Trading Tips

Q: What should I look for in your market recommendations?
A: When I give a new market recommendation, whether it is a buy [long] or short sale, I search for opportunities to capitalize on the major trend. I’ll always give you:

• a suggested risk point for the trade – a point at which we’ll take ourselves out if the trade is not acting properly.
• a profit target on the trade - although many times I will leave the profit objective open with daily updates so that we can try to pull as much out of the trade as the market will allow us.
• When the timing appears right, I’ll also provide you with a real time recommendation to exit each trade, whether to take profits or to cut the loss in any particular trade.

Q: Should I wait for your signal to act?
A: When providing you with a market recommendation, using my experience and best judgment, I will provide you with specific price parameters and timing to enter or exit a particular trade. You may want to modify my numbers to suit your own purposes - using what I do for guidance, or you may even want to trade your own program or system using my recommendations for trading ideas. But if you want to follow my recommendations to the letter, you won’t have to wait around. These won’t be nebulous recommendations. I am very specific on entry points as well as when it’s time to exit the trades.

Q: How soon do I need to react after I get your recommendation? Do I need to react immediately or do I have time to think it over?
A: The markets we trade at times can move fairly rapidly. So timing can be critical. These are trades in a leveraged market and they can move fairly quickly so timing is important. In many cases you’ll have to act in a timely manner if you want to enter the trade at or close to the point I recommend or better. At times we could have hours to enter the trade, other times it might be just minutes.

Q: Do you give a range in which I can enter and exit a trade?
A: At times I will, depending on each specific market and the specific trade. Generally, I give subscribers some room to allow them time to enter or exit the trades. These are real-time recommendations and since I don’t try to pick a bottom or a top of the market or hope to get into the trade at the absolute low, I will provide you with reasonable entry and exit points that should be able to be filled in real market conditions.

Q: Are there ever limits to the available number of contracts/trades?
A: The majority of these trades I trade for my own account too so these are trades that can be executed. If they are not able to be executed in the market then they are not very worthwhile then are they? The recommendations are only in deep, liquid markets.

Q: Will I need a broker?
A: There are different types of brokers. There are full service commodity brokers that will actually help you with order and stop placement and will even proactively watch the trades for you. They generally have higher fees than discount brokers.

There are also discount futures brokers (just like there are discount brokers in the securities markets). They generally won’t give you much help. If you are fairly experienced, many of them have online platforms on which you can place the orders via the Internet.

Q: As a less-experienced person, do I need a full service broker to start using this service?
A: Not necessarily, because I’ll be very specific in how to place orders, but for a subscriber that doesn’t have much experience trading the commodities or futures, it probably would make sense to look for a full service broker, at least initially.

Q: May I do these trades online myself?
A: Yes, you could, it depends on how comfortable you are with that.

Q: What type of account should I set up with my broker?
A: You need to set up an account that can handle futures and futures options trades. Many of the big wire houses like Smith-Barney, and other full-service brokers can help you. There are also many commodity futures-only firms like R. J. O’Brien that can also help you with a futures-only account. Our policy is not to recommend one broker over another, however if you need a broker reference contact me if you would like a recommendation.

Q: How does Futures Market Forecaster manage risk?
A: It depends on the market situation and the market condition. At times, you (the subscriber) will have to act  quickly if you want to be able to enter at a reasonable entry point in terms of the risk/reward of the trade. One of the greatest traders of all times, Jesse Livermore, once said that he likes to enter as close as he can to his perceived risk point and that way he knows that his risk on any one particular trade is fairly small. That is what I attempt to do for subscribers. We enter each trade at a point that makes sense from a money management standpoint, and we never recommend risking an inordinate percentage of our capital in any one trade. Additionally, I search for trades with a high reward-to-risk ratio where there is the potential to make many times more than we risk on each trade. While there are going to be losses, if our average profit is higher than our average loss, we will come out ahead.

Q: How big (or small) should my margin account be?
A: Every market has different characteristics and varying reward-to-risk ratios. There are certain markets in which we trade that have low margin requirements and they tend to not move as dramatically or quickly as other markets. For those markets you can work with a smaller account. However, I also trade markets that have higher margin requirements and have a higher risk with the associated higher potential rewards.

Q: Can you give me an example of a market with low margin requirements?
A: One example is the Sugar market. At current prices the Exchange only requires about $1200 in initial margin to trade a Sugar contract. When I give a recommendation for a trade in the Sugar market, typically I will only risk $300 to $600 per trade on any one contract.

Q: How about an example for a market that requires a high margin?
A: Gold currently has a margin requirement of approximately $5400 to trade one contract on which we may risk $700 to $1,000 on a particular trade, sometimes more. But we are also looking for a higher reward to risk ratio, maybe to make three to four times what we are risking. So while the potential of a Sugar contract may only have a profit objective of $500, we may be looking at a profit objective of $3,000 to $5,000 on a Gold contract.

