THANKS. If you read the introduction to my former journal, you will see how I got started with the "micro evangelizing." I have seen WAY to many traders blow up because they are in a big hurry for various reasons. This rush is absolutely deadly to proper trade selection and rational trade management. I am sharing this journey because I truly want to help someone who has already decided to trade to bypass some of the account-obliterating behaviors. Patience through proper sizing and small daily goals is the first main lesson here for sure. I think many who enter this market HAD big accounts at the beginning, like me, but slowly knocked off the zeros on the balance until they had nothing left. (Candidly, I had over $100k at the beginning in 2006 in my trading account. Yep. I am not lying. Pretty dumb what I did.) So they scraped together a couple grand and tried again and failed. Tried again and failed. Tried again and failed. Tried again and failed. "What in the heck is wrong with me????!!!!" Micros to the rescue. I can finally trade the indices with the proper risk profile. I am now back in the saddle with a plan and some success under my belt. There is lots of room for improvement, but I am off to the races!
You are doing great. I believe you, and honestly many many people lost much more than you did. 100K is a lot of money, but in the arena of trading, losing 100K is quite commonplace and in some grand case it is almost nothing. The thing is when you are really really good, taking a 100K profit from the market is just a couple days's work, or even just a few hours work when you accumulate a larger fund to play.
Hello sstheo, How has trading the Micros benefited you? What is you risk profile? Some says don't risk more than 1% of trading captial. What is your risk to reward profile? Risk is important indeed, but so is reward per risk, and expectancy.
As I alluded to up higher, I TRIED to trade with one E-mini contract on a $1000 account MANY times with a $500 margin requirement. Guess what happened? 100% of the time I eventually got a margin call. I only had $500 of wiggle room. DUMB. Now, with a $2000 account, I was able to trade 4 micros with $500 allocated for each for margin. That is like a $20,000 account for E-minis and trading 4 with $5000 for each position. So with the micros, I have 10x the wiggle room. I can have a few bad days and still be alive to trade the next day. At $20 max loss per micro, my risk profile is 1% risk per trade. And as recently stated, I have a 4% max loss per day. One a $3000 account, this is just $120. So, I can lose for 20+ days before worrying about a margin call. Now lets talk about expectancy. Here is a great article: https://samuraitradingacademy.com/trading-expectancy/ Expectancy = (Win Rate * Average Win) - (Loss Rate * Average Loss) I am at an 84% win rate with an average winning trade of about $8. My loss rate is 16% and my average loss is about $20 after commissions. .84 * $8 - .16 * $20 = $6.72-$3.20 = $3.52 expected average profit per micro contract traded. Sounds pretty low, but it is correct. So when I get up to the full E-mini once I reach $5000 in the account, with no changes, I should be able to expect and average of $35 per trade, which is about my historic norm (when I follow my rules and don't get too aggressive or careless). So how can I, and any trader improve? Increase win rate Increase average win Decrease lose rate Decrease average loser size Since my win/loss rate is already good, I am trying to (#2) increase my average winner by letting my winners run when in a trend. I am working hard on this with some help from a good friend. Regarding reducing the average loser size (#4), I have done poorly in this highly volatile environment of "getting out immediately" the moment the market proves me wrong. In other words, I don't want to wait for my stop to get hit, but flatten as soon as I realize the probability of success drops below 50%. (OR if the market is just sitting there doing nothing, I give it about a 3 minute window to come my way.) My stop really should be an "emergency stop," so my goal is to never let the emergency stop get hit. But in a fast moving market like this, I have just been letting the stops take me out.
Thanks for your detailed response sstheo. Your process and details are definetly helping me as a small account trader as well. I am undecided about moving towards the MICROs and I hope reading your comments help me in decision making. I also trade the $2000 account size trading the ES mini on $500 margin. I did not work for me as well after 2 tries I stopped. I have to sleep now and will read your other comments tommorow. Goodnight to you.
