q&a

[Jordan_Andy]

Hi Andy! What markets are you trading and why?

I am trading mainly the Chicago markets using CME and CBOT. There are
different reasons why I prefer these markets:

- Chicago markets are more trader friendly, i. e. if you give a market
order in Chicago it has to get filled in a specific amount of time (as far
as I remember it allows the guy in the pit 5 minutes to fill your order).
Such a rule does not exist in NY and you can imagine what this means to your
fill.

- In Chicago you normally get much less slippage than in NY. Try to leg in
via a market order in any energies spread and you will see what I mean. Even
if the markets are liquid you can get a terrible fill in NY.

- Exchange rules in Chicago are much stricter than in NY, meaning you get
much better treatment as the exchange traders are held to more stringent
standards.

- I am personally not able to follow ALL possible markets. I am
concentrating on the grains, meats, soy complex, interest rates and the
currencies, and this is really enough. For my trading I like to have enough
markets available to find good trades but I also try to understand each
market's individual behavior.

[Jordan_Andy]

Hi Andy! Do you feel that the Close is more important or just as important as the Open or any other time during the day?

I think everything in trading is important. The Open, the Close and also what happens in between. But, if you ask me about spread trading it is quite different. Personally, I do not pay much attention to what is going on during the trading day. I try to avoid looking at my charts during the day and concentrate more on the Close. The reason is the following. Whenever you watch the spread A - B on your chart software, you look only at "Outright ‘A’ minus Outright ‘B’" but not at the spread itself. We do not get the data from the spread itself we only get the data for both outrights. Most of the time, both contracts are trading together only at the Close. This is because usually Outright ‘A’ does not open at the same time as Outright ‘B.’ It is only at the Close that you see what is really going on with your spread. The usual case is that both legs of your spread are not trading equally during the day. Because the legs of the spread do not trade equally, you have no true concept of what's really taking place with your spread.

[Jordan_Andy]

Hi Andy! I had a question for you regarding the spread 625*BPH6 – 1250*JYH6. It looks like a reasonable trade; however the volume is very low for both contracts. What do you think?

I personally would trade the electronic December 05 contracts because volume is very low in the March 06 contracts and then just roll into March 06 on 12/12 (this is when the currencies roll from December 05 into March 06). Commission is low in the electronic markets and the roll over is not a big deal.

Please keep in mind this tactic doesn’t work for all markets. An example would be the spread long May Wheat 06, short July Wheat 06. This is a old crop/new crop spread and the spread long March Wheat 06, short May Wheat 06 will probably move a lot different because it is a old crop/old crop spread.

[Jordan_Andy]

Hi Andy! What do you think is the most important factor to become a successful spread trader?

There are probably many different factors involved in becoming a good trader or spread trader, but I personally think discipline makes all the difference. When I look at my trading journal, I can see that my trade selection is good. Nothing to complain about there. But from time to time I can see some notes like “I exited the trade because I thought the market will not go higher� or “I did not exit the trade fast enough." Do you find the same notes in your trading journal? I am sure we all can find them. We have to find out our weakness when we trade, and we have to find a work-around or a way to get rid of it. This is probably the most difficult part of trading.

[Jordan_Andy]

Hi Andy! Today I received a really bad fill. Is there any way I can check if my fill was legitimate?

Andy's repy: All you can do is to check the outrights to see if your fills are in the right range. In any case, let your broker know the moment you think there is something wrong, definitely ON THE SAME DAY! Your broker can check times and sales for you. He can talk to the guys on the floor. He can check your order ticket. But you really have to tell him right away! The guys on the pits are gone fast after the close.

[Jordan_Andy]

Hi Andy! What is the best way to enter or exit the spread trades?

Andy: I think there is no “best way� to enter or exit spread trades, there is only “your way�. Let me explain:

I personally enter on the close via Market on Close (MOC) order or at the open on the next day (I always wait at least 5 - 10 minutes on the open because the market can be very wild in the first few minutes of the trading day). Most buying and selling is at the open and at the close, especially in thin markets. When you use a limit order you can enter anytime you want, but you might have the problem of not getting filled.

