A simple and direct book, written in plain language, but the ideas here are the result of years of thought, practice and genuine mastery.
In fact, to a novice (or even intermediate) investor, some of author Stanley Kroll's trading advice may appear obvious, even tautological. I recommend instead to read them as koans: ruminate and chew them over, think of analogous situations you've been in yourself, and then think of ways to apply the idea. See for example, when the author discusses how long he holds a "long-term" position, he says, "You hold a position for as long as the market continues going your way." A novice investor would see this as inane; the advanced investor sees it for the wisdom it is, and knows he needs the reminder.
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The author counsels readers to tune out news, tune out all "market forecasts" and brokerage opinions, and definitely tune out all rumors and market gossip, using the (again, koanic) expression "those that know, don't tell; those that tell, don't know."
I'll leave you with one more of the author's koanic expressions, one that's taken me some four decades of investment experience to internalize: "the real money is made in the waiting." This expression channels Jesse Livermore, someone who influenced Kroll significantly, and it illustrates several important investing concepts: on the value of literally sitting on your hands, on not mucking up a good investment theme with overactive trading, on letting things play out, on having the courage of your convictions, on not being too cute with things, etc. It says all these things all at once, making this phrase the most lucrative eight words in investing.
While there's something romantic about playing the futures markets (my generation grew up with the genuinely funny movie Trading Places, featuring Eddie Murphy whupping orange juice traders at their own game), what disturbs me is the tremendous amount of leverage that these guys use, routinely. If you trade futures on an all-cash basis, the returns aren't that great: the biggest wins come from using leverage, and letting your profitable trades run while not getting killed by the inevitable trades that blow up on you. There's a lot of risk of ruin here, and if you take this notion to a meta-level it makes you wonder if successful futures traders, in aggregate, are just one big example of survivor bias. A lot of 'em do seem to blow up catastrophically at one time or another!
As a result, I'm far, far more comfortable playing commodity themes using the stock market. Want to invest in metals? Find a few good quality miners and just hold them, forever. You want ag exposure? There are stocks for that. Oil? Likewise. Rather than betting on futures contracts that expire in a matter of months, rather than levering up a trade to juice my returns, I can instead own, free and clear, a permanent-duration stock with uncapped upside, often paying me dividends in the meantime. The real money is in the waiting.
[Readers, once again, what follows are merely notes, quotes and reactions to the text. I keep these notes in order to organize my own thinking as well as help me remember what I read. It's long and barely worth skimming. Just skip to the reading list at the very end of the post.]
Notes:
Preface:ix The author tells a story of another investor in commodities who kept getting shaken out/stopped out of his positions in soybeans, even though he was correct in his read of the general trend: downward. Kroll cites this as an example of trader needing to take action, not having sufficient confidence their own analysis, and thus being his own worst enemy.
x "Someone once said that the surest way to make a small fortune in futures trading is to start with a large fortune. Unfortunately, there is considerable truth in that bit of cynical logic. Clearly, the losers outnumber the winners by a substantial margin. So what is it that continues to attract an increasing number of investors to this game? For me, it is the knowledge--confirmed by nearly 30 years of personal experience--that the futures market is clearly the best way for an investor to have the opportunity to parlay a modest initial stake into a substantial fortune. For a trade firm or financial institution the futures markets present a means of laying off (hedging) financial risks and, in fact, having the potential to make a profit on dealings that would otherwise be a sure loss. Countless family fortunes and international mercantile empires had their humble beginnings in canny and profitable commodity dealings."
x "Considering the tremendous financial risks involved, the emotional strain, and the feelings of loneliness, isolation, self-doubt, and, at times, sheer terror which are the futures operator's almost constant companions, [holy cow, is he right about this, in equities investing too] you shouldn't be content with merely making "profits.' Substantial profits must be your goal."
xi "...viable money management strategy and tactics are as important to an overall profitable operation as a first-class training system or technique." [This short sentence is essentially the thesis statement of the book, he goes into many examples later.]
Part One: Strategy and Tactics in Futures Trading
Chapter 1: What Is Trading Strategy and Why Is It Important?
3 Cute story here how the author likens commodity speculation to the Saturday afternoon movies he used to go to in the 1940s with 79c in his pocket, "which provided a full measure of fantasy and excitement and kept us coming back each week." Yes, essentially that's what investing does to you!
4 On having "a strategy that encompasses contingencies for both profitable and adverse positions" before putting on the position [this is a subtle point here: you want to think about what you'd do if you're wrong: few investors think through the "if I'm totally wrong" contingencies]. Also on ruin: on avoiding "the disaster, the big wipeout, that is all too common in the world of the commodity trader."
5 Aside from "professional floor operators who scalp in big volume from the exchange floors and pay negligible for clearing fees," traders who make big money on a consistent basis are long-term position traders who tend to be trend followers. The author discusses some of his past big positions, some of which he held for as much as 8 or 10 months [!! That's a long-term position?]
5ff Basic strategy, six points:
1. Participate only in markets that exhibit strong trend adhering characteristics.
2. In the direction of the trend, initiate your position either on a significant breakout or a reaction to the ongoing major trend: "in a major uptrend, buy on technical reactions into support or on a 45 to 55 percent reaction (or the third to fifth day of the reaction) from the recent rally high. ...it is imperative to note that, if you misread or choose to ignore the trend and are buying against a major downtrend or selling against the major uptrend, you are likely to spill considerable amounts of red ink."
3. "...remain aboard for the ride. Resist the many temptations to trade minor swings and to scalp against-the-trend positions..."
4. "Once the position is going your way and the favorable trend has been confirmed by market action, you can add to positions (pyramid) on technical reactions as noted in 2 (above)."
5. "Maintain the position until your objective analysis indicates that the trend has reversed or is reversing. Then close it out and fast!" The author suggests using trailing stops; he gives an instance of exiting then reentering, cautiously, if you were wrong about the ongoing trend breaking.
6. "Run quickly or not at all" if the market moves against you.
7 "...what distinguishes the winner from the loser is the consistent and disciplined application of first-class strategy and viable tactics." Most traders know the typical maxims like cut your losses short and let your profits run but they don't apply them; also on three additional required traits: discipline, discipline, and discipline.
7 "...whenever I was careless or foolish enough to stray from these tenets, I lost money--sometimes lots and lots of money."
Chapter 2: A Good Technical System Is Just Half What You Need
8 "It is not enough to accurately identify a market trend... You still have to resort to a viable strategy in order to maximize the profits on your winning positions and minimize the losses on your adverse ones."
9-10 He describes a small group of traders that were bullish on cocoa, who collectively played a trend from $12.00 to the low $20s and yet all of them lost money. He describes why:
* They started out as cautious buyers and kept increasing buys until the price went from 12 to 15, basically an upside down pyramid; at the first technical reaction their accounts went into a loss.
