The transition to Futures trading

[Newt]

Hi Pav

I'm another one in Sam's boat. Have been reading your thread religiously when new posts come up for a few months, but honestly my futures and short term trading is bad enough you could reliably make more reversing my trades. The angles that came up in here are invaluable and many would be sad to see this one hit the archives.

I'll try to contribute if I ever come up with decent thoughts. You really seem to be confirming in this thread the huge insight available from experienced traders on different techniques. Instead of getting discouraged trying 100 things where 99 fail you can spend more time playing with a much small number of techniques that seem to work for others and figure out if they work for you.

Anyhow, don't give up on this. Sounds like you've been short on time to trade night futures lately and that might be compounding your frustration? Hoping you (and others) keep getting time and feel the inclination to trade and post about futures......

Rob

 

[MichaelD]

It is about getting 'feel good' affirmations, validation or pats on the back.

It's about discussing strategies and setups and any other thoughts so that we can compare notes. It's about offering different perspectives or maybe similar ones.

Why do people always think enthusiasm will lead to dumb trading?

Affirmations and validations won't make you money. Stumbled across this thread here which tells it like it is;

https://www.aussiestockforums.com/forums/showthread.php?t=26564

The setup & entry is the least important part of the trade. Knowing what to do (and doing it without hesitation) when the trade goes sour is what makes the actual money.

Enthusiasm = "this trade is a sure thing" = lose money. Almost all of my "sure thing" trades don't make money. The ones that make the most money are the ones where my emotions are screaming at me to do one thing and I do the opposite.

 

[pavilion103]

Affirmations and validations won't make you money. Stumbled across this thread here which tells it like it is;

https://www.aussiestockforums.com/forums/showthread.php?t=26564

The setup & entry is the least important part of the trade. Knowing what to do (and doing it without hesitation) when the trade goes sour is what makes the actual money.

Enthusiasm = "this trade is a sure thing" = lose money. Almost all of my "sure thing" trades don't make money. The ones that make the most money are the ones where my emotions are screaming at me to do one thing and I do the opposite.

Sorry typo. I meant it's NOT about validation.

I would argue that entry and setup is quite important. Particularly with this FTSE trading, to identify areas with strong RR potential and knowing when to add size to take advantage of high RR opportunities.

You need to know what to do when 1) The trade goes sour 2) when you are in profit
But you should know all this before entering the trade in the first place.

Enthusiasm doesn't = "this trade is a sure thing"
Why do people think that?
Enthusiasm for me = I'm excited about trading. I'm going to work as hard as I need to, be as teachable as I need to, be as disciplined as I need to to make this thing work! (because I see the bigger picture ahead).

People get too carried away with the whole psychology and emotional side of things.
Have good setups in your playbook. Know them inside out. Know when there is high RR.
Have a good exit plan (when losing and when in profit).
When I see a good trade my emotions are usually telling me "This is the setup you've identified many times before and has been highly profitable. You've spent hours and hours working on it, you know this is good RR, you know exactly how you will manage this trade. You know exactly what reasons you will use to exit. TAKE IT"

 

[MichaelD]

I would argue that entry and setup is quite important.

Personally, I disagree. Lots of people are looking at the same "entries and setups" which when it comes down to it are little more than random numbers. Random numbers make patterns if you watch them long enough.

Buy when the market is going up. Sell when it is going down. Simple.

The instant I threw setups and entries out the window and totally switched to trade management for my edge was the instant my equity curve changed from flat to consistently uptrending.

You need to know what to do when 1) The trade goes sour 2) when you are in profit
But you should know all this before entering the trade in the first place.

Have a good exit plan (when losing and when in profit).

Totally agree with this. It is *this* that makes the money, not the setup and entry.

People get too carried away with the whole psychology and emotional side of things.

Again, I disagree. You've been generous with your honesty in posting bad trades as well as good ones. Where did your bad trades originate? My bad ones come from overconfidence leading to larger position sizes than I would prefer. Still working on that.

I'll leave you with one further thought. Limit Orders seem popular. To me, they don't make sense at all. The market is telling you that you are wrong with your entry.

 

[MichaelD]

ps forgot the #1 piece of advice.