If you are a trader from Australia, for example, you will find it very inconvenient to enter around the close because this would mean you would have to stay up all night, or you would have to give the responsibility to your broker. If entering at the close is not comfortable for you, just enter the next day. Enter around the open if you want (I recommend to wait some time at the open till the markets slows down) or enter the next day via MOC order.

In the long run it doesn’t matter. It is more important that you feel comfortable with the timing of your entry and exit.

[Jordan_Andy]

Hi Andy! As far as I can see you are recommending many more meats spreads this year then any other market. Why do you prefer the meats markets?

Actually I do not have any preferences. I trade what I see. I look at a chart, and if I like what I see I trade it, without having any specific opinion about the market. I don’t care if I trade a grain spread or a meats spread as long as I see on the chart what I want to see. Most of the meats spreads have worked very well so far, but I do not have any guarantee it will stay like this. It can change from one week to the next, and maybe the grain spreads will become more attractive in the second half of 2006. We will see.

[Jordan_Andy]

Hi Andy! I have seen in the spread scan you use seasonality for your trade selection. Is seasonality the same in all markets or do you think some markets behave more seasonal then others.

You can find seasonality in all markets but I personally think there is a big difference in “reliability� or “strength� of seasonality in the markets. I personally think seasonality is strongest in the commodity markets. In all markets where you have a physical product you have a production cycle during the year. Because the production cycle is always the same you get typical seasonal behaviors in these markets. Other markets, like the indices, also show a seasonal pattern but I think it is not as strong as in the commodity markets. Anyway, seasonality is only one criteria besides others and I would never recommend any entry just based on statistics. You have to look at the current chart of the current spread to see what is going on. That’s what we have to trade!

[Jordan_Andy]

Hi Andy! Although I have read about it, I still do not understand limits as they relate to spreads. Do I need to concern myself with them? Does limit up / down, and locked limit, mean the market cannot move any higher or lower? Does this affect spreads? How? How often does this occur, are there warning signs of this occurrence?

Limit up or down means the market cannot (is not allowed to) move further up or down, as the case may be. You do not ever want to enter a spread at that time. You will not be able to put on both legs. If you are in a spread when the market goes limit, then usually all the months go limit and so the spread remains flat and doesn’t move. If you are in a spread when the market moves limit, do not attempt to get out. You will be murdered if you do. Just stay in even if it goes slightly against you. It can go slightly against you because the front month may have greater limits than the back month. But by the time the spreads Close you should be okay or mostly okay. The difference will not be great.

Every market is different. You get tons of limit moves in Bellies and in other illiquid markets like lumber. I have no idea of how often limit moves occur. They vary by market and from year to year.

Are there warning signs of a limit move coming? I have never seen any. By the time the news that causes a limit move reaches the market, it is too late to do anything about it.

[Jordan_Andy]

Hi Andy! What is a "Crush Spread"?

The spread is defined as buying one futures contract, and selling a different, but related futures contract. Specifically, when trading the crush spread, you would buy soybeans and sell its respective products, the soybean meal and soybean oil. This is what is referred to as being crushed. If you buy the soybean meal or the soybean oil and sells soybeans, that is what is referred to as being reversed crushed. Soybeans alone have relatively little value. The value of soybeans is the fact that when crushed, the products have great value globally. Soybean meal is of value to the farms that raise chicken and hogs. Soybean meal is rich with protein and is fed to these animals to fatten them up. Soybean oil is of value across an array of industries. Primarily, soybean oil is used in food as one of many available edible oils. Soybean oil is also being used in a mixture to create an alternate source of energy to compete with crude oil. These uses and others of the products give soybeans their value.

[Jordan_Andy]

Hi Andy, by legging into a Minneapolis Wheat spread I got a really bad fill. Would I have done better by using a spread market order?

