The transition to Futures trading

[5oclock]

Agree with MichaelD , PAV , good trading and good loss control.

 

[Newt]

I would have been -12 for the night. Thought about tightening the hypothetical stop at 6511 before wandering off for dinner. I believe I would have exited for 6515 after that consolidation area broke down decisively - which would have been -8 total. Again, all hypothetical for me. I don't recall seeing a day like this before, so will write it up and look back over charts for anything similar for my "Trembling Hand portfolio" .

Highs of the night still trending down. I would be calling it quits now too rather than scalping in the barbed wire with my meager beginner skills.

Happy Easter all.

 

[5oclock]

Newt- your post about sums it for me too---probably all down to the reduced numbers trading---happy easter to you all too.

 

[MichaelD]

...double top...

Mr Stock Market: Double Top? Never heard of it. Now, how do I cause maximum pain to everyone who has gone short because of this? I know, I'll rally like there's no tomorrow. Hahaha (evil grin).

 

[pavilion103]

Hmmmm.....

I did state my long bias last night. Proved to be accurate.

Thinking that I could have stayed on a little longer last night to see if anything played out.

I've got no doubt I would have taken the following 2 trades.
1st one out at BE
2nd one would have trailed at around 6550 (if I was awake) and set profit taking targets. Wouldn't have got the full move (well all but 20 points).

A little annoying but at the time I think I made a good decision to just turn it off and go to bed.






Note that this was also the perfect day for 2 contracts with the way it trended.

Take 2 contracts long @ 6520ish.

Profit take order on contract 1 @ 6560 - 40 points profit
Profit take order on contract 2 @ 6580 - 60 points profit

Total = 100 points profit

 

[Newt]

The FTSE certainly did drift up gradually in later trade. Fascinating how many points were there for straight-forward entries (with the benefit of 20/20 hindsight )


Michael, what the heck is that big spike down at midnight on your chart about?

 

[CanOz]

That last spike up...was that the news about the possible resolution to the UKR standoff? Looks a bit too impulsive for anything but news?

 

[MichaelD]

Michael, what the heck is that big spike down at midnight on your chart about?

That's the US open. The spike is larger than usual, but there's always a spike of one sort or another at that time. Same sort of thing happens at the Australian open. The spike generally goes in the wrong direction for subsequent price action so can offer a nice low risk entry at times.

From memory, that one took me out of a pyramided trade with a re-entry shortly thereafter.

 

[pavilion103]

Interesting this morning online shopping for clothes.
I'm fairly conservative with my money in general, but maybe every 6 months or so I'll buy some really nice clothes.

I find myself, rather than looking at price, converting it in my head to FTSE points lol.
The $220 Ralph Lauren jumper is 12 FTSE points.


This brings me to the point of profitability and being smart with the money.

I'm going to set myself targets where I reward myself. So for example the next $10,000 profit, I can spent $500 or $1000 on whatever. Trying to make it a very small portion of profits because I want to build my capital.

I think these little targets make it more exciting and a little reward along the way helps

 

[MichaelD]

This brings me to the point of profitability and being smart with the money.

...I want to build my capital.

This is actually a very important point, one which I have learned the hard way.

I venture to suggest that most of us initially do this the wrong way. What follows is my observations and opinions. Others are free to disagree.

Reinvesting profits into an income producing trading system is exactly the WRONG thing to do. It blurs your risk management. "Should I take 1 contract or should I take 2 contracts?" "I had a profitable week last week, let's take 2 contracts." Until you've doubled your trading capital, you shouldn't double your risk. This blurring will eventually catch up with you and you will take more risk than you should and get burned.

I now withdraw 100% of my trading profits every week.

When I reach withdrawal targets, I will put a lump sum back into the trading account and scale up at that point.

That means I trade exactly the same every week no matter whether I had a good week or a not-so-good week the week before until I make a clean, sudden leap to the next risk level.


I recall reading of traders that once a year would sell everything and go completely to cash and then start again. I used to think this was silly. I now think this is smart.

 

[pavilion103]

Yeh. That is very much just personal preference for each trader to decide upon.

Strong risk management should be of primary importance.

If there is no need make more money beyond a certain point, then no need to take unnecessary risks to do so.

