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How did YOU learn to successfully trade futures?


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How did YOU learn to successfully trade futures?

  #1 (permalink)
jubjub
Hartford, CT
 
Posts: 13 since Feb 2018
Thanks Given: 57
Thanks Received: 18

Hello everyone,

As I mentioned in my intro thread, I've lost enough money to ban myself from live trading until I have a better win ratio. I have studied technical analysis and everything I can for the past several months (more like years, but futures-specific for past several months), and have traded stocks for years. I am skeptical about all the many trade rooms I have read about. Futures.io seems like a great place to learn. I am curious, what method, book, system, source of knowledge, ANYTHING, gave you the insight to become a successful trader?

I have read the famous AHG thread, which is what inspired me to sign up. However, more recent posts seem to debunk that thread. I know that there is no substitute for screen time, yet there must be some guidance behind the screen time to make a successful trader.

Also, I'm sure there are many sources of knowledge along the journey, but were there one or more sources of knowledge that made the light bulb go off and steered YOU toward being a profitable trader? I have struggled through 1.5 Al Brooks books so far (I had to put the second one down), screen time, countless youtubes on the daily commute, and around the clock reading on futures, technical analysis, and the markets in general.

More recently I have tried constant volume tick charts...seemed promising at first, but the balance kept dropping...

Thanks in advance, and thanks for this awesome forum...

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  #3 (permalink)
 tpredictor 
North Carolina
 
Experience: Beginner
Platform: NinjaTrader, Tradestation
Trading: es
Posts: 644 since Nov 2011


The idea that one can become a "successful trader" is sort of, if you think about it, vague and undefined and open ended. The open ended part makes it unanswerable as to the future state. In other words, even among successful traders today we do not know who will be successful tomorrow. Think about that for a moment.

In futures, the biggest cause of losses among most traders is a combination of over leverage, over trading, and taking too many stop losses. If you wanted to be prudent and risk 5% of your capital per day and you have 5k (common for new futures traders), you end up with a max $250 risk per day. That's very little risk. If you want to risk no more then 30% on a single trade idea, this breaks down to $250/3 = $83 on a trade. That's very tight!

It is really a vicious combination. First, you need to reduce your risk per trade because the futures are fixed contract. So, you have to trade on faster frequencies. So, now you need to take more trades to make a given level of return. So your trading costs go up. On the other hand, if you can do it successfully then you can print money with very little risk or most-likely you have to accept more risk.

Here's an idea: stop reading and start trading on the simulator and backtesting.

Given it is impossible to take any steps that will guarantee you will be a successful trader tomorrow, you might instead start to set yourself some possibly attainable goals. Goals such as trade the open every morning, come up with at least 2 original ideas about the market each day, etc. This is the work of "market cognition". My other idea is treat it like a project. A lot of traders are carrying baggage from previous success or failure. A project might be to try to make say 5k trading futures in a month without drawing down 5k using a specific method. Try it first on the simulator. Set a goal to build your own trading system and then make it a goal if it makes money and passes your tests, commit to trade it for a year provided performance continues to be inline. Other ideas, you might try also to think about your trades in R. Set yourself a goal to capture a 3R or 4R trade. Try to qualify the best trades. Think about if I could take only 2 trades this week what are the best trades.

Right for screen time, I recommend to specialize. Specialize for trading a specific time and a specific method.

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  #4 (permalink)
 
wldman's Avatar
 wldman 
Chicago Illinois USA
Legendary Market Wizard
 
Experience: Advanced
Broker: IB, ToS
Trading: /ES, US Equities/Options
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I hope that this thread develops well and provides insight that can be used to perfect guys individual approaches to trading.

I want to respond with some depth but I have to begin by being brief on broad topics because I'm pinched time wise and cant afford distraction.

IMO the only way to learn, certainly the best way, is to actually trade. If your capitalization combined with the volatility of your chosen instrument, trade frequency and time frame make trading impossible you should alter those items to the point that you CAN sensibly participate. If you'd like clarification or examples, just ask.

Some will say sim trading and backtesting. I do not want to discredit those individuals but I strongly disagree with that approach. Trading is an emotional monster. SIM disengages reality, specifically on the downside. Again, happy to provide clarification or explanation. Backtesting, especially in the low latency world of under ten round trips a day past a very cursory "might this work", is a complete waste of time.

The first fork that folks come to is knowing if they are subjective (discretionary) or objective (rules based). Define the primary approach and keep it as simple as possible.

Price action is absolute KING, especially in day and swing timeframes.

Use as few "indicators" as possible.

