Revisiting from 3 years ago -- I'm now a futures trader

[sommi]

A few years ago I had another account where I just kept asking around about trading and how to get into it etc.

Well I just thought it'd be nice to come back to thank aussie stock forums for the advice/resources/skepticism provided here. I left uni and walked straight into a prop firm and Ive been finding success for over a year trading futures after spending a good 8-10 months of not making money at the start. Its great we have an aussie forum where we can discuss local trading stuff because we are a relatively small community compared to the epicness of the e-mini, dax, u.s. tnotes or german bund.

I am always happy to answer any questions regarding futures trading and definitely have absorbed a lot of knowledge from experts who have been involved in aussie products, as well as futures trading in general, for over 10 years. I know how the guys making 1 to 5 million a year think and what they're doing as well and its always very interesting to learn their psychology.

Now a a little about what I trade:
>Aussie Curve (3yrs and 10yrs Bonds)
> Hedging Aussie 10yrs with the U.S. 10-year Tnote
> Australian Bank Bill Butterfly spreads (1st/2nd/3rd butterfly)
> Spreading the Aussie SPI with the E-minis overnight
> Hedging Aussie Bank Bills with the Aussie 3yrs


And what i'm currently looking at
> Spreading the U.S. Tnote with the Bund
> Other European Bond products and hedging them with the T-Note, Bund, or Aussie 10yrs
> Other secret spreads




Home setup uses 4 monitors, though I am going to be doubling and using 6 to 8 after about 3 months from now:

 

[Gringotts Bank]

I know how the guys making 1 to 5 million a year think and what they're doing as well and its always very interesting to learn their psychology.

Hi,

What did you learn?

Thanks

 

[CanOz]

I have a question Sommi...

Of all the futures traders you know, how many or what percent don't use a DOM?

CanOz

 

[sommi]

Hi,

What did you learn?

Thanks

Well ASF taught me about scepticism of markets and trading ideas, books and theories in general. In essence it helped prepared my mindset for trading because I was fresh out of university and was told about how markets are always efficient and you can't make money.

I also got some references to explore certain prop shops in Australia and learn about different derivatives. I settled with Futures. It's just a shame there's not more of an active discussion here. But I will help anyone out whenever I can and share any information I have.

I have a question Sommi...

Of all the futures traders you know, how many or what percent don't use a DOM?

CanOz

100% of successful traders I know use a DOM. I do not know of any successful futures trader that doesn't look at the depth of market. They probably exist out there, though.

Even if you don't trade short-term, having a DOM is extremely, EXTREMELY useful. I am not much of an outright trader, in fact I'm terrible at outright plays most of the time, but even I can spot pretty aggressive rejections of highs/lows of daily ranges of a market using the DOM. You can see big size come, and institutions put their money on the table and send the message "We're going the other way, don't even think about coming back."

I am using premium programs to trade and understand cost would probably be very important to an early starter who is not backed by a prop shop, but anyone who views the market depth will gain a significant advantage over someone who doesn't. There is a difference between bots being pushed around or just pussying around trending somewhere, and when a value buyer or seller comes in and really pushes it. You definitely want to be watching when that happens.

Recent example: The past week we've experienced heavy 10-year aussie bond buying. Watching the enormous offers getting chewed up every day using the DOM would have been of great help to anyone trading that.

 

[CanOz]

100% of successful traders I know use a DOM. I do not know of any successful futures trader that doesn't look at the depth of market. They probably exist out there, though.

Even if you don't trade short-term, having a DOM is extremely, EXTREMELY useful. I am not much of an outright trader, in fact I'm terrible at outright plays most of the time, but even I can spot pretty aggressive rejections of highs/lows of daily ranges of a market using the DOM. You can see big size come, and institutions put their money on the table and send the message "We're going the other way, don't even think about coming back."

