Profit & Loss Is All Part Of Playing The Futures Market




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The Nicholas Darvas futures Market Success Story (part 10)

Now, I am certain that the serious futures market analyst who prepared this glossy booklet had nothing but the highest intentions, but I must record in the interest of truth that by the end of 1956, this stock was down to 5.

About that time I heard a saying which has been passed from mouth to mouth for generations in the futures market, but to me was new: "You cannot go broke in the futures market taking a profit." I was much impressed by this and I was burning to put it into operation. This is how I did it.

One of the futures market leaders early in February 1955 was KAISER ALUMINUM. On my futures market broker's recommendation I bought 100 shares at 63, paying $6,378.84 for the stock. It went up steadily, and at 75 I sold it. I received $7,453.29, which gave me a profit of $1,074.45 in less than one month.

Hoping for another quick profit in the futures market, I switched into 100 BOEING at 83. I paid $8,343.30 for these shares. The stock almost immediately began to drop. Four days later I sold at 79 for $7,940.05. My loss on the BOEING transaction was $403.25.

Trying to make up for my futures market loss, I then bought MAGMA COPPER in the first week of April. It was selling at 89. I paid $9,018.98 for 100 shares. No sooner did I buy, than it started to drop. Two weeks later I sold it at 80 for $8,002.18. This gave me a loss of $1,016.80.

By this time KAISER ALUMINUM, which I had jumped out of in the first week of March, had moved up to 82 in the futures market. An advisory service was recommending it, so I switched back to it, buying 100 shares at that price. I paid $8,243.20. Five minutes later it started to slide. Not wanting to risk a further loss, I sold at 81 and received $8,127.59. This meant that for five minutes of trading in the futures market, I lost $115.61, including commissions.

On the first KAISER deal I had made a profit of $1,074.45 in the futures market. The losses sustained by jumping in and out of the other futures were $1,53 5.66. So the whole circular transaction, which began with KAISER and ended with KAISER, gave me a net loss of $461.21 in the futures market.

If I had stuck with KAISER from my original purchase at 63 until my ultimate sale at 81, I would have had a profit of $1,748.75 in the futures market instead of the loss of $461.21 in the futures market.

Here is another case. From November 1954 to March 1955 I was constantly jumping in and out of a stock called RAYONIER, which in an eight-month period went from approximately 50 to 100. These were my transactions in RAYONIER, 100 shares at a time:

The profit I made in the futures market on this series of trades amounted to $1,238.12. Then the old loss pattern repeated itself. In April 1955 I switched into MANATI SUGAR. I bought 1,000 shares at 8%, paying $8,508.80. Immediately afterwards it started a downward slide and I sold out at the varying prices of 7 and 7 and a half. I received a total of $7,465.70, giving me a loss of $1,043.10 in the futures market. This left me with a net profit of $195.02 on the combined RAYONIER-MANATI operation.

However, if I had held my original November purchase of RAYONIER without constantly trying to take a profit, and sold it in April at 80, I would have had a profit of $2,612.48 instead of $195.02.  

 

This article is actually only a small snippet of Nicolas Darvas' work...

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