* When the margin clerk called they panicked and dumped the entire position and then went short to try to take advantage of the downswing to recoup those losses [the author is appalled by this. "Short on a technical reaction in a major bull market!"]
* When the market resumed its trend they weren't quick enough to reverse back so they took a beating on the short position as well.
Overall they tried to be too cute and too smart; they overthought things when they could just do nothing.
10-11 The author goes through another example of someone who used a computerized trading system but only took positions when the system told him to take the positions he wanted to take; worse, he sold the winners at small profit rather than letting them run. And then yet another example of an investor who grossly overtraded his account, and also began with much too large of a initial position on just $10,000 of initial capital. "...the system didn't fail the traders, the traders failed the system."
12 no trading system is perfect, nor will be a winner all the time, but it can give you an edge.
12-13 Kroll gives a couple of examples of choosing a specific market and a specific commodity based on how close the nearest stop was if there was a reversal to stop him out: it's interesting because it has nothing to do with any fundamental view on the commodity itself! In one of the examples he was choosing to lay on a short between three different grains and he chose either the weakest market trend, or the specific commodity with the nearest stop in case of a reversal. The idea was to minimize the risk per contract; and he would lower the reversal stop if he was right and the market continued to decline. "Here is a straightforward example of viable market management in a routine day-to-day situation."
Chapter 3: K I S S: Keep It Simple Stupid
14ff An example here where Joe, a colleague for the author, put on a trade in coffee after a sideways period between 134.00 and 141.00; he didn't know which way it would go once it left this range, either up or down, but he thought it would be a large move either direction; he puts on a limit buy at 141.60 and a sell limit at 133.40, instructing the broker that in the event of either order being filled he would cancel the other. In other words, he stayed on the sidelines until something broke out on either side of the trading range but then got on board right away. Interesting.
16ff Note that this guy's clients were all uneasy with this trade: they were all bearish while he was putting on a long trade, so he made up a fundamental "reason" to justify the trade--even though the trade was based on nothing more than technicals. Even more hilarious: it turned out his explanation ("there would be a frost in Brazil") couldn't possibly be right because it was December in the southern hemisphere! The trade ended up being enormously profitable. The author goes into how there are always "proxy explanations" in financial media, cross currents and contradictions, etc., he explains that under these complex explanations he goes back to a much simpler drawing board which is looking at the charts: both knowing daily and long-term price histories of seasonal tendencies, and then combining that with sound money management; essentially combining a good trading system with good trade management and capital management strategies.
19 "Personal discipline, self-sufficiency, and pragmatism are the crucial characteristics of the successful speculator, but they are the most difficult virtues to teach. And, after you learn them, they are still the most difficult virtues to practice." He goes into some of the elements here: undertrading: because overtrading involves additional costs like commissions and breakage and lures the trader into an emotional position totally at odds with sitting with a winning position; position duration: when he's asked how long he holds a long-term position, "three, four months?" he says "Nothing like that. You hold a position for as long as the market continues to go your way." And then finally: having a system to get you out of an adverse position before the losses get onerous.
19 "Nevertheless, the market has always functioned as the great equalizer of wealth, rewarding the patient, disciplined, and able players while punishing the careless and inept ones, regardless of the size of their starting capital."
Chapter 4: Winners and Losers
20ff Quoting Napoleon here from Bourrienne's Memoirs, Napoleon is asked, "which troops do you consider the best? "Those which are victorious, madame." Then describing a Wall Street journal survey of commodity specialists and their bets for the first half of 1983. "Isn't it noteworthy that copper appears so consistently on the list?" [that is, on the list of bullish choices of analysts], while the price action "was apparently not affected by its recurring top selection." In other words, the author points out that it's very difficult to predict futures prices, experts are frequently wrong [and returning to a refrain he has mentioned several times already in just four chapters] that "a technical approach to commodity investment and timing, coupled with sound money management and a focus on trend following rather than trend predicting, are really the best ways to operate for maximum results."
21ff On why experts are so frequently wrong and "the speculators' laments": note here he paraphrases Jesse Livermore, saying, "I have invariably played a lone hand." He relates his experience years ago in cocoa when he spent time with a group of other traders sharing ideas and opinions on the market, and he warns the reader, "Those who know, don't tell; those who tell, don't know." [This expression is a wonderful one: it says a lot, it is like a koan. It also brings to (my) mind another quote: "Wise men don't need to prove their point; men who need to prove their point aren't wise." Note that this latter quote also applies to the stock market: if you need to prove to somebody that your stock is going higher or that your view on a stock is right, you are almost certainly not right, and your need to prove it is the problem! Let the other guy win the debate, the scoreboard will eventually show who's right.]
22ff The author describes a trading seminar he conducted in various cities, and the responses he got from a number of his questions about commonality of experiences and the speculators laments. Things like "I watched the market move but when I take the position prices reverse on me" (all traders experience this at one time or another and it's a problem of inept tactics and timing not a plot by "them" to get you [wait: it's not??); also the inept timing of under-margined speculators tends to mean that they buy when everyone else is buying and sell when everyone else is selling, and this is what makes tops and bottoms at least on a short/intermediate term basis; also "I told my broker to buy sugar but he talked me out of it" (or vice versa); these are examples of how we always find convenient ways to rationalize our errors.
23 His solution to all of this is to tell people to form their strategy and tactical moves in privacy, don't ask anyone's advice, don't listen to market tips or advice from brokerage firms, and don't tell your advice to anyone else. [Again this is great advice: men who need to prove their point aren't wise, and those who tell don't know. Put on your trade, document your plans in writing so you don't rationalize them or re-narrate them post hoc, and just shut your hole. Play a lone hand!]
23 Notice the third (I think) reference here to "your friend the margin clerk," "who reminds you that your position has moved adversely and that your account has become undermargined." [I don't know if he means to be funny here but this is pretty hilarious, and counterintuitively, true: your margin clerk is your friend, he tells you what you need to hear inevitably and relentlessly, he doesn't care about your feelings.]
24 Finally, comments here on the desire to win versus the fear of losing; on how people's paper trading tends to be far better than their actual real trading, and because of the fear of losing usually person will overtrade and use position sizes that are too large [and, although the author doesn't state this, then be reactive and hypocognized because of his heightened fear/emotional state].
Part Two: Analysis and Projection of Price Trends
Chapter 5: The Tools of the Trade
29ff You have to know when to hold them and when to fold them, something most experienced operators practice, because if you don't you are going to be a former investor, you're not going to make it. Also commodity investing is open to anybody, and you can swing a big line on very little margin (e.g., with a 6% margin you can swing $170k on just $10k of starting capital--but then of course a 6% reversal wipes you out). Also, ironically, people who may have trained or studied for years in preparing for a particular career think nothing of plunging into futures. Likewise, people research the purchase of a new camera more than a large grain or metal futures position. This is why most novice traders become "former" traders.