I am using premium programs to trade and understand cost would probably be very important to an early starter who is not backed by a prop shop, but anyone who views the market depth will gain a significant advantage over someone who doesn't. There is a difference between bots being pushed around or just pussying around trending somewhere, and when a value buyer or seller comes in and really pushes it. You definitely want to be watching when that happens.

+1...some great points Thanks!

Recent example: The past week we've experienced heavy 10-year aussie bond buying. Watching the enormous offers getting chewed up every day using the DOM would have been of great help to anyone trading that.

I wonder how much of this is Yen driven? US treasuries seem to have times when they're just doing they're own thing, parabolic at times. The analysts on the Bloomy were trying to figure out where all the liquidity is going, they reckon bonds and credits derivatives...

Thanks for the perspective Sommi, we're all ears!

CanOz

 

[Gringotts Bank]

You said "its always very interesting to learn their psychology".

That's what I was referring to.

Can you comment on that pls?>

 

[sinner]

Hi sommi,

I am curious what sort of CAGR and Sharpe ratio you have achieved overall since you became profitable.

 

[nysefloortrader]

I love it and trade the emini, and just love how your monitors are set up.

I am guessing you are either married, or there are 3 gorgeous blondes without shirts on behind you in that shot.

Looks like a smokin set up, well done.

 

[kid hustlr]

Can you go into more detail about the initial 8-10 months? What turned you from a struggling trader into a trader who could cover costs into a trader who can now survive?

Which shop are you with?

Did you start on the curve and expand from there? If not which market did you start on?

how many units of curve do you trade?

 

[ThingyMajiggy]

Going by the screens I'd say Propex?

How do you find the curve? Do you find trades everyday or more trades that last the week or a couple days? What do you find the most success with out of those things you listed that you trade?

I could never get into the local stuff, was like watching paint dry, I was more used to the Bund and dax before I tried them though so there was just a tad speed difference.

Good job though

 

[sommi]

You said "its always very interesting to learn their psychology".

That's what I was referring to.

Can you comment on that pls?>

I could almost write a book on everything I've learned from the best. It's hard to decipher most of the time but the general jist of things is:

* When you start off, for the first 2 years, do not try to be a hero. You're only in it for a tick or two. Hero trades can't be made consistently until the time is right (a few years later after seeing market reaction after reaction over and over again and all the combinations of things that can happen)

* Get really good at one thing for the first 6 months. Learn it inside out. Then once you experience a few blow outs, research another product to trade as a secondary on the side. The vision is to get to having a 'portfolio' of trading tools available. This will make you money in the long run, because you should always be happy to stay out when that one product you love to trade is just doing its straight-line thing and is being really nasty and you're too fearful to join everyone else who is caught.

* It's normal to sometimes risk 5 or 10 to make 1. That's the game. It's hard. If you're not that good at outright, try spreading products. Bonds are the easiest to spread, because you're spreading cash returns vs. cash returns (yield), so you can find products that like to follow each other.

Hi sommi,

I am curious what sort of CAGR and Sharpe ratio you have achieved overall since you became profitable.

* I'm not really sure about that. You can add up my margin requirements I use in my account and I'm completely confident that you are far better off giving me your money instead of putting it in the bank to earn interest.

* As far as most futures discretionary traders work.... and I've seen just how much everyone is risking, I would say it can vary from risking 1 to make 1, up to risking 10 to make 1 (or sometimes 20). As a general 'average' and rough estimate, I'd say for every $10,000 stop added to a trade or basket of trades, the average return would be between $20,000 to $30,000 by the end of the month (20 trading days). It's really hard to explain. Sometimes you're just caught in a trade for 3-5 days and you work every single day to return it back to flat, but you need to have a runner on at all times.

It's all about what you do when it hits the fan, not how much of a wizard you can be compared to everyone else.

I love it and trade the emini, and just love how your monitors are set up.

I am guessing you are either married, or there are 3 gorgeous blondes without shirts on behind you in that shot.

Looks like a smokin set up, well done.