When you do use indicators, make sure they are complimentary based on a hierarchy or confluence and non-colinear.

Be skeptical that anything "for sale" has a market price greater than the salesman could make during that time trading it himself. MOST of the absolute best visual way points that I have ever seen are available on this site for free.

More later if anyone cares.

Dan

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  #5 (permalink)
PeanutButter108
Toronto
 
Posts: 29 since Feb 2018
Thanks Given: 150
Thanks Received: 33


wldman View Post
I hope that this thread develops well and provides insight that can be used to perfect guys individual approaches to trading.

I want to respond with some depth but I have to begin by being brief on broad topics because I'm pinched time wise and cant afford distraction.

IMO the only way to learn, certainly the best way, is to actually trade. If your capitalization combined with the volatility of your chosen instrument, trade frequency and time frame make trading impossible you should alter those items to the point that you CAN sensibly participate. If you'd like clarification or examples, just ask.

Some will say sim trading and backtesting. I do not want to discredit those individuals but I strongly disagree with that approach. Trading is an emotional monster. SIM disengages reality, specifically on the downside. Again, happy to provide clarification or explanation. Backtesting, especially in the low latency world of under ten round trips a day past a very cursory "might this work", is a complete waste of time.

The first fork that folks come to is knowing if they are subjective (discretionary) or objective (rules based). Define the primary approach and keep it as simple as possible.

Price action is absolute KING, especially in day and swing timeframes.

Use as few "indicators" as possible.

When you do use indicators, make sure they are complimentary based on a hierarchy or confluence and non-colinear.

Be skeptical that anything "for sale" has a market price greater than the salesman could make during that time trading it himself. MOST of the absolute best visual way points that I have ever seen are available on this site for free.

More later if anyone cares.

Dan

I agree with everything you've stated. However, I do think that it's essential to prove to yourself that you can make money on the sim before going live. While it's true that sim trading doesn't provide nearly the same emotional turbulence as live trading, I just don't see how anyone can expect to make any sort of money without having a good system in the first place. If you're losing money on the sim, there's no way you can expect to make money live.

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  #6 (permalink)
 
wldman's Avatar
 wldman 
Chicago Illinois USA
Legendary Market Wizard
 
Experience: Advanced
Broker: IB, ToS
Trading: /ES, US Equities/Options
Frequency: Several times daily
Duration: Hours
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I do not disagree with that PB. SIM, very quickly becomes a crutch for the week. Past that, nothing will be a better motivator to getting something figured out that losing a couple handles every trade.

I believe folks spend a great deal too much time trying to create a "system" to generate results. If your approach is results generate the system, you are better positioned to make it, adjust or fail sooner.

Dan

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  #7 (permalink)
 tpredictor 
North Carolina
 
Experience: Beginner
Platform: NinjaTrader, Tradestation
Trading: es
Posts: 644 since Nov 2011

I will add this too. If you aren't an expert at reading the market then you are much more likely to have success with a trading system. If you are an expert then it can still be difficult to transfer the practice to real money. However, I don't think it is just because real money is on the line but most traders make last minute changes to their strategy based on rational ideas.

Example, a sim trader who's risking $1500 per day with daily loss limit might at last minute decide to change it to $500 per day when going live. That's a big change. If the trader was making say 4-5 trades per day with average risk of say $300-$500 per trade. What do you think will happen when they cut the risk per trade in half or more? Win ratio will likely crater. The trader will hit loss limit nearly every day. What do you think will happen to confidence? The trader will want to risk even less.

Honestly, if you haven't had much success with discretionary trading then you might be better trading systems or you might try building grayboxes.

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  #8 (permalink)
jubjub
Hartford, CT
 
Posts: 13 since Feb 2018
Thanks Given: 57
Thanks Received: 18

Thank you everyone for the replies! Some really great nuggets of wisdom. Some things to ponder and high-level notes from the points made above:
  • risk / money management
  • hit the sim more / backtesting
  • 2 original ideas per day
  • 'project / goal' create a system (ex: 5k without drawing down 5k)
  • think in terms of R. Set a goal of 3R or 4R trade
  • screentime - specialize for a specific time and method
  • avoid the sim and actually trade
  • define your primary approach, subjective or objective, and keep it simple
  • use as few indicators as possible and ensure they are complimentary
  • scrutinize any indicators for sale
  • if not an expert reading the market, go with a system
  • may not necessarily need to be profitable in the sim before trading live

I agree with Tpredictor on the first post that successful is definitely a vague term. I suppose I should have stated 'profitable', of which currently I am not. I have definitely played both ways live and in the sim. I had some really great trades playing the open on /ES, but got badly burned in the February 2018 downswing / inflation panic. Just could not manage those swings.

