IMPORTANT NO CLAIM IS MADE BY JOE ROSS, TRADING EDUCATORS INC., OR BY ROSS TRADING, INC,. THAT THE TRADING METHODS SHOWN HERE WILL RESULT IN PROFITS AND WILL NOT RESULT IN LOSSES. FUTURES, SPREADS, AND OPTIONS TRADING MAY NOT BE SUITABLE FOR ALL RECIPIENTS OF THIS PUBLICATION. ALL COMMENTS, TECHNIQUES, METHODS, AND CONCEPTS SHOWN WITHIN THIS MANUAL ARE NOT AND SHOULD NOT BE CONSTRUED AS AN OFFER TO BUY OR SELL ANY OF THE CONTRACTS NAMED HEREIN. THE THOUGHTS EXPRESSED ARE NOT GUARANTEED TO PRODUCE PROFITS. ALL OPINIONS ARE SUBJECT TO CHANGE WITHOUT NOTICE. EACH TRADER IS RESPONSIBLE FOR HIS/HER OWN ACTIONS, IF ANY. PURCHASE OF THIS MANUAL CONSTITUTES YOUR AGREEMENT TO THIS DISCLAIMER AND EXEMPTS THE CREATORS AND DISTRIBUTORS FROM ANY LIABILITY OR LITIGATION.
© 2006, Joe Ross & Trading Educators, Inc. - All Rights Reserved, Legal Notices Joe Ross & Trading Educators, Inc. own all rights, title and interest to this publication. No part of this publication may be reproduced, distributed, or transmitted in any form, in whole or in part, or by any means, mechanical or electronic, including photocopying and recording, or by any information storage and retrieval system, or transmitted by e-mail, without permission in writing from the Publisher. You have no rights to resell, reprint, reproduce, or digitize this book. While all attempts have been made to verify information provided in this publication, neither the author nor the Publisher assumes any responsibility for errors, omissions, or contrary interpretation of the subject matter herein.
Joe's AMBUSH Method™
on the Wheat and Corn(CBOT) By Trading Educators, Inc. Version 1.0, Build 03
Table of Contents Introduction (PLEASE READ THE INTRODUCTION - IT IS IMPORTANT!)
What You Can Expect Trading Rules Examples When to Stop Trading the Method Ideas for Enhancements Suggestions for Trading Concluding Remarks
Introduction Joe's AMBUSH MethodTM Have you ever been ambushed while trading grains? Would you like to beat the traps set by insiders in the Wheat and Corn pits? Sure you would, and we know how to do it. But you'll have to keep reading to find out. Wheat has been called "the pork bellies of the grain market." Wheat is one of the most difficult markets to trade. Countless traders have met their doom trading in the heat markets — that is, until now! If you've walked into a trap when you decided to trade wheat or corn, how would you like to do a little ambushing of your own? Yes! You can reverse the traps and set a few of your own. And the big grain traders will not be able to do anything about it. Part of the trick is in knowing how they trade. The other part of the trick is in knowing they cannot change what they do! I'm going to show you how it all works, and then you can decide if you want to set your own ambush for the grains. To set the trap, I use the daily charts for CBOT wheat and corn. It's a trap I can set only about 80 times each year, so it doesn't require a lot of work. The results were that I was able to set my ambush 86 times in a little over one year. But in trading only a 1-lot in the wheat, and 1-lot in the corn, statistics show that the Ambush Method™ made $14,000 during that time. Just think what 10 lots would make! And all you have to do is trade the method about 7 times a month! During the period we tested Joe's Ambush Method™ it made 56 wins against 30 losses, with the maximum closed out drawdown being only $850. C'mon, you know you can lose a lot more than that in just a couple of minutes by day trading a stock index. How many methods that you know give 65% wins, and notice: the profit factor is ($wins/$losses) 3.25. That's right, there was
$3.25 in wins for every $1 in losses. All you needed in margin to trade the Ambush™ was about $1,608. This is why we are adding the Ambush Method™ to our repertoire of managed methods. It is one of our Blended Methods™ for trading. As many of you know, I am one busy guy. I don't have time to sit around and watch markets all day. So I love the fact that with the Ambush Method™ all I have to do is watch for the pit-traded open in the wheat market, set my buy or sell stop, set my objective and protective stop, and forget about it. As you well know, all testing of such methods has to be the result of simulated trading. In fact even a live trading record is simulation because there is no guarantee that you would have gotten the same results. I have nothing left to say other than, "let's go set an ambush"! All the best to you in your trading! JR
What You Can Expect Below is the equity curve of the combined method (combining both the wheat and corn trades) from January 2005 through February 2006. As you can see, there are times when the method produces fantastic results, and there are times when the method produces solid results; there are also times when the method is flat or losing. The method produced over $14,000 by trading only one contract in the wheat and one contract in the corn market, with a maximum closed-out drawdown of $850. The longest time period in which the method stayed flat was 45 days.
