I graduated college and have been trading for about 7 months....For the more experience traders, what are somethings you did as rookie trader that you look back on and wish you hadn't? Any other advice would be greatly appreciated to...
- consider a hybrid day/swing trading approach with a scaling in/out methodology using smaller position sizing increments to manage risk
- do the more active trading in an IRA if you can
- NEVER have most of your capital committed to a large position(s) 'overnight'
- if you're going to swing for the fence, do it with under $10 smaller caps as swing trades but with VERY conservative position sizing and/or, larger caps with 'good news', on a day trade basis, buying the pullback right after the open, but considering hanging on to a partial position if it really takes off
- don't assume that the 'technicals' are predictive, sometimes they are just coincidental and indicative
- incorporate -- at least a little -- a longer term view that doesn't ignore the fundamentals (which have become too damn complex)
- as attractive as the futures are, do not day trade them 'casually'
I think there's more.
"The Future Ain't what it used to be"
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Understanding Expectation in Intra-day Futures Trading
When we first saw the profit potential of trading futures we were enticed into the market. Low margins, inexpensive trade fees, electronic charting and order entry software at low cost, and lots of role models of supposedly successful traders making millions easily. We were lured further into this world by indicator vendors selling us the potential and the dream of success and profits using secret magic software, strategy's, and systems that would take us from rags to riches in just a few months or by brokers offering us low margin risk and small trading fees that made it possible for many of us to take the venture with very little risk capital.
Well, after a while reality set in and we saw a totally different picture. As this pretty picture dissolved along with our risk capital, we somehow forgot to adjust our expectation to be in line with our skill level. As a matter of fact, forget the skill level. We failed to adjust our expectation to be in line with our results regardless of our skill level.
Most traders expect a lot from the market. We expect the market to cooperate. We expect our strategies to work all or most of the time. We expect to be able to remain dispassionate from our trading. We expect to make money on a consistent basis. We expect to make lots of money if we trade many contracts, and we expect to be able to withstand account draw downs. We expected to be a certain type of trader, maybe like the one we were reading about and we expect to trade just like them. We expect to not become part of the losing 90%.
Let's face it. We, as unseasoned traders, expected to survive and prosper in the market. And we expected it to happen within the first year or two.
Unfortunately, our expectations had more to do with wishful hopeful desires than with reality. And for most of us, if we survived our first few years, were finally realizing, along with a great many other things, that our expectations were way out of sync with our abilities and the realities of intraday futures trading.
If we were lucky to wake up, we made the adjustment. We resigned ourselves to learn to trade the same charts and stop looking for the holy grail. We stopped asking other people how to trade and started finding out for ourselves. We concentrated more on our mental state and reaction to our trading than on indicators and magic systems. We re-aligned our expectation to be in keeping with what we could do, not what we hoped for or wanted the market to do for us.
For me, the hardest expectation adjustment I had to make was to change the expectation of price doing what I wanted it to do for as long as I wanted it to do, to what it was actually doing and accept how long it was doing it. In other words, I accepted the fact that the highest expectation of my trading strategies was at the entry tick, and that with every tick, the expectation of price doing what I wanted got lower and lower. I finally reached my most realistic understanding of the potential and expectation of my strategies, and became the next bar king. That means, I knew the highest potential was the very next bar completing in the direction of my trade entry, and it went down from there. This was a big eye opener and it was very difficult for me to come to terms with. It defined me as the kind of trader that most believe is a dirty word. I was a scalper. I got bloody, mean, and merciless. I took names and counted winners. Today I don't bother with theoretical trends, or turn winners into losers trading for the large mega point trades. I get 4 tick winners, ten times in a row or enough to be able to go for larger trades without losing, and walk away making my daily goal almost every day. I am still fundamentally a scalper, but a scalper always on the lookout for the larger trade. My expectation was to be right long enough on the next bar to make money, and move on to the next trade opportunity. I finally realized what was meant by finding out what kind of trader you are. Accepting the reality of what kind of trader you are requires adjusting our expectation all the way down the line. It requires accepting what you can do most often profitably and not insisting on being the kind of trader that you imagine yourself to be if that trader continues to lose money. What happens is that many of us continue to try to emulate the traders we admire incurring continual monetary loss, and along the way we lose sight of the kind of traders we are able to be if we would just focus on the results of our own efforts based on our own strategies and trading behavior. It may come to pass that we cannot trade. This is not a bad thing. Unlike most any other endeavor, while there may be an endless supply of energy and desire, there is not an endless supply of money; at least not for most of us. So, adjusting our expectation also involves adjusting the time and effort we should realistically apply to this activity. This may go against all the brokers and gurus who tell you winners never quit and quitters never win, but this is futures trading not basketball or the Olympics. In this game there must be a cultivated stream of players supplied for the market makers and large traders to profit. There must be inventory. So, the marketing of the market is a business unto itself and it does not have your best interests in mind. The industry simply needs players. Adjusting your expectation of loss and gain to something realistic and in keeping with your own financial survival is crucial. I have known quite a few traders who make large profits from Monday to Thursday, and blow them away on Friday on a habitual basis because they expect to continue winning.