There is normally not much of a difference between using two outright futures market orders versus a market spread order. The outright futures pit and the spread pit are connected to each other in the sense that they look at each other to see what is going on. You should end up with almost the same result. Very often the spread pit is “integrated” into the outright futures pit, with both orders being filled by the same person. Markets like Minneapolis or Kansas Wheat are always a bit tricky. Maybe you want to try a spread limit order next time for your entry and exit. When trading a market for the first time, I always recommend trying it first with only a few contracts to see the “character” of the market. You can also talk to your broker. He should know what kind of fills you can expect from the market you want to trade.

[Jordan_Andy]

Hi Andy, The last 2 months have been very tough for my spread trading. Is there any time of the year when you think it is better not to trade spreads?

Unfortunately, spread trading (like any other way of trading) gets flat or difficult from time to time, and there is not much you can do about it. I have not seen any “seasonality” in my spread trading so far, but there are times when spread trading becomes very tough for me. But good money management helps me to get thru the difficult times. What can you do when times are getting tough? Well, you can reduce your risk. Slow down your trading till it gets better again. Do the opposite when your trading is successful. It’s like driving a car. You cannot get from one location to another by driving with a constant velocity. You have to slow down when you have a lot of traffic, and you can go faster when traffic lightens up. Try to do the same in your trading.

[Jordan_Andy]

Hi Andy, I am trading a really small account and very often I can trade only one contract. What would you recommend I do?

Trading only one contract is really tough. You are extremely limited in managing your trade. You have only two choices: In or out of the trade. Trading multiple contracts gives you much more flexibility. You can take some money from the table without exiting the trade completely whenever you think it is necessary. Or you can enter the trade with only the first lot to see if the spread is going your way before you add on another position. I personally would not like to take trades where I could trade only one contract. Don’t try to “reduce the risk” just to make sure you can then trade more contracts. This is for sure the wrong way! Skip the trade and wait for the ones with less risk. You can then trade more contracts and you will be much more flexible.

[Jordan_Andy]

Hi Andy, I know how to calculate and how to chart an equity spread like long Soybeans and short Soybean Oil. I just multiply each side with its unit value in US$ (50*S – 600*BO) and I get an equity chart. But is it possible to give a limit order for equity spreads?

Normally you cannot give a limit order for an equity spread. I say “normally” because it depends, of course, on your broker. Perhaps he would be willing to use an alert to simulate your limit order, but the pits no longer support limit orders for equity charts. You have to talk to your broker about it. You can use a simple spread limit order for the FC-LC spread. Feeder Cattle (FC) has an unit value of $500 and Live Cattle (LC) of $400. The difference between the two contracts isn’t much and therefore you get almost the same result using a limit order for 500*FC – 400*LC or FC – LC.

[Jordan_Andy]

Hi Andy! I just wiped out for the second time. Am I some kind of trading freak?
Most successful traders failed at some point in their careers and wiped out their account. Many traders lose because they do not understand the nature of the decision-making process, which should be based on rational price action analysis versus emotional, irrational reactions to price action. A reason should be required for each market action taken. When fear exits a trade, it is more difficult to take the next technical signal. Traders will eventually become confused and feel guilty from indecision. Do successful traders buy an education with the mistakes they make?

What separates the winners from the losers is that they learn from mistakes, refine the decision-making process, keep on trying and never give up. If traders cannot accept the losses that go with the trading, they do not deserve the profits. Failure is the greatest teacher only when a student is prepared to learn. If the student has forgotten previous lessons, or the dog ate his homework, he is not ready. A positive attitude has positive expectations of future events and normally precedes the success it creates.

Another reason for failure is that traders fail to understand the real nature of the markets. They do not understand where prices will move, why they will move, and what it is that makes them move. That’s why we teach these things at our seminars.

[Jordan_Andy]

Hi Andy, can you tell me something about the time stop you are using for your spread trading?

