Well, let us say I was long right now in August CL future for 1 contract at 45.00. Let us say that future is currently trading at 44.00. I am currently down $1,000. How could an "option hedge" help?
You are getting partial fills on a 5 lot in ES? I don't buy it. And the people saying you need to bake in slippage in your sim numbers have no clue. ES is pretty much zero slippage.
Slippage seems to be a red herring in my experience. I have traded front months of MGC, and had no slippage. This is an instrument that sometimes has 20 contracts per day. *shrugs* YMMV? (Granted, they are, of course, limit orders). But still, no slippage on the limits! Woohoo!
Given your long posting history, and your note here about wanting to help, I would love to give you the benefit of the doubt and ask that you explain a bit about what it is you do. The whole hedging thing is a bit of a mystery because I would imagine that there is nothing as a risk free trade. If you make a directional bet in the ES, say going long, and then buy some puts to hedge that position, I imagine that in order to be fully protected against any loss, the cost of this insurance would negate any profit. (ie. You go long ES, it drops 10 points so you're out $500, but you have a hedge that is now $500 into profit to cover this loss) If of course ES goes up 10 points, then what did this insurance cost you that you now no longer need and is clearly under water? This is how I imagine hedging to work, and I'm sure I must be mostly wrong, so if you could start with a brief description about what you do with some concrete examples, I think many would benefit.
Thank you very much Jdesey. Presently I'm having about one day a week when I seem too caffeined up and try to trade based on what it seems the mkt will do next. Of course those days are net losses. The other days I am cooler and wait until the market confirms it is doing something and then enter for some points or point. I am still forming my habits. My mentor told me that good traders make money in any kind of mkt, not just the good volume trending markets. He says any idiot can do that. So, I am trying to net just 4 points or better per day. I feel I am gradually improving my consistency. My results show improvements. Will keep working at it. Shooting for going live August 1.
Tks to you MACD! I did trade options last year and lost enough to quit. I found it difficult to get the timing of a move consistently. The day trading I'm doing now seems more straightforward, like playing gin rummy quickly. You take a card, if it helps your hand you keep it and discard your highest point unmatched card, if not, you discard the card you drew. Quick. I feel my risk is better managed at the moment, than if I'm in an option position for weeks. I watch the market & indicators. When there is a trade set up, I enter and place a stop. I find the indicators are significantly better at telling me entries that turn into winning trades than if I entered randomly or used just the price data & my "judgment". I don't think I could achieve positive expectancy without the indicators. If the market doesn't confirm fairly shortly, I'll review & decide to stay in or get out and try later. I rarely stay in until I'm stopped out. Trading using futures and options can be done to make bunches of money, just too complicated for me at this stage. My long term strategy is to accumulate big money by compounding and increasing the number of contracts, rather than by being a great trader.
And the people saying you need to bake in slippage in your sim numbers have no clue. ES is pretty much zero slippage. True - The ES is not prone to slippage for retail size most of the time, however: Many backtesting programs don't have a field to enter the bid-ask spread that we all have to pay, so you end up having to put it into the slippage field. 356 trades per month - that is at least $5,500 and could go well over $9,000 in trading costs per month and the backtest did not factor that in. I would not waste much time in SIM & backtesting fantasy land - better to get some real experience, just keep your size small and don't put on more than a few trades max in a day. This is TradeStations recommendation for backtesting: http://www.customizedtrading.com/resources/slippage Great info from a large prop firm co-founder on automated system trading/backtesting/your competition.etc. A good dose of some reality.
Seems the issue I need to account for is this: Entering or exiting multi-contract trades (the more contracts, the bigger the issue) using LIMIT orders opens up the chances of getting partial fills and the attendant difficulties, i.e. making sure the unfilled portions, which are still live orders, get handled - either cancel or monitor (for entries), or (for exits) making sure the remaining open positions get exited at SOME price. Meantime, using MARKET orders for multi-contract trades means that I must expect to get filled at the unfavorable price of the bid-asked spread at any given moment. I also suppose at some point with orders for, I don't know, say, 25, 50, 100 lot orders, my order may actually move the bid-ask prices against me some quarter, half, or even full points depending on the depth of orders on the other side of the trade. I'm guessing I won't be able to plan for this, but I need to be aware of it and be prepared for it if and when it becomes an issue for me.
Cmon man, do some research on the product you are trading. No way those lot sizes are gonna move the ES 1-4 ticks.