At the core of David Bennett’s Day Trading Grain Futures: A Practical Guide to Trading for a Living (Harriman House, 2009) is a single breakout strategy. It’s a strategy that incorporates not only entry rules but also position sizing, risk management, and exit rules. In page after page, chart after chart, the author drills the reader on his strategy and its fine points—and how to use Interactive Brokers platform to execute the trades. (Since the IB platform is ever evolving, this book should not be used as a TWS manual.) The result is one of the clearest examples I’ve encountered of how a trader plies his craft.
Bennett is an Australian resident who fights time zones to trade the U.S. grain markets—corn, beans, and wheat. The market session for the grains is from 9:30 to 13:15 CST, which means that show time in Australia is after midnight. Bennett interrupts his sleep to make at most a single trade.
As a breakout trader, the author stalks support and resistance ranges. One end of the range is the breakout level. The other end of the range has to be determined by a rule. In the case of a long trade, it is “the low of the last candle which had a lower low and lower high than its immediately preceding candle.” (p. 51) The range (r) is used to set a stop loss and profit target—for example, a stop at somewhere between 0.5r and 1r and a profit target between 1.5r and 3r.
As a day (or night) trader who values his sleep, Bennett enters not only a stop order and a profit taking order; in case neither one triggers, he also enters a “good after time” order to make sure he is flat at the end of the session. Of course, these three orders have to be grouped (one cancels all). So, if he drifts off to sleep, his orders are resting in the market or at his broker; he will either be stopped out, reach his profit target, or the trade will be closed just before the end of the session.
Bennett devised an Excel spreadsheet calculator (which he sells on his web site but which even I could easily recreate). Once the user has entered the stop factor (say, 0.5), the profit factor and the entry price, the spreadsheet automatically calculates the stop and the target levels as well as the potential profit and the trade risk in dollars. And, assuming that the trader uses a fixed risk model, the spreadsheet will calculate the maximum number of contracts the trader should buy or sell. There’s more data in the spreadsheet, most notably the daily limit for the traded product and the required margin, but you get the idea. As Bennett explains, “Once a trading session starts, … I don’t want to be in a position of writing down ranges, calculating stop and target levels by hand, or manually working out how many contracts I can take.” (p. 63)
Some might view Bennett’s trading plan as overly simplistic, but I don’t think the author would consider this to be a valid criticism. As he writes, “The trading style presented in this book is not sophisticated, but it is nevertheless built from strong bricks.” Moreover, he continues, “Trading is the constant repetition of a relatively simple process, striving for perfect implementation. It is a case of doing the same, simple thing really well, day after day after day.” (p. 146) Day Trading Grain Futures is an exemplary account of this approach to trading.