Ignore everything that is said in Internet forums and work out what works for *you* and is consistently profitable. Then keep doing it ad infinitum.

 

[IFocus]

ps forgot the #1 piece of advice.

Ignore everything that is said in Internet forums and work out what works for *you* and is consistently profitable. Then keep doing it ad infinitum.

Really great to see you back Michael.

 

[CanOz]

Really great to see you back Michael.

Yup...ditto

 

[DrapSnagon]

Been there, done that.

Hello all. I've skimmed this thread, and was struck by the thought that although it's a year old, the most recent contributions are some of the most valuable and insightful.

MichaelID has absolutely nailed it, and Newt (perhaps without realising?) has also introduced a critical issue:- the time to trade.

I switched from stocks to futures in 2001/02, and made a living from this for about eight years, having lived through the insane times pre-tech-wreck, and having the privilege of watching the 1987 crash unfold in real time. I've now "switched back to stocks", and have no regrets about either decision. They both suited my life goals at the time, and my current work continues to do so.

During my time with futures, I was perhaps the most boring person in the country. I stuck to two very simple policies:-

• Trade only index futures, and
• Employ the same tactics that brokers use for ticket-clipping.

The former is self-explanatory. The second perhaps needs expanding ...

The broking arms of "brokers" (however you define them nowadays) make their money from skimming a few bucks off the top of ANY trade made by clients. Sure, some of them trade on their house accounts or profit from making markets in various instruments, or book revenue from underwriting or other activities or whatever, but the bread and butter comes from brokerage fees. Apologies for patronising any of you who instantly understood what I meant in the first place, but this skim is known as ticket-clipping.

The theme is "lots of tiny amounts add up to something worthwhile". In another age, we might say "watch the pennies and the pounds will take care of themselves". LOL (No, I'm not actually that old)

My adaptation of this principle was to make lots and lots of tiny gains from LOTS and LOTS of low-risk futures trades, such that the total ended up being a little bit more than the tiny losses from those that didn't work out. Multiply that equation by a significant capital base, and you have a business model not unlike the stockbrokers themselves, sacrificing only some risk premium.

It involved trading the US indices and SPI overnight, because as somebody pointed out above, this (in those days) was what drove our ASX in the morning, and apart from precious few exceptions, that 10am position for the SPI more often than not described something close to the 4pm position of the XJO. Mean reversion.

[Hence my honourable mention of Newt's contribution]. If you can't afford the time to watch the overseas market overnight, there is no way imho you can reliably profit from index futures trading in Australia. It just turns into punting on direction during the few hours our market is open and everything else is closed, and that's not a whole level of sophistication above buying Keno tickets.

The key elements for success in this strategy were twofold:-

• Money Management. Having a plan for what you wanted out of each trade and ruthlesslessly executing it, and
• Controlling execution costs. The three bits of this problem are transaction fees, the spread and liquidity. Hence my preference for the US indices overnight:- the spreads were tighter and the liquidity more than adequate, neither of which were guaranteed for the SPI during our day. I used a local broker, but one with a 24-hour desk.

Penultimately, I'll offer one more insight that may be of use to somebody. When trading futures, I tried to visualise the whole thing as a video game. Anytime I started to draw a parallel between the numbers on the screen and the price of a nice lunch, my resolve evaporated and I started to worry about what profits and losses meant in the real world. As long as the numbers and charts didn't represent real money in my head, I was fine.

Finally, futures are nothing more than leverage, which by definition means increased risk. if I could have found a vehicle to trade the XJO with a similar cost and risk profile to using the US markets as a proxy, when Australians should be awake, there's no way I would have stayed up overnight for all those years.

If you want to go down that route, be sure you're 100% aware of, and committed to, the work involved Otherwise, futures trading will just be a way of accelerating your losses.

This post is a bit of an experiment:- it's my first one here. Just trying to see how the whole thing works at present. Apologies for the rubbish formatting - I haven't worked that out yet.

Snap.

 

[barney]

the most recent contributions are some of the most valuable and insightful.

Snap.

Welcome Snap. Always good to get input from those that have walked the walk

 

[pavilion103]

Surprised by a few different people popping up.
Didn't realise that so many were following the thread.

