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Futures
Trader Joe Dinapoli Faring Well in a Tough Business
By
Jim Wyckoff
(Note:
I wrote this story a few years back, when I was a journalist with
FWN.)
Achieving
success as a futures market trader can be a daunting proposition,
most traders will agree. Given that premise, why would a successful,
longtime futures trader like Joe DiNapoli reveal his trading secrets
to the public?
“Commodity
traders tend to be risk-takers--self-made people. I enjoy them
immensely. The public doesn’t realize some of the advantages you
receive by teaching your successful methodologies,” said DiNapoli,
president of Coast Investment Software, Inc., in Sarasota, Fla. He
is in New Orleans speaking at the “Tag XVIII” traders
conference, sponsored by Dow Jones Telerate. His topic is Fibonacci
ratios and displaced moving averages.
“Obviously,
there’s the money that one can make from selling a (trading)
system or teaching. But the contacts you make--literally around the
world--couldn’t be bought at any price. If you have something
worthwhile to say, exposure also gives you access to other
professional traders, and that access cannot only be intellectually
stimulating, but it can be financially beneficial. You can fine-tune
your trading methods by brainstorming with others,” he said.
DiNapoli
has given trading seminars all over the world--in major centers in
Asia, Europe and the Middle East. In 1996 alone, he’s spoken in
over 20 different countries.
A
book due out in January, entitled “Trading Systems: Secrets of the
Masters,” by Joe Krutsinger (published by Irwin Professional
Publishing), has an extended interview with DiNapoli.
In
1967, DiNapoli finished engineering college and began seriously
trading. “Back in those days, I was dealing with low-capitalized,
small over-the-counter stocks, where you’d lose 15% to 25% just in
the bid/ask spread.” He started trading commodities around 1980.
“My
educational background is electrical engineering. Of course, I
really didn’t like engineering, but that background has been an
unbelievable help to me as a trader. Good engineers think in
structured patterns. That’s the way I think--disciplined and
structured. “At this point, I trade my own account. I don’t
manage money and I don’t want to. I teach and have a software
company...” DiNapoli has been a registered CTA since the
mid-1980s.
“The
trading techniques I use are substantially different than those used
by other people. I mix leading and lagging indicators and interact
with prices based on that approach. I use certain lagging indicators
like Displaced Moving Averages and the MACD/Stochastics combination,
to determine the trend.
Displaced
Moving Averages allow a trader to shift or center the moving average
on a price chart. A trader specifies the length for one or more
moving averages, then selects the number of intervals to displace
the moving average.
Moving
Average Convergence/Divergence (MACD) uses exponential moving
averages, as compared to the simple moving averages used in an
oscillator study.
“Once
I’m in a trend, I use Fibonacci analysis as a leading
indicator--to position myself within that trend. The last step is to
take ‘Logical Profit Objectives.’ Those profit objectives are
calculated by certain Fibonacci techniques.”
DiNapoli
has spent a lot of time developing his present trading system. “I
use Displaced Moving Averages, for example, in very specific and
unique ways. I think I’ve really done my homework on that
one--about three years worth of research in the early 1980s. During
the mid-1980s, I spent another three years or so determining the
most effective method to utilize Fibonacci techniques.
“I
think I’ve done a good job separating the best from the good, or
average. Sometimes it’s not a matter of developing a brand new
indicator. It’s a matter of utilizing an existing indicator in a
more effective manner. For example, instead of using standard moving
averages, I use Displaced Moving Averages.
“In
fact, back in the mid-1980s, when I started speaking about this,
there weren’t any computer programs out there available, except
our own, that would displace a moving average. Prior to that, some
people used the opens, instead of the close, to determine the moving
average, so that they would know what the moving average value was
before the end of the day.
“When
you displace a moving average, say, five days, you know what the
moving average is going to be up to five days out. There was no
longer any reason to use the open. Unfortunately, many of the
graphics software programs that displace moving averages don’t
show them past the last day’s price action. It’s an example of
programmers creating trading software, rather than traders.”
DiNapoli’s
best and current trading system is an approach he has used
continuously for years. He buys dips in an uptrend and sells rallies
in a downtrend.
“The
lagging indicators allow me to determine trend. The leading
indicators, primarily Fibonacci analysis, allow me to safely place
myself within that trend. I use ‘Logical Profit Objectives’
continually and I have oscillators that are used as filters, to keep
me from entering in the direction of a trend which is too dangerous
to bother with.
“I
also have about eight trading patterns or conditions which act to
give me the direction of a market. If they are in conflict with the
trend analysis, I always go with what the patterns are telling me.”
On timeframes he uses when trading, DiNapoli said, “The approach I
take to the market is exactly the same--whether I use monthly charts
or 5-minute charts. In 1980, I was trading primarily daily charts,
and in about 1983 I went down to the 5-minute world.
“I
could learn more and develop my approach more quickly in the
5-minute world than on dailies--particularly relative to Fibonacci
analysis. So, in the development phase of it, I gained more
experience in less time, by trading 5-minute charts.
“I
went through this development process by actually trading--not
theorizing. I think most good systems should be applicable across
timeframes. If they are not, it’s a red flag.”
Stepping
back from the markets on a regular basis is paramount, said the
veteran trader.
“I
will tell you one thing I try to do every single day that affects my
performance as a trader: I think, at least for a few hours a week,
every commodity trader should do something that he or she really
enjoys. Something that does not involve the markets or the computer.
“I
like working with my hands. I restore classic cars, things like
that. You need to be able to settle the mind and avoid all that
frenetic activity. The graveyard of past traders is littered with
those who couldn’t get the needle out of their arms. Markets can
destroy you emotionally, physically and financially. You must keep
perspective.”
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