Friday, June 13, 2008


If you trade oil futures try one experiment. It will cost you maybe one or two ticks in commissions, but emotionally you will learn a lot about yourself:
Take a quiet period and go long 1 contract CL N8 (which is the current front month contract) and if possible at the same price Short 2 contracts QM N8.
Make sure you have no stop or target orders in the market.


This position will cost you 150USD in margin as in fact you are flat, you have no market exposure at all, as every tick down in CL will be made up by a tick up in QM and vice versa. The only slight difference comes from the fact, that QM trades in 0.025 increments while CL trades in 0.01 increments. As the tick value in QM is half that of CL you will need 2 QM contracts to offset the CL position.

Now take the time and follow your position during the day. Monitor how you react to the losing side and how different you react to the winning side of that combined position. Notice how you have that urge to take profits in the green position, while you are somehow reluctant to let go of the losing side, instead having the feeling that that loosing position will come back.

At the end of the day, when everything is quiet again, close your position.

I don't suggest taking advantage of extremes, as the purpose of that experiment is to learn how you react different to a losing and a winning trade, even when objectively there is no market risk at all.

You are at no time exposed to any market risk, you may have to pay one or two ticks plus commissions, but that is well worth the experience.