Welcome to NexusFi: the best trading community on the planet, with over 150,000 members Sign Up Now for Free
Genuine reviews from real traders, not fake reviews from stealth vendors
Quality education from leading professional traders
We are a friendly, helpful, and positive community
We do not tolerate rude behavior, trolling, or vendors advertising in posts
We are here to help, just let us know what you need
You'll need to register in order to view the content of the threads and start contributing to our community. It's free for basic access, or support us by becoming an Elite Member -- see if you qualify for a discount below.
-- Big Mike, Site Administrator
(If you already have an account, login at the top of the page)
Another new All Time High just hit on the ES (currently 4,173).
But no "Wow!" this time from me. It seems to be the norm now. "It is what it is."
The immediate question is this: "Now what?"
The armchair statistician in me says, "This bull-run is a rare event and will not last."
But I also said the exact same thing a week ago after 8 days of straight up action--- and the market is now 70 ES points higher!
Do I join the BTFD crowd and just get long and stay long no matter what???
Or do I fade the snot out of it with the micros hoping for the magic point in time when the profit taking begins?
I just talked with a trader who takes 95%+ longs and even he is struggling up here in the thin air. Interesting. It is hard to get long at the highs for sure.
Until the trend really changes, as evidenced by a couple big bear days, I will be looking for DIPS to BUY.
Be careful out there!
--------
"BTFD" translated politely is "Buy The Freakin' Dip" and emerged once the Fed started to ruin the market with "free" money they stole from our great-grandchildren.
Assuming you are in the USA and are trading futures --
60% are taxed at the long-term capital gains tax rate of 15%, while only
40% of your short-term capital gains are taxed at your ordinary income tax rate.
But personally, I still have some reported losses from prior years, so the answer depends on how well I do in the next 8 months! If I do well, then I will pay tax on my futures trading this year. If not, then the loss column will continue to grow.
I have been using the NYSE $Tick indicator for 15 years now. I love it. It's great for both day-trading and for scalping.
Day Trading. If you are day trading, you might use a 5 min chart. Here you can see the prices above and the $Tick below. I drew the arrows at exactly the same place as the circles. (Today's RTH session.)
Notice how the tick extremes were slightly ahead of the actual reversals in price. Even so, we got huge profits overall on the whole day, with some advanced reversal notice by the $Tick.
A low tick below -400 indicates panic. But we know this emotional selloff can't last forever. The bears will take profits and the bulls will start to buy again at some point. Within 1 to 5 bars the price usually rises again.
A high tick above +400 indicates euphoria. But we know that the customary FOMO- and short squeeze-driven buying can't last forever. The bulls will take profits at some point and the bears will start to sell again. Within 1 to 5 bars, prices will usually drop again.
On some days we can get really big moves and the $Tick will get into the 600, 800 and even 1000 ranges (up or down). Almost all of these big moves will reverse quickly. The hightened emotion just isn't sustainable.
Now some caveats:
The NYSE $Tick works best on days that are mostly range-bound. In strong trends, it is much less effective! Be very careful.
And as you can see from the 5 min chart above, sometimes an extreme is simply the beginning of a huge move (see the second pink down-arrow). How do I deal with this?
(1) WAIT for a slight pullback in price from the extreme up or down before jumping in.
(2) Use a tight stop!
(3) Buy the Dips. Remember that most days the BULLS will win. To increase your success rate, focus more on buying dips than shorting pops.
--------
Scalping. Now for fast scalping.... Let's use a 15 second chart....
This chart below is just a 75 minute slice of the 5 min chart above, beginning at 10:50 am Mountain time (add 2 hours for NY time).
The hypothetical trades are correctly matched up with the circled Tick Extremes.
The total possible was about 68 ticks in 75 min. Factoring in operator error and slippage (and everything else that gets in the way of us traders being profitable!), let's figure 50 ticks profit. This is over $500 on the ES after commission for these 7 trades.
The market is the embodiment of collective human emotion, and the NYSE $Tick directly measures that emotion.
When it gets out of balance, the astute trader can FADE the moves.
But again, you must be extremely careful because an explosive breakout can happen at any time.
One thing that can improve the odds is to note if the tick extreme comes near a Support or Resistance line. If so, then the chances of a good reversal improve significantly.
Have some fun. Experiment with fast and slow charts.
I have been posting for several days now, but I have only discussed one indicator ($Tick) in depth - for a reason.
Everyone loves indicators! New traders think "more is better." But wise traders know that even though "chocolate cake" is good, too much can make you sick!