* Thankyou. Might as well go all out on something if you're looking at it 16-20 hours a day. I'm not married, but I'm very young. Without my youth, it'd be impossible to stay motivated enough to sleep 2-3 hours a day (not exaggerating) and believe that you might, maybe, just maybe, be better than a flip of a coin by clicking buttons every day for 8-10 months.

 

[sommi]

Can you go into more detail about the initial 8-10 months? What turned you from a struggling trader into a trader who could cover costs into a trader who can now survive?

Which shop are you with?

Did you start on the curve and expand from there? If not which market did you start on?

how many units of curve do you trade?

* The first 8-10 months is hell. You must be motivated to be a trader. I cannot stress this enough. Only people who walk in with a complete heart for competition and fighting will make it. You have to remain optimistic and driven. Be motivated by the money, competition, the arena, the feeling of stepping into a ring and wrestling the beast, gambling... what you need to keep you active and thinking for at LEAST 12 hours a day.

* Books won't help much. Other traders will. You need to stand on the shoulders of giants. People don't openly give much advice, everyone is scared of giving away an edge. I always share information with my friends, others don't. It's funny how it's a really independent game but you rely on others to tell you what's relatively easy to trade etc.

I went from struggling to successful, specifically because...

1. Traded spreads, not outright > You can view my PNL curve, flat for 8 months then rocket upretend the DAY I started spreading

2. Traded Bond spreads, not equities > They're a family. When you trade an equity, you learn 1 trick. When you trade bonds, you can slowly branch out how they all relate to each other. Start off with one pair, then you can build the blocks. In 9 months you'll know of various things you can do regarding certain spreads, and look for certain 'leads'.

3. Traded off my pnl for the session > You learn over time, that everyone is breaking the rules. Learn the rules first, then you break them. I'm so bad at evaluating what a trade is 'really' worth, that is cost me heaps. For the learning part, you will get ahead simply by making your profit target (for example) $200 for the night, and then later entering a trade that you think is worth a lot, but exiting for a scratch ($0 p/l) when it's given you a headache instead. My previous post mentioned some advice from the big guys about being a hero... sitting through those headaches when you've made enough for the session can sometimes be doing exactly that.

Going by the screens I'd say Propex?

How do you find the curve? Do you find trades everyday or more trades that last the week or a couple days? What do you find the most success with out of those things you listed that you trade?

I could never get into the local stuff, was like watching paint dry, I was more used to the Bund and dax before I tried them though so there was just a tad speed difference.

Good job though

It's the best thing in the world when it ranges around in 3-5 tick ranges. You can get a tick or two every session. But... when it gets really one way directional, it's like getting your testicles squeezed by pliers and then kicked in the face. It will drop 5-6 half-ticks in 3 hours, but spend the next 12 hours trying to retrace more than 1 tick.

You can generally find a trade every session or day. It depends on your style. Some people like to stack orders everywhere and collect via legging (e.g. they will leg 16 by 5 four times). Some other people just like getting one price at 64/20. There's no secret to it. And neither is optimal. As long as you're consistent and never too aggressive I guess.

It's nothing more special than plotting ranges/trends on the chart. Using equities or the T-notes/Bund for each leg lead. Sometimes, you may use the interest-rate expectation to your advantage. (Rate hike agenda = sell curve on top of its ranges, Rate cut agenda = buy curve on its drips).

It's given and taken so much from me now that I do not exclusively trade it anymore. Often, I find better risk/reward in other products. I've been caught in a curve for 3 days (72 hours) where I didn't sleep. I stayed awake for 3 days straight and never left my room. I'm not kidding either. It was devastating. But that's another story.

Most success comes from spreading bonds in general. Trade similar international duration products during optimal timezones (example one countrys 10-year product with another 10-year product) and also participate in local hedges (e.g. Australia 3-year and 10-year). You don't even need to be a wiz at understanding the fundamentals. You're just in it for a tick or two. Trade each session independently. Ask around for ideas and discussions, that can help. Some people really have logical and rational ideas for certain moves and you'll be surprised at how they think and they sound so correct.

