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What were the deciding factors that ultimately made you choose a specific instrument to trade? There are so many factors that could play a role in your decision, eg:
Trading hours of the instrument in relation to where you live
Your capitalization
The way the instrument moves
Because all the cool kids are trading it
It performed the best in your back/forward tests
etc...
I am also interested to hear from those who traded a specific instrument but later changed to another one for whatever reason.
For those of you who trade more than one instrument, have you chosen those instruments for the same reason as each other? For example if you trade CL plus a currency future, those could arguably be said to have very different personalities in the way they move and would therefore require different trading styles.
The idea here is not to get into specifics on the chart types, indicators etc that you use. But more broadly speaking, why did you choose your instrument (or move to another one)?
I started a similar thread and still awaiting some opinions.
At any rate, I began trading stocks but soon moved over to options because I liked the risk/reward better. Not to mention it also keeps my commissions down. My instrument of choice has been AAPL options. For my daily goals, the usual intraday ranges were a perfect match. I initially started with weekly options, but soon grew tired of juggling the high rate of time decay (theta). Seemed as if they were only good for "momo" trades on breakouts/breakdowns. I have since moved over to buying monthlies or the weeklies that are a couple weeks out and using deep in the money strikes. That eliminated the theta problem.
However, this past month or so I have been have a brutal experience with the spread on those DITM's, particularly around the open. My strategy involves Volume Profile, Market Auction Theory, and VWAP principles. Often I can correctly gauge the early morning direction because I want to take advantage of the liquidity, but the problem is I market order entries/exits and my fills have been absolutely terrible. It's further compounded when the move goes against me. Yesterday I took a trade at the open and they filled me 1.40 above the bid. That's a terrible hole to start a trade out in regardless of direction and in this case the trade moved against me.
The more I've thought about options, the more I've come to the conclusion I am inherently having to juggle a ton of outlier elements.
1. The underlying stock's chart
2. The underlying stock's MM's
3. The underlying stock's traders
4. The underlying stocks news cycle
5. The major indices
6. The options writers
7. The options greeks
So now I am at a place where I'd like to find something a little "purer" from a strategy/charting stand point. That might not even be the best word to describe it. I noticed that pretty much everyone who's using the trading strategies I do are not messing with stocks or options. They're pretty much all in Forex or Futures. Makes me wonder why I am waiting so long to make the switch. I used to talk often with a man who created a very successful VWAP trading engine. For 6 years he made a king's ransom and then one day he gave up using it on equities. He told me to immediately head on over to futures and never look back because of all of the manipulation going on elsewhere.
Thanks for the reply. I have very limited experience with options but I do agree with you that they seem to add an additional layer of complexity and issues to worry about.
I have a theory which I was hoping would be proved right or wrong with this thread. My theory is that most people dont put as much thought into their trading instrument of choice as is perhaps needed. For example they will hear people talking about the CL, ES or 6E (which appear to be the most popular I think?), and they will then jump into trading one of them. Now im not suggesting that people dont back test / forward test, and get to know the instrument. What im suggesting is that perhaps they dont 'shop around' to other less known instruments to see if perhaps their trading style or personality is better suited to another instrument.
I may be completely wrong though.
Thoughts, anyone? What factors contributed to your choice of trading instrument?
I would suggest the only criterion for choosing or sticking with an instrument is if a trader still has or feels they have a distinct edge with that instrument. (Unless you are forced to be a long-only trader/investor?)
E.g. For me it has to be Dax/Dow/ES because I 'know' them and have many internals to corroborate (not correlate) with. I had to drop FTSE because its a bitch that dances differently and I wouldn't have a clue about the commodities - even though I can 'see' the same setups I don't 'feel' them in the same way. I have nothing but admiration for the Euro killer extension trends but have my hands full for now, so I pass on that one too and only eye it for Dax support.
So - where lie your edges? Find them and stick with them.
Stocks have too many factors which influence their movement. They are part of an index also subject to computerized trading. Not good for daytraders.
You need an instrument which is liquid and transparent. So forget all exotic commodities and the like. It is soo easy to bid up a market and manipulate them...
Currencies are not the best tool as they have way too many news on them and push-each other intermarket.
So what's left?
Oil, gas, gold, silver, sugar.
Stock indexes and bond futures.
I originally started out trading currencies, but about two years ago I discovered Cl and futures. My most consistent wins have always been catching a move that has some momentum behind it. I find that there are brief moments in any session where price is moving enough force and speed where it can have the ability to hit a target in a relatively linear fashion. Trades that meander for hours ticking up and ticking down in a serpentine fashion really try my patience.
Cl moves often in a very predictable and aggressive manner. It can reach 20 to 30 ticks in a few minutes. I like that. Sometimes, you can catch relatively fast straight moves of over 100 ticks. And if you know how to time in your entry properly using smaller timeframes, you can have a relatively small stoploss. Also, as I've mentioned in my thread "How I catch runners on CL and TF", there are specific times of the day, where it will make strong moves on a fairly consistent basis.
I have experimented with Gold futures, since they can often move even stronger than oil, but I've found it extremely difficult to have a stoploss that's small enough for my liking. It's just too bouncy and difficult to time in. ES can spend too much time in choppy, slow patterns for my liking. I used to like TF, but it doesn't seem to make as many big moves as it did a couple of years back.
I also like CL because I've been able to implement a 1:2 risk reward ratio where my wins are at least double my losses. I have not had much luck doing that on other instruments. I can make great profits with a 50% win rate..and still make decent money with a 40% win rate. I have found the sweet spot for me is about a 20 tick target with a 10 tick stoploss....plus the occasional 50 to 100 tick runner.
However, it did take at least a year of watching CL before I started to understand how to spot days early in the session when the market conditions were lousy. I used to lose virtually every trade on those days. Now I know when to stay out.
I only hope the government doesn't try to take all the leverage out of CL trading.. since I don't think I have anything I could replace it with...except possibly the Dax. After looking at Dax charts, I see a lot of big move opportunities there as well.