Here are some characteristics:
We recommend trading capital of at least $1,000 per market (wheat or corn) plus margin for each contract traded. Please check with your broker about the margin requirements. You can expect a win-loss ratio of more than 60%. The winloss ratio in the testing period was 65%. The largest possible loss is $500 + commission per contract and per market (wheat or corn) if rules are followed exactly. The maximum drawdown during the testing period was $850. The method produced only 4 consecutive losses, but 6 consecutive wins.
The following examples show the same equity curve including different commission amounts.
Note: If you need a broker who will let you trade the method for under $25 all the way down to $15 (based on volume), please contact us at
[email protected].
Trading Rules There are only a few easy-to-understand trading rules: Market and Trading Hours We trade the Wheat (CBOT) and the Corn (CBOT) Futures in the pit market between 9:30 am and 1:15 pm U.S. Central Time. Timeframe We use a daily chart. Please note: we trade each market (Wheat and Corn) totally independently of the other; and therefore we place all orders for the Wheat separately from the Corn orders, and vice versa. Entry Signal Long Signal: Buy at the high of the last trading day using a Limit Order, but only when the market opens with a gap up (this is when the market opens above the high of the last trading day).
Short Signal: Sell at the low of the last trading day using a Limit Order, but only when the market opens with a gap down (this is when the market opens below the low of the last trading day).
Please note: If you don't get a gap do not place any order! Cancel your order if not filled by the close of the same day! Do reverse your position! If you are long and you get an entry signal to go short, reverse your position. If you are short and you get an entry signal to go long, reverse your position. Exit Signal If you are long: Place a sell limit order 30 ticks above your entry. Place a sell stop market order 40 ticks below your entry to limit your risk. If your profit objective is filled, cancel your protective stop, and vice versa. If you are short: Place a buy limit order 30 ticks below your entry. Place a buy stop market order 40 ticks above your entry to limit your risk. If your profit objective is filled, cancel your protective stop, and vice versa.
Whenever your target gets hit but your limit order doesn't get filled, move your stop at least to break even, or take some money off the table. Remember, this is a method, not a system; therefore experiment with when and how to move your stop closer to the price action. Note: We do hold positions overnight! Time Stop: In case we do NOT get filled at the target or at the stop, we exit the trade after eight days using a MOC (Market On Close) order. We count the entry day as the first day. No pyramiding! We do not add any contracts to the position in the same market!
Examples In the following examples we show the orders that should have been placed in the Wheat or the Corn market, according to our rules. Charts and values of the trades below are only examples, and can vary from the charts you see on your chart software. Friday, February 17, 2006. The first three charts below show the daily chart in the Wheat market. The market opens with a gap up, and therefore we place a limit buy order at the high of the last trading day. We place the following order: Buy 1 contract at 370 1/2 limit (^2 means 1/4 in our software, ^4 means 1/2, and ^6 means 3/4).
Later we are filled, and are long one Wheat contract at 370 1/2. Now we have to place an order for the target and for the protective stop. In the Wheat and in the Corn, 1 unit = 4 ticks.
Target = Entry + 30 ticks = 370 1/2 + 30 = 378. Stop = Entry - 40 ticks = 370 1/2 - 40 = 360 1/2. We place the following order: Sell 1 contract at 378 limit, and sell 1 contract at 360 1/2 stop market.
The market reaches our target on the same day, and we get filled at 378. We cancel our sell stop order at 360 1/2, and we are done for the day.
Wednesday, June 08, 2005. The charts below show the daily chart in the Corn market. We are long one contract at 224 from 05/31. Our sell limit order at 231 1/2 (not shown in the chart below), and our sell stop order at 214 are still in the market.
The market opens with a gap down, so we place a limit sell order at the low of the last trading day. We place the following order: Sell 2 contracts at 219 limit (2 contracts because we are reversing the position).
Later we are filled, and we are now short one Corn contract at 219. Because we are in a new trade, we cancel both old orders (sell limit order at 231 y%, and sell stop order at 214) with regard to our previous trade. Now we have to place the orders for the target and for the protective stop. Target = Entry - 30 ticks = 219 - 30 = 211 1/2. Stop = Entry + 40 ticks = 219 + 40 = 229.
