Your post speaks to the heart of the matter. If as much time were spent studying the use of position sizing, margin and using leverage as is spent looking for the "holy grail" of entry signals a trader would begin to exploit the true power of futures trading. JJ
Mind you, with Gnome we were discussing what should be the base when determining returns. Those 2 sentences are contradictory. First you say Fave Value is important, because that is the value being traded, then in the next sentence you acknowledge that the leverage (capital in your account) increases (thus determines) the return. So face value isn't important... Here is another approach, for the last time. We both trade ES, my capital is 10K, yours is 75K. We end up with the same 10K profit at year's end. Obviously, my return is 7.5 times as much (100%) as yours (14%) compared to the starting capital, but according to Gnome, we had the same return, because the face value should be counted. That is clearly silly. Now another poster mentioned that one can lose more than the starting account. At least according to the legalize in the broker's brochura. Sure, if the market has a sudden gap against a position and the broker can't close it fast enough (or the market closes down), the trader can actually end up with a negative balance, but that is still not in the 75K range... But anyway.... P.S.: The Face Value is only meaningful for determining what your leverage is. Not for your return...For example, if you use 1 ES contract for every 1.5K in your account, your leverage is 1:50
This if for the original poster. Margin....It is important to know margin requirements BEFORE you trade, while setting up your account, deciding which markets to trade and how you will manage risk. If you are a retail trader, margin requirements tell you whether you can sit down at the table. If you (the retail trader) have to worry about margin, it is a signal that you are undercapitalized. This is true of most retail traders. For that reason, it is wise to understand margin and its affect on your trading before you trade, during the planinng stage, when you are writing out your business (trading) plan. Rather than listen to the bullshit artists that populate the site. Look at the various exchange and brokerage requirements first, THEN when these idiots profound on the subject, you will be able to know how to act. Here is a link that you can use to educate yourself as to margin http://www.eltee.de/en/usefulsmargins.php and another link from Wikipedia http://en.wikipedia.org/wiki/Margin_(finance) Hope this helps the original poster. Steve
1. I never said that. I only mentioned what a good return would be. 2. I never said that, either. 3. Your rationale about leverage is total nonsense. Suggest you stay away from futures markets completely.
Regarding margin... Just because a trader has availability of $300 intraday margin for eminis or whatever, doesn't require that value be used by the trader for trade strategies or risk management. Because I qualify for a $2M mortgage, does that mean I am required to buy a $2M property? Regarding the side-bar topic of basis for percentage return... I see both sides. IMO, using face value is not right. How is this treated in the options (equity and futures) arena? Is the underlying of the option used to calculate realized percentage returns of the option? I think not. Osorico [Just because you can, doesn't mean you should.]
Not really, as an indicator is actually a highlight of price (and volume action). Many Posters here on ET tend to speak of Indicators and price action as though they are two different things. This is not true. Indicators are derivatives of price (and volume) action ... how can they be otherwise since they bring nothing new to the party. What they do, and do it well, is highlight patterns that can be difficult to see on a chart amongst the price bars. Some people are keen to point out that an RSI does'nt work or MA's will bleed you dry, or (H+L+C)/3 is better than CLOSE ... so be it, each to his/her own. A different course of action might be to carefully follow the price/volume action in your own time and speed and establish a battle plan. In order to see this plan at market speed you need the assistance of one or maybe two+ highlights. These might be canned codes ie CCI, RSI, BB's etc or you may decide to adapt or write new code. In other words, you chose your course of action first and then you select the appropriate tools to aid you in your task.
There are 2 primary ways to calculate return... (1) percentage increase/decrease in capital... if capital is added or withdrawn, then a function is necessary, like NAV..., and (2) percentage increase/decrease relative to margin. #1 is the more valid. If you were boasting a good return, someone might ask, "How is the return calculated?", and "How much leveraged was used?"
I think(?) you don't understand completely what fearless is saying. I do not mean to put you down just encourage you to go over his posts again and again until you don't have to ask the above. If I am correct fearless is offering real gems here.
I agree. When based on total portfolio value, whether 1% or 100% of funds are/were at risk, this provides an apples to apples calculation regardless of what instrument is traded. Osorico