I want to share with you what I found out today from talking to a full-time futures trader who trades in currencies and bonds. Very interesting person who got out of business and took the money he has saved up and jumped with both feet into futures trading. He has been at it over 1 1/2 years now. His wife originally thought he was crazy, but she is now learning to accept it. Some of his observations after going through a series of losses when he first started out:
1. TA works very well with liquid markets. The more liquid the market, the better TA works. TA does not work with illiquid markets.
2. Play your technically based system with discapline. Do not try to second guess. If your system tells you to sell, then by all means sell even if it turns out to be a false signal and you lost some potential profit. You can find another entry to get back in if that is what you want to do.
3. Day trading only has its technical aspects to trading. Fundamentals in this time frame simply do not exist. Keep in mind that he is trading the futures market that has for example no "earnings season" to contend with. Still he agrees that it is worth following the fundamental aspects of the market but not having the fundamentals impact your actual trading decisions. Follow your system here.
4. He wonders how stocks can be day traded unless a lower margin requirement is allowed on day trades.
5. Only the most liquid markets should be day traded.
6. He thinks that the delta on options vary in stocks because of the relative illiquidity of many of the options on stocks. In the futures market, the delta is pretty constant (other than for the time factor).
7. Holding several open positions works in a strong bull market, but can hurt you during a correction. Of course stops help here.
8. He has found that trading the mutuals that deal with "junk" bonds to be one of the most trending markest in futures right now. He calls it "easy" even though he really prefers not to use this term. I want to note here that this can change. He also said that the eurodollar market is very liquid and also trends.
9. When the Asian crisis hit the papers, the peso he was trading dumped through the floor. The only thing that saved most of his money was a "put" option that he purchased that covered his position. He looks back and sees that when the market overreacts to bad news, it tends to bounce and retrace before continuing on in a direction (up or down). When getting caught in a situation like this, it can be best to wait for the "bounce" before deciding what to do (sell or hold).
10. He never uses physical stops. He always uses mental stops.
11. The Japanese have started to sell our bonds. However, there has been allot of money fleeing from Asian and entering our bond market to offset this. So he suggests to not under-estimate the more complex picture a global type of market provides.
12. He does believe bonds will continue moving up. But he does not claim he can be sure, instead he follows with his TA.
13. Each daily market follows a "leader". In his example of the peso, for one day, this may be the bond market, and for another day it may be the U.S. stock market. I imagine this means the DJIA. So this means that the trick for the day trader is to determine what the market that he trades in is following on a given day.
14. As a trader, particularily a day trader, you need to be able to take both positions in a market: the long and short side. Anyone who cannot do this cannot make their living as a trader. Matter of fact, he does not call this type of market player a "trader".
15. When he became involved in trading futures full-time, he gave himself a profit plan that allows for his learning curve. If he does not break even and start making a net profit at the end of two years, he will stop trading futures.
16. Watching the tape (in his case the by-the-minute charts) is essential to trading.
Bob Graham |