30ff On preparing yourself to risking real dollars:
* careful study of books dealing with techniques and methodologies of futures trading
* avoiding media that makes predictions for specific markets: the author tells a hilarious story about how one of his clients pulled out the current issue of Time magazine to bolster his argument on wood products, the author was horrified. Ironically this guy was an experienced equities analyst (!) but was new to futures and commodities.
32 The author talks about the book put out by the Commodity Perspective of Chicago: Ten-Year Weekly Range Charts; he recommends don't try to predict tops and bottoms, and use chart patterns, but only as a general guide for areas of support or resistance or to locate where to pyramid with-the-trend positions. The point is not to predict tops and bottoms but to identify major price trends.
32 Noteworthy discussion of his transactions in wheat, how he bought more as it went up and then dumped it after the peak; he even shows on the chart where he did his buys and sells; what's notable here is how this contrasts with most Twitter braggarts who brag about their trading and always seem to buy at the bottom and always sell at the pico-top; this guy shows how it's really done, and it matches up well with Jesse Livermore's comment that you can sell a lot after the peak as the stock is declining.
34ff The point of the ten-year weekly price charts is to eliminate noise and clutter of the short-term market and understand major trends displayed as clearly as possible. Also on the idea that both chartists and fundamental investors need to look at charts. See also the Commodity Research Bureau of New York which publishes weekly charts called the Computer Trend Analyzer; finally see also The Commodity Yearbook published annually by Commodity Research Bureau. This was first published in 1939 and it's the most widely used commodity reference source [Note that I have no idea if these resources still exist, remember that this book is from the 1980s.]
Chapter 6: When Fundamental and Technical Analysis Diverge
37 "All my friends know my rule that I don't want to hear anyone's market opinion, nor do I care to give my own." He relates a conversation with floor broker friend who gives him a tip, his response: "I'm not interested in your tip, and if you do tell me, I'm going to call everyone I know and say that you gave it to me." [!!!!!]
38ff The tip was that a firm was going to announce that the Saudis will double oil production; the author responds "So?" He didn't care what producers or what the big guys were going to do or say "I had heard the big guy's stories so often I was totally immune to them by now." [This is a great story because the author knows what he doesn't know, he is accurately measuring his circle of competence and he knows to ignore chatter and rumor. Elegant and simple.] The author also knows the tips like this often emerge to try to free "trapped bears prior to their being massacred by the strong and rampaging bull." Ironically the Saudi Oil Minister actually did announce a doubling of production, but the market didn't care and kept going higher.
39 "There is a very clear-cut moral to this unfortunate story: play in the real world. Beware of tipsters and other well-intentioned worthies bearing gossip and free advice. And when the fundamental and technical conclusions and market projections are at odds, disregard the technical conclusions or hang on to an anti-trend position without protective stops at your extreme peril!"
41ff The author mocks how the media will make a retrospective or post-hoc explanation to make logical sense of a given move in some future or some commodity. He wants readers to tune out the hysteria and alarmism of all the expert pronouncements. [I think a midwit would look at this and would be appalled: the midwit would argue "this guy doesn't even want to know what's going on, he doesn't want to know what's happening with the economy or with supply and demand dynamics," etc. On the contrary: the author is making a more subtle argument: that the pronouncements are faulty or misleading or a distraction and the fundamentals are already likely reflected in the price and in the stock chart. Worse the alarmism of the media tends to get you to overtrade, taking action much more than you should! This is actually humility-based investing, it's not ignorance-based investing as a midwit might think. Many beginner to intermediate investors struggle with this nuance in a big way.] Note also that the author is humble about his humility (!) as he openly describes how periodically he gets tripped up and sucked into some kind of news-related or fundamentals-related thesis and acts against the general market trend of a commodity, almost always to his loss.
44 "The frequent divergence between what you read in your charts and system printouts and what you read in the printed word or hear on TV seems to provide a near-permanent feeling of ambivalence to most speculators." Discussion here of the irony about interest rates, half of the economists will tell you that if interest rates go up will have a bear market in commodity prices (because carry costs go up and credit instruments tend to be more attractive and thus compete for investor demand), but then half of the economists will tell you that if interest rates decline we'll have a bear market in commodities (because it suggests lowering inflation and thus falling commodity values). In other words you can usually rationalize or post-hoc explain almost anything with anything.
45 "When I find myself becoming excessively confused or agitated by a plethora of such obvious contradictions and contrived after-the-fact news analyses, my response is to seclude myself for a detailed and pragmatic examination of my short- and long-term charts as well as my other technical indicators, seeking order from among the chaos... There seems to be a nice correlation between the tranquility of the session and the clarity and quality of the analysis." [Yep, get away from the news, the media and the market meta-commentary. In my case I go back to the company conference call transcripts and my notebooks of commentary on why I own a given investment, but it's the same idea: get away from the noise and get back to the basics.]
Chapter 7: Focus on the Long-Term Trends
46ff Comments here that could equally apply to modern equities markets: the author describes two factors that make it seem much more difficult to make money in the futures markets [recall this book is from the late 80s]: he describes the factors as 1) increased volatility and seemingly random price action, resulting from enormous sons of investment money that don't have sufficient breath to handle the volume and 2) use of computers and software to make short-term trading swings; [basically, he's describing an increased short-term mindset of the overall market with 5-minute bar charts and 30-40 minute holding periods, etc.] He describes an instance where trader calls him and ask him what he thinks of a head-and-shoulders pattern he sees in cotton and this guy couldn't see anything at all except for the broad uptrend in cotton, but the guy was looking at a minute-to-minute price action chart: basically a micro-oriented approach in an attempt to do short-term scalping. "His top formation lasted about an hour." Instead the author thinks that long-term position trading is far more consistent and lets you ignore a lot of market noise, which keeps you healthier and better able to pay attention to the general trend action. "How can the trader sitting in front of a five-minute tick-by-tick price chart have any balanced perspective on the market?"
47 The author recommends long-term weekly and monthly charts.
49ff A discussion here of copper, which had two gigantic peaks in the '70s, in 1973-74 and then in 1979-80; while the author was playing the 1970s peak he gets a visit from a wealthy Far East private banking family. "We understand that you are a large buyer of Comex copper. May I ask you why?" "Well, isn't that obvious? I asked in return. Because I expect prices to move higher." The guy leaves a voluminous copper study, the author (foolishly) reads it, gets a "case of the jitters" and of course believed all the "because reasons" in the report, all of which were of course persuasive. The author then went back to his charts!
