Andy's Spread Trading FAQ's

[Jordan_Andy]

Hi Andy, I am now reading Joe's spread book. I have a question about using the BB and RSI in the chart analysis. By Your experience are these tools good enough for futures and stock charting, or do You use them only for the spreads?

I am not using these indicators, not for the spreads and not for my outright trades. I am trading mainly without using any indicators.

[Jordan_Andy]

Is Spread Trading hard to learn?

At first Spread Trading seems to be more complicated compared with outright futures trading because you are simultaneously buying and selling two different contacts in the same market (calendar or intra-market spreads) or different but related markets (inter-market spreads). It seems that holding a long and short position at the same time confuses some traders. As soon as they understand they are trading the “difference” (the spread) between the two contracts, it gets much easier. Also, you shouldn’t focus much on the two outrights of the spread (so called “legs”) and rather focus on the spread itself, because that is what you are trading. While trading a spread, you do not really care about the legs involved as long as the “difference” moves in the right direction. As soon as a beginning spread trader understands the basics, he will note that spread trading has many advantages. I will name a few in the upcoming issues of Spread Scan.

[Jordan_Andy]

Hi Andy, how long will it take to become a consistent winner?



Andy: Many novice traders underestimate how long it takes to become consistently profitable. They assume they can trade profitably in a matter of months, whereas veteran traders will tell you that such consistently profitable trading may take several years. And it's difficult to achieve. It requires great effort and persistence to become a steady winner, yet many aspiring traders think only minimal effort is needed. For example, they may think they can trade profitably by treating trading as a game rather than as a serious business. They over-estimate their ability level. They overconfidently think that they have skills and abilities that they do not yet have. Don't ever underestimate the tendency to be overconfident. Conquer the tendency to trade beyond your skills by cultivating a sense of healthy skepticism regarding your trading skills and your trading strategies. Be realistic about what you can actually achieve.


In the end, it's important not to get your hopes up too high. The only way you'll achieve profitability is by setting realistic goals based on realistic expectations. You must accept the fact that trading is just plain hard work. You'll have to put in a great effort to achieve success. With enough persistence, hard work, and determination, however, you will build up the skills you need to become a consistently profitable trader.

[Jordan_Andy]

Andy, it seems you are putting fewer spread and swing trades in Traders Notebook lately. Is there a reason for that?

Yes, there is. I want to be more careful at the moment because many markets are behaving irrationally. I tend to be very conservative during times like this, trying to protect capital. Some traders might not agree, but we view protecting capital as one of the primary goals of our daily newsletter "Traders Notebook." This is why I prefer to "keep my gunpowder dry" until times get better. It usually takes some time for markets to calm down, but I would expect good market conditions after the difficult times we are currently going through.

[Jordan_Andy]

Andy, what is the difference between position and swing trading? I know the time for holding a contract is different, but are there any other important points I should be aware of?

Andy: You usually hold a contract for a shorter time with swing trading. With swing trades you try to catch a “swing” of a few days, while a position trade tries to avoid the daily swings to stay in the trade for a longer time. The advantage of swing trading is that you do not necessarily need a trending market, and you usually use a closer stop. My average risk with swing trading is not very high compared with that of my position trades because my stop is very close. Today’s markets are very volatile, and require lots of risk if you want to position trade a market.


My spread trading is position trading, but it requires less risk, especially with calendar spreads. Spread trading is pure position trading mainly in that you give your trades much more room and time to develop because you want to get as much as you can out of the nice long moves that appear with spreads.

[Jordan_Andy]

Andy, I have noticed in one of the last Spread Scan issues, that you are now recommending Futures Options in your newsletter Traders Notebook. Why that? Is learning how to trade Futures Spreads not enough for a trader?

The idea of Traders Notebook was always the same from the very first beginning: "Recommending trades with a high chance of success and explaining in detail how to trade them!" And the number one requirement from our subscribers was always: "Being profitable!" To achieve both requirements can be difficult from time to time if you focus only on a specific way of trading. If you, for example, focus on a trend following method for your Outright Futures Trading, then you have to stay out of the markets whenever they move sideways. It is difficult for a trader to stay disciplined if those times are going over weeks or even months. That's why I think it is necessary a trader knows different ways of trading so he can react to different market situations. Traders Notebook is a very complete newsletter including Futures Spreads, Futures Options and Futures Outright Trades - it is all a trader really needs. This way a subscriber can not only see HOW, he can also see WHEN to implement the different ways of trading into his own trading plan.