We place the following orders: Buy 1 contract at 211 1/2 limit. Buy 1 contract at 229 stop market.
On 06/10 we are still not filled on our target, but the market opens with a gap up. Therefore we place the following order to reverse our position: Buy 2 contracts at 216 3/4 limit (2 contracts because we are reversing the position).
Later we are filled, and we are now long one Corn contract at 216 3/4. Because we are in a new trade, we cancel both old orders (buy limit order at 211 1/2 and buy stop order at 229) regarding our previous trade. Now we have to place the orders for the target and for the protective stop. Target = Entry + 30 ticks = 216 3/4 + 30 = 224 1/4. Stop = Entry - 40 ticks = 216 3/4 - 40 = 206 3/4. We place the following order: Sell 1 contract at 224 1/3 limit, and sell 1 contract at 206 3/4 stop market.
This time it takes a few days, but the market reaches our target at 224 1/4 on 06/15. Recap: First solid blue arrow: Long. Solid red arrow, reverse and go short. Second solid blue arrow, reverse and go long. Hollow blue arrow, exit the trade. Result: we make 1/4 on the trade, but we lose because of commissions. Reversing has kept our losses small.
When to Stop Trading the Method Trading systems, and even rational methods, seldom work to consistently make profits all the time: there are flat periods, and there are losing periods. You have to know when to suspend trading a system or rational method, and adapt it to changing market conditions. Fortunately there is a VERY simple way to determine when to stop trading a method or system. Just apply your chart reading skills to the equity curve of the method, and stop trading when you see a downtrend emerging. The picture below shows the equity curve of Joe's AMBUSH Method™ (red line) and a 20-trade moving average (blue line).
Here is an easy rule:
Stop trading with real money when the equity curve drops below the 20-trade moving average, but continue tracking the hypothetical results. Resume trading with real money when the equity curve closes above the 20-trade moving average.
By using this simple rule, you can also estimate the maximum drawdown you can experience at any given time. Look at the chart above: the equity curve is currently showing $14,000, and the moving average is approximately $12,500. You stop trading when the equity curve goes below the moving average, so you stop after a $1,500 major drawdown ($14,000 - $12,500) on your overall account. Simple, but VERY effective. When you trade only one market (Wheat or Corn) use the equity curve and the 20-trade moving average only of the market you trade.
Ideas for Enhancements We have presented you with a rather simple trading method that produces good results. Here are some ideas to possibly improve the method's performance, to be used at your discretion. Feel free to test these ideas and modify the method to your needs. Try a different management method, e.g. trailing a stop or trading multiple contracts. You could try moving your stop to half profits if prices reach your target but you are not filled on the limit order. Don't hesitate to move your loss-protecting stop to break even whenever prices come close to your target. Think about increasing the number of contracts after a losing trade, and decreasing them again after a winning trade. Reason: chances of having a winning trade after a losing trade are slightly higher than they are of having another loser. Try varying the stop loss and the profit goal. Markets change, and next week a profit goal of 30 or 35 ticks could work very well. You might also drop down to 25 or 20, or even fewer ticks for a profit goal.
Suggestions for Trading
Do not trade the method the day before a holiday. Do not trade the method the day before a major grain or crop report is due. It is not a mechanical trading system. Do not treat it as such. Try a different management method, e.g. trailing a stop, or trading multiple contracts. You could try moving your stop to half profits if prices reach your target but you are not filled on the limit order. Don't hesitate to move your loss-protecting stop to break even whenever prices come close to your target. Don't be greedy. Learn to be satisfied with your piece of the market, especially after a very large move straight up or down.
Concluding Remarks That's it. No "magic", no 300-page manual with complicated formulas. We told you that we believe in simple methods. Trading can be simple. No magic indicators or oscillators. Six simple rules. Can it really be so easy? Yes! But keep in mind that trading systems, or even rational methods like this one, seldom work every day or over various periods of time. Watch the market and adapt your trading. You need to know when to trade and when to stay away from the markets, and exercise the self-discipline to act accordingly. We presented you with a simple concept to determine when to stop trading. Don't put all your eggs in one basket. Use this method in addition to other methods and your current trading, not as your only trading method. Consider this simple trading method as a "trading idea" and feel free to modify it using our ideas for enhancements or your own. We want your feedback, and appreciate receiving it! Tell us about your experiences with the method. Write us about your modifications. Ask us questions. And keep us informed of your current e-mail address so that we can inform you of any changes.
Here's how to contact us:
[email protected] All the best to you in your trading, JR