Here are some real charts gathered by one of my mentors:
Feeling a bit dizzy?
Pretty crazy!
This same mentor once worked with a trader who had complained about bad headaches while trading. When he talked with her on the phone he could hear "Ding! Ding! Ding!" in the background. Turns out she had tons of indicators with all her audio alarms set. Of course he knew how to advise her . . . .
Having too many indicators will slow down your decision making ability and may even give you conflicting information that leads to "analysis paralysis." As humans, we can FOCUS on just one thing at a time. I don't care how well you multi-task, you are not IBM's Deep Blue about to beat Kasparov in chess in 1997!
Here are a couple more crazy charts.
Totally wild!
Fewer are better. You need to be able to have the minimum amount of information to wade through in order to make a quick and informed (and profitable) decision. The goal, I think, should be to use just one to three pieces of information - or else the setup will be GONE by the time you click that buy (or sell) button.
I am convinced that, with enough time and correct analysis, any indicator will work great for any trader. It is all about watching what the market does in relation to that particular indicator. And for that there is no substitute for chart time. So choose the ones that work best for YOU and become an expert in using that indicator. Overbought? Oversold? Trend determination? Cycles? It doesn't matter. They all give valuable info. Just keep it simple.
----------
Trading Naked. The ultimate stretch of my brain was when my mentor said "trade naked charts for a few days." I thought he was nuts. How was I going to be able to trade? I needed my MA's and Stoch's and RSI's! When he threatened them, the panic I felt showed me just how truly become reliant I had become on those squiggly lines (... similar to the feelings I had when walking away from my first mentor).
So I agreed to try it. For several days I watched a naked chart. Price only. Insane? (yesterday's ES 7 tick range bar chart)
And an amazing thing happened: My eyes were opened. I saw things I had never seen before. Candidly, it was a bit exciting.
So I actually tried live trading on this same indicator-less chart. And it worked!
I can now trade comfortably with no indicators at all.
Sometimes I still do it just to stay in practice.
And sometimes I like to trade with no colored OHLC bars at all and just use a plain fast Line-On-Close (LOC) chart because it is so clean:
Using a fast LOC chart I am able to SEE true price action and FEEL the market momentum.
I recommend the same experiment to everyone reading my journal: Go naked.
Seriously. Try it for a few days. Just watch and learn. See the rhythm. Think about the buyers and sellers jockeying for position. See the hulking football players battling it out on the line of scrimmage. There is so much there that will illuminate your trading.
------------
Winding down here...
Naked charts are great for education, but I still prefer to use a few indicators. I am really trying to keep it simple.
On my actual trading charts I only have two indicators plus S/R levels:
1) MAs for trend reminders
2) OBV for market aggression
3) S/R levels for potential reversals
Throughout the day I still glance at the "market internals" to help me stay on the right side of the market. These are Adv/Dec, Up/Dn, NYSE $Tick, and the VIX. But some days, I don't even bring up the internals because the market action is so clear....
With just two indicators and the S/R lines, I really feel like I have been able to strike a nice balance between getting enough info to quickly make a good trade and feeling overloaded.
If you are having problems reaching posts (redirecting to wrong page), try this:
- Completely close your browser window(s) (you can leave tabs alone)
- Open your browser again
- Make certain you are logged in (no private browsing window for example)
If still having problems:
- Clear your browser cache, go to settings and search "cache". Do not clear usernames and passwords, just cached files and pages.
I wrote about Money Management previously. But there is more to discuss, especially in light of the new CME micro index contracts that facilitate "good money management" for beginning- and small-account traders. But this applies to all traders of all account sizes.
I really think there are two issues that are just as important as good entries to surviving and thriving as a trader:
Without question, my two biggest downfalls as a trader have been (1) taking on too much risk with large positions because of over-confidence, and (2) being a $%@!&^ fool for not gracefully taking my stops. After a general MM review, I will discuss the first -- position sizing.
----------
"After thousands of hours of screen time, my market-predictive powers are simply amazing. I always know where the market is going to be in the next 5, 15, and 30 minutes."
FALSE!!!
Sorry, my crystal ball is broken.
I may have an edge, yes, but "knowing" is beyond the power of every single trader in the world. Other than the Fed, even those with the power to move the market (and I personally know one) can be quickly overwhelmed if things really pick up steam.
For some psychologically-deficient reason, I always think that I will be right. (Of course, why would any of us take a trade if we thought the market will go against us?) Consequently, I plan for the success of the trade but often fail to fully plan for the opposite, which is "What if I am wrong???"