In regard to the above posts, maybe what I am really asking is what was your favorite/primary source to either a) learn the market or b) develop your own system? What method do you follow and how did you learn it?

As the saying goes, the market can be irrational far longer than your account can remain solvent. i can keep trading live, but want to avoid running my account into the ground...so further education or reading up on other's systems would be helpful to garner more ideas.

Hopefully the above makes sense.

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  #9 (permalink)
 tpredictor 
North Carolina
 
Experience: Beginner
Platform: NinjaTrader, Tradestation
Trading: es
Posts: 644 since Nov 2011

I agree you should preserve your capital. There aren't any cheering crowds for traders. Here's the thing: I know or suspect I learned quite a bit from people who might not have been able to trade themselves. For example, I recently seen an excellent pre-market analysis from a known or suspected "snakeoil salesmen" but it was on point. Now, that's a problem if you aren't being honest about it. If an educational vendor is charging and can only trade in sim then they should make it clear. So, that's the first idea you need to embrace that, provided you aren't paying for it, then it doesn't matter if the material you are learning works or not. You can make it work if it speaks to you.

The key is you have to make it work and/or do the original research into it. You need to get a program that allows you to test many trade ideas. Today, I use Tradestation primarily but there are other options out there. If you can get Wealthlab then it might be a good place to start but today requires a Fidelity account. Ninjatrader is more powerful then some other options but more difficult for prototyping. Ninjatrader has market replay capabilities.

Right, if you were doing well before that period then you might want to look at how you performed in that period. Really study it and maybe you can figure something out. Sometimes you have to adapt how you do things. And, that's the difficult part with getting consistent in the markets is that the markets do change. So you need some strategies for different conditions. Speaking of adaptation, if you were primarily using market orders prior then did you consider to switch to using limit orders? Did your losses come from market orders or limit orders?

If you weren't holding a position, you say you got badly burned but each position should have a stop loss. In volatile markets, a lot of traders want to use larger stops but it only works if you can set your stop beyond the volatility. So, in reality its like a compounding of risk. You can actually trade with relatively smaller stops in volatile markets far more effectively. Why? The reason is that you can capture higher R trades. You might want to track the average swing so you can be aware of changes, as well.

I think the absolute easiest way for you to become profitable is to specialize in one or two types of trades only. Build a system and verify that it works. Relax the constraints. Now, test yourself with historical data to see if you can improve the results with your discretion. You can do this much faster then in real-time. You now have a graybox you can trade! Now, try it live but keep it in the simulator for 2-3 weeks to no more then 3 months. If your results are good then go live. Your system should, probably, take 1-4 trades per day at most (keep the volume down). You might try managing the exit but taking every trade or you might try to pick and choose. I wouldn't recommend changing the stop loss but you might try managing the exit, i.e. to take a bigger or smaller profit or close for a small loss. When you go live, go live exactly as you did in the simulator.. everything must the exactly the same.

Right, your objective is to figure out where your personal strengths are. I'm a tape reader but I suspect only about 1/2 the people can learn to tape read due to cognitive processing style. Right, the screen time-- a lot of people want to learn to tape read by staring at the tape. It takes a long time to learn it that way. What you need is to develop your market cognition-- thinking about the market and figuring it out in real-time.

Here's an idea, study the market for 1-2 hours per day. Jot down your trading ideas. Take as many trades as you can in the simulator. Run two sim accounts even. Ignore any losses. Now, afterward look at the results and your notes and focus on your best trades. Take those ideas and develop your own indicators or trading system. Backtest the idea and really study that one trade. Look how the idea or trade works with various filters or how it looks when different indicators are applied. That's your specialty trade.

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  #10 (permalink)
 
Scalpingtrader's Avatar
 Scalpingtrader 
Hanover, Germany
Legendary Amateur Trader
 
Experience: Beginner
Platform: NinjaTrader
Trading: ES
Posts: 1,945 since Apr 2014
Thanks Given: 3,142
Thanks Received: 5,147


@tpredictor interesting points, I am sure many here appreciate your taking the time. As these days I am actually in the process of building a “gray box” system myself, I am curious how your criteria for “make sure that it works” is? Do you expect the system to generate a net profit (w/ commissions) on its own during backtesting, or how would you judge that it does work?

Of course, at least in my view, the real edge comes with the correct application of discretion but I am still curious where your baseline for considering a system for gray box trading lies?

Thanks again, ST.

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Last Updated on March 3, 2018


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