Most of the time all you need is a 5min chart and then a 15min+60min chart for levels. Look at them as a region of interest, and execute. Everyone develops their own style. It's all about how you handle yourself when you're getting knocked out. Over time you will develop tools such as exiting half-size out and re-entering at better prices etc. or using secondary markets to help fund a position. That's how you progress.

Generally I see that new people fall under two broad categories. Some usually have a nack for fading everything (buying cheap, selling expensive) in which case you want to chart around and look for spreads that tend to mean revert and have spikes (e.g. Short-term interest rate Bill butterfly spreads, or certain 10-year Bonds vs. an Anchor bond such as the German Bund or U.S. T-note). I'm this type of guy.

Alternatively, other people have a preference for identifying that one spread is definitely strong, and the other is weak, so they will buy the strong and sell the weak as a general strategy in everything they look at. In this case, directional spreads are favourable (e.g. German 10-year bund vs. U.S. T-note)

 

[kid hustlr]

Some good thoughts here, and your responses pretty much sum up the 'there is no secret' concept that the guys I talk to describe.

Also interesting to hear about your hours. Really really absurd how little you sleep (how do you manage??) but I guess that's the drive you need.

I've got a whole bunch of other questions but I feel they are quite specific/personal and you probably won't answer them so I'll just thanks for your ideas and leave it at that!

 

[kid hustlr]

Actually,

One final one.

Sounds like you are a spreads man but do you ever trade the big economic data outright (u/e cpi etc) or are you just more concerned with managing your spread positions?

 

[sammy84]

Sommi thanks for sharing. This is a great thread.

 

[Trembling Hand]

Good stuff. Two points I'd like to highlight.

No prop trader nor prop firm gives a flying F about CAGR or any type of return on equity. Its such a fudge-able figure that indicates little about trading ability.

The NEED to learn SOMETHING inside and out till its mastered then move on to adding another trick. Year after year its an unbelievably powerful process.

 

[skc]

Sommi,

Great thread and it's very noble of you to give back to the forum.

Can you show us your equity curve / account P&L chart? Take the scale off or re-based it per contract (if your limit has been increased over time). I've always wondered what a bond spreader's curve looks like.

I can show you mine if you show me yours

 

[sommi]

Some good thoughts here, and your responses pretty much sum up the 'there is no secret' concept that the guys I talk to describe.

Also interesting to hear about your hours. Really really absurd how little you sleep (how do you manage??) but I guess that's the drive you need.

I've got a whole bunch of other questions but I feel they are quite specific/personal and you probably won't answer them so I'll just thanks for your ideas and leave it at that!

I have a burning desire to succeed at trading and I was willing to sacrifice everything for it. Most of my hours, the bulk of my trading, was originally done during the European + U.S.A hours (5pm to about 7am) because Asia has no correlation, and is generally a piece of sh*t.

> I still haven't seen, in 1.5 yrs, the Dax break the low and the Minis break the high aggressively. But it is a common occurrence to see, during Asia, where the Nikkei has a 2% up day, the spi is down 0.1%, Kospi is down 0.8%, and the Aussie bonds are up purely because of overnight Treasury/Bund follow through. It's absurd.

> Also, my vision was never to be a small, I want as much size as the biggest guy I know (he takes about 3 days to exit a position). I personally believe that over time, the algorithmic bots and black-box trading mechanisms will continue to wipe short-term edges out such that the only discretionary traders left are those who are able to beat institutions, not the bots. (You beat them by taking good risk/reward punts).

> But my type of thinking is my own personal gamble anyway. Some people don't agree with me, hence why they're happy doing 6-8 hour shifts trying to churn away as much size as that bid lets them whilst swinging their accounts up and down. The more outright and short-term you are, the more your pnl becomes a binary win/loss percentage. What I do is much more dynamic than this.

