Yes, I agree completely, if not prepared the lack of adjusting your money management approach can bite you. I felt some pain when I switched due to that, but I caught the mistake quick and didn't blow up. Also, in my experience, the set ups I was using for stocks would not have worked at all for the ES. I worked and adopted a very different approach before switching. Every now and then I hear of someone having trouble with index futures as they are trying the same setups on them that they used on stocks. While that might work for some, I wouldn't count on it at all. The ES moves differently. Best to be prepared. And while trading the ES suits me better for sure, and while my P/L is actually better now, I wouldn't exactly say it is easier. It is hyper-focused, and I do have to work to make good trades, just not nearly as scattered as with stocks. And I also have work to sit on my hands and stay flat and out of bad situations, where before I would just look for a different thing to trade if one thing didn't look good. That said, for those that love trading many things, and who like focusing on the things that makes individual stocks move, etc, and who like to constantly be in the action, they will probably will be happiest and more successful trading stocks. There was actually a very similar thread a few days ago here on ET: http://elitetrader.com/vb/showthread.php?s=&threadid=62243
The stop is my last option (I only use it when Iâm not certain). I prefer to average up, down, or reverse instead of using a stop. Before I enter the market I'll try to imagine all the possible outcomes and then develop a plan for each. Just my 2 cents.
I feel the same way. In fact, I initially set very wide stops, avg in if needed, scale out to better the basis and lower risk, etc. Later I bring the stop in nice and tight when its right. It turns out to be rather high probability and I don't take very many stops at all. If one hits though, it hurts. And I also agree with what you said earlier, you need to have a plan for the large moves or take a beating. My head was up my ass Friday and I got slapped. Needs to happen every now and then to remind one not to get too comfortable. You just need to know it will happen on occasion and build it in to the plan. Wonder how the faders here avoided falling into the trap on friday, or didn't?
With liquidty comes great responsbility. Quite a lot of edges in stocks that are completely irrelvelant in futures, Quite a lot of techniques in futures applicable on stocks which tips the scale for me in stocks in a big favor. Futures is a 100% back and forth trading vehicle Stocks is a good holding vehicle. Although I'd rather deal with specialists then deal with Chop.
Art , when you average in and use a wide stop, what percentage of your portfolio are you risking when the wide stop gets hit?
Fortunately, I was long that Friday morning (pre market) and reached my daily target prior to the open; therefore, I was done for the day.
K-Rock, nice, can't argue with hitting target before the day even begins! Buy1Sell2, with my current position sizing, worst case scenario and I avg into a full stop, it would be about 2% of account. This is a lot in my mind, I was working with .5% or less as max risk back in my stock trading days. But a full stop scenario happens very infrequently...if you trade the ES or watch it often, you will see how it moves. This regularly provides for being able to avg into a position, then scale out some making your basis better and lowering risk, meanwhile finding the right place to tighten the stop. This type of thing obviously isn't going to work in lots of markets. And it is counter to what many folks would call reasonable money management and risk/reward, but it has worked for me for a while. This is because it very regularly pulls profits out of the market, and very infrequently do I take a full on stop without having the ability to pull it in or better my avg cost. But it also means that I am only putting a small portion of available capital into play at the start of a trade. It is also not necessarily an easy way to trade, as I am quite often looking at red for a while on the P/L blotter as I make the trade work for me...although occasionally it goes directly into the target right away, which is great. Again, it is just what has worked for me. And knock on wood, it hasn't happened yet, but any kind of series of big stops eating into my accumulated profits would get me to stop and re-analyze things. The market action would have to change though...which is always a definite possibility.
I must assume that your account size is substantial to average in and not exceed 2 percent albeit you are starting the initial position small. Do you run into trades where the trade is extremely profitable from the get go and there is no averaging? When/if that happens, does it bother you that the position is small? Hopefully you don't chase in that instance
Yeah, like lkh posted in the original post, I will scale in about 4 times if necessary as well, although this often not necessary, so my initial position is 1/4 of max. If it goes directly into profit target I will take it, no second thoughts. Additionally, when I am averaging in, if it pulls back in my direction, I will cash some out, effectively bettering the cost basis and lowering risk. This means I am rarely running with a max position size. I think this is one of the things many people who try to avg in fail to do. When you are trying to capture a change in trend, this allows you to move towards it without having to nail the exact top or bottom and risk getting stopped out if you are wrong. You are working towards the turning point, bettering your basis, and maybe pulling out a little profit as you go. I am using very small position size and just looking to pull some $$ out each trade, and do this over and over.