Q: How much money do I need to have to use this service?
A: If a subscriber wants to trade a diversified portfolio of varying commodities and financial futures, a suggested minimum requirement would be in the range of $25,000. However, that is not to say that someone couldn’t start with less and just trade certain markets. But, I believe that diversification is best. If you want to trade multiple contracts, or be in the more volatile markets, a higher deposit with your broker would make more sense. For a diversified portfolio for trading commodities and financial futures, a $25,000 to $50,000 account would allow one to trade one to two contracts per position and being able to trade four to six markets at a time.

Q: What else do I need to get started?
A: The ability to accept some risk on a portion of your capital. In trading commodities and financial futures, we go for a higher return than more traditional investments so you should be willing to accept some risk, and I (George Kleinman) will help with the rest.

Q: How will I know that the trade is moving our way?
A: The bottom line is that you’re going to be showing a profit on your margin account. If your margin account is showing a profit then the trade is acting properly.

Q: What information do you cover in your daily updates on the web site at www.futuresmarketforecaster.com?
A: When I give a trade recommendation, it will have specific instructions but may be very brief. In the daily updates, I update the trade and explain some of the rationale and reasoning for making the trade. I will, from time to time, lay out a program or a money management plan, and then update it as the trade unfolds. If the trade is not acting the way that it should, I give a specific recommendation on how and when to exit. If the trade starts working our way, I may recommend moving our risk point or our stop, to take less risk and eventually to assure some profit. Let’s say we are initially risking a thousand dollars on a trade, that the trade is working our way and we have a $500 dollar unrealized profit. If I think the trade is going to continue to work, I might move the stop so our risk is limited to $500. Then, if the trade keeps moving and we have a $1,000 dollar profit/contract on the trade, we might move the stop up again to lock in and, at worse case, break-even on the trade. As the trade continues to work, we’ll look to lock in some part of the profits on the trade.

Q: What do you consider to be your primary role in this service?
A: To help you profit without an inordinate amount of risk. This service will be dynamic and constantly updated as the trades unfold. And if some new market action or some new news comes out that would indicate it’s time to buy in, cash out, go short or to liquidate a trade, well that’s my job, that’s where I come in. I’ll give my best advice on timing as well.

Q: I know I will hear from you when it’s time to liquidate, but are there any other trading circumstances in which you will send out an email or contact me outside of the website at www.futuresmarketforecaster.com on a daily basis?
A: No, I only send communication when action is needed. And from time to time, we will have an update to review what we are doing and where we should be. You will however, also have direct access to me via email, and I’ll make every effort to answer all emails concerning any current trade recommendations that come in from subscribers on a timely basis.

Q: Does each trade recommendation include an estimated holding time?
A: I don’t look so much at holding time as I do the market action. If we reach our objective in a short period of time, well great we’re going to be out! If it takes longer but there’s no reason to liquidate the trade, then we’ll stay with the trade until action is needed.

Q: Will each initial recommendation include the kind of market performance you hope to achieve in order to take profits?
A: It all comes down to my philosophy of trading the market. I’m basically a trend identifier and trend follower, I look to determine the trends of the market, as opposed to try to pick a bottom or pick a top of any market, which I think is fairly impossible. It’s much easier in my opinion to take a chunk out of the middle of a move. Once the move’s under way, I look to give a recommendation to get on board that trend, and then we try to maximize the trade, as long as the trend is moving our way. There is no way of knowing in advance how far or high, or low a market can move. So we follow the trend as long as the trend is in place, and if there is any danger signal or indication that the trends have changed, that’s when we will take action.

Q: Does each trade recommendation have a stop loss?
A: We will always have a stop loss in every trade. In my opinion, that is all part of the money management. In every recommendation that I give we have a risk point or stop loss associated with that particular trade. Part of the management of that trade is to modify that risk point as the trade unfolds, but look to take less risk as the market is moving our way.

Q: How many trades may we be involved in simultaneously?
A: On average, anywhere from one to six trades. If it’s an unusual situation we’ll be in more than that. But I think that would be unusual. On average, we are probably in two to four trades at any one particular time.

Q: How do you approach the market?
A: There are basically two philosophies on how to approach the market: fundamental and technical. With the fundamental approach you look at the supply & demand statistics for any particular market and I believe that fundamentals in the long run, move markets. But the fundamentals are discounted in price at any point in time, my opinion. So if you just analyze fundamentals, your timing is going to be off. In other words, in the long run, fundamentals do determine price, but as Keynes once said, “In the long run we’re all dead.” He also said that “the market can remain irrational longer than you can remain solvent”.

