Posts tagged ‘emini’

E-mini Trading Always Provides a Painful Dose of Humility

By , 7 November, 2011, 1 Comment

I have been on a relatively hot streak in my e-mini trading the last couple of months and my returns have been impressive by any standard.  Frankly, I have been feeling pretty good about my trading ability and consistently.  I was pretty cocky about my trading results, perhaps verging on arrogant.

I had let a few trades run a bit too far in the red, and delighted in watching the market double back my way and allow me to turn a lousy trade into an impressive winner.  I doubled down on some of these trades when I was deep in red, which further enhanced my gains and ego.  Doubling down has always been forbidden in my trading, but since it worked so well I decided that I had been foolish to adhere to my long held trading taboo of adding contracts to a losing trade.

Let’s face it, I thought, after several decades in this business, I could trade any market, any trading environment, and I had gained enough skill that the money management skills I had worked hard to maintain were no longer necessary for my success.  I felt I had the Midas touch.  I thought I could turn lead into gold, I felt I had mastered the art of the e-mini, which is always a dangerous mindset.  I had a stretch where I went 26 for 28 with my new, somewhat reckless, style of trading.

Then last week rolled around and I received a heavy dose of humility and respect for the market.

The first two days went well, and then self-inflicted disaster set in.  After several days of 4-digit losses my confidence was shaken.  I was a rank amateur again, flailing away at the market and chasing after low probability trades with fervor and hopes of regaining my past trading glory.  I broke my trading rules, I ignored long-ingrained personal money management guidelines, and I felt like it was my first day of live trading.  Worse yet, by abandoning my long standing, written in stone trading guidelines that are the basis for successful trading I lost a substantial amount of money and shattered my self-confidence.

A couple of losing days will affect your whole outlook on trading.  Worse yet, my trading and money management techniques are the core concepts of what I teach and relentlessly drill into a new trader’s mindset.  Since I trade with my DOM on the screen for the entire room to view, my embarrassment was compounded by the deafening silence as my audience watched me flail away at the market and break the very set of rules I harp on throughout the course of every day. 

It was a complete meltdown by an experienced and successful trader, and the only variable that changed was the fact that I was initiating substandard, low probability trades trying to salvage the day’s losses.

In summary, it not unusual to read about the fantastic returns trading educators feature on their websites and performance reports, but even the most experienced traders can fall into unprofitable trading patterns if you fail to stay vigilant and true to the trading principles designed to minimize losses and maximize returns.  The lessons I relearned restored a much needed dose of humility to this traders psyche and reminded me that complacency has no place in any traders thought process; and that complacency shows no respect for how long a trader has spent trading.  Great traders are always vigilant and respectful of the rules that keep us in the business and last week I missed the mark.

 

 

 

 

 

 

 

 

 

E-mini Trading: Why do Clients Enroll in a New Course and Put Forth Little Effort?

By , 15 October, 2011, No Comment

One of the most unusual and disturbing phenomena I observe on a daily basis is the abysmal effort put forth by a small group of new e-mini traders in learning to trade. It is not unusual to have students enroll and then come to the trading room and try to share the dynamics of the previous course they had taken and blown out a futures trading account.

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3 Important Things New E-mini Traders Can do to Succeed

By , 27 September, 2011, 1 Comment

The failure rate of new e-mini traders is disturbing.  According to various sources, 90% of all new traders are out of the market within 3 months, their trading account balances exhausted. There can be little doubt that e-mini trading presents a challenging skill set to learn and execute, but there are a number of factors that are well within the a new e-mini trader’s reach that he or she can control.

In my experience, a good deal of failure centers around three important factors that directly impact every new trader’s career. They are:

•    System
•    Communication
•    Experience

There are a wide variety of trading systems out there from which traders can choose.  Some of the programs are very large, some are famous.  There is no correlation, in my thinking and experience, between popular systems that can run more than $7-10000 and widely advertized and other systems which are based on sound trading methodology.  I’ve already written several articles on finding a good trading system, so I will not burden this article with that lengthy topic.

