The transition to Futures trading

[CanOz]

No really sure what today will bring but if the DAX can get some mom behind a push higher we could test 9700 again. Yesty was a big day though, so a little pause could be on the cards, but it is end of the month.

 

[pavilion103]

I won't be on much until April.
Interested to see if these indexes do push up now

 

[Newt]

Hey Pav, I'm curious if you still trend trade ASX stocks, or if you've switched (or plan to) making futures your main focus? From my very limited experience it seems like the two would complement each other nicely in terms of short/long term returns, volatitility of returns, leverage and capital requirements, risk and many other factors.


I'm about 12 months behind you in my thinking, but experience to date suggests it would be wise to trade small in futures for at least 6 months to 2 years before getting too serious about changing existing strategies. Futures seems to require a much greater discretionary approach which is inherently difficult to backtest, thus my innate caution.


Considering it was only 12 months ago you first ran the ruler over futures (if I understand the beginnings of this thread correctly), then a few months later started trading, would you mind giving a summary of how your "transition to futures trading" experience has gone over the last year?

 

[pavilion103]

OK.

ASX equities.
I do still trade them. But less frequently.
I will only take the absolute best setups when the index is looking strong.
With a very small account I've only taken 7 trades in 2014 for an overall 9.6% return. Very happy with that.

My medium term focus is:
Trade futures - where I can make the most money, with the least capital, in the quickest time frame.
Put this money into a separate account and trade equities with it.
Continuing to trade equities is certainly an important part of my overall strategy.


The focus is 90% on futures at the moment.

 

[pavilion103]

The transition to futures trading.


I'd say it's been a successful one.

Adapting to it at first was a little challenging. I am used to trading momentum breakouts with equities and that doesn't work with futures. There are so many false breaks. I learnt very quickly that using support and resistance levels to identify high RR opportunities was the way to go. This took a bit of adaptation for me.

As with starting out in stocks, a lot of banging my head against a wall early on trying to "get it". I feel without exaggeration that greater clarity has come every single day.

I am now at the point where I am capable of capitalizing on decent 30-60 point moves and I have a strategy that is highly profitable. I see it like the goose that lays the golden eggs. I now have a goose.

My goals over the coming months are:
1) Greater consistency
2) Letting the big opportunities run
3) Cutting out the poorer opportunities that I take and only taking the very good ones.
4) Trading 2 contracts on the very good opportunities to allow me to manage the trade with greater flexibility.


Once I am satisfied with this I will go from 1 contract to 2 contracts for all trades.
I see 1 contract as one goose. I see 2 contracts as two geese.

This is my focus over the coming 6 months probably.



LONGER TERM - don't take this as gospel, but just a few thoughts going around in my head. I have no idea if it will pan out like this or not..............

If I prove to be consistent and highly profitable, I will look to increase the number of contracts very cautiously and very slowly over time.

If all goes to plan, I hope in 2-2.5 years to be trading maybe 5 contracts.
50 points per week x 5 contracts x $18.5 = $4,500 approx. = $240,000 p.a. approx.

Meanwhile pumping money into my equities account which hopefully can make 20% or so p.a.

That is the goal.

Certainly want to leave employment within this time frame (only working 4 days at present).




These are just all thoughts though guys.
This is just me thinking aloud.
I post it because it's interesting.
We all have our own thoughts and goals, just putting mine out there.

 

[Newt]

Thanks Pav. Like the way you think (short, medium, long term plans) with focus on risk aversion. The trail of breadcrumbs you've left for others here is commendable.

9.6% from ASX trading is pretty good going this year to my eye, and I've seen glimses of what might be possible in futures with decent discipline and knowledge. Thanks for taking the time for 12months update!

 

[pavilion103]

Appreciate your thoughts.
I love a community of like minded passionate people.
It is comments like yours that makes me believe posting is worthwhile.

ASX (9.6%) - is such a small sample size of 7 trades. I've no doubt if I took too many more I'd probably be making a loss for the year. I'm trading none now. I had a few good looking setups but most have failed. I'll continue treading cautiously.


I want to emphasise the work and analysis that goes into my futures "study" and "analysis".
I don't just come on and trade each night. I am constantly writing up charts of all great trades I've taken, or potential ones that I've missed. I write up charts on all my losses so I can review them and eliminate common mistakes. I save the daily chart each night and the 3 minute intra-day charts. I'm also liaising with Tech/a every now and then via email and sometimes over the phone.
Then I review all of the above on a regular basis.
I have master files (or a playbook) of setups. I constantly refine this.
I have another file where my strategy is written down telling me: when I want to look for long, shorts, remain out of the market; how many points I am willing to risk in each place; how the DJIA should look, how the FTSE index should look; when I'll take profit, when I'll hold, when I'll hold over night, when I want to take a position trade, when I want to take two contract; when I will look at the 3 min, 5 min, 10 min and take setups on each of these time frames etc.

