CSI TECHNICAT JOURNALFebrua.r! 1995

Real Time Services - Do Thev Deliver Profits?

llolurne Xl Nurnber 2

In This IssueReal Time Services - DoThey Deliver Profits?............ INewsletter Stirs'Stoo"Controversv - Dif ferineViews Are Velcome .....I.......2ChoosinR Between Code 46and Cod"e 5l PeroetualContract@ Data --.........................3Ask Customer Service........... 4Product Summary....................51995 Commoditv AlertsCalendar Now Available ....6Market Statisticsupdare & IPos............. 6. 7 & 8

Editor: Sabrina CrrlePublisherr Commodity Systems, Inc.

Noticer The views and informationexpressed in this documeot feflectexclusively the oDinioN andexperience of the author, Robert C.Pelletier. NEITHIR CSI NOR THEAUTHOR UNDBRTAKE OR INTBNDTO PNOYIDB TAX ADVICB Of,TNADING ADVICB IN ANY I{ARKBTOI XNDORSB IJ{Y OUTSIDBINDIYTDUAI Of, IINM. ALI.RECOI'MBNDATIONS ARIPROVIDBD IOR TtrIIR INTORiIA.TIONAI, YALUX ONLY. Readersshould consult comDetent f lnancialadvisors or outslde iounsel beforemakiog eny trading, softwareourchase. or investment decision.CsI does not stand behind or endo$ethe products of any outside finns.

Adveftisements f,nclosed We haveenclosed advertisenents for PPSPortfolio Analyzer offered by CurtisAmold and Franl Taucher's 1995$upertrader's Alnanac

CSI accepts advertisements toaccompatty oul News Journal for thesole pueoGe of defraying postage c6ts.

CopyrightO 1995 Commodity Sysrems,Inc. (CSI). All rights reserved.

l#ffl;il1.'l:'J,'f: tryears l nave wllnesseo

You may have seen a recentreference by a Houston S&P 500 traderwho claims to make real-time profitqbut knows of "no one else who makesmoney daytrading." lm still waitingfor the other shoe todrop. This story bringsto mind a comic strioshowing the same gioupof traders over severalsuccesive years. Eachyear a different speakerannounces hes the onlyone making profits andeach vear the Dreviousyear's speaker is among therotating crop of losers I havespent neafly three decadesas a fitder, researcher and

these limits provide some protectionagainst loss, they also seriously limitthe maximum profit potential for anyintfaday round-trip experience.Position trades that are allowed togrow for several days hold a muchgreater profit potential. It is interest-ing that the trader from Houstonclaimed to use the S&P 500 market.This particular market is probably the

only one that can claimsufficient volatility tosupport intfaday roundtrips. If one is inclined toattempt daytrading, the

S&P 500 may be the onlyviable opportunity.

Another obstaclet1' faced by the day

trader is the excessiveexpense involved. Forexample, the cost of

engaging a real-timeservice to track your

short term plays (with history,exchange fees and phone charges) canrange upward from several hundreddollars per nonth. Add this to broker-age costs and slippage, and rqularprofits become a formidable goal.Unless you own a seat and candemand a commission exoense below$2.00 per tradg it is very unlikely thatyou can make up for the fixed costs ofdaytrading.

The scenario of most daytradersgoes like this: The tfader is lured intothe market by low margins, highleverage and the effects of flood,drought, freeze or war that havesparked an unusual rise or fall inprices. A real-time quote vendorprovides a plethora of information

(continued on Page 2)

the successes and failurcsof a gteat many traders. Itmight be important to note that noone stands out in memory as havingsustained regular, annual profits from asystematic real-time trading apprynchFrom my experience, it seems thatsustained profits through daytradingare usually no more than an expensivepipedream.

Perhaps our sample of daytradershas been atypical and non-representa-tive. I don't know if the winners rnreaftime trading are statistically morethan a small minority. Tbe fact rernainsthat anyone who undertakes dapradinghas many obstacles to overcome, includ-ing heary expenses and the marketsthemselves.

The exchanges impose price limitson most markets which define themaximum daily trading range. Vhile

Real Time Services'..(colttinued lrorfi Page 1)

and trading tools to facilitate daytrading effbrts and a long term servicecontrait is signed. After a couple ofmonths of u;expectedly poor perfor-mance, the trader is forced from themarket. Any remaining capital willlikelv be donated to the quote vendorwho'still demands his fee for the fullcontract Deriod. This is the final insultto a bruisid ego and gutted pocketbook.