> By the way, regarding sleep -- It's stupid I know. But I trade some products which are so slow to come back that you want to stay in the game for as long as possible to fight for your bread crumbs. This is what made me money at the start, so I had to do it. No-one tells you nice markets to trade. No-one comes up to you and recommends you nice niche markets that correlate well because bots haven't saturated it yet.
> Everyone is a vulture. They don't want you to take their fill. It's a very selfish endeavour, but thats money making for you. They are all scared of losing their tiny money-making edge.

Actually,

One final one.

Sounds like you are a spreads man but do you ever trade the big economic data outright (u/e cpi etc) or are you just more concerned with managing your spread positions?

> Trading economic data used to have a LOT of money outright. I came right at the end of its golden period. There used to be orders left in books all around (Bonds and Equities alike). It used to be very easy to hit the number, with a fluid (but fast) movement up or down. But now, every market is basically a bot-based algorithmic function of high-speed correlation to data feeds (usually based on currencies). And no-one leavers orders in anymore. Everyone is much smarter

> The type of data trading conducted now is what I consider, dangerous and gambling. Most people I know who trade it ONLY use currency correlation (because banks/hedge funds use the quick data feed and process it with their bots instantaneously). You literally bring up a currency, if it goes up or down right as it hits the data-release time then you hit market and pray. This is going in blind. You aren't even assessing the number.

> Mark my words, there will be a day again where everyone gets ridiculously creamed because of an erroneous release (e.g. First half-second of data released is a really bad amount of jobs, but the next few milliseconds the unemployment rate is released at 0.3% better and institution bots auto-sweep the book the opposite way). These type of punts are literally risking 10-15 to make 1.

> However, data releases are unavoidable. So when I usually participate, I'm holding a spread through them. I got plans and what-if scenarios done in my head, sometimes I may have a double-spread onto a figure. I just pre-empt how f-cked I will get if a good number comes out and what I should do as a protection just-incase etc.

I'll give an example [By the way, NO-ONE will tell you about this. Even the great traders don't, because they want you to be that fish flopping around on a surface desperate to get back in the warm water. They want you contributing to panic and being weeded out by the competition):

* Your position = LONG AUSSIE CURVE [Long 3yr bond, Short 10yr bond]
* You're 2 ticks offside. Aussie Retail figures are coming out over the next 2 hours.
* You estimate your risk is this: If good number, curve drops 3 against you. If bad number curve goes up 1 or 2 for you.
* You also feel that many people are in the same position and will puke out if it's a good number. So you need to use some tools to stay ahead of the game, here's an example of two options you have:
[Option 1] You got a bad feeling that your PNL will be hurt if there's if there's 3 Yr selling/weakness. Enter into a (Short 3yrs Long Bank Bills) spread beforehand.
[Option 2] You calculate how much you'll lose on a good number and, on small size, sell Aussie 10yrs, Buy U.S. T-notes on small size into the number. If data is bad, your curve comes back and you can try average that spread over the next 24hrs (or just cut a small loss somewhere). If it comes out good, you've funded yourself by doing this trade pre-emptively.

I'm often asked, why don't you just get out before the number? Well, like I say before, my goal is to be big enough so that I can't just get absorbed nicely in one click. Also, sometimes you can't get out, because the price is so bad (and it can get worse!). Sometimes, you're happy being in that trade for another 2 days or a week. Sometimes you feel the move has been exhausted and it's just worth holding. It's all a punt.

> Also, the scenarios I've just dictated to you guys is something 90% of traders DON'T do. They just get out before hand because they can. This is something subconsciously that the biggest and the best are doing all the time. It's what I've picked up on and I've shared it with you.

Btw, trading isn't all a fairytale either. There's a chance you can hurt yourself more by doing these spreads, but that's the game, get ready to step back in the ring and put up another fight. Always leave ammunition in your gun.

 

[sommi]

Good stuff. Two points I'd like to highlight.

