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How to choose a Trading Instrument
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How to choose a Trading Instrument

  #1 (permalink)
Elite Member
Anaheim, California
 
Futures Experience: Beginner
Platform: NinjaTrader
Broker/Data: TD Ameritrade
Favorite Futures: ES, options,
 
Gavroche's Avatar
 
Posts: 5 since Mar 2010
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How to choose a Trading Instrument

I would like to know how do one chooses a trading instrument.

What is the difference between them or what are the pros and cons?
Any recommendation for a new day trader?


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  #2 (permalink)
Quick Summary
Quick Summary Post

Choosing a trading instrument for beginners.


Last edited by Gavroche; March 17th, 2010 at 12:35 PM. Reason: clear
 
  #3 (permalink)
Site Administrator
Manta, Ecuador
 
Futures Experience: Advanced
Platform: My own custom solution
Favorite Futures: E-mini ES S&P 500
 
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Gavroche,



I would say choosing an instrument is mainly influenced by your peers (in this case, by trading communities like futures.io (formerly BMT), etc).

Some of the most popular instruments are ES (S&P), 6E (Euro), CL (Crude Oil), GC (Gold), TF (Russel), and FDAX (Dax).

Each of those have their own personalities and each have their own risk characteristics, for instance I would place CL as the highest risk, and ES as the lowest risk.

Each of those move in different ways, different amounts. Slow movers could be useful for those who wish to minimize risk and also have a good control on patience. ES is good for this, and is also good if you would rather trade size than distance -- in other words, trade 10 contracts for 1 point instead of 1 contract for 10 points.

In the end, you should study each instrument for several days or weeks and then you'll form your own likes and dislikes. Not mentioned above are ETF's or just regular stocks, which of course open up even more possibilities. Most people on futures.io (formerly BMT) trade futures, but that doesn't mean you have to.

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  #4 (permalink)
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Favorite Futures: ES, EC, GC, CL
 
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Also, tax prep at the end of the year is significantly easier and less expensive for futures than it is for stocks - and you're not dealing with wash sale and all that nonsense. You also get a more advantageous tax treatment (60/40). Not clear how long that's going to last given the budget deficit situation... Just to be clear, I'm referring to index-type futures here (ES, CL, YM etc.) NOT the individual stock futures which are a different beast. Just my 2c.

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  #5 (permalink)
Elite Member
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And don't try to watch all the instruments at once. Pick one and only watch it. And watch it as long as you can during the session for as much time as possible for as many days as possible. Take notes (see below). Then move to another instrument and do the same thing.

When I first started, and I'm still a beginner, I tried to watch too many and just got confused. I jumped from indicator to indicator, instrument to instrument, setting to setting, timeframe to timeframe, without looking at the most important thing which is price movement and patterns in the instrument.

As Big Mike said, each has its own personality. I settled on ES and I'm starting to "see" it and get a feel for it and how it moves. Later I'll look at a second instrument.

Notes:
What is the distance from top to bottom of a move?
Does news affect my instrument, before and after?
What type of news impacts my instrument?
When does my instrument move the most and least during the day?
etc.

Good luck and welcome. You have a gold mine of information here and a lot of smart and generous individuals.

Andrew

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