The formir dav trader's consolationDrize is the intense relief felt at beingbut of the trading fast track. I know ofno shorter route to frayed nerves anddomestic disharmony than spendingyour days lied to a quote machine. Theinevitable toss of trading capitalmercifully brings with it the chance tolick your wounis and contemplate thetime taken from Your life.

With the Poor Prospects for Profitthrouqh a real-time data service, it isnot srirprising that many tick-by-tickservices offer the mole substantivr -

end-if-day summary data at no addi-tional charge. Although capturing thisdata brings a much-needed analysistool to thi user, it does so at too high aorice. When you consider that real-iime users pay 10 to 25 times the costof CSI's serviie and receive nothing ofreal value except end-of-day quotes,the pric€ is unbelievably exorbitant.

Il davtrading were so lucrative,everyonb would be doing it. How doesthe day trader mentality stand uPagainst the advice of experts to avoidtie short term? Heath Mclondon,manaqinq director of Smith BarneY*as q"uotid in Investor's Business Dailyas saying that short term markettiming approaches are almost impos-sible to implement.

To routinely attain Profits in thelong run, your market analysis must bebased on the analysis of years of dataorganized in daily, weekly and longerpri-ce intervals. The well-researched;osition trades undertaken with otherintermarket references added in willthen stand a chance of success. 0ther-

"I knou oi no sborteriouE n Jrayed neraeiand ilonestic dlshar'mony than sPendlngyour days tled' to 4quote fiachine,"

wise, exchange fees, brokerage costs,slippage, quoie services. etc. etc... alladil up to'a large. bankrupting houseadvantage against You. +

6e'F,u.*'-,

Newsletter Stirs"Stop" ControversY -Differing Views AreWelcome

The December 1994 CTJ included anarticle called "To Stop or Not To Stop?A Question Every Trader Must Answer."As the name imPlies, the articlediscussed the use of protective stops intrading systems. The purpose of thisarticle, like everything written in thisiournai, was to make our readers thinkj:touHneir aeiioos in the markeean4the logic behind their trading aP-Droacn.

Not surPrisinglY, there are somewho disasiee wiili my line of thinhingon this and other topics. It is notpossible that everyone would agree ona tooic as close to our hearts as ourown pocketbooks. I welcome writtenfeedback - whether You agree ot -disagree. We may print excerpts tromvour comments from time to timeilere is a sampling of our recent mail

From Reader TerrY Davis of HolYGrail Trading: "I must take extremeexception with your December articleon stops in the CSI Technical Journal.Since vour business is an industryIeader. oeople (especially novicetradersj lo6k to vbu for direction. lfthis is ihe direction you are giving, Iwould hope your readers would lookfor a different compass. It is impera-tive for 99 out of 100 PeoPIe to usestops at all times. Stops are the lesserof iwo evils. The greater obviouslybeing losing your accoufi ano worse

(cotttiflued o PaSe 6)

Page 2

Choosing Between Code 46and Code 51Perpetual Contt acf Data

The introduction of Code 5l Per-petual Contract data several monthsago has spurred many new questionsabout our Peroetual Contract series.Several users have asked if we adviseusing code 5l data over our otherPerpetual Contract formulas. I felt thistopic was important to address.

First, some definitions: In mostcases, the formula used for CSI Per-petual Contract data represents a time-weighted average of two adjacentfutures contracts. We focus ourattention on a set, constant-forwafdpoint in time and interpolate betweenthe two contracts whose expirati0ndates (or adiusted ending dates) falladjacent to that point. The resulr is asmooth, continuous data set for eachcommoditv which closelv reflectsmarket trends, but does not give actualmarket prices.

The distance we look forward, andthus the focal point of the time-weighted average, is selected by theuser when a delivery month code nchosen. Our most popular PerpetualContract series is code 46. which looksforward 90 days and usei an adjustedend date of the tenth day of theexpiration month.

The "51 Perpetual Contract serieswas added to our data base by request.Unlike other Perpetual series, itweights all delivery month prices bytheir respective open interest. Thisstyle of contract tends to focus on themore heavily traded contracts whereliquidity is greatest, not our usualconstant period forv/ard stationaryseries. It produces a price series thatalways emphasizes the more heavilytraded contract of contracts.

