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Scalability of YM and NQ vs the ES, what's the most one can trade?


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Scalability of YM and NQ vs the ES, what's the most one can trade?

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  #1 (permalink)
Orlando FL USA
 
 
Posts: 5 since Dec 2016
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I currently am growing an account over the past 14 months using a strategy that works really well on YM during the first half hour and last half hour of stock market hours everyday (45% win rate with a 2.21 RR over that time period so far).

The account has gone from $2000 to now $14000 trading only 1 contract, although sometimes after I've already gone BE+1 on my first contract, I'll scale into the trade with a second contract. I don't use a profit target, instead trailing my stop up to BE+1 when up by 20 ticks, and then continually trailing up by 20 ticks until I'm stopped out.

My max risk per trade is $200, with my average loser being around $80. The max drawdown I have experienced has been $1800 which occurred only once, while average drawdowns tend to be around $600.

I've tried backtesting this method on the ES and it just doesn't seem to work as well at all, due to the ES being a bit noisier (thus leading to me getting stopped out when I try to trail my stop up similarly) as well as the fact that it just doesn't make the same huge moves in terms of dollar value that the YM does.

However, I've also tried backtesting this method on the NQ and it seems to work just as well, since the NQ also has similarly huge dollar value moves as the YM and moves more smoothly with less noise just like the YM.

I plan to scale up my trading by adding another contract to my position size for every $10k my account grows; my goal is to eventually work my way up to trading 10 contracts of YM per trade on a $100,000 account, with sometimes 20 contracts on the trade if I use the same approach of scaling in a second lot on my big winners after I've already moved my stop to BE+1 on the first lot.

My question is, while I think I should be able to get by trading 10 contracts on YM, what will happen if I'm in a 20 contract trade and I'm trailing my stop loss up for 20 contracts? Am I going to be more prone to getting stopped out? What kind of slippage can I expect?

Should I look into trading this in NQ instead, since NQ seems to trade with twice as much volume as YM?

How is slippage in NQ compared to YM?

I know the ES is so liquid that it will eat up your contracts will little if no slippage on something like a 50 lot trade. What about the NQ and YM? What's the absolute max number of contracts people with bigger accounts typically trade in those markets without severe slippage and what not occuring?

I really wish I could scale this strategy up in the ES but it just doesn't work very well in that market.

I would appreciate any advice, thank you!

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  #2 (permalink)
Elite_Member
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I don't like the ES either. I haven't traded the YM but the NQ is thin.
Having said that though. You currently trade a one lot, sometimes two. You think your method will be okay with ten lots but not sure about twenty and you intend to increase your trading size by one lot for each $10k.
You have a reasonable win rate and your profitable trades are over double your losses so room for a touch of slippage occasionally. I think your query seems premature as you you are concerned the market might not be liquid enough in the future yet you have been trading a one lot for a year. Therefore I wouldn't worry about possible slippage when you get up to twenty lots, try two lots, then three, four etc and worry if it does actually become a problem for your trading system at that time.
Also markets change so from the sounds of it it is going to be at least a few years till you get near that level, if the system carries on working as well as volatility decreases, and you follow your outlined scaling plan, so why worry now.

You have returned over 700% return in 14 months, carry on doing what you are doing and move up to two lots when your scaling plan recommends. That's what I would do anyway, why change markets if what you're doing already works well.

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  #3 (permalink)
Orlando FL USA
 
 
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matthew28 View Post
I don't like the ES either. I haven't traded the YM but the NQ is thin.
Having said that though. You currently trade a one lot, sometimes two. You think your method will be okay with ten lots but not sure about twenty and you intend to increase your trading size by one lot for each $10k.
You have a reasonable win rate and your profitable trades are over double your losses so room for a touch of slippage occasionally. I think your query seems premature as you you are concerned the market might not be liquid enough in the future yet you have been trading a one lot for a year. Therefore I wouldn't worry about possible slippage when you get up to twenty lots, try two lots, then three, four etc and worry if it does actually become a problem for your trading system at that time.
Also markets change so from the sounds of it it is going to be at least a few years till you get near that level, if the system carries on working as well as volatility decreases, and you follow your outlined scaling plan, so why worry now.