As you guys can see from the errors and poor trades I've posted, I am still very much clarifying and refining these things. I have the bones of it but need to get clearer and clearer. This is happening.
When it is consolidated then I anticipate very consistent and strong results.


This thread is a very raw one.
My good trades.
My poor trades.
My irrational emotions.
My bravado and over-enthusiasm.
It's starts with a beginner on his journey.
I try to be no one, achieve anything. Just post my journey as it unfolds.

 

[pavilion103]

An example of my trade analysis.
This is one that I did NOT take (27-02-2014).
In the other tabs I have the trade of the individual chart (a larger version of the one at the top under setup).
I also have the 3 minute chart and 5 minute chart.
This is a trade I thought was most clear on the 10 min chart so I did my analysis on this one.
Most trades are analysed on 3 min chart.
I try to do at least one of these a night.
This night I did 2. The short and the long.

 

[pavilion103]

And this was the previous short of the same night.
This is relevant as we discussed this trade 2 nights ago in here.

This is just a screenshot. The file is in Excel with more extensive information.

 

[pavilion103]

Example of failed trades.

This is the WORST setup I've ever taken (not biggest loss).

This was one from a while ago.
I anticipated a short at the start of the day and got blinded and tried to take it at all costs.
This is completely embarrassing. I haven't had anything close to as bad as this setup!
Lucky I got out for not much damage.

 

[pavilion103]

So I look to learn from the good by reviewing them.

And I learn to avoid making the same mistakes by reviewing the failed trades.

A bad trade is a small price to pay if it means you don't make the same error again.

Going over these again and again brings great clarity.

That is all that I will post.

A glimpse to maybe give new traders an idea of how they can improve and analyse setups.

The rest I will keep confidential.

 

[pavilion103]

Oh also in terms of profit/loss recording I have an excel file with charts.

The following tabs:

Each individual trade (P/L) recorded in excel and visual representation (chart)

Each total individual trading day (P/L) recorded in excel and visual representation (chart)

Each total individual week (P/L) recorded in excel and visual representation (chart)

Each total individual month (P/L) recorded in excel and visual representation (chart)


I really love the analysis side of things

It would no doubt make some people board out of their brains!

 

[CanOz]

So I look to learn from the good by reviewing them.

And I learn to avoid making the same mistakes by reviewing the failed trades.

SKC, TH etc., spend allot of time reviewing statistics of their trading, as shown here on ASF previously, in order to try and ferret out areas to improve, are you doing this as well?

 

[pavilion103]

SKC, TH etc., spend allot of time reviewing statistics of their trading, as shown here on ASF previously, in order to try and ferret out areas to improve, are you doing this as well?

What sort of stats are you referring to?
I'm open to any ideas for improvement.

 

[CanOz]

What sort of stats are you referring to?
I'm open to any ideas for improvement.

I don't know what they use but these come to mind:

Wins/Losses, wins short vs wins long, Max Adverse Excursion, Max Fav Exc., Profit/loss per Time of day, all kinds of stuff you could get into. You want to try and nut out what works and what doesn't in order to do more of what works and less of what doesn't. Its seems most logical to look to the charts for mistakes but they could be in the time of day you're trading/overtrading, etc. Maybe you're better at shorts than longs, etc... etc...

 

[pavilion103]

Look at post 1992.
This is a start.

I'm looking at my distributions of wins and losses.

I've already noticed a correlation between more trades taken per day = less profit/greater losses.

It's a very basic start.

Maybe I should make a little note next to each trade with the type of setup it is
e.g. short from initial daily high on open
long from consolidation base 3 hours into the trading day etc.

Would be beneficial to know how much profit/loss I make per each type of setup.

 

[Newt]

Heck, that's a lot to digest Pav. I can also relate to your use of Excel - have found to be a great tool for storing old and new knowledge and notes as learning something. So easy to put in notes, graphics and organise on pages as you say. Very useful for work (and hobbies) documentation outside traditional spreadsheeting work.

Again - hats off to the trouble you've taken to write this up
(I certainly appreciated it)

 

[CanOz]

Open?

 

[pavilion103]

FTSE about to come off?

 

[CanOz]

Nah...grind lower and then squeeze the shorts out, barring any news...