1.     Learn the System-  If there is one thing I see over and over is new e-mini traders trading real money and have, at best, developed a very limited skill level with the material and system he or she has paid for with their hard earned money.   I don’t just don’t get that thinking, but it is a rare student who starts simulator trading with me one on one that has properly prepared themselves to trade by learning the basic information of the system they are about to trade. They know some trades. They may know some of the interesting parts of a trading system, but they seldom know the details; and success in trading is in the details.  The end result of this thinking is that I end up spending a good amount of time explaining how charts and bars work when trading, when we could have been working on the business of learning to trade, not wasting time trying to hammer out the lingo and teaching the student material that is well documented in the written and video sections of a quality course.  Poor preparation is industry wide, and I read in the forums about systems I know well, and can trade effectively on my own, being bashed by individuals who “just couldn’t seem to get it” right and the concluded the system is undesirable.  I generally know what really happened.  Don’t study the material half-hearted and expect to learn the “meat and potato’s” of the system in the trading room.  Be over prepared.
2.    Communication- I have scads of new traders and potential traders come into the room and not ask a question, just sit and listen.  The most successful traders I have mentored were individuals who were fully engaged in the trading process and when the didn’t understand something, or some trade, they promptly asked why I am doing this and what did I see on the chart.  My preference is for small trade rooms that allow the room to interact.  Again, I have written an article on  this subject, but when all members of the room can speak to each other, there is a mutual learning process goes on, and their interaction, in my opinion, is often more helpful than the information I may impart.  In short, when you ask questions  you let people see where you need help and may get some suggestions how to remedy this or that.  Communicating creates a synergy in the room that allows everyone to learn.
3.    Experience-  When a new student first starts in the trading room, they generally lack any meaningful e-mini trading experience.  Simulators are great places to gain trading experience under the right conditions.  In order for a simulator to be an effective trading tool, the new e-mini trader must trade the simulator exactly as he or she plans to trade their real money.  Invariably, I notice traders trading 300 contracts on a trade, just to see how it would work.  You will probably not trade 300 contracts in your life, probably not even 100 contracts; but these playful dalliances with non-reality are very damaging to the discipline and emotional control a consistently profitable e-mini trader most employ.  In short, simulated trading programs are great if you trade with them exactly as you plan to trade with real money, but deviation from your specific trading mindset and methodology on the simulation is highly counterproductive.

In summary, I have stated the three most common mistakes new e-mini traders make.  Some spend their money on a course, then never bother to develop some mastery of the information.  Many traders sit and try to learn as “mutes,” and never get the benefit of room wide interaction.  And finally, it is very important to use your simulator in the proper fashion.  When you are consistent on the simulator, you are ready to go to the market.

E-Mini Trading: Do Your Stop/Loss Points Get You in Over Your Head?

By , 16 September, 2011, 1 Comment

There is a tendency among traders, both new and experienced, to overestimate their predictive abilities as they relate to e-mini futures contracts. Over trading and trading too many contracts are common characteristics of the hard charging e-mini trader; but their exuberance might be put to better use if they held off a few years and gained some valuable experience to match their aggressive trading style.

In any event, it is imperative to always trade with your stop/loss limit defined and in place. I have known many e-mini traders who managed their stops mentally, without even an emergency stop, and eventually they encounter a disastrous result via a spike in the price action.  Always trade with stops in place; enough said.