51ff Another trader writes in about the copper market and the Deutschemark market that had a short-term hiccup that everyone read as a change in trend and acted accordingly, but then the original trend just resumed, taking out all those people. [I think one way you can summarize this is to just think of a lot of moves from day to day or even week to week, and certainly hour to hour, think of them as head fakes designed to fake you out.] "This letter aptly expresses the problem of trying to put on long-term trend-following positions, utilizing short- or even micro-term input for trade timing and trend identification. You just have to be consistent. For long-term trend-following investing, use long-term tools--weekly and monthly charts, seasonal studies, and possibly a good technical system with a long-term focus."
52 More emphasis here on patience and discipline.
52 "The trade was happy to sell into this rally." Fascinating how we as investors imbue a type of consciousness or a type of free will into the market itself, see photo below:
54ff Interesting and somewhat paradoxical example here the author gives on a trade he does in sugar, where he starts buying in 1967-68 around 2.00, right before it plummeted to 1.33. Now a reader who has read along and paid attention thus far would obviously assume that the author would be stopped out by his stops, and would want to be stopped out because he'd be wiped out by such a loss--especially if the trade was levered! But here he talks about waiting two years [!!!] and then riding a shocking bull market from 2.00 up to 60 [!]; he considered the market to be at historical lows and as he watched open interest [the number of contracts outstanding at any given time] vastly deflate on that professional bear raid, it caused him to have even more confidence. "We weren't losing money except for the rollover costs as each future expired." [Here I wish the author would have gone into detail on this, what were the actual roll costs, how much did this impair his position size, what did this do to his overall returns, etc, he just drops the jargon phrase (which a civilian reader would not understand in the first place) and moves on.]
Chapter 8: The Trend Is Your Friend
56ff Story about a broker who solicits his business, and Kroll asks to see his clients trades, he sees in those transactions "the living embodiment of the speculators' laments: small profits, large losses, very short-term trades (despite the man's claim that he was a long-term position trader), this guy knew all the buzzwords and right things to say but didn't make any money. The guy keeps saying "remember, Mr. Kroll, the trend is your friend." "I recall wondering, since he wanted the trend to be my friend, why it wasn't his friend as well."
57 This broker didn't even know the ticker symbol for sugar, this gave Kroll kind of a moment of clarity: because Kroll had been thinking about a lot of different indicators for the bottom in sugar in this sort of crystallized everything in a flash of insight. [If you've invested for any meaningful period of time you know what this is like, sometimes a totally coincidental thing kind of crystallizes everything for you like this; or you're in the shower thinking about something and an investment idea just drops out of the heavens into your mind based on stuff you've been mulling over, sometimes for weeks or months.]
59 "How long is long-term?" The author basically says it depends: weeks months or even years. He gives an example of soybean trades from 1984 to 1985 that took 17 months to play out. "To a high degree, boredom and lack of discipline are the main impediments to successful long-term trading... Unfortunately, and at a very high cost, the average speculator is most likely to display his patience and 'sitting power' when he is holding an against-the-trend 'losing' position--just the time when good strategy would mandate that he close the losing position to limit his losses." The author jokes about learning this lesson "the first time" in 1960 and then relearning it repeatedly since.
61 Kroll gets an insight from famous commodities trader Julius Mayer, who talked about commodity prices moving in the direction of least resistance, a simple concept that "must be thoroughly understood, both in theory and an application." [This is one of those beautiful ecological metaphors that works perfectly in equity markets--as well as other domains too]. Further trends tend to feed on their own strength or weakness as reality dawns on traders or as their margin calls close out their short positions (or vice versa and a bearish market as margin clerks close out their longs, or they sell by capitulation).
62 The author cites the book New Concepts in Technical Trading Systems by J. Wells Wilder, Jr. as the best work on identifying dynamic forces underlying buying and selling pressure.
Chapter 9: Why Is the Speculator (Almost) Always Long?
64ff This chapter address the innate "long bias" of most investors, closing them off to opportunity in going short commodities, making them think a down market is somehow "bad" etc.
67ff "Experts" have a long bias too; Kroll cites the Wall Street Journal commodity surveys every year, where buy recommendations "vastly outnumber" sell recommendations regardless of the market; this is also true in equity markets too, although the dynamics are different, a long bias is perhaps more reasonable in equity prices as they tend to have an upward bias, whereas commodity prices can have a downward bias for long periods. Also there's no dividend to pay with commodities like you have to when you short a stock!
68ff On the longest running bear market in recent memory: most foreign currencies in the face of the dollar bull market: see the Swiss franc, declining from 69 to 35 from 1978 to 1985; or the Deutschemark which feel from 58 to 29, or the pound which fell from 2.40 to about 1.05. [I actually wonder if this precise phenomenon is about to happen again in the coming years: right when everybody is calling for the death of the dollar, the loss of its reserve currency status, and complaining about US deficits, just like they did in the 1970s and 1980s! I guess time will tell.]
68 The author asks some good meta-questions here about traders in these particular currency markets:
1. Were the currency markets forming a significant reversal from down to up at various times during the seven year bear market?
2. How can the operator have participated in such a reversal while maintaining reasonable loss protection in the event, as actually occurred, the reversal signals were false and the market continued to decline?
3. Assuming the trader had reversed to long and had been stopped out, how could he have gotten back short in conformity with the ongoing bear trend?
69 "I have often noted that major, longstanding trends, particularly downtrends, do not reverse very quickly. They generally take an intolerable amount of time and are accompanied by innumerable false signals that cause many operators to be whipsawed in and out to an exasperating degree." The author again tells the reader not to try to pick tops and bottoms, it never works; instead you just have to be patient and disciplined until your indicators tell you that a change in trend is occurred, and always use stops.
69 Also look for a high that surpasses any previous rally high: because during the trends they are always lower lows and lower highs.
70 Discussion here on what are reasonable stops: it's a function of the traders personal pain level, the author uses anywhere from 50% to 100% of the margin requirement.
Part Three: Timing of Trades
Chapter 10: The Three Most Important Speculative Attributes: DISCIPLINE, DISCIPLINE, and DISCIPLINE.
75-6 One of the author's favorite tactics is to put on or add to a position on a significant opening breakout gap, primarily when the gap opening is in the direction of the ongoing major trend. Note also that gaps contrary to the major trend are often set up by trade or floor operators to suck our commission house speculators "into untenable positions." He gives an example on a chart of soybean prices in 1983: it's interesting but the price actually retraced lower from that gap opening, but then roared higher two or so months later.
77 Note some of the tricks he uses on himself to get himself to not overtrade, including tapking a Jesse Livermore quote on his phone or even leaving the office to go fishing.
78 More mention of price reactions created by floor traders and firms designed to shake out weak holders. This absolutely happens in equity markets too.
