Day Trading Grain Futures: A Practical Guide to Trading for a Living (Na)

168 Pages·2009·5.63 MB·English

by  David Bennett

grainfutures_fullcover:Layout 1 26/01/2009 13:47 Page 1
Day Trading Grain Futures
This practical book provides you with everything you need to be able to day trade
grain futures effectively. It opens with chapters explaining the author's preference
for the grain futures markets, and his reasons for preferring to day trade, before
going on to explain the fundamentals of trading and the more specific knowledge
required for his chosen approach.
Day Trading
In a concise, punchy style the reader is introduced to some timeless trading
concepts, and shown how these ideas can be moulded into a trading system to
attack the exhilarating grain markets. No sophisticated indicators or complex
mathematics are found here. Instead, the author builds a system based on tried
and true trading principles, combined with sound money management strategies.
The particular challenge for a day trader during the volatile market open is to quickly `
Grain Futures
identify support and resistance zones, and form a view on trend direction, based
on limited information. The author describes how he does this, with detailed
illustrations and real life examples. He then goes on to explain exactly how, based
on the initial market movement, he determines stop loss and target levels.
A practical guide to trading for a living
A key feature of the book is the chapter tracing the progress of a real life trading
session. It shows the author's methods being applied in practice, with numerous
screen shots giving the reader an understanding of what the trading process feels
like in practice – effectively giving you a fly on the wall view of the author in action.
Another highly illustrated chapter shows a complete month of trading charts with
commentary on trades taken, giving the reader an appreciation of the longer term
trading process. A process described by the author as "constant repetition of a
simple plan, concentrating on implementation excellence".
Other chapters outline the author's views on the need for practice, and discuss the
practical points a home-based trader should attend to in their computer and
internet set up.
The book focus is to highlight the exciting opportunities of grain futures and provide
the vital detailed and hands-on information that will make it invaluable to all
futures, equity, options or CFD traders.
ISBN 978-1905641932
David Bennett
Hh Harriman House
£34.99 9 781905 641932
Hh Hh
Day Trading Grain Futures David Bennett
Day Trading Grain Futures
A practical guide to trading for a living
David Bennett
HARRIMAN HOUSE LTD
3A Penns Road
Petersfield
Hampshire
GU32 2EW
GREAT BRITAIN
Tel: [phone]
Fax: [phone]
Email:
Contents
Preface v
Prologue ix
1 – Introduction 1
2 – Why Trade The Grains? 3
3 – Why Day Trading? 5
4 – It’s All a Gamble 9
5 – It’s All About Managing Risk 13
6 – What Do I Trade? 17
7 – What a Speculative Trader Does 23
8 – Charts 27
9 – Support and Resistance 31
10 – Entry Rules 37
11 – Managing the Trade 49
12 – Implementing the Plan 59
13 – My Trading Calculator 63
14 – My Trading Screen 71
15 – A Case Study 75
16 – A Month at the Tables 113
17 – The Importance of Practice 139
18 – The Computer Set-up 141
19 – The Trading Ritual 145
Bibliography 147
Index 149
iii
Preface
What this book covers
This book is about trading soybean, wheat and corn (the “grains”) futures contracts. The
contracts are traded at the CBOT futures exchange in Chicago (now part of the new CME
Group). Only the electronic contracts are considered because these can be traded efficiently
by anybody with a reliable internet connection, no matter where they are located.
(Strictly speaking, soybeans are oilseeds, not grains. But rather than refer to the “grain and
oilseeds complex”, which is a bit of a mouthful, I just refer to the grains.)
While the book does not discuss options, CFDs, spread betting, or any other derivative
products, much of its content is relevant to people trading those instruments. Indeed, I
have worked with traders who successfully apply these techniques to trading ordinary
shares. This methodology is not market specific.
The focus is on day trading (not holding the positions overnight), but that is purely my
preference. There is nothing preventing these same techniques from being used to find and
manage trades in other time frames.
In short, the book is all about how I day trade the grain markets. But the techniques
employed are broadly applicable to most markets and time frames.
Some readers might wish for a broader description of trading techniques. There are, after
all, an endless number of trading styles and systems out there. But this book was born out
of a project to document exactly what I do, and why I do it, on a day-to-day basis as I trade