. . . Just a hunch here, but I am guessing that my disease afflicts 99% of traders. As a group I would say that we are the most optimistic of all homo-sapiens! But there is the flip-side, a downside to this optimism. And that is -- the DOWNSIDE!
I am talking about sheer survival! It is time for all of us to wake up.
Have you ever blown an account? I have. Many, many times. It sucks. Especially on a Friday. Emotionally, I am a wreck at that point. I just willingly and completely sabotaged my weekend. And my husband-skills and my daddy-skills also seem to go out the window with my good trading skills. The world truly becomes a darker place for me.
But in the heat of the battle, I never seem to think about my "future state" if I am starting to have a crappy "big loss" day, and in the past I rarely just walked away with my dignity intact. Instead, I have been known to simply let my losses mount - or even double down - because I "just know" the market will reverse in my favor -- only to have reality set in -- and I ultimately get the dreaded "margin call." Yep, I just keep breathing in the "hopium" and praying to the trading gods that some miraculous news announcement will make everyone else see what I saw at my trade entry and bring the market back in my favor.
Breathe.
We must all set a max loss % for each trade. And we must also set a max loss for the whole day and then just walk away if it gets hit. The alternative is just too horrible.
I read that many hedge funds and prop trading firms love to hire testosterone-laden hyper-competitive young adult males. Why? Profits! These young traders often haven't seen all market cycles, and so don't have the same PTSD baggage of us older dudes and have less trouble really "going for it" with super-leveraged positions. But then the same article also mentioned that these very same "boys" are often directly responsible for the big downdrafts in the market for the very reason that they don't properly account for potential market failures.
The lack of proper risk-control has something to do with the under-developed or hyper-connected risk-control centers in the brain (the pre-frontal cortex and the amygdala). Pretty interesting stuff!
Related to this, we have big players in the market pushing us into riskier behaviors.
"On the folly of rewarding A, while hoping for B." In 1975 Professor Stephen Kerr wrote his famous article about putting the reward where you want the outcome to be. But this article seems to have never made it to the trading community.
Two examples--
(1) When the new CME micros came out, the CME ran a contest to help with the marketing. Naturally, the winner was determined by who had the biggest profits. But there was no inclusion of "risk-adjusted returns" in the rules. There was not one mention of risk!
Then it hit me - "consider the source." The CME works for the big boys -- not the retail traders. The CME's biggest clients are the big firms; follow the money. The big firms WANT the little boys to blow up. They need the liquidity and margin calls to get their profits each day. So naturally the CME wants traders to feel the excitement of huge returns. They don't care how many carcasses are strewn along the battlefield at the end of the day.
The CME asked me for suggestions for improvement after the contest (I came in 13th out of about 1400 entrants), and I told them "risk adjusted returns", and they replied "good idea, we will consider it" but alas, it was just lip service, as they recently did the same contest again and conducted it exactly the same way.
(2) Likewise, as I have written extensively about in my other journals -- funding companies (like TST, OneUp and others) push hard on combine traders to get 4.5% to 9% per day on their accounts. Yes, there is a max drawdown, but there isn't a professional trader in the world who is trying to make those kind of returns on a daily basis. So the successful trader may earn a live funded account, but then they immediately blow up. Why? Because they were just "trained" to take excessive risks! Asinine!!!
Now, on the flip side of these travesties, Varengold Bank in Germany wins an award. They held an international FX contest many years ago and the winner was not determined by total profits, but they used something like the Sortino ratio to help determine risk-adjusted returns. What a concept! They actually wanted to help traders improve by forcing them to think about the drawdown exposure used to get the profits.
All of the above I have written brings me to my main point of the day: SLOW DOWN and TRADE SMALLER. Again, you are growing a big beautiful oak tree, not a tall sunflower that will be gone in the fall.
Just because you have $1000 in your account and the daytime ES margin is $400 doesn't mean you should take an ES trade. The ES can move 10 ticks ($125) in mere seconds sometimes. And now you just lost over 10% of your account in seconds! Don't be a fool. You have to protect your war chest!!!
With $1000 in your account you can trade one MES contract (Micro ES) and do just fine. That same 10 tick loss will set you back $12.50 plus about $1.00 in commission/fees. Now you only lost 1% of your account. 1% vs 10%. Is this hard??? With just a 1% loss, not only can you still breathe, but mentally you are still in the game. You haven't even missed a beat.
Yes, on the upside you only make $11.50 for the same move in your favor, but you can do it again. And again. And again. And you can increase the number of contracts as you grow your account. What is the rush? At 2% gain per day you can take $1k to $115k in 12 months.
