The mechanics of the service

This page explains the day to day operation of the service and the things you need to know in order to maximise the benefit you receive from it.

Direct Access members need to be fully conversant with the information presented here.  Autopilot members don’t have to worry about any of this as it is all taken care of by George and his team on your behalf.

The nightly alert

We send out up to 4 nightly alerts each week on Monday, Tuesday, Wednesday and Thursday, plus one at the weekend.  These are issued between 8:30pm and 10:30pm UK time (2:30pm to 4:30pm CST) on days when there are new orders to be placed or existing orders to adjust.

Here is a sample of the nightly alert which is posted to the Trade Signals page each evening.  These are also delivered automatically to your own desktop via an RSS reader that we show members how to set up.

We also issue the same information by email as a backup delivery channel.

For the future we are exploring the possibility of replacing the email back up with an iPhone / iPad application that will push the same information directly out to members.

New entries

Here we list any markets that have potential entries at the prices shown.  Let’s use this Bean Meal signal as a worked example.  We will be buying January Bean Meal at a price of 283.0 (or better), i.e. this is a limit order.

We will work this entry for the whole of the next day from the reopen in the night market, through the pit session and even into a further electronic session for those markets that have one.

Virtually all markets have a closed period between 10pm and 11pm UK time (4pm and 5pm CST), which is why we issue the main daily alerts prior to this time, ready for the re-open when new orders become active. Many markets still fall way short of this 23 hour day, but this is the one time each day when everything is quiet or closed. The Members Area includes data sheets covering market opening and closing times, ticker symbols, contract sizes etc.

Anyway back to our Bean Meal example. During this following day, that in the grain markets starts at midnight UK time (6pm CST):

• If the market opens below 283.0 we will be filled at the opening price.
• If the market opens above 283.0, but trades down at least to this price during the day we will be filled at 283.0.
• If the market opens above 283.0 and does not trade this low during the day we will not be filled.  Orders that are not filled will either be repeated in the next update, or more frequently are just cancelled as we have missed the trade.
• If our order is filled we will work our stop loss order at the price also given, 276.0 in this case.
• When entering with limit orders, as we do virtually every time, it is always best to place the stop order at the same time, so that a position is protected from the moment it is opened.
• Once filled the first exit target (T1) order may be placed, which is always a limit order.  Here it is at 289.0 and is for 1/3 of the total position size (assuming multiple contract and all 3 exits are being used).  It is best to add the exit order as an “OCO” to ensure you don’t get filled on the target and the stop in the event of some crazy fast market activity.  This means replacing your original stop order with 2 orders one for 1/3rd of the position which you OCO with the first target order and the other for the remaining 2/3rds of the position which you do not want to be cancelled when the first target order is filled.
• Do not place any exit orders until you are sure your entry has been filled, else you risk inadvertently opening a position in the wrong direction!

Only around 50% – 75% of the trades we attempt to enter actually get filled.  This is fine.  We do not chase trades, either the market gives us the prices we require or we pass on the trade.

Existing positions

Once a position has been opened we have our stop loss in place for the full position and then use up to 3 equal sized exit targets (T1, T2, and T3).  We always know T1 when a position is opened and occasionally T2 as well.  A limit order can be worked at these target prices, remembering to reduce the size of the stop loss order as targets are achieved.  Most execution platforms will handle this automatically if correctly used.

Each nightly alert will show how each open trade is progressing.  If a target has been achieved, the next target will be made known.  Unachieved target prices can change and stops are also tightened up, so take care to check each update carefully.

In the case of the final exit (T3) sometimes there will be a target price just like T1 and T2.  But on other times with the final exit we slowly trail our stop and play for a larger move

Closed positions

The nightly alert will also report when we have closed a position during the day.  This position will then be removed from the next evening’s alert.

Initial risk

As this is a swing trading system operated mainly from “end of day” data, we are not even attempting to finesse the perfectly timed entries and exits that might be possible for shorter term traders to achieve.  We are simply trying to capture a reasonable slice out of the middle of a sizeable swing.

For this reason we start off using relatively wide stop losses when opening a new trade.  The purpose of this order is to get us out of the market if either the trade turns out to be simply wrong, or if there is some sudden shock that instantly changes the supply and demand dynamics upon which the trade was originally based.