Andy: There are two different type of time stops I am using. The first one is a time stop I use whenever I enter on a break out. I want to see the trade moving my way in less then 4 days. If the trade doesn’t go my way, I am out! The second one I use tells me how many days I willing to wait till my trade moves up to my first target. This time stop is not a fixed amount of days because it depend a lot on the nature of the spread. Is it a volatile spread it can be a week or only a few days. Is it a slow moving spread it can be even a month. It really depends. This kind time stop is also not very precise. It only tells me “if the spread doesn’t move up till xx.yy then I am out”.

[Jordan_Andy]

Hi Andy! I just wiped out for the second time. Am I some kind of trading freak?

Most successful traders failed at some point in their careers and wiped out their account. Many traders lose because they do not understand the nature of the decision-making process, which should be based on rational price action analysis versus emotional, irrational reactions to price action. A reason should be required for each market action taken. When fear exits a trade, it is more difficult to take the next technical signal. Traders will eventually become confused and feel guilty from indecision. Do successful traders buy an education with the mistakes they make?

What separates the winners from the losers is that they learn from mistakes, refine the decision-making process, keep on trying and never give up. If traders cannot accept the losses that go with the trading, they do not deserve the profits. Failure is the greatest teacher only when a student is prepared to learn. If the student has forgotten previous lessons, or the dog ate his homework, he is not ready. A positive attitude has positive expectations of future events and normally precedes the success it creates.

Another reason for failure is that traders fail to understand the real nature of the markets. They do not understand where prices will move, why they will move, and what it is that makes them move. That’s why we teach these things at our seminars.

[Jordan_Andy]

Hi Andy, can you give me some idea of how much money I should risk on each trade?

This is really a tough one because I do not know enough about you, your trading style, or the money you trade. But I will try to give you some general ideas. I personally feel the most logical way is to use a certain % of my trading account on each trade. For example, if your trading account is $20k, and you are willing to risk 5% on each trade, you would trade $1,000 on your first trade. If your account grows to $22k, you would then risk $1,100 on the next trade, and so on.

Now you will probably come up with the following question: “What % should I use for my trading?” And this is the point where the problem starts. If you use too much on each trade, you will be out of the game whenever you have several consecutive losses. If you are risking too little, your account will grow really slowly. Without going into details, try to think about the following points:

- how many consecutive losing trades are possible the way I am trading?
- what is the maximum drawdown I am able to accept?

I totally agree when you say it is very difficult to find out how many consecutive losing trades your trading style can produce. We are not able to look into the future, and anything is possible in trading. But your trading journal will give you a good estimation. If this trading style or method is new for you, you should try to get a good estimation from somewhere else or you should do some paper trading to get at least an idea. With these numbers (how many consecutive losers and maximum drawdown) you are now able to find out if the percentage of risk on each trade is too little or too much for the way you trade. All you have to do is to calculate the balance of your trading account after all the consecutive losses, using the percentage of risk you are willing to take on each trade. If this is something you can live with, stick with it. If not, lower or raise the risk on each trade, and do the calculation again.

[Jordan_Andy]

Hi Andy, can you give me some ideas about how to calculate the risk for my spread trades?

Calculating the risk is a very important factor in trading. You can have the best trade selection but still lose money if you are sloppy in money management. How to calculate risk depends a lot on your general trading plan. Because you cannot have a stop loss in the market while trading spreads (only a mental stop), you should always look at the volatility of your spreads to calculate your risk. For example: Your mental stop for your spread is $200 away from your entry, but the spread you are trading usually moves $400 per day. Using only the $200 risk in your calculation of your contract size could be fatal for your trading account. Unfortunately, as it is so many times in trading, there is no “best way” in how to calculate the risk. Watch your spreads and see what make sense for you. Try to find your own way, but be consistent. Do not let gut feeling into your calculation. Be consistent in what you do!

[Jordan_Andy]

Hi Andy, can I place spread orders at the e-CBOT or any other electronic market?

