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?
“Commodity traders tend to be risk-takers–self-made people. I enjoy them immensely. The public doesn’t realize some of the advantages you receive by teaching your successful methodologies,” said DiNapoli, president of Coast Investment Software, Inc., in Sarasota, Fla. He is in New Orleans speaking at the “Tag XVIII” traders conference, sponsored by Dow Jones Telerate. His topic is Fibonacci ratios and displaced moving averages.
“Obviously, there’s the money that one can make from selling a (trading) system or teaching. But the contacts you make–literally around the world–couldn’t 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,” he said.
DiNapoli has given trading seminars all over the world–in major centers in Asia, Europe and the Middle East. In 1996 alone, he’s spoken in over 20 different countries.
A book due out in January, entitled “Trading Systems: Secrets of the Masters,” by Joe Krutsinger (published by Irwin Professional Publishing), has an extended interview with DiNapoli.
In 1967, DiNapoli finished engineering college and began seriously trading. “Back in those days, I was dealing with low-capitalized, small over-the-counter stocks, where you’d lose 15% to 25% just in the bid/ask spread.” He started trading commodities around 1980.
“My educational background is electrical engineering. Of course, I really didn’t like engineering, but that background has been an unbelievable help to me as a trader. Good engineers think in structured patterns. That’s the way I think–disciplined and structured. “At this point, I trade my own account. I don’t manage money and I don’t want to. I teach and have a software company…” DiNapoli has been a registered CTA since the mid-1980s.
“The 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.
“Once I’m in a trend, I use Fibonacci analysis as a leading indicator–to position myself within that trend. The last step is to take ‘Logical Profit Objectives.’ Those profit objectives are calculated by certain Fibonacci techniques.”
DiNapoli has spent a lot of time developing his present trading system. “I use Displaced Moving Averages, for example, in very specific and unique ways. I think I’ve 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.
“I think I’ve done a good job separating the best from the good, or average. Sometimes it’s not a matter of developing a brand new indicator. It’s 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.
“In fact, back in the mid-1980s, when I started speaking about this, there weren’t 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.
“When 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 don’t show them past the last day’s price action. It’s an example of programmers creating trading software, rather than traders.”
DiNapoli’s 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.
“The lagging indicators allow me to determine trend. The leading indicators, primarily Fibonacci analysis, allow me to safely place myself within that trend. I use ‘Logical Profit Objectives’ 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.
“I 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.” On timeframes he uses when trading, DiNapoli said, “The 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.
“I 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.
“I went through this development process by actually trading–not theorizing. I think most good systems should be applicable across timeframes. If they are not, it’s a red flag.”
Stepping back from the markets on a regular basis is paramount, said the veteran trader.
“I 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.
“I 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 couldn’t get the needle out of their arms. Markets can destroy you emotionally, physically and financially. You must keep perspective.”
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