Dan, here's a sub-point. If someone say's "I only want to trade indices" then I'd suggest that he monitor ALL index products. For example longs today in NQ have been far more forgiving than longs in ES. By the same token if the market flushes later I'd suspect NQ would be the worst short candidate. Currencies, Treasuries, Grains also the same dynamic. If you've wanted to be long dollars then short the Pound has been fine. Short the Euro a disaster. Knowing spreads is of primo importance.
Pabst. Thanks for the clarification, I totally agree. I trade ER2 for now, but watch ES as I have found when ER2 moves and ES doesn't it's usually a bogus move.
Here's an idea for a follow-up article: Based on your experience and time spent in the markets, what things would you do differently if you were starting all over again?
pabst that's an excellent article, very well written and synthesizes the essence of trading. thanks. however i have to disagree with how you have articulated the message of using options vs futures in the example cited above. you say that you have decided to enter a put spread with payoff of 8 to 1 which paid 80k profit, as an alternative to shorting the equivalent future. that's ok. but for the sake of transparency, you should have provided more info about that spread, especially the probability of success. for instance, a option spread that pays 8 to 1 only has approximately 12.5% probability of success. this can not be compared with shorting the equivalent future, which has a statistical probability of success of 50%. if one compares those two alternatives without mentioning the different probabilities they carry, the reader might be tempted to infer that options offer a better expectancy than futures or stocks, which is not the case. in fact, entering low probability spread trades, as the one you've mentioned, adds to the negative expectancy of your trading due to the burden of added slippage and commissions. just my 2c
Good point and I realized after the fact that I should have addressed those realities. It's not like I've never had a long options trade wind up being a big fat zero....