I don’t know if this is true for all electronic markets, but I will try to explain the basic information for spread orders in electronic side-by-side markets at the eCBOT and Globex.

Intra-market spreads (i.e. W - W or ED - ED) are possible. It is important to know that your spread order will also be executed if both legs of your spread are able to get filled. For example, you want to sell the spread X – Y at a premium of 10. If the exchange trading system can make sure you get filled on both sides with a difference of 10, it will lock in both trades for both legs and execute them simultaneously.

You will probably run into problems when you try to place an inter-market spread like S – W. So far, most trading systems will not allow inter-market spreads. You will need to "leg in," that is place the order for each leg separately, in such an inter-market spread.

It is a always a good idea to talk with your broker regarding how to place these orders in the electronic markets.

[Jordan_Andy]

Hi Andy, how do you handle “targets”. Very often the market comes close to my first target, but doesn’t reach it. The next day I get stopped out with a loss. Am I doing something wrong?

I know, it is against what you can read in most trading books, but maybe you should take your profits sooner. Whenever a trade comes close to your first target, your entry has been right. Even if the trade doesn’t reach your target your overall trading idea was the right one. Should you give back all your profits or even accept a loss? I don’t think so. Take some profits or move at least your stop to break even! Of course you will get stopped out from time to time too early, and the market will move your way right after you got kicked out at break even. But remember, you can always get back in! Always take care about your losses, try to keep them small. The winning trades will take care about themselves.

[Jordan_Andy]

Hi Andy, should I be looking at fundamentals?

Andy: There are a number of reasons that cause many traders to favour technical analysis over fundamentals. For starters, fundamental traders tend to be commercial firms; that is, they are involved in the actual production or consumption of a commodity. Because of this, they have intimate, day-to-day knowledge of supply and demand. The commercial firms have information that most of us cannot afford to acquire. For example, are you able to check global soil conditions in an agricultural commodity you wish to trade? Can you check crop conditions? Commercial firms can and do check such things. They also check long-range weather forecasts, crop yield forecasts, and existing inventories.

Commercials have the best fundamental information on a market. You and I have a harder time getting pertinent fundamental information, especially in markets that are more thinly traded. Fundamental analysis generally requires a longer term trading horizon. Fundamentals tend to change more slowly than do technical conditions.

Technical traders tend to be almost everyone except the commercials, such as commodity pools, funds, and retail speculators. Speculators tend to trade in shorter time frames, and technical analysis may better serve shorter term traders. It's unlikely that fundamental analysis will tell you where beans may be next week, but technical analysis may do so.

The widespread use of technical analysis raises an interesting question - does technical analysis work because it actually helps interpret the markets, or does it work because it is widely followed, and thus creates self-fulfilling prophecies for the markets? Whichever it is, I don't care, as long as it works!

[Jordan_Andy]

Andy, can you tell me something about the winning percentage? To me it seems any trading method with a winning percentage of over 80% is a real good method?
Andy: The winning percentage alone, without all the other statistical figures, doesn’t tell you anything about the trading method. Let me give you an example: Let’s assume you have a method with a winning percentage of 80%, but you have to risk 50 ticks to make 10. In the long run you can expect to lose more then you make (expectation: 10 x 0.8 – 50 x 0.2 = -2). Now, let’s assume you have a method with a winning percentage of only 40%, but you make 2 times the risk when you win. Your expectation in the long run would be 2 x 0.4 – 1 x 0.6 = +2.

Beginning traders seem to misunderstand these numbers. Most professional outright futures trader will tell you they have a winning percentage of less then 50%. But if they win, they win at least double their initial risk or even more. They will also tell you they make the “big” money with only 3% - 6% of all their trades. This means they need very good money management to stay in the water long enough to catch the big wave!

Therefore, when you look at statistics, always look at all the important parameters at the same time. Try to see the complete picture of how the parameters interact with one another.

