Don’t Trade Until You're Ready!
By Al Martin

(8-27-07) We have written several articles like this before, but we can tell from our online subscribers that people still don’t understand – so we will reiterate – once again.

We have noticed that subscribers who have very little market knowledge get very excited and eager to trade, without realizing how difficult it really is. The way we trade, the recommendations I’ve put out every day, makes it seem easy, but that is because the 38 years of trading experience I’ve had makes it seem effortless. Therefore I recommend to everyone that they learn the mechanics first.

We have seen that subscribers often begin to trade their account with a firm which offers very marginal service capability and fill-execution capability, or with firms that have no news service at all, or with firms where you cannot actually even call them to correct or check on a fill. We have also seen what I would call novice errors being consistently committed by those who cannot even remember the contract symbols.

This happens every single week. One of our new novice traders loses money through an error because of entering the wrong symbol and winding up buying and selling a contract which was different than what we were buying or selling, thereby winding up in a completely different price situation, and ultimately losing money in the trade.

So please get your symbol book. Remember your symbols and the contract – the item symbols and the contract month symbols.

Secondly, make sure you are set up the right way. Understand that this is a business. There is no such thing as trading part-time, as the infomercials would have you believe, showing the fellow sitting in his Barco-lounger saying, “I’m making $10,000 a month trading commodities,” and then shows his wife saying, “And we’re only working 3 hours a day. And we have family time.”

That’s utter nonsense. There is no such thing as part-time trading successfully. In 38 years of doing this, I’ve never known anyone that has been able to do it successfully ‘part-time’. It is a business. It is a way of living.

Make sure you have your setup correct, as I have suggested, that is, that you have your computer screen, your 22-inch flat screen in the middle of your desk and that you have 2 flat-screen televisions of the same size and configuration on each side of your screen at an angle, one tuned all day long, 24 hours a day, to Bloomberg News, and the other turned on to CNBC.

This is enormously helpful, since CNBC and Bloomberg often report economic calendar releases, for example, sooner than you can get them from any other news service or tape.

It is also helpful, particularly in the case of CNBC, to see what is being shilled, what commodities of the day retail shills are going to try to shill on a daily basis. Oftentimes you can make a trade off of this by shorting into something that the shills are recommending you going long, after you see the initial pop from the shill action of the unwashed coming in to buy it. This is something that happens in a minute or two.

A good example of this was on Thursday (August 23), when we had a variety of ‘retail sugar shills’ on both CNBC and Bloomberg, shilling the sugar. This brought in buying from the unwashed, took the October contract up to 9.73. We were shorting it for all we were worth above 9.65, and ultimately the contract reverses and trades back down into the 9.40's. This is a classic example of why CNBC is helpful, and frankly even indispensable.

You will see that most professional traders have 2 television screens, to the left and right of their central computer screen. Everyone I know does that, including myself.

Also, I am often asked about what news service traders should subscribe to. The best general equities and commodities news service is, without a doubt, Bloomberg. You will find that none of the commodity firms that I know of carry Bloomberg because it’s more expensive. They carry some cheap knock-off variety that gives you the news 10 minutes after it’s happened. I’ve noticed that with the cheap Internet $2 commission firms. Remember, if you want to pay $2 commissions, you get what you pay for in this business. I recommend that you have Bloomberg news services as a separate feature.

How much more you should have is another question I have commonly been asked and that depends on what you’re trading. If you are a very active bond trader, you should have the Tellerate service.

If you are very active grains, sof’s and trop’s, and meats traders, you should have Reuters/CNS, in terms of news service capability.

I’ve noticed that many of the unwashed seem to think that, however much money they have in their account, once they have an account established, “Oh, I’m ready to go.” And they don’t understand that they haven’t even learned the symbols yet. They don’t even know where the items are traded. They don’t even know the hours the items are traded. They don’t know which items have daily trading limits and which do not. These are the things that cause errors – and cause unneeded trading losses that can be readily avoided by at least learning the mechanics before you start trading.

Also understand that this is a business, and that, beyond whatever you are funding your actual account with, there are costs. This is what many of the unwashed don’t seem to understand. There are additional expenses for news services and costs for trading.

There are a variety of ancillary expenses to duplicate the Bloomberg Quotron system. The Level One commercial Bloomberg/Quotron platform, for instance, with all the bells and whistles, is about $2,000/month.

I keep recommending to people to form some sort of a trading corporation. Because this is a business, where you can write off numerous ancillary expenses. It’s like any type of business. You start a shoe store, and you have furniture and fixtures costs. There’s no difference in trading.

In conclusion, whether you are online with us or some other service, you hear us trading all day long, putting out trades that we are doing, talking about news flows, and it gets very seductive because you see that we have a high percentage of winning trades. Nine out of ten trades we execute are winners. But that is based on many decades of trading experience. And do not expect you are simply going to jump in.

What separates those who are just starting out who will still be trading a year from now from those who are just starting out that won’t be, by the way?

When you get in what proves to be a losing position, a trade position that you’re holding, and it proves to go against you, despite the fact the fundamentals are with you.

I will hold a losing position in something, something that goes against me, as long as the fundamentals are on my side. However, when you have something going against you that you’re holding and you’ve either got to get out of it or, if you hold it, which is what most people will do because most of the unwashed don’t like to take a realized loss – if you are holding something in a losing position, you have to be able to bang out those meat and potato day trades, the 4-point scalps on the bonds, the 2.5 pt scalps on the SPU’s.

You’ve got to be able to knock those out every single day, to keep your account liquid. Otherwise, you’ll wind up being an unwitting long-term investor in something because you have caused your account to become illiquid by holding onto something that you’re holding onto the right way, but the price is temporarily moving against you.

And that really separates the proverbial men from the boys in this, the ability to knock out those meat and potato trades every single day, which is what you have to do if you’re going to be in the business of trading.

We would like to invite all Insider Intelligence subscribers to listen in to the Real Time Teleconference Market Advisory Service as a FREE sample for one day. This service costs $395 per month and it is a daily real time advisory. This is a limited time offer. Just call 866-317-1390 and we’ll get you set up with a temporary day pass so you can listen in to Al and the other traders of Insider Intelligence.