There was another great trader named Richard Dennis who pulled hundreds of millions of dollars out of the market. He once said that, “a known fundamental is a useless fundamental”. He was called a technician, because he approached the market solely using technical analysis, which is my preferred analysis technique for the market that we trade.

In technical analysis, price is the major fundamental. Even George Soros once said something to the effect that ‘the most important fundamental is credit flows’, meaning that the most important fundamental is money. Money is what moves a market. With technical analysis you look at the price action of the market. I use price action to determine the trend but I also have certain technical tools that essentially help me to trade the market.

Q: Do all commodities move in tandem as the stocks, or do they each have their own market?
A: There are market segments that we trade that are related, and there are other markets that have absolutely no relation to each other. Related markets many times will move in the same direction but they’ll move at different speeds. For example, in the markets that I follow and in which I make trade recommendations for this service, we’ll be trading:

• The major currencies - the Euro, the Japanese yen, the Canadian dollar, the British pound, are all markets that I follow in relation to the US dollar. For example, while the Euro and the Japanese yen generally move in the same direction versus the US dollar, they usually will move at different speeds, and at times they’ll even move in opposite directions.
• In addition to the currencies I trade the precious metals: gold and silver, also copper which is an industrial metal.
• I give recommendations on the grain markets: wheat and corn, and the soybeans, (which technically is not a grain, but a legume).
• I trade the energy complex: crude oil and natural gas
• At times there might be special situations in what we call the ‘softs’. These are the ‘breakfast commodities’: sugar, coffee, cocoa, also cotton.

Q: What is a Pyramid, and how do you Pyramid a position?
A: Well, in the futures markets you are allowed to use unrealized profits, profits on trades that you haven’t yet liquidated, to purchase additional contracts. By adding to a position, you are doing what is described as Pyramiding in the futures market.

However, unrealized profits are not the only way you can add to a position. You can use additional capital as well. When you add to a position, it should be to leverage yourself for even greater profits. As with all leveraging and pyramiding techniques, they can be two-edged swords. But pyramiding, when used correctly and judiciously, can really accentuate the profitability of a particular trade and ultimately the profitability of your account.

The way that I always recommend to pyramid is by adding fewer positions as the market is moving your way. With a pyramid, you start out fatter at the base than at the tip. For example, say you start out by trading ten contracts of a particular market; if the market moves your way you may want to add five contracts at the next price level, if it’s still acting properly add three at the next level, then add two, then one. This way, your break-even is always below the market. So when the trend is over, you may lose on that last piece of the pyramid but you will still have a nice profit overall. The way people get into trouble is when they reverse-pyramid. In other words, they start with five contracts then add ten, then twenty, using unrealized profits to margin themselves even higher; and then it just takes a small correction to, in effect, eliminate any profits they might have in a position. The proper way to pyramid in my opinion is to add fewer and fewer contracts, as the position is working your way.

Q: I understand you are also going to provide spread recommendations, what is a spread?
A: There are two types of spreads: the first is called an INTER-market spread, when you simultaneously buy one month of a commodity and sell another month of the same commodity. What you are looking for are two prices that are out of line in relation to each other, and you are expecting the price relationship to come back into line to profit.

For example, we may buy the near month in soybeans, say the July, and sell the November soybeans on the thinking that right now there’s a good demand for the beans with a tight supply so the July is going to gain faster in an up market than the November, because by November they’ll have a new crop harvested and replenished supplies. So while both months move in the same direction, they’ll move at different speeds and we’re looking to capitalize on that difference in speed, and the subsequent moves between the two particular months of the one particular commodity.

The other type of spread is called an INTRA-market spread. That’s when you buy one commodity and you sell a related commodity against it. An example of that would be to buy corn and sell wheat. Just as one example, believe it or not, in the last 15 years from January 15th to the end of February, corn has gained on wheat in 15 of those 15 years. In other words they might have both been going up because they are both feed grains and are both used for food, or they might both have been going down. But in 15 of the last 15 years in that time period, corn has either gone up faster or gone down slower than wheat.

You spread the market so that if there is some unexpected news, like big export demands for the grains, they both might go up but you have a cushion on one side. When that happens, you are going to have a loss on one side of the spread and a gain on the other. But what you are looking for is whether or not the relationship moves in your favor. When spreading, you don’t really care if prices are going up or down. Instead, you are looking for the relationship between the two related commodities or the two months of the same commodity, to move your way.

Q: When I purchase a spread, should I be concerned about how each commodity is moving?
A: Only as they relate to each other. You should be looking for the entire relationship of the spread to move your way. Spreads usually move slower than trading the market outright, and as such, they generally have lower margin requirements than trading the market outright. But although there also is risk in a spread, there’s can be pretty good profit potential in it as well.