Our intent in offering the twodifferent approaches was for each tostand on its own as alternativemethods for market analysis. Thechoice of which to use is for the userto decide. The stationary time-weighted series has antlytical advan-tages and the open interest weighted

series has price visibility advantages.The following is a sugestion on howone might merge the two approaches.

Vhen simulating a trading ap-proach into the past, it is probably bestto use one of the constant-periodforward Perpetual Contract series suchas the code 46 or the code 4!. Theseare preferred for this purpose becauseof the stationary characteristics of theresulting series. These stationary seriesmight be used to synthesize marketbehavior and determine Darametersand so on in the past. It ii probablyunnecessary and inappropriate to usethe code 5l Perpetual Contract data forthis purpose.

The code 51 series, which focusesupon the open interest rather than thetime, is appropriately used forward intime on an ongoing basis. It is usefulfor tracking the market as pricesactually unfold in real time. You mightconsider applying the parameterssynthesized with the code 46 PerpetualContract data to the code 5l serieiPerpetual Contract data. This way theon-going contfact with the greatestopen interest is most likely to bepriced near the code 5l PerpetualContract price. Please see the examplechart comparing both wave forms. *

Elstordcal da.ta on tbeCode 51 PerpetualContract palcbosedbefore I/16/95 mayconta.ln an occasionalerror. Please call CSICustorner Seralce for aJree replacement cop!.

ffop chan) T]me-weighled P€petual Cont.act data. (Boftom chair) Open-iniefesl weighted perpetua Convacl data.

Eacb ,nonth ln tbiscolumn tbe customerserodce staff addressesa toplc of lnterest to,non! CSI users. Thlsmontb tbey olfer somecotntnon qaestions andanswers regarddng outHlstor! On-Denandseroi.ce.

V. Wbat is the dilference betuaenEislory on-d.emand" and anit othertyps of phone bistory?

A. History on-demand is a historyorder processed automatically withoutassistance from CSI'S staff. The requestfor data is typed into QuickTrieve orTrade Data Managerfr by the user andtransmitted over the Dhone lines.While you are still on-line with CSI,your data files are prepared by ourhost computer and then transmitted.After the call, your data is automati-cally distributed to CSI andlorMetaStock format files. This type oforder can be processed 24 hours a day,seven days a week.

An "assisted history" order is onethat is prepared for phone retrieval byour customer seryice staff. These areusually available two or three hours

history orders can be requestedthrough QuickTrieve's Order Subsystemor by phone, mail or fax. These ordersare processed only during CSI's officehours, but are available for retrievalany time during the following week.

Q. How tto I get History On-Demand?

A. First, you must have QuickTrieveversion 4.05 or above or our latestTrude Data Manager. Earlier versionsdo not support this service.

If you have the proPer version ofthe QuickTrieve software, you shouldproceed through the Order Subsystemand Order Historical Informationmenus, requesting all the normalfutures contracts, stocks and indicesyou desire. Upon completing yourorder, press <Eso and you will beasked: "Do you want to collect phonehistory at the time the order is sent,"answer (Y)es. This response puts yourorder in the "On-Demand" mode. Aprice estimate for the data requestedwill display. You will be billed for thisamount. or. if vou still have free

Ask Customer Service

months of history on our system, thequantitv of data months shown willlie deducted from the total available.

You can transmit your order whenyou retrieve your next daily update oruse the Send Work Done this Sessionselection to transmit Your ordefimmediately. Either way, your histori-cal data will be retrieYed in the sameohone call as the order transmissionwithout further prompting. Please seepages l0{9 of QuickTrieve's Tutorial atthe beginning of the manual forfurther details on using the OrderSubsystem.

Trade Data Manager (for theMacintosh) now processes all on-linehistory orders as on-demand history,unless they are requested on diskette.

. I got a lnrger bill tban etcpected

Jdr tIe-WolI! ryq4gstedllblottgb tbeOrder Subslstem. Wbat Mn I do tokeep ,nJ) cosb do n?

A. Here are some tips on using theOrder Subsystem economicallY:

1) Fill in the "Start Date" for eachfile requested. Leaving this entry as all!s will result in the receipt of datafrom the first day on file Ask yourselfif vou reallv need a contract for itsfuil life (ud to 60 mos.). If not, enter astart date that more closelY meetsyour needs.