I guess it may still be beneficial to post up some charts and analysis.
I do them after every trade anyway so not too much effort posting it up.
We'll see where it goes!

 

[Caveroute]

Surprised by a few different people popping up.
Didn't realise that so many were following the thread.

I guess it may still be beneficial to post up some charts and analysis.
I do them after every trade anyway so not too much effort posting it up.
We'll see where it goes!

Did you get the Fbo/trap/OD 3 min bar on the open that led to great riches ?

 

[MichaelD]

A huge couple of days on the markets, plenty to get excited about and no one really cares in here. If there isn't any enthusiasm what's the point?

...the reason for my annoyance at the lack of enthusiasm is because of the high level of enthusiasm and excitement that I have at present.

A very interesting start to the week indeed. Had a rare thing happen over the last couple of hours.

All my emotions were screaming at me to stay short, and telling me that anything other than short was insanely stupid given how awful things looked on Friday and that staying short was "a sure thing".

Accordingly, I closed the vast majority of my short positions (nicely profitable).

Will be interesting to see how this pans out. My emotions continue to berate me for closing out, which is a very good sign.

 

[CanOz]

A very interesting start to the week indeed. Had a rare thing happen over the last couple of hours.

All my emotions were screaming at me to stay short, and telling me that anything other than short was insanely stupid given how awful things looked on Friday and that staying short was "a sure thing".

Accordingly, I closed the vast majority of my short positions (nicely profitable).

Will be interesting to see how this pans out. My emotions continue to berate me for closing out, which is a very good sign.

looks like longs getting out still...should be some new shorts to squeeze soon...

 

[Caveroute]

A very interesting start to the week indeed. Had a rare thing happen over the last couple of hours.

All my emotions were screaming at me to stay short, and telling me that anything other than short was insanely stupid given how awful things looked on Friday and that staying short was "a sure thing".

Accordingly, I closed the vast majority of my short positions (nicely profitable).

Will be interesting to see how this pans out. My emotions continue to berate me for closing out, which is a very good sign.

Did I miss a TL break somewhere ?

This is the first sign, before then, it's down and down.

Emotions ..... you don't need emotions.

Take a look at this ...... poor b'stard

http://ftsedaytrading.blogspot.com.au/2012/07/my-trading-strategy-micro-scalping.html

 

[lindsayf]

Personally, I disagree. Lots of people are looking at the same "entries and setups" which when it comes down to it are little more than random numbers. Random numbers make patterns if you watch them long enough.

Buy when the market is going up. Sell when it is going down. Simple.

The instant I threw setups and entries out the window and totally switched to trade management for my edge was the instant my equity curve changed from flat to consistently uptrending.

.........

I'll leave you with one further thought. Limit Orders seem popular. To me, they don't make sense at all. The market is telling you that you are wrong with your entry.

Hi Michael
In regard to your post above - is your dislike of limit entries purely to do with your directional assessment?
That is, if the market is rising then buy at market or a breakout but dont enter when the market is falling?
thanks
Lindsay

 

[pavilion103]

Didn't get the open move.
Didn't have a clear setup.
Maybe need to develop one for the opens like that.
Looking to see if this rejects the 6550 here for a second time and then I'll consider a short if the risk is ok.

 

[Caveroute]

Didn't get the open move.
Didn't have a clear setup.
Maybe need to develop one for the opens like that.
Looking to see if this rejects the 6550 here for a second time and then I'll consider a short if the risk is ok.

Mate, it was an outside down bar at the TL that finished on its low in a run away bear.

One for the play book I think.

 

[CanOz]

Mate, it was an outside down bar at the TL that finished on its low in a run away bear.

One for the play book I think.

I get the outside bar, but whats a run away bear?

 

[pavilion103]

Ok I'm on.
It's moving.
Now to see how it reacts around 6227 low of the day.
If it breaks then happy days!

- - - Updated - - -

Mate, it was an outside down bar at the TL that finished on its low in a run away bear.

One for the play book I think.

To be honest I'm poor on the open.
First 30-45 mins, I have some great setups.
Need to develop those plays on the open for sure. I'm the first to admit!

 

[Caveroute]

I get the outside bar, but whats a run away bear?

Can, you are joking, right ?

The FTSE, and others, have been in a nose dive for a wee while now.