lately i have gone for 10% of the ADR, more realistic for me than tryng to capture more, working up my confidence levels on the new strategy.. I also just started to get into grains... though I like the volatility of oil... I wont touch it directly anymore, it just moves too fast for my taste... i am able to manage my risk better with ITM calls/puts to trade its ADR... less profit that way, and ties up more capital to trade 10 lines... but more defined risk parameters IMO..
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I am curious, I figure I ask you given that you are what I consider a pro trader because of your background...
would you stick to the eminis because of the volume/liquidity or trade the bigger point/value contracts as your account grows? e.g. SP vs ES, DD vs YM, etc. same risk profile.
let's say that one is trading the YM, 5 contracts, and the market moves 50 points in your favor, you were risking 20 per contract, trade amounted to $1250. On the DD that would mean 1 contract, same result, $1250. same trade, same risk profile.
Eventually you are trading 100 lines on YM, for the same handles... why not switch to DD? or better yet, should one be switching to DD once you are puting those larger lines?
this all goes back to the question of how many contracts per instrument given an account size... in this case we focused on the mini's... but should one stick to minis because of liquidity primarily and just trade size, or move to the bigger DD/SP/ND/RL/MD once the size on the emini might be larger than what can be absorved within a tick? or would one move to the big value ones at all, given that some have very low volume?
just curious as to your opinion.. I have been doing some research on the matter lately as I strive to understand the different venues/instruments and what will suit me better.
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sorry, been hanging out with friends of friends who are traders at BMO and LGI in NYC on weekends and they call their positions lines.. brains swithes back and forth now with the terminology.... ... I get the line analogy, basically where you stand and with what.. kind of drawing a line on the sand and seeing if the waves (market) will wash it or if you were right..
I'm not really familiar with the liquidity of the big stock contracts. If they are reasonably liquid, I would trade them if your account size warrants it because of lower fees. If this interferes with the way you like to scale in/out, then stick with the minis until your account is big enough. In general I would stick with liquid contracts. I am trading QM rather than CL because the CL contract size does not currently fit my risk profile. As I've posted elsewhere, QM is liquid even though the volume is small because autospreaders make markets in QM for a nearly risk free tick (and they probably do this in stock index futures as wel)l. It's OK in a really volatile instrument like oil where missing the absolute best execution is not as important as getting the general timing and trade direction right, but it might get expensive in the S&Ps, which tend to churn a lot.
Concerning whether or not I am a professional, I would say that I was a professional for a long time and am striving to be one again in a different environment. It's why I post my trading experience as "Advanced" rather than "Master". In my youth I was a "Master", but now Darth Vader is the master and I'm just an old Jedi. Time will tell whether I have what it takes to master speculation (as opposed to market making). I have a lot to offer in the areas of trading psychology, the type of practical advice you're seeking, and developing one's trading business.
What I would do is bring up DOMs of the big instruments right next to the minis, and just watch them as you trade the minis. Maybe even put the same trades on in SIM on the big contracts that you have on in real life in the minis, and see how your fills go. If you eventually start trading them live, still do some minis live too, and compare your executions. You'll know pretty soon which you should be trading.
"You don't need a weatherman to know which way the wind blows..."
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Yup. Plus, don't let your head get too big, and if your edge stops working, stop trading live until it does start working again. Also, for God's sake, if you screw something up and give back a major chunk of your year, don't try to get it all back at once. An old tennis buddy of mine who traded at the CBOE once found himself in that position, gave back 90% of his year in late November, something like $400,000, and felt he had to get it all back right away. I told him to take the rest of the year off, but he didn't listen, made it a lot worse, and blew out in the next 6 months after 2 11/12 good years.
"You don't need a weatherman to know which way the wind blows..."
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I would like to thank-you (and the others who have contributed) for generating a very interesting thread. It's Monday US markets closed, and I've just read through the 4 pages.
I think the question you pose is an interesting one and my reply is in a wider context and more connected to your second post. Here is what I 'heard' in your posts (adding in my own between the lines take-away):
that you are an experienced and successful ex-pit trader and specialized in one instrument TBills (including the closely related contracts)
you were able to trade many contracts without the emotions of the leverage hurting your performance
you enjoyed and found it stimulating to be in the pit
you liked steadily increasing your account
you would go home when your daily goals were met
with this stimulation you were able to keep from getting bored ('always had something on")
with screen trading you are bored and so you moved to trading several different instruments
screen trading's boredom leads you to take on boredom trades that you otherwise would not (so that you have something going on)
you wish to greatly increase your account capital without needing you draw into other funds ("dreams")
you understand the importance of the 15reds-in-a-row event and personally experienced Black Monday (19 Oct 1987) while in the pit and know what it is for the market to fall away and there to be no bids.
I would suggest that your real question is: "How can I maximize my account yet not get wiped out by 15reds?"
Here are some thoughts:
You need to find a different way to create stimulation than having several contracts on the go. Gann would track several contracts but he would only move into one when it started to show activity and begin a big move. You would only be in two or three things at a time and often just in one.
never get into a position without a clear indication from your rules
never use one position to hedge another when you are wrong - If you are wrong or in doubt get out. Wait before entering a new position.
