the young and the feckless

well, shux. i spoke to a friend briefly at church this morning and mentioned that i'll possibly be switching my trading focus to futures. i guess that's his trading specialty and he warned me to stay away as well.

maybe i missed something but i considered the liquidity and efficiency of the ES to be a desirable characteristic as i intend to mostly make momentum trades. i understand there's great risk due to the high degree of leverage in the market, but the ability to jump in and out quickly with just one contract seems to at least lessen that risk a bit, no?

 

I think people should trade whatever interests them, and you should not change your trading plans based upon what others suggest to you. You need to find your own way. That said, is there any reason why you would not want to start by trading the SPY instead? It will move exactly the same, and yet you'll be able to get started with far less risk (100 shares of SPY is ~$14,000, versus ~$70,000 for a single contract of ES). The spread for the SPY is tighter than the spread for the ES (percentagewise), and if trading 100 shares, you're commission would be far lower, as well.

Seems like your decision should be based upon how far along you think you are on the learning curve. Are you confident that you will be profitable in your next three months of trading the ES? If not, then trade the SPY instead. Once you are consistently profitable, then a move to the ES will make sense, as you will have the added benefit of 60-40 long term/ short term capital gains available by trading the futures. Until then, play at minimum size until you are ready to risk larger amounts in your trading. Again, the key to success, is to NOT FAIL until you get there. Keeping size and risk low until you "get it" is the way to improve your odds of eventual success, IMO.

 

cfmtrader, hopefully you and others can benefit from following my inevitable mistakes. : )

i've been trading stocks full time for six months, though i've been loosely following specific markets for about two years. i'm trying to give myself some credit for the little bit i've learned, as i don't feel totally wet behind the ears anymore. watching a market isn't a complete mystery to me anymore, and when i first started watching the ES a few weeks ago i was excited because the way it trades is exactly what i look for in potential stocks.

but, that being said, you make a lot of great points, and i hadn't looked at trading any of the SPDR ETFs for some reason. now that i've taken a look at the SPY i agree with what you're saying. i think the profit potential is slightly lower because of the decreased leverage (and thus decreased risk), but if i want to do this right risk is the first variable i need to work on minimizing. i didn't really want to be margined to the max in the first place so i think you've convinced me. commissions with thinkorswim will actually be a little more expensive if i'm making a similar number of trades per day as they have a $5 minimum on stock trades. $10 per round trip is better than what i got at scottrade but i guess i should have just opened an account with tradestation or interactive brokers.

 

Exactly. This is among the first things you posted on this thread:

"whereas it seems most people here are trying to test their trading prowess by setting high goals for their accounts, i'm simply hoping to survive."

If this is true, and you are seeking to survive (and ultimately become successful over the long haul), then keeping risk at a minimum will be the way to do it. High leverage is certainly the least of your needs now, IMO. If Think-or-swim has a $5 per ticket minimum for stock trades then I would definitely avoid them at all costs for stock trading. A cost structure like that is a recipe for failure for a beginning trader. Should should be able to find a firm, like IB, that charges $1 per ticket for stock trades, saving $8 per roundturn. That really adds up while you're fine tuning your trading.

Best of luck,
-Eric

 

well, i've been agonizing over this for the past few days. at first i was very comfortable with my decision to mainly trade the ES, then had a blow to my confidence when i was told by my friend i'd lose everything by doing that, but i'm now returning to my original position.

eric, you're right that high leverage is the least of a beginner's needs. i would argue that is because of the inherent recklessness with which beginners trade. in other words, if i had initially jumped in to the ES six months ago i would have probably blown out quickly because i employed a losing strategy that did not account seriously for risk management, and did not require an understanding of potentially destructive scenarios. part of my trading plan will be to have an awareness of not only how i can profit, but even more of how i can lose. for example, worst case scenario with one contract of the ES is that i lose more than 400 points due to some catastrophe that my stop didn't catch. it can't get worse than owing my broker on top of a complete blow up, but how likely is that? if i were to lose that much on one contract in one day then something went terribly wrong with the world and i probably would have lost everything no matter what market i was trading. i realize the worst-case should not be forefront of my concerns but it was an interesting point. no, what's most worrisome is the aggregate small losses or carelessness that yields one large loss quickly. those are scenarios i will study when planning trades and are the losses i will mainly try to avoid.

while trading the SPY would certainly reduce risk, and i did say my goal is to merely survive, survival includes profit. by survive i did not mean "maintain" my account. i've already done that. by survive i meant profit enough that i am net even or positive after monthly expenses. some months i could be slightly net negative after bills and that's fine, i just need to be offsetting bills to some degree.

i'm not trying to return 500% on my $20k account, but i think it's possible to return 50%. turning $20,000 into $30,000 is much more possible by day trading 1 contract of the highly leveraged e-minis than 100 shares of the SPY. for anyone to make $10,000 from now until the end of the year (roughly 225 trading days i estimate) would require a proft of $44/day or approximately 1 pt of the ES. *consistently* pulling 1 point out per day on average is a lot harder than it sounds, but with an ATR of about 25 points very doable.

contrast that with the daily ATR of the SPY which is only about $2.30 right now, and in the last year it's max was about $4. trading 100 share lots i'd have to consistently catch about 20% of that range daily in order to come close to the same potential profit of catching 4% of the ES daily range. as a daily average that seems very unlikely.

as a disclaimer, i'm not trying to convince readers here that i'm doing the right thing. i believe that with my knowledge and skill level i'm not trying for too much, but i'm open to the possibility that perhaps i am and that's why i am posting here. if my logic or math is wrong, if there are risks i'm overlooking or unaware of then i reckon someone here will be kind enough or perhaps find delight in pointing out such errors. eric, you have been very generous and kind and i do appreciate it.

loose guidelines for a plan coming soon...