But how do we set stops that are wide enough to allow a trade to develop, but narrow enough to fall within individual risk parameters.  If you run your stops too tight, you will find yourself stopped out of trades by ordinary market noise.  Too wide, and your losses can be staggering.  There are other factors when considering your stop losses targets, too:

•    Individual appetite for risk, ranging from aggressive to conservative (I recommend a conservative approach to trading.)
•    Market conditions at time of trading
•    Price positioning at time of e-mini trading decision
•    Size of traders account can sometimes dictate a certain trading style

I find myself favoring the use of the Average True Range (ATR) when considering the length of my stop/loss points.  Depending upon which author/system to which you subscribe, the suggested stop/loss is expressed as a % on the ATR; and the percentages range from 50% to 150% of the current ATR.  Though the numeric value of the ATR is an average of a pre-selected time period, they mustn’t be construed as predictive in the sense that they have an incredible sense of accuracy.  What we can glean from the ATR is that over the last, say, 14 time periods the market has average x and if things stay roughly the same, this is the kind of price range you can expect on a 3 minute bar, or whatever time period you have chosen.

So, we have learned that the ATR can give us an idea of what kind of price range/bar we have been experiencing, and barring any knowledge to the contrary, we base our stops on the ATR.
I like to use at least a 1:1 ratio on my ATR-set stops, and that may be a bit wide for some tastes, but I am a vocal proponent of using wide stops, as opposed to tight stops.  With our ATR number in mind, we now have a general idea where the price may move in the next 3-4 bars.  It’s a great technique, but don’t forget to keep an eye on support/resistance lines, fibgrid lines, and important Fibonacci lines when eyeing a trade.  Can you safely execute your trade while staying within the general parameters of support/resistance?

In summary, I have tried to make the point that stop/loss targets should be given consideration.  Too tight, and you find yourself stopped out of a trade on simple market noise; too wide and you expose yourself to excessive risk.  The key is to find that happy medium each day where you can handle a retracement without getting stopped out, and let your trade run when possible.  Great luck trading.

E-Mini Trading: The Difference between the 90% and 50% Failure Rate

By , 13 September, 2011, No Comment

In my e-mini trading room I get to see a variety of new and experienced students trade their accounts.  Oddly enough, experienced students who are looking for an e-mini trade room usually meet with the least success.  When I speak with these students, I often find that they have taken numerous trading courses with minimal success.  On the other hand, students with minimal training in my trading room enjoy similar success as the experienced traders who have taken a multitude of e-mini trading courses.  The reason for the disparity in the success lies in past e-mini trading instructors and the effort the student put forth in learning a particular trading course.

That’s a bit of an anomaly, isn’t it?

The intent of this short article is not to enumerate specific courses that are of high quality and other courses that are of lesser quality; the strengths and effectiveness of training courses run the gamut of effectiveness.  No, my intent is to stress finding a system that works and then learning that system so well that you can trade it instinctively.  Like many e-mini trading educators, I find it frustrating when I have a student fail.  It is my intention to train students to trade the e-mini contracts successfully.  In a sense, their failure becomes my failure.

On the other hand, every student has the responsibility to familiarize and thoroughly learn the methodologies and techniques presented in an e-mini trading course and the accompanying e-mini trading room.  Without a certain level of mastery of methodology and e-mini technique, the student’s chances for success diminish greatly.  There is, in fact, a dual responsibility by both the e-mini trading instructor and student to effectively learn and convey the basic principles of the e-mini course trading style.

Lacking that dual responsibility, most new e-mini traders are destined to fail and e-mini educators feel the pain of failure.  In short, this is the difference between a 90% fail rate and a 50% fail rate.  I have to concede at this point that at least half of all potential e-mini traders will find the trading profession unduly demanding or tedious.  Another group of students do not care to spend the day parked in front of a computer screen.  These are all normal reasons that students will leave an e-mini trading program.  Trading isn’t for everyone, and there is nothing to change that immutable fact.

But the focus of this particular article is the amount of effort that both the instructor and student must expend to reach a level of consistently profitable trading.  This is no small feat considering the wide-ranging level of information traders are required to assimilate.  In short, surveying the level of technical information can seem, at first, daunting and discouraging.  Like most areas of study though, a concerted effort by the student and consistent support by the e-mini trading instructor will result in the potential for positive results.  As I mentioned earlier, the failure of either instructor or student to exert strenuous and ongoing effort will leave a gaping hole in the student’s technical and methodological skill level.

