Put on the thinking caps - Commodities Futures Trading | futures io social day trading
futures io futures trading


Put on the thinking caps
Updated: Views / Replies:783 / 6
Created: by mwtzzz Attachments:0

Welcome to futures io.

(If you already have an account, login at the top of the page)

futures io is the largest futures trading community on the planet, with over 90,000 members. At futures io, our goal has always been and always will be to create a friendly, positive, forward-thinking community where members can openly share and discuss everything the world of trading has to offer. The community is one of the friendliest you will find on any subject, with members going out of their way to help others. Some of the primary differences between futures io and other trading sites revolve around the standards of our community. Those standards include a code of conduct for our members, as well as extremely high standards that govern which partners we do business with, and which products or services we recommend to our members.

At futures io, our focus is on quality education. No hype, gimmicks, or secret sauce. The truth is: trading is hard. To succeed, you need to surround yourself with the right support system, educational content, and trading mentors Ė all of which you can find on futures io, utilizing our social trading environment.

With futures io, you can find honest trading reviews on brokers, trading rooms, indicator packages, trading strategies, and much more. Our trading review process is highly moderated to ensure that only genuine users are allowed, so you donít need to worry about fake reviews.

We are fundamentally different than most other trading sites:
  • We are here to help. Just let us know what you need.
  • We work extremely hard to keep things positive in our community.
  • We do not tolerate rude behavior, trolling, or vendors advertising in posts.
  • We firmly believe in and encourage sharing. The holy grail is within you, we can help you find it.
  • We expect our members to participate and become a part of the community. Help yourself by helping others.

You'll need to register in order to view the content of the threads and start contributing to our community.  It's free and simple.

-- Big Mike, Site Administrator

Reply
 
Thread Tools Search this Thread
 

Put on the thinking caps

  #1 (permalink)
Trading for Fun
Sunnyvale, CA
 
Futures Experience: Advanced
Platform: TTTrader
Favorite Futures: CL
 
Posts: 160 since Dec 2012
Thanks: 8 given, 94 received

Put on the thinking caps

Someone suggested I start a tutorial/journal, so here goes. Let's ease into this in an unconventional manner. The best way to learn is being helped to figure things out for yourself.

If you've already got a consistently successful strategy, no need to read this thread, obviously.

If you've got a consistently losing strategy, that's actually easy to address: simply invert it. As George Castanza on Seinfeld said, since he had been a failure in everything he had done, he might as well start doing the complete opposite. And it worked out for him.

So, the purpose of this thread is to address breakeven strategies, because a lot of strategies simply are unable to get out of that rut. Let's define a breakeven strategy, it's where one winning trade of $100 is negated by a bunch of losing trades of $10 each, or the number of winning trades is equal to the number of losing trades and the profit and loss is the same in each. Anybody who has backtested simple strategies realizes that it is almost impossible to avoid breakeven or to avoid untenably large drawdowns in the process, which amounts to the same thing.

For this thread let's try and avoid "discretionary vagueness" as much as possible. By that I mean it is sometimes too easy to wave the hands and give vague reasons for things that leave too much open to interpretation. Music teachers are guilty of this: "you gotta learn to play what you feel, man" which doesn't help the students at all.

So ... breakeven strategies. Let's take a look at a couple simple ones to make sure we know what to avoid. For example, you hard code a 20-tick profit target and a 10-tick stop loss for every trade. This won't work because you simply gets stopped out twice as many times as you win. Markets are highly unpredictable, and prices move up just about as often as they move down.

So, you tweak the strategy, you try to identify higher probabilty trades where the chances of a win is somewhat greater than the chances of being stopped out. You find better success in certain time frames but worst luck in other kinds of markets because "higher probability" trades tend to only be thus in specific kinds of markets.

so you start focusing more on a disrcretionary approach which might have some success if your understanding of price behavior or indicators or whatever is reasonably accurate, but markets are known to eventually behave in ways that have no precedent which throws everything out the door until you can figure out how to interpret the new modus operandi.

So, for whatever reason you just can't consistently beat the market and win. What do you do? Well, one path of course is to continue trying to refine your understanding of markets, try to improve upon your strategies, trying different methods, etc.

Another way is approach it from a different angle. Let's say for whatever reason you're stuck with your breakeven strategy. You can't or don't want to modify it. What do we do in this case? First, let's realize that if you trade nothing but a single instrument (commodity future, stock, whatever) there's no amount of finagling that will improve it. So, you need to add something that's tied to the instrument but not in a 1-1 manner.

Reply With Quote
The following 2 users say Thank You to mwtzzz for this post:
 
  #2 (permalink)
Quick Summary
Quick Summary Post

Quick Summary is created and edited by users like you... Add FAQ's, Links and other Relevant Information by clicking the edit button in the lower right hand corner of this message.

 
  #3 (permalink)
Trading for Fun
Sunnyvale, CA
 
Futures Experience: Advanced
Platform: TTTrader
Favorite Futures: CL
 
Posts: 160 since Dec 2012
Thanks: 8 given, 94 received

Options + Underlying Instrument


Continuing from the previous post, let's look at options.

Options by themselves give you no advantage or disadvantage you don't already have in the underlying instrument. So don't bother trading options instead of the underlying because you're going to have the same results. (No, options are not "safer" they're just slower.)