2) Remember that any history on-demand request is charged al aminimum three-month rate. Forexample, if you order the March '95 T-Bond contract from 950101 through950201, you will receive one month ofdata but will be charged for three.You'll get more value for Your moneyif you order three months or more.

3) Use our Test Files, not history on-demand to verify the functionality,comDatibilitv or format of csl data. Itwouid be a waste of your frce dlla oryour money to download history thatwont work for your Purposes. To

Page

access our test files, change your userID to TES, then collect history data anddaily updates as needed. There is nocharge for collecting Test Files beyondthe cost of your direct-dial phone call.

4) Start small. If you want to test anew trading system that fequires agreat deal of history, order what youneed for testing with OND commodity.If results are promising or inconclu-sive, add another. The point is, don'trun up a large bill for a massive database that you mav never use.

5) use ihe Ordir subsystem respon-sibly. The cost of historical data is not

refundable, so be sure you areordering what you need. Inadvert-ent duplications, unwanted con-tracts and orders that otherwisedo not meet your needs are notqualifications to receive acredit or refund from CSI.Please keep in mind that eventhough the price is quitereasonable (appro ximately l/2cent to I cent per day, depending uponwhether you will used direct dial ornetwork), charges can mount up. Youare responsible for all charges gener-ated through your account with CSL +

Speclal Note:Contlnao s data (sucha.s casb, nearest futareand. Perpetaal Contractdata) and. options arenot cumently aoall.ableas Hlstoryt on-demand.

-x

CSI Software Product SummaryPlease check allthat apply and complete the informalion box at right.'

Mailor fax to CSl, 200 West Palmetto Park Road, Boca Raton, Florida OO4g2: Fax:, (407\ 992-7761

D QuickTrieve@/QuickManager@for pc - To retrieye, manaqe & editdata (includes 1995 Alerrs Calendar); New daily userJ59.QuickTrieve/QuickManager version 4.06 upqraile ( for curren rQuickTrieve nsers only): $J9; demo disk $5

-

I 1995 Commodity Alerts Calendar for use with QuickTrieve $20;Calendar upgrade for current QT 4.06 users $10

E QuickPlot@OuickStudy@ for eC - Charting & analysis software(requires QTIQM) $8f

D Trade Data Manager" - Macintosh downloader & accountingprogram $59; upgrade $49 or FREE vith $100 history ordei

E Trading System Performance Evaluator- (TspE) for pC " ComDutesyour system's capital requirements $149

B Trader's Money Manager"for pC - $399 (includes TSPE);Demo disk $15

D TraDesk"for PC - Traders' complete accounrinq svstem - CSIdaill user $149; Unresrricted uie $299; j0-dav iridl version S22

E Seasonal Index Value Pack for PC - Ten years of history for 33popular commodities $315

E Daily Updates for pC - Starring at $10.80 per monthE CSI Technical Journal - Aug.'90 t0 present $3jlyr. - $5/ReprinrE CSI Mailing List - $200/1,000 narnes (CSI users omirted)E CSf Product Catalog -FREE

Please add $29 pgrsoftware package loroverseas shipping.

NAME

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DAY PHoNE { __- )USER ID#

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n 5.2s'y360K fls.25'y1.2 MB (H|GH DENsrry)ng.s't2oK n e.syt,+ we lrroH oerusrj|\4EIHOD 0F PAYMENT (pREpAyi,{ENT FEQU|RED)N CHECK E MASTERCARD EVISAN DISCOVER N AMERICAN EXPRESS

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Page 5

Market Statistics Update

Newsletter Stirs...(continud frott poge 3)

yet, going into deficit..."From Reader RalDh Vince of First

October Trading Co.: "...I have alwaysmade it a point to read everything youwrite. Perhaps it is your engineeringbackground, but I find you always getbeneath the surface and offer aninteresting, yet very logical explana-tion of whatever subiect you arewriting about. Your recent article "To

Stop or Not To Stop?" I found mostinteresting. particularly since this issomething we are wrestling with rightnow in our shop. You have given meenough to think about for all of 19951"

Mr. Vince went on to say that herecently recommended CSI because theservice is. "reliable. reasonable andeasy to use - everything you could askfor". He added '...I use C,SI - because ithas a monthlv newsletter with articlesby Bob Pelletier in it and that alone ismore than worth the price. The data,in effect, is free."

Mr. Vince did not agree or disagreewith the points made in our "Stop"

article, but found it food for thought.This is the sDirit in which all ourarticles are written. and the sDirir mwhich we hope they will be taken.