In summary, we have discussed the dual role both students and e-mini instructors play in the game of successful e-mini trading.  A lack of effort on either partner in this “contract of learning” can result in a highly unsatisfactory result.  As a student, choosing a responsive and helpful instructor and time-tested system is essential, but the student also must be willing to provide maximum effort in achieving his or her goals.  Trading is not a profession where instincts and natural ability will necessarily lead to success.

Students with minimal training in my trading room enjoy similar success as the experienced traders who have taken a multitude of e-mini trading courses.  The reason for the disparity in the success lies in past e-mini trading instructors and the effort the student put forth in learning a particular trading course.

<b>Real Live Trading Doesn’t Lie.</b> Spend several days in my trading room and see if you can benefit from a fresh and unique view on trading e-mini contracts. Sign up for your free trading experience by <a target=”_new” href=”http://www.learn-to-trade-and-invest.com”>clicking here</a>.

E-mini Trading Question from Individual: Understanding Risk in Day Trading

By , 10 September, 2011, No Comment

Hi David,

Hello, hope your well, quick questions on your ES trading, may I ask how big are your stops? And are your targets? do you use range bars? what times do you trade? what is your max loss ofr a single day?All this will help me determine if it fits my risk profile:) thanks!!

Paul  (spelling and sentence construction unchanged)

I wrote back this portion regarding the risk and stop placement in my response:

Hello Paul,

I have been an institutional trader, in various capacities, for nearly 30 years, most on the NYSE, the latter years in trading rooms for a the same investment bank.  Were it me, I avoid trading the ES at all costs.  I think there are much more profitable contracts to trade than the ES where there is less professional, institutional, and computerized trading activity. I am fond of the YM, 6E, NQ, and the ten year treasury.

Stops are sometimes calculated on the ES (or any contract) by using the Average True Range, obviously if the average true range is 12+ (which it has on most days of the week), it means that the previous bars have a range of 12 ticks, it really doesn’t make any sense to enter a trade with a 5 point stop, or an 8 point stop.  Random noise in each bar (or the level of random noise) will increase your losing percentage/trade.

But let’s talk about that silly notion of risk as it relates to trading, as it is very difficult to quantify in futures trades.  For example, assuming your favorite trade profits more than it loses; risk is usually defined as stop-loss/profit target.  So the average guy would tack a 10 tick profit target with a 10 tick stop loss and think he has flattened his risk some.

On the other hand, I set an 8 point profit and 25 point stop/loss, very unbalanced and carrying a higher degree of risk than your trade.  Right?  Let’s assume an average true range of 10; mathematically I have a 30% better chance of succeeding than you.  I had a student challenge me on this, so for one week I trade the 8-25 and he traded the 10-10.  We both traded 6-8 trades a day for 5 YM contracts.  By Thurs of the week, I was up more than a $1000 he asked to be excused from the trade, which I did.

The point is simple matter of mathematics; there are too many variables in every trade to fully understand the probability, in the exact sense, of the market doing this or that.  However, when you try to control just one variable you can increase you probability significantly.  In the above example, which is a more likely event?  Will I hit my profit target of 8 or stop loss of 25?  In pure mathematical terms I have a 79% chance of hitting the 8 tick stop and a 21% chance of hitting my 25 tick stop loss.  I initially chose 10 as your profit target and 8 as my profit target, because there is a significant difference in the probability of moving 8 ticks and 10 ticks.  Just think about the math behind what I am describing and quite possibly you will rethink your understanding of risk.  Risk, in a pure sense, is based on probability and probability in, in most ways, a non-linear component.  You might refer to some of Murphy’s books, as he has done some nice work in this area, though I disagree with him in a host of other areas.

Of course, there are many other factors you could try to control.  For example, supply/demand in the actual contracts offered is an interesting area of study.  Zero sum games can have convoluted outcomes in trading when a move to the long side simply runs out of supply, in other words, there are no sellers left to supply the buyers.