[Jordan_Andy]

Andy, I have heard spread trading is less risky than outright futures trading. Is this true?

Yes and no — it depends on what kinds of spreads we are talking about. Maybe we should put them into different categories:

High-risk, chaotic spreads: Spreads with each side in a different, unrelated market.
For example, Live Cattle – Emini S&P. These spreads don’t make much sense.

High-risk spreads: Inter-market spreads like Feeder Cattle – Live Cattle; Euro – Japanese Yen; Wheat – Soybeans, and so on. Even if the two sides of the spread are related to each other, both sides can behave independently (i.e. Feeder Cattle can move up and Live Cattle down). These spreads can move even faster than a single outright futures position from time to time, especially when it comes to a limit up or down situation in one of the markets involved in the spread.

Mid-risk spreads: Intra-market or calendar spreads in two different crop years like December 07 Wheat – May 07 Wheat. Even if you trade the same market on both sides of the spread, these spreads can move fast because the contracts are in two different crop years. But they are much less sensitive in a limit situation than inter-market spreads.

Low-risk spreads: Intra-market spreads in the same crop year, like September 07 Corn – December 07 Corn. These spreads carry the least risk even in extreme situations.

Whenever you want to enter a spread, think about the relationship of each contract involved. But also have a look at the spread chart, to see how fast the spread has moved in the past. This should give you a good idea of what to expect in the future. Be extremely careful whenever it comes to a limit up or down situation.

[Jordan_Andy]

Andy, I have seen statistics from highly successful seasonal spreads, showing an optimized entry and exit date. Some spreads show to be profitable over 90% of the time just by entering and exiting on specific days of the year. Why do I have to look at the charts?

Andy: The problem is in the statistic. A trade counts as “successful” whenever it makes some profit between the entry and exit date. But what if the trade had a huge draw down in-between? For example: You enter a corn spread at break even on a specific date. At exiting the trade at the specified exit date, you make $50 profit. That’s great because the trade was a winning trade. But what if the spread went down to -20, making a draw down over $1,000 before it moved back up to your entry point? Would you still say the trade was successful, or would you have been stopped out? I think you understand where the problem is. That’s why we use charts to “fine tune” our trades. Even if we know about the optimized entry or exit date, we still have to trade what we see on the current chart. This is what really matters. We are trading "futures," not "pasts."

[Jordan_Andy]

Andy, what do you think about paper trading? Does it fit into professional trading somehow?

Yes, I personally think it does. Paper trading cannot replace real trading for many (mainly emotionally based) reasons, but it can be an important part of the process of finding and trading a new method. First you might have an idea about how to trade a market based on price bars, candlestick charts, indicators, or whatever you use for your trading. Next you would back test it with older data. You would do it manually or by using a back testing software. After being satisfied with your back testing, you could start to do some paper trading. Many trading ideas or methods seem to work pretty well during back testing, but cannot make any money in the “real world of trading”. Paper trading can definitely help to find the weakness of any method, but you should take the paper trading seriously. Only if you are satisfied with the paper trading results should you start trading your method with real money. Start with very low risk to see how your method performs with the reality of actual money on the line. Then, if it seems to perform well during trading it for a while with only low risk, you can increase your risk based on your money management. By the way, you should go through this paper trading process with every new method you want to trade, no matter whether it is your own method or a method you have just bought!

[Jordan_Andy]

Question: Andy, how much volume do I need to trade without the risk of really bad fills?

Answer: Without having the details about your trading, I will not be in a position to give you a concrete answer. It depend on the following factors:

- How many contracts are you trading? Are you trading 2 contracts or 20, or even 100, and in what market? Trading the bonds with 100 contracts shouldn’t be a problem, but you would have a hard time trading even 20 contracts in the E-mini Russell 2000.

- Are you a long- or short-term trader? When you trade short-term, even slippage of one tick can make the difference between winning or losing. If you trade long term, slippage of a few ticks should not make much of a difference.

