TRADETHINK ARTICLES : Trade Discipline and Diversification

August 21, 2009

Trade Discipline and Diversification

By Chris Morse

While the commodities markets can be intriguing an alluring, one must trade in a disciplined approach and be open to following multiple markets to get to the next big trend. Since the markets only trend about 30% of the time, it is extremely important to follow a diversified portfolio. Following a diversified portfolio could mean following markets you may not be completely familiar with. It requires significant discipline to follow multiple market sectors simultaneously. To get to the big moves a trader must be open to whatever market is making the big moves at a given time. I personally think it is important to monitor; grains, fuels, metals, interest rates, currencies, meats and softs. There can be big moves any of these market sectors at any given time.

To be disciplined in trading is the pinnacle of a prerequisite for success. Richard Dennis (of Turtles fame) once said that he could place a full-page ad with all of his trading rules in the Wall St. Journal or the New York Times and still 80% of people would lose money.

Even when you have a very robust trading system, whether you developed it or even if you follow one of the systems I developed such as Trade Think there are still many pitfalls for potential failure. Presuming you have trading rules intact and you markets in place, even with precise entry and exit signals on a well-diversified portfolio, there is still a chance for failure.

Most traders can suffer from a string of potential failures in trading. You must follow your system signals religiously, no cherry picking trades. If the trade is making a lot of money and you are concerned about your stop being too loose to give you all those paper profits, as such you pull the trade early then you will lose more times than not.

Many traders will follow a system and see at one time or another a series of losing trades. Unfortunately for the trader, most big winners come after a string of losing trades.
With trend trading the adage is to let your winners ride and cut your losses short. The trading adage goes against most human emotions. Big mistakes in trading will happen when a trader wants a losing trade to come back and break even, unfortunately these trades will typically keep going against the trader. Also, when a trader has big profit on a trade, they will want to take profits off the table too soon.

Please look below at current trades from my personally developed Trade Think trading system "Think Pro". Notice that we are extremely well diversified and the trading signals are right there for you every time.

Currently TradeThink Pro is shown to be long (bought) the Copper futures contract. TradeThink Pro signaled to go long (buy) Copper on 7/15/2009 at 2.384. Please see the chart below:

As you can see TradeThink Pro went long (bought) Copper and is currently long with an open profit of $10,037.50 per contract.

Currently TradeThink Pro is also shown to be long (bought) the DAX Index futures contract. TradeThink Pro signaled to go long (buy) the DAX on 7/15/2009 at 4931.5. Please see the chart below:

As you can see TradeThink Pro went long (bought) and is currently long with an open profit of $7,000 per contract. Go here to receive complimentary trade signals for the DAX.

Currently TradeThink Pro is shown to be long (bought) the Sugar futures contract. TradeThink Pro signaled to go long (buy) Sugar on 7/23/2009 at 18.09. Please see the chart below:

TradeThink Pro went long (bought) Sugar and is currently long with an open profit of $4,188.80 per contract.


Currently TradeThink Pro is shown to be long (bought) the Eurodollars futures contract. TradeThink Pro signaled to go long (buy) Eurodollars on 6/25/2009 at 98.89. Please see the chart below:

TradeThink Pro went long (bought) Eurodollars and is currently long with an open profit of $600 per contract. Go here to get complimentary trade signals of markets like Eurodollars.

Currently TradeThink Pro is shown to be short (sold) the Lean Hogs futures contract. TradeThink Pro signaled to go short (sell) Lean Hogs on 7/27/2009 at 54.5. Please see the chart below:

TradeThink Pro went short (sold) Lean Hogs and is currently short with an open profit of $3,920 per contract.

Currently Trade Think is showing to be short (sold) the Natural Gas futures contract. Trade Think signaled to go short Natural Gas on 8/13/2009 at 3.859. Please see the chart below:

TradeThink went short Natural Gas and is currently short with an open profit of $3,040 per contract.

Currently TradeThink is showing to be short (sold) the Spring Wheat futures contract. TradeThink signaled to go short Wheat on 8/6/2009 at 602. Please see the chart below:

TradeThink went short Spring Wheat and is currently short with an open profit of $2,400 per contract.

From the charts above it certainly appears like more trends are starting to move again. Trade Think follows a very diversified portfolio of markets simultaneously in order to participate in the big moves. The metals, indices, softs, interest rates, meats, fuels and grains are moving nicely to the long and short side.