Even when sizing up, it needs to be very well thought through and without silly risk.

 

[cynic]

I recall reading of traders that once a year would sell everything and go completely to cash and then start again. I used to think this was silly. I now think this is smart.

Yes! This is a great example of one of the many elusive realisations that is typically derived from practical experience.

Of course, if a trader had a history of achieving 100% strike rates, combined with accurate quantification of maximum drawdowns, then it would be an entirely different matter.

 

[payday]

This is one thing that I will have to disagree with you Michael. My thinking is the opposite. Take out a wage - definitely, but reinvest any surplus profits that you do have just like you would any other business. But, just like every other part of trading psychology, it is up to the individual to decide what sits best for them. There is no point reinvesting all your profits if you are very uncomfortable with dealing with a certain amount of money past a certain size. I always remember Jack Schwager's story about one of the best traders he ever met. This guy, from memory, did not have a losing month for years, but whenever he made about $500000 he would withdraw all those profits and start from scratch. He never let his profits compound. To me, if his trading was that good, he should have let his profits run. However, this was all probably a big part of his risk management and part of his psychological makeup. I am pretty sure that if he did compound his profits, he would most likely have suffered as a result. My point is that to be successful as a trader, you need to find a system that not only has a positive expectancy and an edge, but one that suits your psychological makeup to a tee.
One of my trading heroes is Marty Scwartz. His battle stories make for a great read and great lessons to be learned. There is an interview here : http://www.curatedalpha.com/2011/curated-interview-with-marty-schwartz-from-market-wizards/

 

[MichaelD]

reinvest any surplus profits that you do have just like you would any other business

whenever he made about $500000 he would withdraw all those profits and start from scratch. He never let his profits compound. To me, if his trading was that good, he should have let his profits run.

I didn't say don't reinvest surplus profits, but you should do so in a stepwise fashion.

Say you have a trading pool of $20,000 and you make 5% per week from this per week.

Week 1: $20,000 trading 1 contract, reinvest all profits
Week 2: $21,000 trading ? contracts
etc
Scaling is blurred.


My belief is that what you should do is
Week 1: $20,000 trading 1 contract, withdraw all profits
Week 2: $20,000 trading 1 contract
.
.
Week 19: $20,000 trading 1 contract
add in $20,000 cash to trading account
Week 20: $40,000 trading 2 contracts

i.e. increase capital ONLY when you increase size and do so in proportion to the size increase.


Compounding week-to-week is great for the balance *in your trading account* but not so good for the cash you keep if/when things go pear-shaped.

The other issue is with withdrawing the lot and starting again. At a certain size, you will begin to move the market you are trading. You then become dramatically less profitable due to slippage.

 

[payday]

I didn't say don't reinvest surplus profits, but you should do so in a stepwise fashion.

My mistake - agree with you there Michael. Increasing position size without proper risk management is fraught with disaster. Marty Schwartz says this at the end of the interview regarding position sizing :
Learn to take losses. The most important thing in making money is not letting your losses get out of hand. Also, don’t increase your position size until you have doubled or tripled your capital. Most people make the mistake of increasing their bets as soon as they start making money. That is a quick way to get wiped out.

 

[pavilion103]

Agree with that.

I thought you meant to never increase.

 

[Wysiwyg]

I'm going to set myself targets where I reward myself. So for example the next $10,000 profit, I can spent $500 or $1000 on whatever. Trying to make it a very small portion of profits because I want to build my capital.

Oh is that from your tax free bank account in the Seychelles?

 

[MichaelD]

One of my trading heroes is Marty Scwartz. His battle stories make for a great read and great lessons to be learned. There is an interview here : http://www.curatedalpha.com/2011/curated-interview-with-marty-schwartz-from-market-wizards/

*Fabulous* article. I've now had time to read it. It's uncanny how close to my story this is (just that the numbers are an order of magnitude higher than mine at this stage).

 

[pavilion103]

Oh is that from your tax free bank account in the Seychelles?

No, I'm paying tax like everyone else

 

[banco]

The other issue is with withdrawing the lot and starting again. At a certain size, you will begin to move the market you are trading. You then become dramatically less profitable due to slippage.

Is this really going to be an issue for a retail trader though?