 

I would just encourage caution. No offense intended, but you may have more confidence in your trading ability than warranted. You've been trading six months, and have already suffered a 30% drawdown of your account, and you've got no trading plan or strategy on how you intend to trade. Assuming you need monthly profits at this point to pay living expenses, your odds of success are very low. You may have no other choice, but if the option is available, I would suggest you totally ignore the potential to make any 'real' profit in the next ~3 months and simply focus on trying to modestly increase your 20k account to 23-25k <i>without</i> a drawdown of over 1k along the way.

The key to becoming a successful trader is NOT learning to make money. The key is learning to AVOID losing money. Until you can consistently grind out profits without suffering the occasional large losses, then you still have a lot of learning to do, and your account and trading career are still in serious jeopardy for survival, IMO. Until then, the prudent course would be to keep risk (and expenses) at the bare minimum.

As I said, though, you may not have this option. Best of luck with whatever path you pursue. I truly hope that it works out well for you.

 

no offense taken. you're correct in everything you say. realistically the odds are stacked against anyone in my spot, but if i didn't try to maintain some shred of confidence i'd be KOed before i started, you know?

luckily i can get by for 4-5 months without this profit thing we speak of. well, i can "get by" for longer but it would start becoming dangerous soon after, especially if i don't have the psychological benefit of seeing my trading account growing slowly. i have no illusions that i'll be able to rely on profits for a while. surviving right now means profiting enough to extend that 4-5 months to 6-7 months, then a little more and a little more until i'm actually making a living.

what you spelled out above is essentially my underlying motivation. realistically, 3 months of limiting losing trades to less than 60% of my total is a step in the right direction in my book. i expect to have more losers than winners at this point, but the important thing is that i recognize a loser quickly.

i'm currently reading "high probability trading" and will actually write out my plan when i finish the book. it's a decent read, much of the first half i have experienced first-hand so no great revelations, but i think he gives some tips for developing a plan towards the end so i'd like to see if they're useful before i write mine.

enjoy the rest of your night.

 

the thinkorswim account is now funded and i'll begin trading probably tomorrow. i'm now waiting for futures trading to be enabled. been looking at a few stocks today for an overnight trade but i haven't been following them closely enough lately to feel comfortable with their movement so i'm erring on the side of caution.

i wanted to write up a formal trading plan, but was away for the last few days visiting my fiance and i've got to catch up on my reading before i can do it right. the basic rules i will stick to are very simple. i figure the simpler the plan for right now, the easier it will be to adhere to and maintain the required discipline. the basics are as follows:

--mainly focus on emini futures, but regularly monitor stocks for better opportunities

--when trading eminis, until i reach and can maintain a higher capital level (maybe $50,000) while regularly making withdrawals for living expenses i will only trade one contract at a time in order to limit my risk and potential losses.

--as a further means of limiting losses i will always use stops at appropriate technical levels when trading eminis. max stop distance determined by trading conditions of specific instrument being traded. i'm weary of stops on stocks but will put in place "catastrophic" stops far from inside bid/ask. generally i will try to ride a trend as long as possible but at least have an exit target before taking the trade.

--contracts will not be held over night until i reach a higher level of market proficiency. stocks held over night or for swing trades must show concurrent bias (bullish or bearish) on all applicable time frames.

--my system for picking momentum trades is very basic. exponential moving averages on four intraday time frames (2, 5, 60 min, and a chart that switches between 10 min and 2 hour) along with slow stochastics and MACD to help pick entry/exit points. two daily charts with different moving averages help evaluate "big picture," but not necessarily trade direction.

--i'm not sure if it's practical or even helpful, but initially i'll limit myself to five roundtrips per day to keep from overtrading in case of a good day or revenge trading in case of a bad day. also want to minimize commissions.

ok, so it's not that basic, but i'll try to condense everything and make it more readable. plus i'll refine and add more when i figure more out.

 

Good luck

 

thanks, i'll need it.

today was my first full day back at trading after a 3 week hiatus. wasn't a terrible day but i already noticed a problematic tendency that manifests in one of two ways. i try to align my stops with the correct time frame i'm trading, but i'm so used to watching a two-minute chart for entries that i forget to look two inches down to the five or ten minute to monitor my position. i watch the two minute chart whipsaw, i panic, then ignore my stop and manually take a small loss to keep things from getting out of hand. this is what happened with my first trade.

second trade looks like a revenge trade but i wouldn't call it that. i thought i saw confirmation that my first trade was right and the price was approaching the upper boundary of a downsloping channel. risk/reward looked favorable so i made essentially the same play. this time my stop got taken out because i set it too tight while narrowed in on the two minute chart...this is the other way that tendency hurts.

third trade i finally just went with the trend instead of looking for the top and it worked much better.

not a great day but not a terrible day (which is key). second guessed myself on several trades that would have worked much better than the ones i took so i'd like to get better at going with my first impressions.

EDIT:
+16.50 after commissions for the day