78-9 Interesting comment here on commodity producers: the author believes producers tend to be more bullish than the market warrants, he considers this particularly true for growers of agricultural crops.
79 Story here about the mid-1970s main potato market where there was uninhibited speculation on the NYMEX; the creation of the so-called "Texas Hedge" where I mean potato growers bought potato futures rather than selling which would be a true hedge.
82ff More war stories here about lumber markets (the author never transacts in them because they're too thin) and soybeans (where he made various mistakes trying to pick tops and bottoms, or worse, selling tiny rallies in a much larger uptrend, even though he knew not to). Whenever someone asks him "how much can I lose?" he replies "Pick a number. Make it a very big number. That's how much you can lose." He gets his ass handed to him in soybeans. "This painful (and somewhat embarrassing) lesson should not be lost on you traders the next time you feel the urge to ignore your disciplined strategy, to revert to your wishful thinking fantasy mode, or to probe a dynamically trending market for anti-trend tops or bottoms. Oh yes, I mentioned that all technical indicators except one supported my bearish prognosis and my decision to short the beans. What was that? It was that the trend was still up!
83-4 Bonus quotes here from floor specialists, a job the author never performed over his long career: he asks them all what the most important things that they've learned, and they all mentioned discipline: discipline to get out of a bad trade, discipline to put in a stop, discipline to not watch a four tick loss go to a 40-tick loss, discipline in oneself, and discipline to know the various support and resistance levels in each of his markets, and discipline to not get caught up in the excitement of the moment.
Chapter 11: Market Action Invariably Discounts the News
85 "Some years ago, I was collaborating with an economic analyst on a cocoa report. This was before I had reached the conclusion that cocoa was, from a long-term trader's point of view, untradable, and that the appropriate way to deal with the stuff was to eat it, not trade it."
85ff They have a debate on whether the price makes the news or the price reacts to the news, they make a bet and the author postulated what the news would be after a price break; examples here given on the cocoa market and also sugar; "The way news is released after every move should be studied by every thoughtful trader." "...all this so-called news, pit gossip, and rumor seem rather conveniently contrived by some of the professional and trade operators to confuse, confound, and generally sucker as many gullible traders as possible into untenable market positions. There ought to be a way to avoid being caught in this recurring trap--and there is. As simplistic as this may sound, the astute trader just ignores the plethora of rumor, pit gossip, and what generally passes for market news."
87 Again: "Those that know, don't tell; those that tell, don't know."
88 "Market action (prices) invariably discounts the news, and you can't be sure if the news is true or false. Even if it is true, has the market price already reacted to the news?"
90ff Various proxy explanations here: blaming El Niño for soybean price changes (because El Niño effects the anchovy catch outside of the Peruvian coast and that's a major ingredient in fish meal, which is a principal competitor with soybean meal in world markets). He ignores any kind of reports or written studies on El Niño or any kind of weather or climate analysis, he looks at price action as usual, and he makes a prediction in the opposite direction, saying whenever the price goes over a certain level forecasters and the media will blame El Niño. [This section is hilarious.]
92 A blurb here on the soybean market: the author says it "creates more instant millionaires with every bull market than any other bull or bear market in any commodity." He says the ingredients for a big bull market happen anytime the market gets below 5.50 and rallies about 6.50 on a closing basis. [It would be interesting to see what these price levels would correspond to today in today's soybean prices.]
Chapter 12: Everyone Has a System
94 A story about the author's client when he was freshman account executive at Merrill Lynch, the guy wore a lucky brown tie and (briefly) became extraordinarily lucky trading soybeans.
96 Various paradoxes on setting appropriate stops but also avoiding getting whipsawed in and out of positions and missing out on a major trend.
97 Using a moving average, which is the oldest and most basic of all methods; using a moving average with a crossover technique when a short-term line crosses over a longer-term line (say the 5-day versus 20-day moving average lines); nuances here with a weighted moving averages, which give greater importance to recent rather than older price action.
98ff Discussions here of some backtesting that one research team did, testing various moving average periods across various commodities. I wonder if any of this data has any value today, 35 years later?
100 On the idea that you can have a good system (computerized or otherwise), but half the battle is the application of a strategy; you have to do what your system says, you have to have the courage to maintain positions, have the patience the author talks about, etc., you want to avoid second guessing or "improving it" on the basis of your personal emotions or wishful thinking.
103ff On assessing trading systems: the author wants to see past results, to see actual client accounts, he does not want a "black box" type of system: you want to see what the system is doing and why it puts out the signals it puts out. There's some discussion here of some of the equipment you need to use certain systems and it's kind of hilarious (again this was the late 80s): "you need a phone modem with a minimum of 256k memory," etc.
Chapter 13: Trending/Anti-Trending--A Dual Market Approach
108ff "Regrettably, we are always trying to project a distinct (up or down) price trend out of every market situation... The simple truth is that markets are in relative equilibrium most of the time; that is, in a broad, random sideways range rather than a distinct up or down trending mode." Kroll gives an example of crude oil, and how it sat in a range that sucked people in and out of the market, but really the "channel" of trendless movement was just a wider than people thought, they mistook oscillations up and down in the channel to be trends, when they simply weren't.
100 His solution here when looking for ideas: during sideways price movement play an anti-trending game, in other words, buy on declines toward the lower boundary of a range and likewise sell at the upper boundary, but then once the market blasts out of this sideways formation he will abandon the anti-trending position and follow the breakout direction. [This is quite interesting: certainly in equity markets you tend to have a lot of nothing happening and then short, violent periods of aggressive repricing.]
111 Note in the example he gives with coffee futures in the chart on page 111: he stresses the importance of close stops because in this particular trade you would have had your face ripped off with a huge bull move after a very brief time after a long period of sideways trading, and then the thing collapsed right back down to below that sideways range.
114 Thoughts on where to set a stop: first you think about the total loss you're willing to take on a given position, and then set your stop at a point beyond your trade entry point that would limit the loss to that sum. He gives some examples here with soybean futures (you can also see a good example of a trendless channel with the range marked here as well):
116 Note also the idea of using "stop and reverse" instructions on the close only, because you don't want to be stopped out and reversed by a random intraday jump only to find the next session that everything's back within the range!
Chapter 14: Taking Advantage of Recurring Seasonal Tendencies
118 On January and February as "the most vexing months for the trend-following commodity trader. Market action is extra volatile, and price fluctuations seemingly random." On the "February break" where strong bull markets take a reactionary respite and ongoing bear markets seem to accelerate, this has its roots in the grain trade where producers would hold each year's crops off until the beginning of the following year, both for tax reasons and for first quarter cash flow for their farms. The factor still exists even though the economy is much less ag-driven today.