I'm a bit shocked to be honest. You have stats that clearly show you have an amazing edge, if your win rate can of course be maintained, but what you're focusing on is improving this??? What exactly would be the problem with performing at this same level week after week, and putting more effort into consistency when you move to 5, 6, 8, 10, etc micros? You're changing up too many variables, and when shit hits the fan, you won't know what went wrong. You're adding contracts, which is in line with your original goal, but you're also now saying that you're changing your strategy? The minute you try for bigger rewards, you have to accept a smaller win rate. There is simply no way around this I don't think. For those times where price moves 2 points in your favor, so you get your $8 profit, or rather would have, it might never get that high again so you're left either stopped out at break even, or take a loss. The act of trying to go for a bigger profit will in fact cause your win rate to go down. This is an absolute certainty. Yes, you might make more money because those fewer winners will be worth more, but doing this drastically alters the trading plan. The beauty of your trading up till now, from the way that I understood it, was that you were able to trade in any condition. Your trades were in and out quite quick, and you only relied on your moving averages and immediate price action. But then I read the other day you saying you were a bit troubled by all the macro things happening in the world, and it clearly had an affect on your trading. This already told me that you were deviating from your original intentions, and now reading that you're trying to change your plan some more is another cause for alarm. The macro environment really should have no place in the way you trade, from what I see you say about price action when you reference your trades. It seems to me like what got you from 2k to 3k is something that you're abandoning, or rather, trying to improve on, and I can't help but think that this will have a negative impact. Based on your stats thus far, you were already operating at peak efficiency, well beyond almost every trader out there if you ask me. It was a simple task to just leverage up from here, which was your plan, and a damn good one. The only variable was trading more size, and seeing if that had an effect on you emotionally. But now you've complicated the process much more in my opinion. I get that the environment is changing, and we are hitting higher volatility, so adjustments have to be made, but the smart thing, in my opinion, is simply to keep the math the same and double your stop and target, and reduce your size, so that most things stay equal. (ie. you used to trade 4 contracts lets say with a 2 point win and 4 point stop, so now you trade 2 contracts with a 4 point win and 8 point stop) Sorry to be so critical, and I really want to see you succeed, but the reason I feel so strongly about this is because I have been down this same road. I think that deep down inside, you see your system was only viable in one market condition, and now the market conditions have changed. This in a way shows that the whole 50 percent growth in just a few weeks is actually very difficult to maintain over the long run. But by making all these changes, you're getting too far away from your initial set of parameters that your original plan was based on. I honestly don't think you will be able to hold for bigger winners while cutting your losing trades right away because this is the complete opposite of the system you were building and what is in your blood. ($8 win vs. $20 loss) It also shows that you're trying to adapt to the volatility in a completely different way than what I think is easiest. By increasing stops and targets and lowering trade size, you're doing the simplest adjustment. But by tightening up your stop and wanting to increase the target, you're down a completely different road which has its own set of challenges, and a major one is lower win rate. I just don't think your mind will be able to adjust to this as you will be craving your 84 percent win rate.
Do you enter all the trades at once or do 1 micro at a time, averaging down when the position goes against you?
Thanks so much for your great post. Your concerns are well founded, but there is a little more at play here. I am mostly happy with my trading. Approximately 75% of the time the market is NOT trending but is consolidating in new areas of value. In these ranges, I am selling highs and buying lows while most traders seem to get chopped up constantly building positions, it seems, anticipating the breakout. These reversion to the mean base-hit trades are my bread and butter. (Indeed there would be no problem continuing exactly as I am.) The other 25% is what most traders live for - the beautiful breakout and/or when strong trends are present. Ironically, it is during those strong trends that yours truly has - in the past - been the one losing his shirt because, frankly, I haven't been able to admit I am wrong and go the other way. So while I am doing well, there is a HUGE 25% hole in my method. And what makes it so glaring is that 90% of traders have mastered this thing I have struggled with. "Go with" is hard for me. I see a trend and I think "fade, fade, fade" while everyone else is yelling "Oh yeah!!!" Does my deficiency drive me crazy? Yep. But like all traders should be doing, I am trying to plug the leaky hole without impacting my results. So I argue that I am not changing my strategy, but fixing what is broken. There are several factors at play here. And they all hinge on proper identification of the current market structure: consolidation or trend. Once I can identify the trend, then I have two tasks. The first being paramount. 1) Stop the bad trades by just standing aside and not trading - thus not losing by fighting the trend. This option alone would contribute to my profits by removing some losers. 2) "Go with" the trend by buying dips or selling bounces, at least for the first two waves before the move gets tired. I recognize my contrarian nature. The market overall is bullish. So it should come as no surprise to you that it is easier for me to sell bounces than to buy dips. Obviously, with my current stats, simply doing #1 (stop fighting the trend!) would help me. #2 (profiting from the trend) is a nice goal that I may never achieve. That is okay. But I have made progress. I have even recently successfully bought a dip near the highs and also sold a bounce near the lows. IT WAS HARD TO DO. And I hated every second. It went against 13 years of reversion trading. But I did it recognizing that we were expanding and the balance area was complete. In summary, my style and risk:reward ratio is inverted from most traders, and it is working. I will not change what I do for 75% of the day when the market is range-bound, and I am try to eliminate my losers by not fighting the trend during the other 25% of the day. Once I have been able to correctly identify a trend, I will stop trying to fade it like an idiot (until it ends!). And once I have actually eliminated the trend fading (in weeks? months?), I may eventually try to make some small profits by going with the trend.
When I was trading 4 micros, I generally put on 1 position on each of YM, NQ, ES, and RTY rather than trading 2 to 4 micros per trade on just one instrument. I like to spread the risk around and it also gives me more exit possibilities if one trade gets into profit before the others. But now that I can trade 5 or 6, I am confirming here my stated method of not changing my entry style but simply increasing my lot size. The times I have averaged-in over the last 13 years have often met with disaster. And what I am doing now is working. So I will continue to go All-In/All-out.
Excellent reply, and I see its very well thought out. You are right that if you can identify the times where its trending vs. ranging then you will be totally set. But it really is so much harder now because, as you obviously know, you gotta get the entry right and the strategy right. Looking forward to the updates!