About the Author

Chris Morse is the Developer of the TradeThink trading system. He has been involved in the development of trading strategies for nearly ten years. Mr. Morse developed a very robust system which is now in private use at one of the largest FCM's and has earned sizable returns for the last 3 years. Mr. Morse now focuses his time exclusively on developing and managing his systems.

Disclosure: Commodity trading has large potential rewards, but also large potential risks. You must be aware of the risks and be willing to accept them in order to invest in the futures markets. Don't trade with money you can't afford to lose. This is neither a solicitation nor an offer to buy/sell commodity interests.

Notice: Returns are hypothetical. Hypothetical or simulated performance returns have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since trades have not actually been executed, the results may have under or over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight, no representation is being made that any account will or is likely to achieve profits or losses similar to those shown.

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. INVESTMENTS IN FUTURES INVOLVES HIGH RISKS AND YOU CAN LOSE A LOT OF MONEY.

FUTURES TRADING HAS LARGE RISKS. YOU MUST BE AWARE OF THE RISKS AND BE WILLING TO ACCEPT THEM IN ORDER TO INVEST IN THE FUTURES MARKETS. DON'T TRADE WITH MONEY YOU CAN'T AFFORD TO LOSE. YOU SHOULD CAREFULLY CONSIDER WHETHER YOUR FINANCIAL CONDITION PERMITS YOU TO PARTICIPATE IN THE FUTURES INDUSTRY. IN SO DOING, YOU SHOULD BE AWARE THAT TRADING FUTURES AND OPTIONS ON FUTURES CAN QUICKLY LEAD TO LARGE LOSSES AS WELL AS GAINS. SUCH TRADING LOSSES CAN SHARPLY REDUCE THE VALUE OF YOUR ACCOUNT. THIS IS NEITHER A SOLICITATION NOR AN OFFER TO BUY OR SELL FUTURES INTERESTS.

USERS OF THE SOFTWARE ARE SOLELY RESPONSIBLE FOR THE OPERATION OF THE SOFTWARE. TRADE POSTINGS TO THIS WEBSITE ARE EITHER ONLY EXAMPLES OF HOW THE SOFTWARE WORKS OR THE RESULTS OF OPERATION OF THE SOFTWARE AFTER THE MARKET CLOSES. THIS IS PROVIDED TO LICENSEES OF THE SOFTWARE ONLY TO HELP VALIDATE THEIR OPERATION OF THE SOFTWARE. TRADE THINK DOES NOT MANAGE ANY MONEY OR PROVIDE TRADE OR INVESTMENT RECOMMENDATIONS. PROSPECTIVE TRADE THINK CUSTOMERS ARE ADVISED TO MAKE DECISIONS BASED UPON THEIR SPECIFIC CIRCUMSTANCES AND NOT MERELY ON THE INFORMATION CONTAINED ON THIS WEBSITE. THIS BRIEF RISK DISCLOSURE STATEMENT CANNOT DISCLOSE ALL THE RISKS AND OTHER FACTORS NECESSARY TO EVALUATE YOUR PARTICIPATION IN THE FUTURES INDUSTRY, WHICH SHOULD BE CONDUCTED INDEPENDENTLY BY YOU WITH THE EXPERTS OF YOUR CHOICE.

ALL TRADING INVOLVES HIGH RISK. THERE HAVE BEEN NO PROMISES, GUARANTEES OR WARRANTIES SUGGESTING THAT ANY TRADING BY TRADE THINK USERS WILL RESULT IN A PROFIT OR WILL NOT RESULT IN A LOSS.

ALL RETURNS PRESENTED ON THIS SITE ARE HYPOTHETICAL. HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS ACHIEVED BY ANY PARTICULAR TRADING PROGRAM.

ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.

TRADE THINK AND ITS CURRENT EMPLOYEES HAVE HAD LITTLE OR NO RECENT EXPERIENCE IN TRADING ACTUAL ACCOUNTS FOR ITSELF OR FOR CUSTOMERS. BECAUSE THERE ARE NO ACTUAL TRADING RESULTS TO COMPARE TO THE HYPOTHETICAL PERFORMANCE RESULTS, CUSTOMERS SHOULD BE PARTICULARLY WARY OF PLACING UNDUE RELIANCE ON THESE HYPOTHETICAL PERFORMANCE RESULTS.