119 The author suggests being more cautious in these months, especially with long positions, and especially in agricultural commodities; have less confidence in a bull trade and take a smaller position than usual.
119 Also it's useful in March to take the January/February closing high prices and think of that as a buy stop to go long (or cover shorts and flip to long); think of it like a formidable resistance point.
119ff On knowing the seasonality of your various commodities
124 "I would not do long-term position trading without checking out the relevant seasonal studies, than I would fish for bluefish without consulting the fishing calendar."
Chapter 15: Keep What Shows the best Profit: Close Out the Biggest Loss
125ff On dealing with margin calls: the author distinguishes between the two types, "new business" margin calls (these must be met with new funds, not with liquidation), and maintenance margin calls (which can be met with new funds or by reducing positions/liquidation). The author does not like investors to put new money in to meet a maintenance call because the margin call "is a clear signal that the account is underperforming, or at least that some of the positions are underperforming, and there is no logic in trying to defend bad positions with new money."
126 His basic strategy is to close positions that show the biggest paper losses, especially if they are anti-trending, and then by holding on to your most successful positions you maintain your potential profit. He argues most speculators do the opposite, claiming as their "reason" the old Wall Street quote "no one ever goes broke taking a profit. "But no one ever gets rich taking small profits."
126 "The strategy of closing profitable positions and holding on to losing ones is costly, frequently ruinous, and typical of unsuccessful traders."
127ff A corollary strategy to make your margin dollars go further: buy the strongest-acting future and sell the weakest-acting; also as a bonus you get a reduced margin on the position or for the same amount of margin you can put on a bigger position. (These are called spread trades or straddle or switch trades.)
129 Discussion here of price inversion or an inverted market ("An important feature in many big bull markets"), where near-date futures gain in price relative to distant futures, and then often ultimately sell at premiums to the nearby futures. This is due to a tightness or a perceived tightness in spot supply of the commodity; this can provide an important confirmation of a developing bull situation. The author says, "I generally add another 25 to 50 percent to any long position I may be carrying following such a price inversion, on a closing basis."
129ff Note also that professional operators will buy the premium future and sell the discounted future on the first sign of an inversion; [this is very interesting actually, it's the opposite of what you think a good arb would do, but the author's point here is this is buying strength and selling weakness.]
130 Note the example on page 130 of a "spread chart" comparing one commodity to another with a third line for the differential; you can map out stops or technicals on the differential line based on the specific differential between the two commodity prices:
Part Four: On Conducting a Trading Campaign
Chapter 16: The Man They Called J.L.
135ff The author talks about Jesse Livermore here, his hero, a speculator "in a class by himself." [I can't help but say "uh-oh" here given Jesse Livermore's ultimate end. He blew up multiple times and finally killed himself.]
136 Whenever Kroll gets wrapped around the axle, gets in his head too much, or when "every time I read some lofty or tedious market analysis excessively focused on contentious argument rather than on practical market analysis and strategy" [holy cow is that ever true: it is easy to get sucked into predictions, parlor games and other related jerk-offery rather than actually making practical investments!] he thinks that the famous Livermore quote: "There is only one side of the market, and it is not the bull side or the bear side, but the right side." Also, Livermore's quote, "I did precisely the wrong thing. The cotton showed me a loss and I kept it. The wheat showed me a profit and I sold it out. Of all the speculative blunders, there are few greater than trying to average a losing game. Always sell (close out) what shows you a loss and keep what shows you a profit." [On some level this game is really simple. The problem is our egos can't handle that fact!]
137 He also relates Livermore's other famous quote: "It was never my thinking that made the big money for me. It was my sitting. Got that? My sitting tight... Men who can both be right and sit tight are uncommon." The idea here is that lots of people can be right in the sense that they make a purchase (and a stock or the market goes up), but then they sell quickly thereafter. The whole point is to be really right and sit with it and let the thing make you wealthy through waiting.
137 "...while his [Livermore's] catch [his results as a speculator] was undoubtedly more bountiful than my modest bunch of kingfish, I reveled in one advantage he couldn't possibly have had--I was able to study and enjoy his books and writings." [Note that Kroll never comments on what happened to Livermore in the 1940s, I sincerely hope this author arrived at the same conclusions about not blowing up that I did--and that Jesse Livermore didn't.]
Chapter 17: The Market Is Neither Good Nor Bad
138ff The author addresses people's various excuses for why they underperform in the market: interest rates, government deficits, illiquity, a bad market, too volatile etc.; instead of just admitting you were wrong in your reading of the market trend, or your timing or your tactical approach. "Only by acknowledging such pragmatism can we discover where and how we erred and how to avoid those mistakes the next time around."
139ff Note that the 1983-1986 market period was predominantly a down era For most futures and most commodities; this was a "bad" market for investors with a long bias (which means most of them), but of course it was a "great" market for those who saw the actual trend and played it... and it was the same market for both!
142 Also on the mark of a true professional, which is his staying power, his ability to survive adverse market environments, not just do well in comfortable or obvious market environments. [It is a master skill to be an all-weather investor.] The author also says it's normal to become discouraged when you're trading poorly, we all have times like these, and the best thing to do is to get away from the market for as long as it takes to clear your head and get a positive attitude. "The market will be there when you return." [This "staying power" idea is another thing that Livermore did not do in his post biography/hagiography era; he did not do when it mattered the most, he managed to rebound enough times but not the last time, he hit the ultimate "absorbing barrier" and committed suicide unable to handle being wiped out that very last time.]
Chapter 18: You Must Control and Limit Your Losses
143ff Interesting quote here citing successful trader Richard Dennis, who said that the majority of his profits came from just 5% of his trades. [It's a great example of the 80/20 principle in action.] Also you have to be able to curb losses and keep them with an acceptable limits, keep them "within your personal sleeping level."
144ff Discussion of when to pull the plug on an adverse position: Kroll says that the least intelligent way is to consider how you feel about its viability: what the trader thinks or what potential the trader thinks a trade has "makes little difference" because nobody knows the future; it's better to make the decision objectively and limit your loss to say 50% or 100% of the margin; likewise, once a position shows a certain profit say 50% of margin you start advancing the stop by a preset formula. [Another nuance I like here on how he does this: the more volatile commodities require more margin, so tying your stop to the margin also ties the trade to the volatility of the underlying commodity.]
145 Also on having your stops be too obvious or at "logical" chart points, because other commodity traders will shoot at those stops. He gives an example on coffee in 1987. [Note that this is absolute must-read material for any newbie investor, you have no idea how malevolent a system can be sometimes against you. We definitely see this in cryptocurrency markets today because stops or limit orders can be visible to all on a public blockchain; also this definitely happens in stock and options markets too.]
