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Commodity Trading Blunders II, PART 3 - My Early Days As A Novice Trader |
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Commodity Trading Blunders II, PART 3 - My Early Days As A Novice TraderAuthor: Thomas Cathey Article source: http://www.articlealley.com/. Used with author's permission.
If we are able to survive any new endeavor long enough, we sometimes discover what it takes to succeed. This certainly applies to commodity futures trading. Most of us cannot learn from others' mistakes. We need to commit errors ourselves to feel the pain. This seems the only way to learn our lessons. Read more about my first novice experiences and struggle to survive.
Some years later in the late 80's, I remember another order mistake. I was using a new commodity cycles program I had designed. In fact, it's the same one I use today for clients called "The TimeLine". I feel comfortable with it. That's half the battle. Anyway, I bought four coffee futures contracts at about 58 cents. I was looking for an explosive time cycle move up. Sure enough, the coffee market started creeping higher over a week or so. After a couple more weeks it started to run and coffee hit about 70 cents. That was a big score for me, something like $18,000. But that's not the end of the story.
Here's how the error occurred: The morning I exited, I had a resting GTC trailing stop in at 68 to sell four coffee futures to close out. I had just gotten one of those nifty hand-held quote devices that work off the FM band. Remember those? That was a big mistake. Watching that thing just ruined my long-term perspective. But this time was different. Somehow I recognized a top and called the trading desk to sell everything at the market. I almost caught the exact top. It was just luck. So I took a car ride thinking I was out of the market with an $18K score. Time to celebrate! I was so smart! Not so fast, Tom.
When I got home I heard a message on the answering machine from the trading desk. I called them and the clerk said I forgot to cancel my GTC sell stop at 68 selling four futures contracts. I sheepishly asked him what coffee closed at. He said, "limit down!" I was up another $4,000!
But again, not so fast, Tom. The trading manager (with a hoarse, gruff voice, of course) got on the phone and said he called before the market closed to see if I wanted to keep the trade. He said because he couldn't reach me, he covered the the four contracts without me. And then he barked, "This profit is going into the company error account!" He said it with so much authority, I thought that's the way it was. That's how it worked, I said to myself. I was so pumped up at just making $18,000 how could I be greedy and demand the extra $4,000 also?
BUT...what would have happened if the coffee futures market had gone limit-up instead? Do you think the trading manager would have demanded the loss go into the "error account" then? No way. I would have eaten that as sure as day. In hindsight, I could have told him that it was my intent to stop and reverse; and in fact I should still be in the coffee futures market and short. What right did he have without a signed management authorization agreement to liquidate me?
If it happened today it would be a different story. I probably would offer to split it, being such a nice guy. [grin] But it was a long time ago and I didn't know any better. He probably laughed and shook his head afterwards. As Robert Redford said at the end of The Sting... "I?d just blow it anyway". Knowledge learned is more valuable than money. Gann said something to the effect, "Once you have the knowledge, it's easy to make money in commodities". I suppose I can rationalize anything.
So there you have it...two order error stories. One lost me $1500 and the other made me $4,000 - well, made the brokerage firm $4,000, I should say. This taught me the importance of having a novice commodity futures trader paired up with an experienced, mentoring broker. It is so important to have someone on the other end who knows your situation and can flag mistakes before they get out of hand. In these two cases, there was the potential to wipe out many years of discount commission savings.
If you're new to the commodity futures and option trading game, consider going slow for a while and working with someone you trust. Once you get the basics down, you can ramp it up with confidence. I know some experienced commodity futures traders who will only work with a full-service commodity broker. There's a lot of traders like this out there. They know the risk of errors and what it can do to your ego and bottom line.
Good Trading!
There is substantial risk of loss trading futures and options and may not be suitable for all types of investors. Only risk capital should be used.
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