Using a relatively wide stop gives the trade the room necessary to do what it is supposed to do, but getting us out with a manageable loss if it all goes wrong.  If a market reaches our initial stop, it is more than just noise that has moved the market to that price, so we definitely want to be out of the market as something significant has changed from the supply and demand structure that was present when we opened the position.  For this reason you must always work live stops and not rely on “manually exiting”.  On the occasions our stop is reached the market will often run hard in the wrong direction, so we want to be stopped out!

Our 3 exits

Each of our exits has a specific objective in mind:

• T1:  As a general rule the first exit is for the smallest amount but with the highest probability of achieving it.  T1 is usually achieved within a couple of days of entry, if not on the day of entry itself.  Lifting 1/3 of the position for a quick profit has the effect of dramatically reducing the overall risk on the trade, whilst keeping the bulk of the position in play for a more sizeable profit.  (Newcomers trading single contracts can also take advantage of the very high percentage of trades that achieve T1, to quickly build some profits before moving on to trading 2 contracts.)
• T2:  The second exit seeks a larger profit than T1 and usually follows a few days later.  There is a lower probability of achieving T2 than T1, but it banks a much bigger profit when achieved.
• T3:  The third and final exit has the lowest probability of success but captures occasional very large moves.  Sometimes the third exit is at a target price and sometimes this last piece is closed out by way of a trailing stop.

Our exit targets do change over time, so be sure to check the prices in the update carefully.

Trailing stops

Stops are usually only kept at the initial risk point early on in the trade.  Once the trade starts to perform, the stop will often be tightened up.  By the time T2 has been achieved the stop will be at least at breakeven, leaving a chance for a big win with the final 1/3 of the position if successful, but no loss if it does not materialise.

Time stops

We do not leave trades on that fail to perform within just a few days of being opened.  The more time that passes after entry, the lower the probability of success will be.  So we either just take the trade off for a small profit or a small loss, or tighten up the initial stop considerably.

Unfilled orders

Usually we work entry orders for one day only and if not filled pass on the trade.  When an order is dropped from the alert, we are no longer working it.  Every order that we are working is on the alert – if it isn’t there we aren’t working it.

If we are working an entry order that has not been filled and the market reaches the first target the same day, the order can be cancelled immediately.  We have missed the bus this time and wait patiently for the next one!

Exit orders that are missed sometimes mean that we will get out on the next open (Market on Open orders).  MOO orders mean the open of the next session, which is often the night session.  Whilst there is often little difference between the night session open and the pit session, for our purposes whichever the next open is – that is the price we assume we are exiting that piece of the trade at.

All out

If at any time we decide to get out of a whole position, rather than just 1/3, that will be spelt out very clearly.  All exits are for 1/3 of the position unless otherwise specified (or unless stopped out of course).

No changes

On any day where there is no change to the previous days information, I do not put out an alert.  So if you have not received one by 10:30pm (UK time), then I am working exactly the same orders as the previous day.

Interim updates

While we try to initiate and manage our trades primarily on an end of day basis, there are times when it is necessary to take action during the course of the day.  At these times an interim alert is issued in exactly the same manner as the regular nightly alerts. Although this is not a regular event, it does mean that members executing for themselves need to be organised so as to be able to access these additional alerts.

480 minute trades

Most of the time our signals are generated off daily charts of the various markets that we trade.  These are our preferred trades as they tend to have the longest duration, largest profits and require the least frequent adjustments to stops etc.

However there are times when is it quiet on the daily timeframe charts as well as times when it is busy.  When it is busy we are happy to focus exclusively on the daily charts.  However when it is quiet we drop down to a smaller timeframe, the 480 minute charts, to look for trade setups on these.  Often we can find trades here to give us something to do until the daily signals come back on stream.

The 480 minute trades carry lower initial risk, lower average profit and of course the duration of each trade tends to be that much shorter.  Hence these trade are likely to result a more interim alerts to manage them than with the daily trades.

The markets we trade

The following list shows all of the markets we follow and, theoretically, trade.  However where there are close correlations between markets, e.g. the stock indices, we choose the market with the best setup at the time and trade just that one market.