I know a trader who took a sub-$300 account up to $60,000 in the last 12 months. I just talked with him this morning. He is about to go to 3 ES contracts, but he started with ONE MICRO and and began to scale up slowly with great discipline.
But why are we even talking about this???? Because I know that many who are reading this are simply taking on way too much risk!
Another good friend of mine just blew up his Leeloo evaluation again last week. . . . Of course, when I point, I know I have 3 fingers pointing back at myself, reminding myself to keep it "light and tight" (small positions and tight stops). I am doing much better, but there is still lots of room for improvement.
Obviously position sizes are coupled with stop losses when factoring the max loss per trade. But it is easier to scale up because you are too small than to find more cash -- to recover from a margin call because you "did it again" and blew things up.
I have about $13,000 in my account now. I have decided to trade a maximum of one micro per $2000 in my account. And this is my recommendation for everyone. So right now, I can trade a maximum of 6 micros at one time. Yes, I could easily trade the $400-margin ES now, but the losses are still too hard to handle psychologically for me -- even with just one contract. And when I get that first big loss, I get really stupid really fast and the evil downhill cascade can then become devastating. In the past, I have lost more than $4000 real money in one day. In hurts so much to even have to write this!
You have to trade the size where a loss is like a simple finger-prick (1%), not a blood donation (10%) or a dismemberment (50%) or a catastrophic margin-call death (100%).
This "finger prick" is associated with the "I don't care" size. If you are sweating or cursing when you take a loss, you must trade with fewer contracts. This is where the micros come into play so nicely.
The micro index futures were the CME's most rapidly adopted new contract in their history. Why? Because traders wanted, they needed, to take less risk. And some days, the micros rival the minis for total contract volume. Here is the 2019 news release:
I am currently trading with a maximum loss of 1% per trade. With a $13k account, I am allowing a loss of about $130 per trade. A 1% loss with 6 micros is a max loss of about $20 for each micro contract traded. On the MES, this is about 15 ticks. On the MYM/M2K/MNQ, this is 20 ticks. This gives me some wiggle room in this fast-moving market, but if I get stopped out, it's okay.
At the beginning, I mentioned "overconfidence." The Big Boys know exactly where you have your stops sets. They have all been there. They know exactly at what price you think that "the big trade" is going to go in your favor. And they will promptly take you out - the moment you "load up." Don't do it! Keep things small, and take your losses gracefully.
The bottom line is incremental growth and protected downside. Set a stop for each trade but just as important is to trade with fewer contracts than your broker will allow. In fact, I recommend just ONE micro until you can be consistently profitable for 10 trading days. Then it is time to scale up. Try adding just one micro for each $2k in your account and it should allow you to grow your account quickly yet still allow you to breathe when you have the guaranteed losses we all have each day.
Your suggestion to read Steven Kerr's On the Folly of Rewarding "A", while hoping for "B" was excellent. A very apt and eye opening concept. Even thought it's been around for decades.
I love the emphasis on "Risk adjusted returns".
Lastly I think your $2000 per contract risk should fit nicely into a %1 risk per trade parameters that is scalable from there.
I entered the Varengold FX contest but did not place. However, it really opened my eyes to what was important to a BANK. They didn't want 100% returns in 30 days with an 80% drawdown. They wanted a 10% return (maybe) in 30 days with a 10% max drawdown. The concept is easy to grasp but hard for traders in the heat of a trade to pull the plug - admitting that they were WRONG.
I previously mentioned ZuluTrade's signal providers. It was mind-blowing how many providers claimed something like "100 pip max stop" a few months prior. And then you would look at their actual trades and you'd see 150, 200, 300 pip draw-downs = maximum adverse excursion (MAE). And then you would see that they eventually got the trade back into profit, only to close it out for a 7 pip win. Total craziness.
WOW SSTHEO! Are you sure you have not been secretly watching me trade and just telling everybody here what not to do. Although I'm sure I'm no different than most traders. You are so right about believing that a trade is going to turn around at any moment and go your way. I have been away from trading for a while and finally jumped back in a couple of months a go. I put up $11,000 in my account and increased it to a high of $26,000 as of last week trading 1 or 2 contracts on the NQ during ETHs. I thought I had become a trading god. Well last week I took a 5 contract trade during RTHs and after it had gone down to the point that I thought it was going to turn around I added another 5 contracts. Needless to say I finally closed it out after a $16,000 loss. Things didn't get much better after that. As of now my account is sitting at $900.
