Three Screen Trading System
George Lane Still Trading Off Stochastics at Age 75
George Lane completed his 47th year of trading in December 1996 and is still going strong. After many years of trading in the grain pits in downtown Chicago, Lane has shifted to screen trading during his “retirement” in a small community about 80 miles south of Chicago.
However, retirement means different things to different people, as Lane was up until 2 a.m. trading Italian bonds the night before he spoke with this reporter. Lane said, “I was having fun! … it beats working for a living!”
Early in his life, Lane was set on becoming a physician-as his father had been. But, then “I was out roaming around Chicago one afternoon. I wandered into a building to buy a cigar and I heard a bunch of noise upstairs. I went up and saw these men standing around yelling,” Lane said. “All of a sudden, I was hooked and medicine dropped from the picture,” Lane said.
While initially Lane worked as a broker, he said “that didn’t work out very well … because as a broker you want to give customers advice that is in their best interests. Sometimes what you think goes against what the firm thinks.”
In the late 1950s, Lane purchased a membership on the Chicago Open Board of Trade for $25 and started trading the grains. The Chicago Open Board of Trade, now known as the MidAmerica Commodity Exchange, was originally founded in 1868.
At first, Lane said, “I wasn’t doing very well. An old timer came over to me one day after the dose and asked me how I was doing. Every night after trading, he and I went down to the local tavern and as long as I bought the whisky, he taught me everything he knew about the markets.”
“He introduced me to the Taylor trading method, which is a three-day trading cycle” Lane explained. Lane began to pick up trading and started to see some success in the pit. He eventually became the president of the Investment Educators Inc. “I’d trade all day and then we’d meet at night,” Lane said. In that capacity, he invented 64 “stochastics,” a widely used momentum indicator.
“Stochastics measures the momentum of price,” Lane explained. “If you visualize a rocket going up in the air- before it can turn down, it must slow down. Momentum always changes direction before price … It is a very sophisticated tool,” he said.
According to John J. Murphy’s book Technical Analysis of the Futures Markets, stochastics “is based on the observation that as prices increase, closing prices tend to be closer to the upper end of the price range. Conversely, in down-trends, the closing price tends to be near the lower end of the range. Two lines are used in the Stochastic Process-the %K line and the %D line. The %D line is the more important one and is the one that provides the major signals.”
“We had %A and %B-we went through the whole alphabet twice, working on things. Then we discovered %K and then %D and the darn thing worked. So, we quit the research and went into the pit every day and started making a living,” Lane said. He calls himself a strictly technical trader. “I read the fundamentals, but the fundamentals are not the way to trade—the technical side is so much more lucrative.”
But, “it is hard work if you are going to be a trader- you’ve got to be looking at your computer five to six hours a day,” Lane said.
Currently, in his “retirement” Lane trades “about four to 12 times per day.” His time frame is “45 minutes to 1 1/4 hours,” with average gains of “$150, $350, $750″ per trade. “They all add up at the end of the day.”
“You can make $5,000 a day trading one-lots,” Lane said. From his screen, Lane trades primarily off of three-minute, 15-minute and 30-minute charts, relying on “stochastics, volume and trendlines.”
Recently, Lane has been trading the S&P 500 futures contract at the Chicago Mercantile Exchange. He sticks to liquid markets, avoiding thinly traded contracts such as pork belly futures or lumber.
Lane doesn’t confine himself to U.S. markets, however, estimating that 20% of his trading extends to foreign futures markets. “German bonds and Italian bonds trade very actively,” Lane noted.
However, Lane said he never trades without a stop-loss order protecting his position. “That’s the secret to making money in commodities-control the size of your losses.”
Lane recommends that beginning futures traders read “John Hill’s three books on charting basics-if you are a good chartist-the charts talk to you.”
“You can learn how to do it yourself,” Lane said. “Brokers are salesman. Never take advice from a broker. Because, then you are admitting that you don’t have enough smarts to make your own decisions.” Asked what was a key factor in success in commodity trading, Lane replied “greed.”
“Trading is fear and greed and if you have enough desire to have a successful financial life-you can do it,” He concluded.
About the Author
Martin Chandra is a full-time investor. He has been researching investment strategies and make his own living. For more information please go to here.
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