OTM and ATM option premiums do not move 1-1 with the price of the underlying, which is good, but the cost of the option premium tends to negate any advantage over time due to the time decay, which is not good. Options are always priced exactly as they should be - since the advent of real time computer pricing, there are no longer any arbitrage opportunities.

Let's take a look at how a simple option + future strategy does not help you. You go long a future, it moves against you, you go long a put, which slows down the rate of loss on the future, but you've still got the same problem of needing to take the loss at some point and you're back to square one.

You might think you could sell an OTM call or initiate a vertical credit spread, or some such, but don't do that. Collecting premium is very risky business. Let's limit this discussion to buying premium only (buying options, not writing them.)

How can you take advantage of an options + futures strategy knowing that
(a) if the futures moves in your favor and the OTM or ATM option goes against you, you still get an overall profit
(b) if the futures moves against you and the OTM or ATM option goes with you, it slows your losses
(c) a way ITM option premium moves 1-1 with the futures price
(d) the longer you hold an option, the more you lose on premium because premiums decay due to time

I'll let you chew on that. Try to develop strategies using a combination of both future + option to see if/how you can improve avoid "breakeven" in your P/L. Be sure to look at real options premiums and see what they are for your instrument and how they develop and change over time. In crude oil, slightly delayed but accurate options prices are given here: http://www.barchart.com/commodityfutures/Crude_Oil_WTI_Futures//options/CLJ13?mode=i&view=


Last edited by mwtzzz; February 21st, 2013 at 01:34 PM.
Reply With Quote
The following user says Thank You to mwtzzz for this post:
 
  #4 (permalink)
Elite Member
Quebec
 
Futures Experience: Intermediate
Platform: NinjaTrader wt Rancho Dinero's profiling tools
Broker/Data: Stage 5 trading/AMP/CQG
Favorite Futures: ES, NQ, YM
 
trendisyourfriend's Avatar
 
Posts: 3,697 since Oct 2009
Thanks: 3,041 given, 4,496 received

How long do we need to stay in a trade on a Future instrument to make the strategy worth the extra steps of playing with options?

Reply With Quote
 
  #5 (permalink)
Trading for Fun
Sunnyvale, CA
 
Futures Experience: Advanced
Platform: TTTrader
Favorite Futures: CL
 
Posts: 160 since Dec 2012
Thanks: 8 given, 94 received


trendisyourfriend View Post
How long do we need to stay in a trade on a Future instrument to make the strategy worth the extra steps of playing with options?

Hi. I will continue on this thread soon, and my discussion will probably answer your question. If it doesn't, feel free to remind me again.

Reply With Quote
The following user says Thank You to mwtzzz for this post:
 
  #6 (permalink)
Elite Member
Milton Keynes UK
 
Futures Experience: Intermediate
Platform: Investor/RT, Sierra Chart
Favorite Futures: Futures Options, CL
 
Posts: 157 since Jun 2009
Thanks: 74 given, 115 received

mwtzzz,

Not sure if this is where you are coming from but this is something I have tried to a limited extent.

Buy an ITM call (to keep time value down). The deeper ITM the less time value and the more it moves like underlying due to higher delta.

If price goes against your entry point short futures as a hedge to protect your in the moneyness, release hedge when up trend resumes and definately prior to/when you applied it.

If price rises more than the time value paid be prepared to apply short hedge to lock in gains on any pullback, release hedge when trend resumes and definately prior to/when you applied it.

Brit

Reply With Quote
 
  #7 (permalink)
Trading for Fun
Sunnyvale, CA
 
Futures Experience: Advanced
Platform: TTTrader
Favorite Futures: CL
 
Posts: 160 since Dec 2012
Thanks: 8 given, 94 received

Britkid:

Yes, this type of approach is definitely the way to start out thinking about it. Basically you want to make sure you are making more in one than you are losing in the other, keeping in mind that you lose option premium with time.

Reply With Quote

Reply



futures io > > > > Put on the thinking caps

Thread Tools Search this Thread
Search this Thread:

Advanced Search



Upcoming Webinars and Events (4:30PM ET unless noted)

Jigsaw Trading: TBA

Elite only

FuturesTrader71: TBA

Elite only

NinjaTrader: TBA

Jan 18

RandBots: TBA

Jan 23

GFF Brokers & CME Group: Futures & Bitcoin

Elite only

Adam Grimes: TBA

Elite only

Ran Aroussi: TBA

Elite only
     

Similar Threads
Thread Thread Starter Forum Replies Last Post
Tech Stocks May Be the New Value Play in Small Caps Quick Summary News and Current Events 0 June 24th, 2011 04:40 PM
Creative thinking trendisyourfriend Off-Topic 0 April 15th, 2011 10:29 AM
Critical Thinking Skills Anagami The Elite Circle 1 April 6th, 2011 06:23 PM
Were Momentum, Small Caps the 'Canaries' for US Stocks? Quick Summary News and Current Events 0 January 28th, 2011 09:40 PM


All times are GMT -4. The time now is 02:51 AM.

Copyright © 2017 by futures io, s.a., Av Ricardo J. Alfaro, Century Tower, Panama, +507 833-9432, info@futures.io
All information is for educational use only and is not investment advice.
There is a substantial risk of loss in trading commodity futures, stocks, options and foreign exchange products. Past performance is not indicative of future results.
no new posts
Page generated 2017-12-15 in 0.12 seconds with 19 queries on phoenix via your IP 54.226.132.197