- What markets are you trading? Trading the meats with a volume of over 1,000/day should be ok for every position trader. Trading the Eurodollars gets difficult with a volume below 5,000/day.

- Are you trading open outcry or electronic markets? When trading electronic markets, you can check the bid and ask on your trading platform, and you can see what fill you can expect. You can also see if there is enough volume at the moment you want to enter (bid/ask volume). You can also see the bid and ask of the open outcry markets, but most of the time this information is worthless because you cannot believe what you see. The only way to find out the bid and ask in any open outcry market is to call your broker.

To find out if the market fits with your trading style, talk to your broker. He should be experienced enough to give you some information about the market you want to trade. Also, test the market with a few contracts to see what fills you can expect. Then increase the number of contracts step by step as you feel comfortable.

[Jordan_Andy]

If anyone needs some free Spread Trading PDF's, please let me know via email:

andy@jordan-trading.com

The PDF's are very basic but at least you can get an idea about spreads.

Happy trading,
Andy Jordan

[Jordan_Andy]

Traders Question: "Andy, I had a very good 2008 trading your spread recommendations. In the last quarter of 2008 I gave back around 30% of my profits. Now the trading is getting better again, and I have had a few good profitable trades lately. Anything I can do prevent the “up and down” (especially the down) of my equity curve?"

Andy: "To be quite honest, there isn’t much you can do to prevent it. That’s the nature of trading. All you really can do is to set up the right money management. You have to make sure you can survive the draw downs to make back your money during the good times. Unfortunately, there is no way to predict if the next trade will be a winner or a loser. It is quite normal to get scared after a losing streak. But if you use good money management, even a losing streak of a few really bad trades shouldn’t kick you out of the game."

[Jordan_Andy]

Andy, lately I've been thinking a LOT about my exits. I analyzed previous trades, did some back testing with my computer. And I thought and thought and thought. I'm in a huge conflict when it comes to scaling out or when to take profits. Any comments about it?

The problem you are facing at the moment is a tough one. It is so tough because it is definitely one of the most important factors in trading. I went through the whole process more than once, and found out “there is no best way” (as often happens in trading).

Everything from “scaling into a trade” to “scaling out of a trade” will work, but it depends on the trader himself, and on his or her way of trading.

What you can do is to go over your own past results. Find out what would have given the best results for you each time, and then use that information to make your trading plan for future trades.

Also look at different ratios for your lots when scaling out. You might find out it is better to exit all contracts at once, but you feel better when taking some profits at the first target. If this is the case, maybe a 20% first target, 80% final target could be a solution. Or even 10/90, or any other ratio. Try to find out what works best for you! But don’t try to find the perfect way – it doesn't exist.

[Jordan_Andy]

Andy, nowadays almost all markets are electronic. Do you use the electronic or the open outcry market when you trade spreads and how do you enter/exit your spread trades.

I am using mainly electronic markets when I trade spreads. There are only a few markets where the volume in the pit contract is higher then in the electronic market. The meats at the CME are such a market. But as long as the volume is higher in the electronic market, I prefer the electronic market over the open outcry. There are several advantages using electronic markets:

- You have constant information about the bid and ask price. In open outcry you get this information very seldom (and if you get it, you can not be sure if it is correct).
- You get your fills immediately. It is just a matter of a second till you get your fill confirmation. In some open outcry markets you wait sometimes up to an hour or even more.
- Commission is much lower for the electronic markets.
- You don’t have to call your broker or trading desk to place your order. You can do everything online. (Please note – you have to be careful whenever you use the electronic platform, especially on the beginning. There is no one double checking your orders.

When trading spreads using the electronic contracts, I prefer to enter and exit my spread trades around the open or the close of the pit session. In the open outcry market I used to give MOO (market on open) or MOC (market on close) orders because of good liquidity around the close. But this type of order doesn’t exist in electronic markets. Therefore, we have to “simulate” MOO or MOC orders buy giving market orders around the open or the close.