In short, I usually place emergency stops at 25,  and logical exit within my own loss parameters will be my mental stop.  Don’t ever trade without a stop-loss and contract count potential loss that is more than, say, 5% of your account.  But for sake of argument, maybe I could get your to rethink your understanding of risk as a function of probability rather than a straight 1:1 linear relationship, which has always been the traditional line of thinking.

Finally, I think that you may have a certain risk profile…but when you enter the market, our risk becomes the same.  So the game comes down to picking the right set-ups, at the right time (usually with the trend), and style. Those are the variables you can control, along with some lesser variables.  I held your view of risk for many years, on a much larger scale, of course, and have only started to consider risk in the last ten years.  Come visit my room and watch me trade.  I win a lot, and work hard at managing the downside on my trades.

E-Mini Trading: Should a Trading Room Be a Learning Environment, or a Simple Trade Calling Site?

By , 20 July, 2011, No Comment

I have been doing a lot of thinking lately about what the true purpose of my e-mini trading room should be. That is to say, should the e-mini trading room be a place where new traders actually learn how to trade? Or, should the trading room be a place where I call out buy and sell signals for traders in the room so traders make initiate trades?

It’s not as easy of call as you might think.

I have several individuals who come to my trading room to simply imitate the setups and trades I identify. And I suppose that’s not such a bad idea. On my $10,000 trading room account, I have been over $1000 per day for the last nine days. On the other hand, these individuals never get a handle on the trading methodology I use to identify e-mini trades. They come to my room to make money and are not in the least bit interested in how I accomplished that goal.

There is another and much larger group of new traders who attend my e-mini trading room to learn how to trade. Make no mistake about it though; all new traders want to make money. But this group of traders would like to learn to trade on their own. In short, they want to be competent traders in their own right.

To my way of thinking, the second classification of traders are thinking along the same line I envisioned the trading room. Perhaps I was naïve, but I assumed that new e-mini traders would naturally want to learn how to trade so they could practice their skills outside the trading room once they become consistently profitable. Perhaps it is just my own personal personality, but I wanted to establish my trading identity from the start of my career. Granted, I don’t object to initiating trades suggested by others because often times setups occur to which I may not give proper attention, or just plain miss.

Unconsciously, I have had to serve two masters; one group that wants only e-mini trade calls; and another group who is interested in e-mini trade calls, but is more interested in learning my style of e-mini trading so that they will, in time, be able to trade on their own and not within the confinement of a monthly paid trading room subscription.

In the interest of transparency and clarity, I have been giving thought to more clearly identifying the purpose of my trading room. If I had my way, I would focus only on helping new e-mini traders learn how to trade and eliminate the trade calling aspect of my e-mini trading room. It’s been a tough question for me to arrive at a clear answer because both types of e-mini traders can certainly benefit from the trading room. Further, why should it matter to me if some e-mini traders have no interest in learning to trade and simply want another individual to call trades they can copy.

It’s an interesting question and the one I have failed to arrive at a satisfactory conclusion. I would welcome any thoughts on this matter.

Real Live Trading Doesn’t Lie. Spend several days in my trading room and see if you can benefit from a fresh and unique view on trading e-mini contracts. Sign up for your free trading experience by clicking here

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    E-Mini Trading: Displaying Price Data on Bar Charts. Which Method Is Best?

    By , 15 July, 2011, No Comment

    If you ask a group of 10 e-mini traders which type of bar they prefer on their trading charts you will find no shortage of strong opinions. Most traders were taught to trade on a specific type of bar, say a candlestick, and adjust to their trading to the art of reading candlestick charts. Generally speaking, once they have learned a specific system it is difficult to dislodge, especially if the e-mini trader has been having success with candlesticks. On the other hand, there are a wide variety of bar charting techniques worthy of consideration, and most people fail to do so.

