Time Crunch Trading

Trade2Win Board Quote What can you make in your first year’s trading…? Based on personal experience and reading between the lines from many other posters….. 1. A lot of Mistakes 2. Many erroneous Assumptions 3. Some small winning trades (cut profits) 4. Lots more losing trades (let losses run) 5. A decision to really use Stops 6. A decision to limit your risk to less than 100% of your total capital. 7. A Medium to Large to Total Loss 8. A lot more trades than you should have TheBramble www.trade2win.com/boards/showthread.php?t=13711

This question gets asked by new traders on an incredibly frequent basis. It often does not get answered in any straight fashion (as the rather tongue-in-cheek post from the Trade2Win discussion boards at right shows) for the simple reason that there are a huge number of variables involved, including things like the size of your trading account and how much risk you take.

Here’s the thing, though. It is a huge misconception that it takes full-time effort to make big money in the markets. This is utterly false. A part-timer can certainly achieve returns at least as positive as ones seen by more active traders.

Actually, if you want to really boil it down, a part-time trader can achieve much better results than a full-time one when considering the amount of time invested relative to the amount of money made. Think about it. If Trader A makes $1000 after an eight hour day of trading, and Trader B makes that same amount, but in only two hours, who is doing better? For those whose time is precious, Trader B’s $500/hr seems a lot better than Trader A’s $125/hr.

Here are a few examples of the kinds of trades a part-time trader could have made in a number of different markets taking on positions that would have been easy to get in to, monitor, and exit for even the most time crunched trader.

The Stock Market
We can start with the equity market, with which most traders and would-be traders are familiar. The chart shown below is a weekly one for the S&P 500. Technically, it’s the e-mini S&P 500 futures (continuous contract), which is readily tradable by most folks.

The chart shows a great long-term trade that could have been made. The market clearly bottomed in 2002, though it chopped around for a while down near the lows. Had you even waited until the market broke back above 1000 to buy, you could have done very well for yourself and done it easily.

How so?

Well if you look at the chart you see a clear up trend as defined by higher highs and higher lows. You could have bought in 2003 and even as of this writing you would still be in the position with a few hundred points of profits.

Consider that each point in the e-mini S&P contract is worth $50. If you had entered at 1000, today you would be up about 270 points. That’s $13,500 in profit. You would have only needed to put up a margin deposit of maybe $3000 to initiate the position. A little quick math and you come up with a return of 450% on that stake.

Let’s take a look at another notable market.

Crude Oil
We all know we are paying quite a bit more for gasoline and other products based on crude oil. How great would it have been to be long in the market from even $40/barrell?

The chart on the following page is a weekly one of the Light Sweet Crude Oil futures contract (again, continuous contract) which shows how much the market has moved in the last couple of years – a move a part-time trader could have been in on. The move above $35 and to new highs happened in early 2004. You could have bought then and still be sitting pretty. As of this writing, Crude Oil is above $75/barrell.

Let’s put that in to return figures, as we did in the last example.

A mini crude oil contract requires about $2400 in margin deposit. Each $/barrel is worth $500. If you had bought at $40 and just sat on the trade since then, you would be up about $17,500. That’s a return of over 700% on your initial stake.

Gold
You are no doubt aware of how aggressively the gold market has moved higher in recent years. It actually started moving up in the early part of 2001 after reaching a low of near $250/oz (again, we are talking about the futures contract here, which can be traded by the part-time trader without too much difficulty).

As of this writing, the market has pulled back from a peak near $740/oz, but is rallying once more, with maybe an eye toward new highs. As in the case of the S&P 500 and Crude Oil, Gold has not suffered a break in its upward price trend as yet (meaning a lower low or lower high on the chart). That means you could have bought just about anywhere along the way and just sat back and watched the market climb like crazy.

Let’s say you bought at $450/oz in 2005 when the market broke to a new high. Right now you would be up about $200/oz.

The mini gold futures contract has a margin requirement of about $1250, with a value of around $33 point. On a 200 point rise such as has take place, you would make about $6600. That’s a return of better than 525% on your deposit. Not too bad for just sitting.

We realize, though, that operating on that time scale can be a challenge for a lot of traders. You have to be willing to sit through some wide price swings. Not everyone is cut out for it, so let us take a look at some shorter-term trades.

Interest Rates: US 10-Year Treasury Notes
Back in March of 2006 the long end of the US interest rate curve (the 10-year and 30-year maturities) started to finally move higher in a meaningful fashion. This was after the market had essentially gone nowhere for most of the time the Federal Reserve was active in raising interest rates. At that point, the US 10-Year Note futures contract broke down in price (price falls as yields rise), reaching the lowest point in a number of years and continuing a pattern of lower lows and lower highs – a clear down trend as the daily chart below shows.

It would have been quite easy for a part-time trader to get in on the action in 10-year Note futures as the market broke down. The sell could have taken place at about 107.50.

Now, where you got out of this trade could vary a bit, if you even got out at all. We will assume an exit on the higher high reached during June at around 106. That would be a point and a half of profit in about 3 months. 

Each point for the 10-year futures is $1000 in value, so you made $1500 on a margin deposit of something like $2000. That’s 75%. Had you gotten out at a more optimal point, it could easily have been a 100% return or better. This is not as big as what we have seen up to now, but the time period is much shorter.

EUR/USD (US Dollars per Euro)
Here is a good foreign exchange market example.

In late April of 2006 the Euro broke through $1.2350 to continue an up trend from it’s lows in November of 2005. It then proceeded to move straight up to nearly $1.3000 in a little over a month.

At a bare minimum, you could have made 400 pips ($0.40) on that move, and probably quite a bit more. For the sake of simplicity, we will assume a 2% margin requirement (50:1 leverage), meaning about $2500 on a 100,000 Euro position. The 400 pip move would be worth $4000 on a trade of that size, equaling a return of 160% for a holding period of maybe six weeks at most.

Foreign exchange is certainly a market accessible to the part-time trader, so this is another trade easily done.

Apple Computer Stock (AAPL)
And of course there are individual stocks.

Below is a daily chart of AAPL. At left there is the break to a new high that took place in November of 2005. One could have quite easily grabbed 10 to 15 points or more out of a long position there. Likewise, there have been a couple of opportunities to make points on the short side as the stock has come down from the peak put in during early 2006.

Now stock market returns are not going to look quite as flashy as those for other markets because of lesser leverage. A $10 gain on a $55 stock is only about 18%, after all. Even using margin, that only doubles too 36% (single stock futures are an alterative that allows for a higher degree of leverage).

Though these figures are not as exciting as the others presented herein, they still represent decent profits over a relatively short amount of time. Keep in mind the value of compounded returns over time and remember that this is only one trade in isolation.

Part-Time Trading Can Get It Done!

We could show you dozens of examples of trades that you could have done on a part-time basis – hundreds even. We will grant you that there are a lot of variables involved in the trades we have just highlighted. They were chosen for effect, after all.

The point we are trying to make is that you need not be taken in by the idea that only full-time traders or only day traders can make really good money in the markets.

You could have made the trades noted above and produced some incredibly good profits with a whole heck of a lot less effort than someone who trades on a more frequent basis. Developing a way to spot trades like the ones we have shown you is the primary focus of this book.