146-7 Interesting comments here from another professional trader, Robert Moss, who talks about his trades: 5-8% are profitable, 10% are breakeven, the rest are losers; and further: he tends to make money two days out of five, break even another two days, and have losses one day. [This is really worth chewing over. There are some significant implications in there.]
147 The author talks about another driver for controlling losses: commissions. You get charged commissions on winning and losing trades, and he cites for some active traders their commissions can nearly equal 100% of their starting equity in a given year. [Geez, that's crazy! The vig is just too high if that's the case.]
147ff Kroll does a study on his clients' trading results (which were mediocre at best) but then includes a rule to calculate their hypothetical results if they had used some objective formula to limit their losses, say 45% of their respective margin, and this substantially improved their results. He goes through some specific client examples where more of their trades were unprofitable than profitable, which is bad enough, but the unprofitable trades were big, they had losses that blew out the profits. The takeaway here is obviously that losses kill you and usually a few very large losses really kill you. Therefore, you have to somehow cut losses off before they kill you. [It's funny in some ways this looks a lot like selling put options--with the huge exception that the bulk of put option sales are winners, so you at least have a (sort of) numeric advantage on some level--but the loss/win profile usually looks like lots of small wins and one ginormous loss that wipes out most of the wins. Futures trading seems like the same crappy dynamic but with even less of a numeric advantage of winning to losing trades.]
149 Once again, you have to be willing to sacrifice your anti-trend losing positions in order to defend your with-the-trend profitable positions: here the author uses a chess metaphor to express the idea.
Chapter 19: The Thrill of Catching the Mega-Move
154ff Kroll talks about his first major play, which was a bull move in soybeans in 1961, he tells the story of a young floor broker who had the sleeves of his jacket torn off during action in the pit, then after Kroll hits financial independence at age 41 he takes five years off; then he comes back to the game and tells a story in 1983 of another "King Bean" bull market.
157 "Hardly any futures trader needs to be convinced about these two points: (a) If you're lucky or skillful enough to catch the top or bottom of a market that develops into a major move, and if you're lucky or skillful enough to stick with the position for the majority of the move, and if you're lucky or skillful enough to limit losses on your other positions, you're going to make a lot of money. (b) If you make a lot of money, as in (a) above, you're going to have one hell of a time spending it."
157ff He walks through a trade he did in silver in 1987, where the trend was down, long-term support was likely between 5.00 and 5.50, and overhead resistance around 8.00; he starts buying futures around the 5.00-5.50 support area but then adds when it hits 6.50 and then adds a third increment at 7.10; he's pyramiding up here; he's thinking also of a time horizon of four months to two years, "the least exact and least relevant aspect of this analysis." [Once again, I wish he would go into roll costs here and how many times he needs to roll over this contract if it ends up taking much longer than he thinks to play out.]
160ff He openly admits that this plan for silver is contrary to the sideways-to-down trend, but he thinks he's seen a buy signal, and in this particular market he wants to get in earlier because it moves fast. So he protects himself with a stop at a modest loss.
161ff Discussion of another mega-move in coffee from late 1985 into early 1986, where there was a profit of $31,000 per contract. And then restating Jesse Livermore's statement about sitting tight, "Men who can both be right and sit tight are uncommon." In the author's actual tactics, what I think he means here is just raising your stops to protect your loss but not actually selling off the contract, just in case there might be some kind of monstrous up move in the cards.
163 He then tells another story about a newbie trader in South Dakota who caught a huge move in cotton, making some $20,000 profit on two contracts, and could barely speak over the phone about it, he was so excited. "...stick with the position till your (advancing) stop takes you out, and resist excessive positioning or overtrading due to boredom, tips, or market gossip."
Postscript: The Market Doesn't Take Prisoners
165ff Cute anecdote here where he talks about when he got started in commodities markets in the 1960s he studied charting techniques, spent hours learning top and bottom formations, but also kept note cards on the strategies and principles of sound money management, as well as the personal and emotional traits needed; he kept these notecards in his calendar book, in his top desk drawer and in his shirt pocket. [Beautiful!]
166 "My own trading, over the course of these years, has run the gamut from very good to very bad--from very profitable to near-disastrous." "My biggest losses and greatest stresses (for they seem to travel hand-in-hand), occurred when I took or sat with antitrend positions held at losses. This is unquestionably the universal experience."
166 "A colleague recently remarked that, after all these years, I seem to have retained a sense of humor about the business." [You really do get the impression that commodity trading (actually any kind of short term trading, look at Brett Steenbarger's work in that domain) beats the absolute crap out of people and not many people make it.]
167 "[The seasoned operator] truly needs a good sense of emotional balance and market perspective. He must ride out those good times and not get seduced by sudden success; and he must avoid getting carried away (or carried out) during the bad times."
Appendix: List of Long-Term Monthly Charts
170ff This is a collection of various commodity charts, most of them run from 1965 to 1988 (when the book was published); I'll note some of the ranges and some of the details that catch my eye; it'll be interesting to see whether these ranges or general price levels have changed significantly in the decades that followed, especially given the inflation we've seen in the past several years.
171 CRB futures: sitting around the 100 leve from 1965-1972 and then a huge move upward, peaking at 335 in 1980, and then selling back off down to 210 by 1988.
172 Cattle/live beef: a steady increase in prices from 65 to a peak of 80 in 1977, then trending down to around 60 thereafter. Contract size is 40,000lbs.
173 Cocoa: contract size 10 tons; price quoted in dollars/ton. The price sat at 500 from 1965-1973 and then a huge move almost to 5500 in 1977, then sitting around the 2000 range since.
174 Coffee: note the gigantic move from 1975 to 1977, where coffee went from 50c to $3.20 per pound, then traded sideways until another quick up and down move in 1985-86 from $1.40 to $2.60 and back.
175 Copper: contract size $25,000, prices quoted in dollars and cents per pound. Note here a general sideways trend except for two spikes in 1973-74 and 1979-80, the general range is between say 45 and 80 but the spikes took it up to 140 briefly.
176 Corn: contract size 5000 bushels, prices in dollars/cents per bushel; a very steady range between 100 and 140 from 1965-1972 and then the whole curve shifted higher to a sideways trend from 220 to 380 and then it looks like it's breaking out downward again in 1986-87 to around 150.
177 Cotton: contract size 50,000 lb price quoted cents per pound; interesting movements here where the price is stable from 1969-1972, then a huge spike in 1973, and then an exaggerated trading range from 30 to 90 ever since, then a huge selloff from from 70 to 30 in what looks like one month in mid-1986.
178 Crude oil: contract size 1,000 barrels (or 42,000 gallons), prices in dollars per barrel. This is a weird chart: it only runs from 1982 to 1987, and the price had a sideways range between 25 and 32 and then plummeted in 1986 down to 12-16, [today crude trades around 70, note that this is just one type of oil.]