    In this short article we will look at five types of bar charting techniques and give a short analysis of the advantages and disadvantages of each technique. We will be looking at:

    • Candlestick charts
    • Standard bar charts
    • Heiken-Ashi charts
    • Renko charts
    • Range charts

    It is my observation that the most popular charts and use today are candlestick charts. For the sake of convenience, we will be talking about bar charting techniques in relation to e-mini trading; though there are a wide variety of trading disciplines that employ the charting techniques we will discuss.

    Candlestick charts

    It is assumed by most historians that candlestick charts were developed in the 1500’s in Japan. Japan is considered by many to be the first country to develop a futures market of sorts in the rice trading industry. A candlestick is several components in its composition; a body, upper and lower wicks (though if the price closes at the top or bottom of a candlestick, it will not have a shadow at that point). It is also common to hear the wick formation referred to as a shadow. The body portion of a candlestick chart was traditionally painted black or white indicating the direction the body had moved. On most current charts, you will generally see upward movements in the body painted green and downward movements in the body painted red. There are groups of traders who have used traditional Japanese patterns in candlestick formations to predict movement in the market. The empirical evidence on accuracy of the predictive nature of candlesticks points toward a negative correlation and accuracy, though I would admit that a conclusive decision on this topic is yet to be formalized.

    Heiken-Ashi Candlesticks

    The Heiken-Ashi version of candlesticks also has its origins in the 1500’s in the Japan rice markets. They differ significantly from traditional candlesticks in that they are weighted in nature and are trend oriented. I have used them with success in my trading, though certain market conditions must exist for them to be used successfully. The formula for calculating Heiken-Ashi bars is as follows:
    • Open = (open of previous bar+close of previous bar)/2
    • Close = (open+high+low+close)/4
    • High = maximum of high, open, or close (whichever is highest)
    • Low = minimum of low, open, or close (whichever is lowest)
    As you can notice there is a heavy weighting on the latter portion of the bar and the system is especially effective in trend following systems. There are a set of specific guidelines for using Heiken-Ashi charting bars which is reasonably extensive and beyond the scope of this article. However, I recommend any trader investigate this charting system as it has many useful applications.

    Standard Bar Charts

    While I no longer trade this charting system, when I learned the trade it was the predominant system in use. There are many traders at present who still prefer standard bar charts, especially stock traders, for their charting needs. Standard bar charts are reasonably simple in their construction; there is a vertical line that shows the range of the traders chosen bar time. And a hash mark on the left side of the line to indicate the open, and a hash mark on the right side to indicate the close of that particular bar. This charting system is often referred to as an OHLC chart. While this may be the simplest of charting systems, it’s still important to note that all charting systems are essentially displaying the same data in different formats.

    Renko and Range charts

    These two charting systems are similar in many ways, though they have some very distinct dissimilarities that should be thoroughly understood before undertaking any serious trading with them. Like candlesticks and Heiken-Ashi charting, Renko bars also have their origin in Japanese trading. Quite literally, Renko means bricks. Renko bars are often referred to as bricks by e-mini traders. When using these bars you set a specific range to be charted. For example, you may set your Range and Renko bars to a setting of four. With a setting of 4, every time the market moves 4 ticks a bar is formed. But there is a fundamental difference between Renko and Range bars. Range bars chart market movement in either direction, while Renko bars chart only in one direction. For example, when using Renko bars the market would have to move 4 ticks upward or downward before a new brick is displayed. On the other hand, a range bar will chart the complete range, up or down, and form a bar indicative of this movement.

    In summary, we have taken a close look at 5 different charting tools. While an in-depth discussion of the advantages and disadvantages of each system would entail a very lengthy discussion, I have tried to point out some basic advantages and disadvantages of each system. Each type of bar charting system provides a definite purpose for the e-mini trader, and I recommend serious e-mini traders investigate the advantages and disadvantages of each of these charting systems.

    Real Live Trading Doesn’t Lie. Spend several days in my trading room and see if you can benefit from a fresh and unique view on trading e-mini contracts. Sign up for your free trading experience by clicking here.


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