Use stop loss orders. Always protect a trade when you make it with a stop loss order 1 to 3 cents, never more than 5 cents away, cotton 20 to 40, never more than 60 points away.
there is a correct way to pyramid safely adding to your position as the market proves you correct
always keep long term charts and learn from them that history repeats and be able to see when a contract has reached a level where in the past it has always corrected. (he gives examples of great speculators who felt that what they were trading would just keep going up forever and kept buying all the way down wiping out years and multimillion dollar winnings)
divide your account into ten and never risk more than that on any one position
when you have had a run of success then divide your profit into ten and only risk that (if you lose then it is one-tenth of what you have left in profits etc) and this way you would need 16 losers in a row to lose all your profits(*1) which is very unlikely if you are following your rules and #2, #3, and #5 especially
only trade active markets
If you have a string of losses something in wrong in your analysis. Stop trading and figure out what that is and until you figure it out don't start trading again.
If you are set a stop at x to y points. (ES 5 to 7 points). If you are wrong by this your analysis is wrong and you must get out.
When in doubt, get out, and don't get in when in doubt.
Avoid taking small profits and big losses.
I am a very analytical person and for myself boredom is never a problem (I am racing from 2 hours before opening and not caught up until almost two hours into the trading session). However, it doesn't sound as if that is your personality. For yourself trading in active chat room might be stimulating and give you the "fun of competition". I would suggest you trade something your not "in" in the chat room, post your trades, but only trade sim for the chat room and never, never tell them you are trading sim! (Daniels has one which you can try free for two weeks. If you open an account with $2,500 then you have ongoing access. Now my cup of tea but it may be yours.)
For your real goal and money management open three accounts and manage each as if it was your entire portfolio. Only trade one instrument in each. Manage each account as its own entity. Set yourself a clear rule for when to increase you size and do it (as Gann said "I never lost my nerve").
So let's say your ES account is $10,000 and the Overnight Initial Margin is 5,625 and your rule is to go to 2/3 of the equity value of the account ($10,000 * 2/3= $6 667), so you would have enough for one contract. When you have grown your account to $16,875 you have 'earned' the right to go to two contracts. ($5,625*2=$11,250. $11,250*3/2=$16,875). Keep increasing your size according to this calculation (subject to rule #1 and #5).
(Account size for 6 contracts is $50,625 with this formula.)
The default stop for each instrument is geared by 3 factors:
its trading pattern (see e.g. of retracement) and S/R levels,
your accuracy of estimation for entry and exit,
and your target (time or distance or both).
(you will see that #2&3 do not determine the stop per se, but they do determine if you will take the trade based upon your minimum R:R for trades) -see link to graphs below.
I have shown an example from the ES for 14 Jan 2011.
The total move was from Low of 1274.25@7:19am(CT) to High of 1291.75@17:15.
The entry was at the break of the downtrend - i.e. Buy 1277 @ 7:52 for 1/2 of your line.
The addition to position was 1281.25 @ 9:06 for the balance of your line.
The exit by target was 1291 @ 17:08 for 2/3 of your position.
The exit on stop was 1289 @ 18:03 for 1/3 of your position.
The maximum retracement within the move was 3.75. (giving trail of 4.25 3.75+.50).
The initial stop was 1273.75 and adjusted to trail 4.25 at 1281.25.
Using 6 ES contracts as your line.
Bot 3 at 1277 @ 7:52 (risk to stop 1273.75 = 3.75*3*50 = $562.50)
Bot 3 at 1281.25 @ 9:06 (average price 1279.125. Stop is now 4.25 trail = 1277. Risk is 2.125 *6*$50=$637.50)
Sld 4 at 1291 (Profit is 1291-1279.125=11.875*4*$50=$2,375.00 BE on last 2=1255.375)
Sld 2 at 1289 (Profit is 1289-1279.125= 9.875 *2*$50=$ 987.50
Profit on trade = $3,362.50. Maximum risk $637.50.
Risk: reward (R:R) = 5.274
Account size $50,625. Risk on the trade $637.50 (1.259% of account.)
"15 Reds" this is my name for what you might call Black Swan. Essentially this is the lesson of the failure of Long Term Capital. In brief, a bunch of egg-heads (statisticians and mathematicians) used money of well-heeled clients and probability theory to show that failure was virtually impossible, traded leveraged derivatives of Russian and domestic bonds and nearly precipitated the total collapse of the US financial system - avoided only my the direct intervention of the govt which ordered a group of select banks to secretly take over the broken portfolio and unwind it.
"15 Reds" event
At any one time on an unbiased roulette wheel with no zero or double zero the odds of the next turn coming up red is 50% (if randomness is assumed). Also at the same time the odds of 15 reds in a row are 0.000030517 or 0.0030517% or 1 in 32,768 (.5^15).
While the bid may fall away and your stop-loss not get a decent fill, an inexpensive far out of the money put option (for a long trade) will give you protection for the 15reds event.
Your stop is not given by a formula (other than the overall guideline rules #8, 9 and #12). (Variance in trading instruments do not follow normal distribution. The assumption of Normal distribution is a requirement for the standard statistical calculations to be valid e.g. are based eg 66.7% of occurrence fall between +-1 std deviation of the mean).
As people do not know who (experience, knowledge and goals) will be reading the post (and Gann did not who would be reading his books) many guidelines and replies are general. I would suggest that you set goals and stops for yourself given your background and experience is more advanced than most. Though you may be feeling out of your element on screen trading, once you have adapted to the change and build confidence in you new way of trading then you will naturally more to more contracts per trade. I think Gann's book (how to make profits in commodities) is excellent. You might enjoy Sniper Trading by G Angell. It is dated but you may like the read to connect to "old days in the pit"!
I hope it helps!
Last edited by aquarian1; January 17th, 2011 at 04:59 PM.
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