No prop trader nor prop firm gives a flying F about CAGR or any type of return on equity. Its such a fudge-able figure that indicates little about trading ability.

The NEED to learn SOMETHING inside and out till its mastered then move on to adding another trick. Year after year its an unbelievably powerful process.

> Very true. No-one analyzes our trades and truly knows the risk profile but ourselves. That's why this game is hard... if you want someone who REALLY cares about you in the trading world, they need to bust your balls and be a very hard critic on you.

> If want survival tips in this game, you need to be told that you're a maggot for trying to 'make some back' on a half-assed trade without having a small stop.

> It's better to be told that you're a unprofessional gambling idiot for holding that trade an extra 3 hours into a risky time-zone when you said you wouldn't. These critiques are luxury, though. Nowhere to be found in the trading world. You need to be this person for yourself. Early on (and even now), I WISH I had this type of criticism forced down my throat. You need honesty all around, you need to ask your friends to be honest with you if you can't trust yourself to be.

> There's nothing worse than hearing "oh yeah.. don't worry mate.. you'll make it back". That's not advice. That's like when someone says "how are you" when you know they don't care how you are. Some will probably wonder what the right advice is.. well here it is:

*When you're getting f-cked, you need to ask yourself WHAT IS THE PLAN?. What are you going to do if it goes up to point A? Down to point B?
> When you got your plan, you sit and wait and twiddle thumbs until you get a chance to throw some jabs back at your PNL or you see some small chances to help you alleviate the pressure.
> Over time, your what-if-scenario plans will become more dynamic, more risk-protective, and better optimized based on experience.

> When my close friends open up to me and say "man... I'm getting so f-cked I don't know what to do." I say.. "oh yeah? What's your plan?" It helps them rationalize it verbally, and sometimes you learn from them too. They usually go "get half out at point A, only average if it goes low to point B, puke out around C if it doesn't bounce at all... worst case scenario"

>Let me tell you guys a short-story. One quiet day, I accidentally bumped my elbow onto my mouse button. It joined a bid... I got instantly hit (in 0.1 seconds). I was FIRST in the queue to get filled on the offer to exit... in a very slow market, and I held it. Well, that was the high, for the next 5 hours of aggressive selling.

I got stopped out because I panicked, I averaged a little too aggressively and too early, OUTRIGHT. I didn't want to take a loss because it had been quiet for 3 days in a row before that and I 'could not afford to just give that back'. Well guess what, it took everything I had made for the month up to that point. Back to square 1.

Later that day, I sat with my friend and I told him I'm the unluckiest guy in the world AGAIN. I said three times.. "there's nothing I could do...". And I quickly learned that type of bullsh*t talk like that gets you nowhere in the game. He helped me out big time by being hard on me. I'll never forget this advice, and I execute similar principles even today.. so here were my REAL options:

1. Exit half out for 1-tick loss immediately after a few minutes, and leave the other half to exit for a 1-tick profit above my scratch (getting half-out helps you much better psychologically, and you can average half back in at a better price later on and be much more comfortable)
2. Don't average unless it's double the distance of what I normally average in a position I want. This buys you more time in the game and lets you think rationally for a bit longer instead of hoping it turns back.

If you aren't staying sharp, focused, concentrated, and if you worry too much about your recent daily/weekly profits when you're trying to make a 10-15 year career out of this, then you will be viciously beaten up and left bleeding on the floor when it's done with you.

Sommi,

Great thread and it's very noble of you to give back to the forum.

Can you show us your equity curve / account P&L chart? Take the scale off or re-based it per contract (if your limit has been increased over time). I've always wondered what a bond spreader's curve looks like.

I can show you mine if you show me yours

This doesn't include the past few months. I have had hiccups recently, though I've definitely been positive as each month goes on. This is a cumulative PNL and I've highlighted two significant points of interest.

 

[CanOz]

Incredible, well done Sommi

Thanks for sharing! I want to read this in a book one day, you're a good writer too.

CanOz