You have returned over 700% return in 14 months, carry on doing what you are doing and move up to two lots when your scaling plan recommends. That's what I would do anyway, why change markets if what you're doing already works well.

Makes sense, thanks for the response!

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  #4 (permalink)
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Agree with @matthew28 on giving it time until you are trading larger. I am sure YM will accommodate you for a good long while.

I would note that NQ is a sudden, scary beast that can whip around the other way on you instantly. Take this into account before thinking about it, especially after the more even-paced YM. I think YM is in between the two more extreme markets -- choppy, boring ES and exciting and terrifying NQ. But that's just me.

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Diversification is one of the few free lunches out there. Instead of scaling up to 2 lots of YM why not trade 1 lot of YM and 1 of NQ?

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  #6 (permalink)
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dev1359 View Post
I've tried backtesting this method on the ES and it just doesn't seem to work as well at all, due to the ES being a bit noisier (thus leading to me getting stopped out when I try to trail my stop up similarly) as well as the fact that it just doesn't make the same huge moves in terms of dollar value that the YM does.

If you're working on the lower time frames I recommend you to create a line chart where you have all these instruments overlapped on the same chart. There you can see easily how they move in different market situations in relation to each other. You also should normalize prices to make them more comparable. For normalization you can use Risk and it multiples per instrument (the best way) or just simply dollar values.

This kind of analyzing has given me a lot of help in transition between the instruments.

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  #7 (permalink)
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SMCJB View Post
Diversification is one of the few free lunches out there. Instead of scaling up to 2 lots of YM why not trade 1 lot of YM and 1 of NQ?

Funny I was about to make a thread on this topic which OP made. But my title would be, does anyone trade ES and YM together?

I wanted to trade both ES and YM together as both mostly move together tick by tick (although the ratio is different I know, 1:10). Turns out I should put the second contract in ES itself because managing both is a bit difficult for me.

Anyways, regarding your idea, imo NQ and YM move separately, so it might be hard to manage the live trades together, if you have open positions in both (especially sudden news in NQ will chew you out). Just my 2 cents.

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  #8 (permalink)
Orlando FL USA
 
 
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SMCJB View Post
Diversification is one of the few free lunches out there. Instead of scaling up to 2 lots of YM why not trade 1 lot of YM and 1 of NQ?

Basically what lightsun47 just said, trade management would become very difficult for me. I neglected to mention that I trade this on a 1 minute chart, and things can move very quickly during that first and last half hour of the day that I'm trading the strategy. Because of that it usually takes all of my focus just paying attention to the YM chart alone, if I try to do the same thing in NQ simultaneously I think I'll be bound to getting myself into trouble through either missing out on entries or through not trailing my stop fast enough once I'm in a trade that's going in my direction

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  #9 (permalink)
Corpus Christi, TX / Westcliffe, CO
 
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As mentioned, you will find out if size is going to be a problem when size becomes a problem. What I wonder is if you are comfortable with a loss potential of $200 / contract / trade what happens when you are using the same method with 10 contracts and your risk potential is $2000? You can suppose that in maintaining the same stats, in the long run it will work out favorably, but as you are discretionary in your decisions, that looming loss size may on occasion cause you to lock up instead of going ahead and taking the hit. You may want to consider not going "all in/all out" and instead of only relying on a trailing stop / stop loss combination to exit, partial out as it moves in your favor. Reducing size this way is an effective "unrealized" risk management technique. There are opinions that "all in/all out" yields the best results but should sizing up take you outside your comfort zone you may need to make adjustments in trade management.

When you size up you increase your (call it) gross risk. A way to deal with this is find a balance between the probability of a profitable outcome vs. maximizing profits.

A way to approach this is to take a look at the anaIntradayRange indicator. It will show you the ( x days) average bar range. You are trading off 1 min bars and focus on the first/last 1/2 hour+ of the session. If you apply the indicator on a 30 min or 60 min bar it will give you an approximation of the potential for your trade. If you modify the ana code to also show you half the average range ( or any other subdivision ) you have a way of establishing a high probability near target to partial out. When you become familiar with this indicator you will find that even though there are days that do not hit the average range, you can be confidant that the half-range will be hit.


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