leave a message. We'll be sure to call you back as soon as possible!
Why do some markets (e.g. Lean Hogs) have a FND of "Cash Settled," while others (like Pork Bellies) have an actual date for the FND?
A market that lists the FND (Fist Notice Date) as "Cash Settled" means it is not an actual delivery market. In other words, there is no physical delivery of Lean Hogs when the contract expires. You'll usually see this in the Financials and Indices, but also in a few other markets like Feeder Cattle and Lean Hogs. Any time a date is listed for the FND, it means the commodity can actually be delivered to long buyers if they stay in the trade past that date.
Recently, you advised against going short on trades, but suggested entering as long then short. Can you explain?
I'm sure you're referring to adding options in to our Trade Tracker on the U.S. Charts website. Regardless of whether you're buying a call or put, always enter it in the Trade Tracker as "long." If you enter an option as "short," it means you are the option seller (underwriter), and the profit/loss that is displayed for your option will not be accurate.
I've been paper trading for over a year, but find there's a big difference between paper trading and actual trading when it comes to my emotions. Have you noticed this too?
I sure have! There's no substitute to trading real money when it comes to riding the emotional roller coaster. This is why it's so important to have a trading business plan. Having a plan and sticking to it will help you stay focused and not "worry" so much. If you can't look back at your paper trades and clearly understand why you got into and out of the trade, the experience you gain from these trades will be very limited.
I watched Ken's 15 minute trading session video. A lot is going on in his mind as he's turning pages. When shopping for options, I can't seem to find those really good deals. He does mention some options for very few points (like $50 each), but are these options simply way out of the money?
Years ago, Ken taught a strategy he called "Fishing with Options." Basically, the strategy consisted of finding markets that were historically low and buy cheap calls, and buy cheap puts for markets that were historically high. Traders would often have to buy several "rounds" of options before these markets finally moved in the anticipated direction, but if the moves were large enough, they'd make considerable profits on their cheap options! When Ken mentions dirt-cheap options, it will usually be in this kind of extreme market using a similar strategy. Today, our teaching emphasizes buying options that place us in a position to trade with the trend. These options are also closer to the money and have a higher premium (compared to the $50 ones, at least).
It looks like December 2006 Cotton has formed a large 1-2-3 bottom, and is scheduled to make a huge move up (at least to the weekly 50% level of 63.40). Any comments?
December Cotton has indeed made a very large 1-2-3 Bottom - so large, in fact, that we decided not to list in on our Friday update. If you'd like to follow the formation, it just made a new #3 point yesterday (Sep. 6) at 53.10. To learn how to trade this 1-2-3 formation (or any 1-2-3 pattern) be sure to study the 1-2-3 Strategy located in the Members area at www.wgbmembers.com.
I wanted to enter Sugar, and missed a nice drop. Would it be chasing a moving bus to still get in?
Hindsight is always 20-20, but October Sugar closed today (Sep.7) at 11.62, almost sixty points lower than the day you posted this question. None of our strategies would suggest you to enter a short position in a bearish market trading somewhere in the middle of the chart (unless, perhaps, you saw the small triangle formation that formed between Aug. 14 - 28). Generally speaking, if you chase a market you'll usually pay for it!
Why is it that certain futures markets (Feeder Cattle and Live Cattle) trade at lower prices in the further out contract months?
This is called an "Inverted Market." This basically means the demand for a commodity is expected to be greater now than in the future. You'll see inverted markets happen frequently in historically-high markets (like Copper right now), because speculators have doubts that prices will maintain their high levels long-term. Grain and meat markets are often inverted because of the supply/demand/harvest cycles that occur every year.
I've been interested in Lumber and Feeder Cattle lately, but I'm concerned about the volume and liquidity. Is this a valid concern, and what are the rules about volume and open interest?
We're not normally concerned about volume or open interest as long as we're watching a market U.S. Charts follows. You can buy and liquidate options in thin markets if the price you offer is right - but make sure you enter and exit your option positions using limit orders to avoid bad fills!
love U.S. Charts online and couldn't trade without them. I hope there are no major changes made with any of the "improvements." Keep it simple please, and thanks!
Our priority with the new site is to keep it user-friendly and add some extra goodies that will benefit you the most. A huge benefit of creating the new site is that we can add more information to the price quotes, archive the weekly videos, allow for more customization, and provide more details in our "Frequently Asked Questions" area. We don't have a firm date set for when the new site will go live, but keep an eye open over the next couple of months.
Thanks for updating the Strong 1 Strategy! I did notice, however, that the strategy doesn't deal with the strength of the trend any more. Are the trend strength signals still important?
The Strong 1 Strategy has been modified to trigger our entry into a market based on the first day of a trend, rather than the strength of the trend. We are currently working on additional strategies that do key on the changes of trend strength, so stay tuned!
Well that's it for this month. Keep in mind, that you're not alone in your trading journey. US Charts Online, myself, and our wonderful Course Counselors (541-955-2885) are here to help you become the best you can be. On that note, be sure to check out our weekly video trading lesson at: www.uschartco.com . This is a fantastic teaching tool and free to all Online Chart subscribers! (The video link is in white text located at the top of the very first page you see after the disclaimer when logging in.)
Finally, make sure you have a plan prior to entering any trade and use stops to protect your trading capital. As a trader your capital is THE most valuable asset you have! Plan your trade and trade your plan!
My next chat will be on Thursday, September 21, 2006. God Bless and I look forward to seeing you then!
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