the markets. It concentrates on the style I use, on the system choices I have made, and
doesn’t make any attempt to discuss alternatives.
Who this book is for
This book is written for people who have (probably) already done a bit of trading and are
looking for a disciplined methodology that aims to earn reasonable returns while managing
risk sensibly. The text will resonate well among those with prior experience in the markets,
because its emphasis is on the realities of the trading process, not just theory.
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Day Trading Grain Futures
That said, I have worked with clients who have never traded before. The book contains all
the information needed to apply my methods, but it is not a trading textbook.
For example, my introduction to charting in Chapter 8 is very brief. It tells you what you
need to know to implement my trading approach, and no more. It makes no claim to be a
comprehensive introduction to the subject.
As a further example, when I discuss order types, I talk exclusively about the order types
I use to implement my approach, but I don’t provide a description of all the order types
available to traders. If I don’t need it, I don’t describe it.
A novice can use this book, and I think they would learn a lot from it. But he or she should
be prepared to supplement the coverage here with further reading and research. The books
recommended in the Appendix would be useful in this respect.
Every subject has its own jargon, and trading is no exception. I’ve generally tried to define
the terms I use, but as my target audience is people with some trading experience, a
complete newcomer may come across terms that puzzle them. Again, the recommended
texts in the Appendix will help, or a simple search on the internet will generally bring
enlightenment.
How the book is structured
When I go to the technical bookshop, I sit down with several trading books and browse
through them. As often as not, I find a chapter or so in each book that interests me, and skip
the rest. I’ve tried to make this into a book that I would like to read the whole way through.
I recognise that some chapters or sections may be skipped by more experienced readers.
These chapters or sections have been left in because I wanted the book to be a complete
description of my trading approach, and some very basic introduction to, for example,
charts is necessary in this context, because charts are so fundamental to my approach.
Having said that, I’ve tried to be concise and keep most chapters short. Anything that isn’t
directly relevant to my method has been pruned from the text.
If I were reading this book, I’d probably read quickly through the earlier chapters, and
slow down when I get to Chapters 9-14, which really describe my trading approach. Then
I would spend quite a bit of time studying the charts in Chapters 15 and 16 to see how it
all works in practice, and to check that I thoroughly understand the setups. I’d speed up
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Preface
again for the last three chapters.
However, I’m biased. I think nearly every chapter contains some nugget of worthwhile
information that even the experienced trader will value – otherwise, I would have chopped
it out!
Acknowledgment
I am grateful to Interactive Brokers for granting permission to reproduce charts plotted on
their TWS software.
vii
Prologue
The ringing of the alarm on my mobile jars me awake. It’s 9:15 a.m. in Chicago, 15 minutes
after midnight here on the Gold Coast in Queensland, Australia.
Show time!
I brew a pot of tea, log in to my broker, bring up my trading screens and update the initial
values in my spreadsheet.
Ready.
Dead on 00:30 the charts spring to life as the grain pits open at the Chicago Board of Trade.
Although some traders in bright coloured jackets still shout raucously at each other in the
trading pits, sealing deals with weird hand signals, nowadays most trading is done
electronically. By people like me.
At 00:34 two candles have formed on my chart and I see an opportunity for a short trade
if the market breaks downwards. I place an entry order with a single mouse click. Thirty
seconds later the order is triggered and I’m in the market! Short seven corn contracts. Two
more quick mouse clicks enter stop loss and profit-taking orders.
At 00:42 the profit target is hit and my position closes. I’ve made 6 points per contract, 42
points in total. At $50 per point, that’s $2100 in total profit, less about $45 brokerage.
I sip the rest of my tea and check out the news in the first editions of the morning papers
on the internet. Then I confirm my little boy is sleeping soundly before slipping back into
bed.
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