179 British pound: contract size GBP25,000, price quoted in dollars per British pound; this chart had a general downward trend from 2.60 to 1.40 with two big bull countermoves: one from 1.60 to 2.40 from 1976-1980, and then another from around 1.00 to 1.50. Today the pound is in another decade-plus downtrend, trading at 1.24 to the dollar, down from 2.05 or so in 2007.
180 Swiss franc: contract size 125,000 Swiss francs, quoted in dollars per Swiss franc; from 1972 to 1979 the CHF went from 25c to 68c, and then fell way down to 33c and then right back up to 64c in three major moves. Note that today the CHF is $1.10, quite a bit higher.
181 Deutschemark [obviously this commodity doesn't exist anymore, one of a long list of fiat currencies to not survive.]
182 Japanese yen: contract size 12,500,000 yen, price quoted in dollars per yen; here there's an initial range from 1972 to 1977 of 0.0034, followed by a strong bull move up to 0.0056, then back down to 0.0038, and then right back up to 0.0062. The chart looks a lot like the Swiss franc chart in terms of three big legs. And of course today the yen is 0.0065, down from 0.01 where it's kind of traditionally been for years until recently.
183 Comex gold, contract size 100 troy ounces: this one had an incredible move from the late 1960s where it sat around 50 in 1972, then ramped to 200, and then sold back off to 100 between 1974 and 1976, followed by a monster move during 1976-1980 where it hit 850, then fell all the way back down (with a couple of counter moves) to around 300 to 400 in 1987. Note that today gold is $2,800/ounce, nearly 10x the late 1980s level.
185 Hogs: contract size 30,000 pounds; in the late 60s we had stable prices, but then from 1972 on, the entire curve shifted up; and this one looks kind of like a seasonal chart with the range anywhere from 25 to 65, it would be very interesting to see what hog prices look like nowadays, a cursory check on the CME Group site indicates "lean hogs" trading at 91.
186 Lumber: contract size 130,000 board feet, quoted in dollars per thousand board feet [this is a contract that probably went crazy during COVID because there was so many reports of lumber shortages and high lumber prices that messed up home builders and lumber retailers at the time]; here we have a big move from 1970 to 1980 from 80 to around 260 and then kind of up and down range to 120 to 200 thereafter.
187 Platinum: contract size 50 troy ounces; this is another interesting chart where the price was stable throughout 1965 to 1977 in a basically a simple range of anywhere from 100 to about 275, but then there was a gold-like monster move to 1,045 in 1979-80; perhaps this is Bunker Hunt and his fooling around with silver probably that drove this? Then a monster sell-off from 1,045 back down to 250 and then oscillating between 250 and 500 until 1987. The current Platinum price is 1,028.
188 Pork bellies: contract size 40,000 lbs; this looks a lot like hogs where there's a stable trading range from 1965 to 1972 and then the whole line chart shifts upward for the following period more or less with a range from 30 to say 90 but mostly sideways.
189 S&P 500 Index futures: contract size is 500 times the index level [when you look at this chart and of course if you look at it brought forward to today, it makes you wonder why anybody would ever want to buy any commodity because this chart is the one that just literally went vertical. Granted, during the initial period from 1969 to 1980 this thing traded in a flat range, but ever since this has been your best proxy to beat inflation, far better than probably any commodity by a long, long shot. Plus you can collect a dividend with a growth rate too.]
190 Silver: contract size 5,000 troy ounces; here we get to see Bunker Hunt and his foolishness as the silver price was stable in a very limited range around 2.00/ounce between 1967 and 1973, then a mini-bull market up to 6.00 in 1974, and then stayed in a range around 4.00 to 5.00; then Bunker Hunt took it to 50 [!] in 1980 and then of course it plummeted right back down to 6.00, then there was another echo bull market to 14.00, then back down to 6.00 by 1987. Currently silver is about $32/ounce, far underperforming gold.
191 Soybeans: contract size 5,000 bushels. Again, a very stable chart and a limited range: around $300 from 1965 to 1972, but then a monster move upward to 1300 in 1973 and then an exaggerated sideways up and down range of anywhere from 500 to 900 throughout all the period thereafter--but with significant 40-50% moves every 2-3 years. [Interesting. I see why the author likes this market.]
192 Soybean meal: contract size 100 tons; once again a very limited trading range from 1965 to 1972 around 80, and then a huge move in 1973 (just like with soybeans) up to 400, and then a trading range thereafter, this looks sort of like a compressed version of the soybean chart on the page before.
193 Soybean oil: contract size 60,000lbs; a similar stable range from 1965 to 1973, then a big move up from 10 to 50 in 1973-74, and then an exaggerated trading range sideways between 15 and 35 until the mid 1980s, then down from 35 to 15 from 1985-87.
194 World sugar: contract size 112,000 pounds; we have two gigantic bull market peaks and sell-offs here in 1974-75 and 1980-81, where the price went from 10 to 65 and then from 8 to 45 and then back down to 5 or even a little below.
195 Wheat, Chicago: 5000 bushels contract size; again a limited trading range from 1966 to 1972 and then a big spike up from 150 to 600 in 1973, and then just a huge sell-off back down to a little above 200, and then another rebound from 1977-81 from 200 to 550 and then right back down to 250 between 1981 and 1987.
196ff The last three charts are T-bills, T-bonds and the Value Line Index, and these charts don't seem quite so useful, t-bills went from a 5% yield to 17% briefly in the early 1980s and then went right back to 5%, a gigantic V move; likewise with T-bonds we have a yield of around 7.5% peaking at 15% and then falling back down to 7.50% between 1977 and 1987. I'm not sure how meaningful these charts will be in terms of indicating anything beyond the uniqueness of interest rate policy across that period of time. Finally, I don't really know who trades the Value Line index, I don't look at that at all, and in any case there's probably an ETF to play that index anyway now.
To Read:
J. Welles Wilder, Jr.: New Concepts in Technical Trading Systems
John Train: The Money Masters
Louis Antoine Fauvelet de Bourrienne: Memoirs of Napoleon
James K. Medbury: Men and the Mysteries of Wall Street
Commodity Research Bureau: Commodity Year Book
***W.D. Gann: How to Make Profits Trading Commodities (1942, revised 1951)
Ralph M. Ainsworth: Profitable Grain Trading (1933)
Sites/resources:
Commodity Perspective of Chicago: Ten-Year Weekly Range Charts
Jake Bernstein: Seasonal Chart Study of Commodity Spreads (published annually)
See also the Foundation for the Study of Cycles on YouTube, and scroll down to the playlist Navigating Season Cycles with Jake Bernstein; he goes through various commodity charts, it's rather interesting and worthwhile, but be prepared for his strange-sounding voice!]