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identifying potential markets for trend following?
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identifying potential markets for trend following?

  #11 (permalink)
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rocksolid68 View Post
swing trading futures is pretty risky

Got to thinking about this... do you say this because of the high leverage and margin requirements that are inherent in futures? If so... would you say that swing trading options is more risky (and potentially more rewarding) than swing trading ETFs, because options also are leveraged?

This $50K is my play money that I hope to grow into nice windfall or gravy, I don't NEED it for retirement. So I am willing to take on some leverage to get good returns over time. That being the case, I'm wondering if I should look more at options than ETFs.

Just wondering your thoughts...

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  #12 (permalink)
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payooli View Post
Got to thinking about this... do you say this because of the high leverage and margin requirements that are inherent in futures? If so... would you say that swing trading options is more risky (and potentially more rewarding) than swing trading ETFs, because options also are leveraged?

This $50K is my play money that I hope to grow into nice windfall or gravy, I don't NEED it for retirement. So I am willing to take on some leverage to get good returns over time. That being the case, I'm wondering if I should look more at options than ETFs.

Just wondering your thoughts...

Options are more leveraged than ETF's. That is for sure.

If you choose to trade options, you better do A LOT of research. As one trader put it, "options are like playing 3-D chess."

If you are looking for "good returns over time", invest in your education before you put a dollar in the market.

Educate yourself, then trade ETF's until you prove your methodology, then you can switch to more leveraged markets. Trading ETF's doesn't have to be the only thing you ever trade, but it should be the first you put real money into.

I hope this helps.

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  #13 (permalink)
Market Wizard
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payooli View Post
I would like to trade futures. From what I'm reading ("Following the Trend" by Clenow) equities exhibit high correlation despite the companies being in vastly different industries. So for my equity exposure, I would want to just trade equity index futures.

Here's the problem I'm seeing though. I only have about $50K to trade. Clenow recommends limiting your daily exposure per position to something like 15-25 basis points of your total portfolio. (For me, 25 basis points is $125) And then you can can calculate the exposure of an instrument by multiplying the Average True Range by a certain factor, such as 3.

By these calculations, I can't even afford to trade ONE mini contract such as the ES. With a tick value of $12.50 and a 21 day ATR of 23.67, my exposure per contract is nearly TEN TIMES my max, at $1,183.50

Despondent, I did a search in NinjaTrader for "micro" futures, and only turned up 6:

M6A E-micro AUD/USD Futures
M6B E-micro GBP/USD Futures
M6E E-micro EUR/USD Futures
M6J E-micro USD/JPY Futures
MNF E-mirco S&P CNX Nifty Futures (Nifty 50)
MGC E-micro Gold Futures

4 currencies, 1 equity, and 1 metals. These are the only ones I can afford to trade even a single contract while following good money management principles (unless I am missing something?! If so please let me know!). And even MGC is still a little outside my range due to its high ATR.

This is not the diversification I was hoping for! I was hoping for some agriculturals, energies and some interest rates as well.

Clenow's book mentions you really need to start with around $1M. Now I see why! Unfortunately I am not anywhere close to that at $50K. Are futures just out of reach for me?

Thanks for reading and any insights to someone dipping a toe into the idea of trend following futures are very much appreciated!


payooli View Post
Got to thinking about this... do you say this because of the high leverage and margin requirements that are inherent in futures? If so... would you say that swing trading options is more risky (and potentially more rewarding) than swing trading ETFs, because options also are leveraged?

This $50K is my play money that I hope to grow into nice windfall or gravy, I don't NEED it for retirement. So I am willing to take on some leverage to get good returns over time. That being the case, I'm wondering if I should look more at options than ETFs.

Just wondering your thoughts...

I think, despite what certain book technicalities might suggest, that if you have risk capital in the region of 50k, most people here would agree that should suffice to get you started.

Huge warning no.1: I have come across people who did not know what they were doing and they wiped out even more than that in a short amount of time.

Onto the markets... conventional wisdom suggests that the most liquid markets are the ones to focus on. Given you're thinking about Futurues, these would be

Equities indices such as the SP500 e-mini, Nasdaq e-mini, EuroStoxx 50, DAX....
US Treasuries such as 10 Years, 30 Years, 5 Years...............
Currencies such as EURUSD, JPYUSD............
Commodities such as Crude Oil, Gold...........

These above are some of the more popular options.
Huge warning no.2: Each of the above instrument has a different 'personality'. This translates at its most basic into different volatility for each instrument.

For instance, 10 Years US treasuries is a very slow-moving instrument. Crude Oil or DAX are very fast moving.
This means that, typically, you can find yourself opening a 1 lot position with Crude Oil and 3 seconds later you may be down by 80 dollars.

So you need to think carefully about which instrument to pick.

Again conventional wisdom suggests to get used to watch several instruments on a simulated account for a bit to get a feel for which one speaks to you most.

Regarding your exposure calculation


Quoting 
Here's the problem I'm seeing though. I only have about $50K to trade. Clenow recommends limiting your daily exposure per position to something like 15-25 basis points of your total portfolio. (For me, 25 basis points is $125) And then you can can calculate the exposure of an instrument by multiplying the Average True Range by a certain factor, such as 3.

By these calculations, I can't even afford to trade ONE mini contract such as the ES. With a tick value of $12.50 and a 21 day ATR of 23.67, my exposure per contract is nearly TEN TIMES my max, at $1,183.50

I am not familiar with this book but the outcome does not sound right. Perhaps someone else that trades the ES can chip in and offer some recommendations here.

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  #14 (permalink)
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xplorer View Post
I am not familiar with this book but the outcome does not sound right. Perhaps someone else that trades the ES can chip in and offer some recommendations here.

@payooli I want to qualify what I said a bit more: I don't trade the ES but my understanding is that several people on this forum would typically use an indicative stop loss of 4 to 6 ticks per contract. That would work out at a risk of 50-75 USD per contract per trade (+ commissions), which is much much lower and reasonable than what was posted above.

EDIT: i also need to clarify that the risk I'm talking about refers to intraday trades.


Last edited by xplorer; July 7th, 2016 at 07:19 PM.
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  #15 (permalink)
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solotrader View Post
There is no statistical evidence that TF can provide significant alpha. The fund examples given could possibly represent survivor bias. Look at TF CTA data. They have not been able to generate returns in the last 10 years>

Thanks @solotrader! Always looking for hard facts, this is good info. Just curious, given the markets of today, what methods that in your experience do tend to provide alpha (at least, enough alpha to make the endeavor worthwhile)?

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  #16 (permalink)
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payooli View Post
Thanks @solotrader! Always looking for hard facts, this is good info. Just curious, given the markets of today, what methods that in your experience do tend to provide alpha (at least, enough alpha to make the endeavor worthwhile)?

Cross sectional momentum (buying winner, selling losers) seem to work better than absolute momentum (trend following).

I am heavy into arbitraging micro-anomalies in price action, a.k.a. price patterns. I'm using a tool called Price Action Lab to identify them. It's more exciting than getting into a position and worrying every day if it goes against you.

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