Achieving success as a futures market trader can be a daunting proposition, most traders will agree. Given that premise, why would a successful, longtime futures trader like Joe DiNapoli reveal his trading secrets to the public?
âCommodity traders tend to be risk-takers–self-made people. I enjoy them immensely. The public doesnât realize some of the advantages you receive by teaching your successful methodologies,â said DiNapoli, president of Coast Investment Software, Inc., in Sarasota, Fla. He is in New Orleans speaking at the âTag XVIIIâ traders conference, sponsored by Dow Jones Telerate. His topic is Fibonacci ratios and displaced moving averages.
âObviously, thereâs the money that one can make from selling a (trading) system or teaching. But the contacts you make–literally around the world–couldnât be bought at any price. If you have something worthwhile to say, exposure also gives you access to other professional traders, and that access cannot only be intellectually stimulating, but it can be financially beneficial. You can fine-tune your trading methods by brainstorming with others,â he said.
DiNapoli has given trading seminars all over the world–in major centers in Asia, Europe and the Middle East. In 1996 alone, heâs spoken in over 20 different countries.
A book due out in January, entitled âTrading Systems: Secrets of the Masters,â by Joe Krutsinger (published by Irwin Professional Publishing), has an extended interview with DiNapoli.
In 1967, DiNapoli finished engineering college and began seriously trading. âBack in those days, I was dealing with low-capitalized, small over-the-counter stocks, where youâd lose 15% to 25% just in the bid/ask spread.â He started trading commodities around 1980.
âMy educational background is electrical engineering. Of course, I really didnât like engineering, but that background has been an unbelievable help to me as a trader. Good engineers think in structured patterns. Thatâs the way I think–disciplined and structured. âAt this point, I trade my own account. I donât manage money and I donât want to. I teach and have a software company…â DiNapoli has been a registered CTA since the mid-1980s.
âThe trading techniques I use are substantially different than those used by other people. I mix leading and lagging indicators and interact with prices based on that approach. I use certain lagging indicators like Displaced Moving Averages and the MACD/Stochastics combination, to determine the trend.
Displaced Moving Averages allow a trader to shift or center the moving average on a price chart. A trader specifies the length for one or more moving averages, then selects the number of intervals to displace the moving average.
Moving Average Convergence/Divergence (MACD) uses exponential moving averages, as compared to the simple moving averages used in an oscillator study.
âOnce Iâm in a trend, I use Fibonacci analysis as a leading indicator–to position myself within that trend. The last step is to take âLogical Profit Objectives.â Those profit objectives are calculated by certain Fibonacci techniques.â
DiNapoli has spent a lot of time developing his present trading system. âI use Displaced Moving Averages, for example, in very specific and unique ways. I think Iâve really done my homework on that one–about three years worth of research in the early 1980s. During the mid-1980s, I spent another three years or so determining the most effective method to utilize Fibonacci techniques.
âI think Iâve done a good job separating the best from the good, or average. Sometimes itâs not a matter of developing a brand new indicator. Itâs a matter of utilizing an existing indicator in a more effective manner. For example, instead of using standard moving averages, I use Displaced Moving Averages.
âIn fact, back in the mid-1980s, when I started speaking about this, there werenât any computer programs out there available, except our own, that would displace a moving average. Prior to that, some people used the opens, instead of the close, to determine the moving average, so that they would know what the moving average value was before the end of the day.
âWhen you displace a moving average, say, five days, you know what the moving average is going to be up to five days out. There was no longer any reason to use the open. Unfortunately, many of the graphics software programs that displace moving averages donât show them past the last dayâs price action. Itâs an example of programmers creating trading software, rather than traders.â
DiNapoliâs best and current trading system is an approach he has used continuously for years. He buys dips in an uptrend and sells rallies in a downtrend.
âThe lagging indicators allow me to determine trend. The leading indicators, primarily Fibonacci analysis, allow me to safely place myself within that trend. I use âLogical Profit Objectivesâ continually and I have oscillators that are used as filters, to keep me from entering in the direction of a trend which is too dangerous to bother with.
âI also have about eight trading patterns or conditions which act to give me the direction of a market. If they are in conflict with the trend analysis, I always go with what the patterns are telling me.â On timeframes he uses when trading, DiNapoli said, âThe approach I take to the market is exactly the same–whether I use monthly charts or 5-minute charts. In 1980, I was trading primarily daily charts, and in about 1983 I went down to the 5-minute world.
âI could learn more and develop my approach more quickly in the 5-minute world than on dailies–particularly relative to Fibonacci analysis. So, in the development phase of it, I gained more experience in less time, by trading 5-minute charts.
âI went through this development process by actually trading–not theorizing. I think most good systems should be applicable across timeframes. If they are not, itâs a red flag.â
Stepping back from the markets on a regular basis is paramount, said the veteran trader.
âI will tell you one thing I try to do every single day that affects my performance as a trader: I think, at least for a few hours a week, every commodity trader should do something that he or she really enjoys. Something that does not involve the markets or the computer.
âI like working with my hands. I restore classic cars, things like that. You need to be able to settle the mind and avoid all that frenetic activity. The graveyard of past traders is littered with those who couldnât get the needle out of their arms. Markets can destroy you emotionally, physically and financially. You must keep perspective.â
For more information on Jim Wyckoff’s comprehensive daily e-mail market update, weekly top trading opportunities, and bi-weekly chart update, click here: Jim Wyckoff on the Markets