• Australian Dollar, British Pound, Canadian Dollar, Euro, Japanese Yen, Swiss Franc, Dollar Index
• T-Bonds, T-Notes, German Bund
• S&P500, Dow Jones, Nasdaq, Russell 2000, Dax, Eurostoxx50, FTSE100
• Crude Oil, Heating Oil, Unleaded Gasoline, Natural Gas
• Gold, Silver, Platinum, Copper
• Corn, Wheat, Soybeans, Soybean Meal, Soybean Oil
• Live Cattle, Live Hogs
• Coffee, Sugar, Cocoa, Cotton

Within this list are a couple of markets (Orange Juice, Platinum) that we try hard NOT to find trades in.  This is because these markets are very thinly traded.  Consequently we trade them much less frequently and only when we absolutely have to.  Conservative size is recommended in these markets as there will definitely be slippage should the trade turn out to be a loser.

Drawdowns

The only thing to say about drawdowns with the S-I-R system is that like every trading strategy we will have them!  So we have to be prepared for them.  My approach to handling drawdowns is actually quite simple – we use modest leverage on small accounts and increasingly smaller leverage as the account grows.  In this way we are utilising the highest risk at a time when we can afford to be boldest.  Then as the account grows we start to protect a proportion of that capital so that we are locking our money safely away as the amount of money involved becomes more meaningful.

When starting out with a small account it is fine to risk a few percent of the account on each trade.  Indeed with a small account there is little choice but to do so.  The trick is NOT using a fixed percentage risk as the account grows, but allowing the percentage to fall as the account grows.  For example I trade a multi-million dollar account and never risk more than 1% on any trade.  But I would have no problem risking 3%-5% of a small account.

Say you have a $30,000 account and risk up to 5% on any trade.  It would take 20 full sized losers to blow the account which is extremely unlikely.  However should it happen then it is quite feasible to reload the account and continue trading.  However with say a $1m account you cannot afford to blow that sort of money and for that reason the percentage risk is decreased as the account grows to that level.  At 1% risk, the same 20 losers would ensure that in excess of 80% of the capital is protected.

Because I only use low leverage on my trades I don’t have to worry about drawdowns like a very aggressive trader would have to. I believe this is the best way over the long term, as I want to be able to take every trade that the system produces and also to be able to sleep at night.

But whatever your own situation, account size, preferred leverage etc, you must be prepared to ride out a drawdown period without it denting your capital or your confidence too much.  Planning for the worst times allows you to ride them out in order to enjoy the good times.  Fortunately the S-I-R system has a lot more good times than bad times 

Trade sizing

As I said previously, this service is not for novices and only for experienced professional traders.  Therefore it is up to you to decide how to use these signals and on what trade size.

Please don’t ask me, as I am not allowed and will not give advice on any individual situation.  But as you can see from the paragraph above I prefer to be conservative on trade size and not to have to worry about the inevitable drawdowns.

All I can say is that you should aim to risk roughly the same dollar amount per trade and vary the number of contracts to suit whatever this risk amount might be.  You don’t want to be risking $500 on one trade and $5,000 on the next one.  The way I handle this is fully explained in the Members Area.

Smaller accounts or just getting started

Obviously I trade multiple contracts in order to split my exits into three parts.  However I believe that everyone should start off small irrespective of account size, which means trading one contract only initially and building up from there.  With one contract it is best to exit at the first target (T1) as this has the highest percentage success of the three exits.  When getting started the most important thing is the success rate rather than maximising the absolute dollar profit by using all three exits.  This can be adopted later on.

Of course when trading a single contract it isn’t possible to balance risk across markets in the conventional sense, but nor is this so important at the early stage of the game.  This can be built in later as profits are accumulated for example by stepping up to 2 contracts initially only in the lower risk markets etc.

Other alternatives that can be used to provide further flexibility over trade size in the early days include the use of:

• Mini-futures contracts
• Forex for currency trades
• Options
• Commodity ETF’s
• Spread betting in countries where this is permitted

Should you wish to use any of these alternatives then you will need to investigate them yourself and remember that all of my trades are in the normal futures contracts only so you would need to calculate any adjustments to prices that might be necessary when using any alternative vehicles.

Conclusion

So that’s about it.  If you like what you have read, if it fits in with your current portfolio of activity and if you are prepared to follow the guidance above – then all that remains now is for you to decide which of the two S-I-R memberships would suit you best and then we can get started!  The two services, Direct Access and AutoPilot, are covered in the next 2 pages.  So have a read, pick the right one for you and your circumstances and I look forward to welcoming you to the service.

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