Q: Will we always trade on margin, or will we be buying and selling complete contracts?
A: One of the advantages of the futures market is leverage. All that a speculator or an investor has to put up is a small margin requirement, which is usually a small portion of the value of the contract. Margin requirements are generally in the range of five to ten percent of the value of the contract. For example, a gold contract at $900 dollars an ounce, on a hundred-ounce contract, has the value of $90,000 dollars ($900 dollars times a hundred ounces = $90,000 dollars).

Margin requirements are set by the Exchange and can be changed based on volatility but as an example all the Exchange requires up front today is $5,400 to trade one contract: about six percent of the value of the contract. Although a trader can put up to anywhere between $5,400 and $90,000, he doesn’t have to leverage himself the entire 100%. Now that doesn’t mean that any trader should margin themselves to the minimum, one can always put up additional margin. I never recommend that anyone should trade on a shoestring or trade on the initial margin, if the initial margin is the total amount in your account. Let’s say someone has a $25,000 dollar account. Theoretically they could buy 4 contracts of gold, because the margin requirement is only $5,400. However, if the market went slightly against them, they would get a margin call. So, you have to have a cash cushion to ride out fluctuations.

Q: What level of risk do you build into your trades?
A: Generally, when I recommend a trade, I look at a maximum of somewhere in the neighborhood of five per cent of our initial account balance, on any particular trade, but in most cases much less on a percentage basis. I also look for trades with a higher reward-to-risk ratio. For example: Say I give a recommendation on gold in a $25,000 account, and let’s say that on this particular trade we’re risking $1,000 dollars. In a $25,000 dollar account, that’s 4% risk on one contract! In this case, it makes sense to only buy one contract for risk purposes and you’ll only be using about 10% of the value of the account in margin.

If you have a $50,000 dollar account it might make sense in this example to buy two contracts. If someone wants to be more aggressive, they can buy additional contracts with the knowledge that they are risking a greater portion of their account. By always limiting the percentage of risk in any one trade, we can afford to take some losing trades and still be in the game to capitalize on those profitable trades that over time should more than offset the losing trades.

Q: Is there anything else I should know about the risks associated with trading commodities?
A: It’s called leverage because you are only working on five or ten percent margin for the potential of much greater returns than more traditional investments. But leverage can be a two-edged sword, so there is higher risk. And you should be willing to write-off a draw-down period. And there will be draw-down periods as even the best traders have them. And always use risk capital, which is money that you can afford to lose.

Q: Is there is a set percentage or limit of each person’s portfolio that should be used for trading futures? Should I limit my trading to five percent of my total investment portfolio?
A: It really depends on the individual. Someone with a larger portfolio may be able to risk greater dollar amounts than someone with a smaller portfolio. On the other hand, someone who is at a point and time where they are able and willing to assume more risk may be more aggressive. Everyone is different but as a general rule for this type of trading, someone should be looking at five to ten percent of their total liquid funds for speculating in the higher risk area. Use only funds with which you’re willing to go for a higher return. With a higher return you would have to expect higher risk. You should only use funds with which a loss would not materially affect your lifestyle.

Q: What other information will I need on these trades?
A: I’m real specific on trade recommendations so there is not much else you will need. I take a lot of the burden and work off of you by doing the research and making the trading decisions. And remember, I usually am making these trades as well so I’ll be right in there with you. However if you have any questions about the trade recommendations, you have my personal email address for clarification. Bottom line, I do the work and as long as it’s working for you and you’re making money you’re going to continue to subscribe, and that’s all I can ask: If it works for you, you should renew!

Risk Disclaimer

Futures are complex with large potential rewards, however these markets also carry a high degree of risk. They are not suitable for everyone and are intended for sophisticated investors who understand and are able to assume greater than average market risks. If you are going to trade you must be willing to assume the risks!

Despite my 30 years of trading experience, no trading service can guarantee profits and no representation is being made that any account will achieve profits or losses similar to those shown. Past Performance is not indicative of future results.

Trading can be a very risky business, and people can and do lose money trading futures contracts and options on futures. There are NO implied guarantees or promises of success made on this web site and NO trade is risk free! The markets are volatile and to survive in futures and options trading, you must respect risk and learn to manage it! We attempt to do this using certain methods for handling risk, however risk can never be eliminated. George Kleinman is a full time commodity trader & broker (registered with the NFA) recognized throughout the world for his work in commodity futures trading. He is also a private investor and will many times have personal positions in the markets he recommends.

Hypothetical Performance

Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk in actual trading. For example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all of which can adversely affect actual trading results.