I never said that no makes money directional trading. Re read what I wrote. In fact I said that I'm sure they exist, but I don't know them. Unless you know something about my acquaintances that I don't, I stand by my original statement. What these big hedge funds are doing and what they tell you they are doing is a whole other discussion. I have never traded out rights, but I am starting small. It scares the crap out of me in a way that spreads don't.
what I like about spreads is you can go to sleep without severe fear of black swan. Although everybody has a story about a spread that went bad. Once you start trading spreads, everything becomes relative. The problem is though, once you start following a spread down to it's logical conclusion only the most efficient can work that spread, and that aint me. So you end up right back where you started. Instead of guessing what it will do outright, now you are guessing what the spread will do.
You shouldn't be scaling in or out unless you have a really big position to enter or exit. Like you said, you're still in the 'learning boat' and from what you're saying I'm thinking you shouldn't even be demo trading at this point. No offense. You need more precision and you need a methodology. No way around it.
Thanks Eprado and as Loyek590 said, you have to know how much you can lose first, which I still have to master and be disciplined enough to follow without question. But for now I'd like to keep on subject and talk about target levels. Trading 1 contract for now has really limited my losses but at the same time, it is different from the way I used to trade ETF's/stocks. Although some traders on this thread might disagree with having target levels for taking profits, I need to have a set price/area in mind to cover/sell to even initiate a trade similar to an area I get out no matter what. On certain setups, there would mid level profit areas as well as the full target area. I would scale out when trading stocks/ETF's, 1/3(mid), 1/3(full), and let the other 1/3 run. Anyways back to original question. A lot of good traders have recommended starting with 1 contract first. How exactly should I be trading 1 contract similar to what I was doing with stocks/ETF's??? Let's say I am short ES......I have a target level based on a setup of 1900. I am short from 1917, and there is a mid area of support at 1908. So ES comes down to 1908, I could take profit or hold out for 1900 level. If I was trading size I could sell 1/3 at 1908 and let the other 2/3 run. But if I am trading 1 contract, I have to either sell at 1908 or wait out for full target level of 1900. If I don't take profit, price can catch bids and come back to my entry level and make my winner into a loser unless I had a trailing stop. If I was stubborn and held on thinking it could hit 1900, I could have given up a huge profit by not taking partial profit at 1908. So how do you guys trade 1 contract with this limitation/difference compared to trading with size?
I hear ya man. I jumped to conclusions. As far as the big hedge funds. They actually do tell everyone what they did. Albeit after the fact, but they do announce their holdings. It seems to me the huge ones make gigantic directional bets , especially in equities. Like I said, I never traded spreads. Some of my buddies do, and honestly after talking with them over the years, I have no business trying to. They know an insane amount more about them than I do.
It's simple, you can't scale out trading with 1 lot. If your strategy haves you scaling out then you have to at least trade the same number of contracts as the number of profit exists. IE: 3 profit targets= must trade in multiples of 3, starting at 3. The only way to kind of do what you want to do is trading a 1 lot with a trailing stop. But honestly it's not really the same/what you want to accomplish on the profit side. I would start trading 3 lots, only if you have though plenty of capital to support 3 lots. If not you probably need to try and raise enough capital to get you there. I think the last thing you want to do is change a successful strategy because of capital restraints.
For trading 3 contracts, lets say the margin isn't a problem for you, but I've seen ES run $12 ($1800 @ 3 contracts) within 5-minutes, so my question is what sort of account equity do you think would be safe have when trading 3-contracts? like the $12 move in 5 minutes would be over 7% of a 25K account for example.
You need to backtest your rules on your chosen market over a large enough sample to know with any degree of accuracy what to expect. An analogy....Say you are novice playing texas hold em poker and don't know the probabilities of the game. You have an Ace of clubs and 6 of hearts. You probably think you have a good starting hand just because you have an Ace when in reality you don't have that strong of a starting hand at all. Say you have a 7 and a 2 then fold, but then on the flop comes two sevens and you kick yourself for folding. According to the probabilities of the game you actually did the right thing folding but since you don't know the numbers of the game you think you effed up. You need to have the probabilities worked out for your strategy before you make any decisions otherwise you'll always play "woulda coulda shoulda" instead of saying to yourself, "I did the right thing with discipline according to my strategy and backtested data, no problem, next trade"
that's why I never look at my cards. I have too many tells. If I look at my cards all the good players already know what I have and know exactly how to play them against me. If I feel good I just bet the pot. And some student of a Russian book who still thinks 2 aces are better than 7 deuce off suit will say, "But you haven't even looked at your cards!" To which I reply, "I don't need to look at them to know I can beat you." (in my dreams)