Part of learning is knowing where and how to go about learning something. Watching realistic consistent trading is so foreign to many traders because they have unrealistic expectations and are blind to what daily goal oriented, disciplined trading looks like. They are unable to accept someone else loosing in front of them but they believe when they see someone win all the time in front of them. The trader who they watch losing trades sometimes 3 times in a row, or 1 or 2 days out of 5, or 1 week out of 7, or 2 months out of 10, is the kind of trader they do not want to know. Most traders only want to know about the trader who trades 10 contracts in sim, and says they can do the same thing in cash, and so can you if only you study with them and buy their indicators. Understanding expectation is an important element in recognizing your trading patterns.
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I've made every mistake and done every stupid thing you can do at one time or another....like others have said just trade small and be patient....the more screen time the better.
You've been trading for a little while so you know losses are part of the business but you also have to figure out what methodology works for you and if you trade small you won't lose your ass before you find something that really works.
I'm not going to tell you how to trade but would like to say not all trading methodologies are the same...you will over time discover that some things that work great today can't make 2 cents a month from now, so until you can find something that works in most conditions or are at least able to have some kind of consistantcy just go slow and trade small.
One other thing and this may be the most important....you can nose around and see what everyone else is using/doing but make sure you know exactly what YOU'RE doing. In other words have a total understanding of what your methodology is and be able to do it by yourself.
I guess my point is NEVER take trade advice from anyone...you have to do your own homework.
Imagine yourself being locked alone in a room with no guidance or contact with anyone else...can you trade profitably in differing market conditions consistantly ?
When the answer is yes then you can trade larger and be on your way.
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Broker/Data: Multiple, Sierra Chart, IQ Feed, Trading Technologies
Favorite Instrument: ES, CL
Posts: 1,033 since Jul 2010
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Educate yourself. The CME's website is an excellent source to start out with. What did you study in college? Finance hopefully. Your profile states that you're in Chicago, correct? You happen to be in the Mecca for futures trading. Maybe ask your broker if they know anyone you could sit down with and learn from. Sitting and watching with a professional trader will be the best way to get an initial view of how to do this correctly.
In addition to that, here are some general things to follow:
- Do not trade cash until you're consistently profitable on SIM.
- Make sure you're well capitalized.
- Trade SIM the same way you plan to trade live including appropriate market vs. your risk tolerance, appropriate position sizing and realistic risk:reward ratios, stop placements, etc.
- Start small even if you have a sizable account. Start with small positions to get a feel for trading with cash and overcome the psychological hurdles associated with it. Do not go max leverage.
- Do not scalp trade. Look to only take a few trades per day while learning that have reasonable targets. This will avoid over trading.
- Institute a daily loss maximum. You want to be able to come back the next day and try again.
- I mentioned educate yourself. This means learning multiple methods. Do not try to duplicate someone else's method. Take what you like from various methods you learn and create something on your own that suits your trading goals. Trying to duplicate/copy someone else teaches the wrong habits. You need to think for yourself which is one of the most crucial elements in trading.
- Keep it simple. Do not try to utilize a strategy that has a complex set up criteria with a bunch of bells and whistles. You need to have clear signals.
- Do not strike out on the quest for the indicator holy grail or trading method. You need to learn the fundamentals of the markets. One thing you'll see is people looking for the fast easy way to success. I think this has a huge impact for reasons many fail. They aren't willing to do the work and learn the basics. Do not go out and buy a bunch of fancy indicators or pay for a trading method.
- Do not only utilize small chart intervals. I've seen a lot of people trying to trade with a myopic perspective. You don't want to be navigating a map with a microscope. Look at multiple time frames to see all the important areas that will have an affect on price. An example would be, looking at a five minute chart with higher intervals to see where the OTF traders may step in. One of the reasons traders use smaller time frames is an attempt to justify using a small stop. That's a fools game there and you'll have a tough time with that.
- Make sure you have good equipment but don't over do it. Have a solid trading only computer while using a trading platform and data feed that is fast and dependable while keeping your overhead low.
- Study your screens as much as possible even if you're done trading for the day. It's important to learn how your market moves as each market has their own unique personalities. ES is far different than CL and 6E is far different than ZB for example.
- As far as trade/money management goes, do not exit your trade early because you're "afraid" the market will turn on you. Let the market take you out. As you become more familiar with trading, you learn when something isn't right about your entry and you'll know when to get out. But while learning, you should avoid this because you'll find yourself getting out of winning trades.
- Determine an appropriate market to trade based on your account size and the risk you can take on. Do not trade a particular market based on how much money you can make. It's all about how much you can potentially lose if you're wrong. Many traders get caught up in this and you know what happens next. Your risk/uncle point should be consistent with the market you're trading based on it's volatility. If you can only risk a small amount per trade, maybe trade a small tick size/low(er) volatility market.
- Do your homework before each trading day with a game plan based on what you'll do if the market ends up here or there. What will you be looking to do? This avoids impulse trades or simply chasing the market.
- Remain humble in good times and in bad. If you're doing well and you start to get cocky, guess what happens next? The market will find you. Treat trading with as little emotion as humanly possible (not easy). Behavioral finance is one of the biggest hurdles we face.
I'm sure there's a lot more to be said here. Feel free to ask anyone questions.
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