Editors note:Raloh Vince is the author of two

innovative, insightful books on tradingwhich are The Mathematics of MoneyManagement : Risk Analysis Techniquesfor Traders, 1992; and Portfolio Man-agement Formulas : lllathematicalTrading Methods for the Futures,Options, and Stock Markets, 1990. Bothbooks are published by John Viley &Sons. +

1995 CommodityAlerts CalendaiNowAvailableThe 1995 Commodity AlertsCalendar is comoleted andready for deliveiy. Thiscalendar, which is acces-sible thmugh QuickTrieveincludes listings of firstnotice days, last tradingdavs. etc. for U.S. futuresmarkets, as well as datesfor important governmentreports that affect inves-tors. The dates of tradingholidays at major worldexchanges are also in-cluded. This extensivedatabase of information isavailable for $20 to CSIsubscribers. Users ofQuickTrieve version 4.06may purchase the calendardisk at a discounted priceof $10.00.

Please see the ProductSummary on page 5 forordering information. Toorder bv credit card. callCSI maiketing at (800) 274-4727 or (407)392-8663. +

DELETIONS FBOM T}IE STOCK DATA BASE

80€6 APTV5589 ALI2218 MMCSO24 AHH4{112 AMBS8171 ACTYF3045 FK6946 ACCtt4A5226 NGA8132 ACCMB8169 BBGS1005 BWS2039 BSRF8675 CRNT3114 CLU8248 CODEC2254 CSAV7174 EP9996 GENZW2381 FUEL1056 HLY7304 tT9029 SPLM3327 KTMs083 LASB4769 [4V|QC6952 MDST7428 NEI3412 NCD9263 NYCLE74$ oPl9387 0PI009374 oMET8236 PPGE7527 RGL9446 RELF3501 sAM4565 SKNSE4851 SNPL4474 SFWR2992 SRCC9787 TRCO9803 UNSL9927 WCBC2267 WFCI5454 ZENL

Advanced PromolionTednologies IncAlleion lncAmerican Asset Management CpAm€rihoahh IncAmity Banksha@s IncApplied Cadon T€chnology IncAk Beslawants CpAssocial€d Communications Cp CL AAssociated Natural Gas CpAssociated Communicalions Cp CL BBabbage's IncBeta well Seruico IncBiosudace Terhnology IncCa€nglwork IncClark USA lncCoded Communicalions CpCnnlinenlal Savings ol AnsdcaEnserch fuplolation Partne6 Lld Dep. Receiptscenzyme Cp wTGdlfilh Consume6 CoHolly H€sldential Piopenies IncInlelogicTlEce IncJones Space ink Ltd CL AKsloma lnc WlLaser Precision CpMedia Vision lechnology IncMedstalGroupincNalional Enleprises IncNoih Canadian Oils LldNyc€l Cpogdan Prcj€ct Incopto M€chanik InconhometlncP€miere Page IncRegal Inl' IncRelils IncSamson Energy Co L.P.SkolniN"s lncSnapple BeveBge CpSollwa€ Elc. Stor€s lncSoricon CpTico Poducls CpUNSL Financial CpWest Coast Bancorp (CA)Winston Fumilure CoZenill Laloralodss Inc

18941328

ADDITIONS TO THE STOCK DATA BASE

LNTW LNTV Lin Television Cp oTC 941219BPR WestenBankPueno Rico oTC 941208

FIB 30 Stock lndex359 Slmbol:lFxMIF (ltalyi

ADDITIONS TO THE COMMODITY DATA BASE

Commodily: Rolling Spot YenCslcommodity# 86 Symbol RYExchang€: CMEUnit ol measue: JYl0 Contact siz6: $250,000Deliverymonlhs: 3,6,9,12lstdayonlile: 950117 CSI poinl value: JY25.00Convolsionlac{or +4 Newspaper/Cslpdcel.0048:100{8Limit (pric€): None Mar monhs iorward: 3

Cornmodily:CSI commodily #:Exchange:lJnil ol measur€:Deliveryfionlhs:1sl day on file:Convgrsion faclor:Limit (price):

Points3,6,9,12941130{0N0ne

Conl|acl sizs lll100 X lndex

CSlpoinl valu6rlTL100Newspape/Csl pdcer1527515275Max monf|s loruad: 12

Poge 6