Wiley, on insights re successfully trading futures
My answer is going to be rather simple and, may to some, be an over-simplification, but I truly believe that it is the essence of successfully trading futures.
First, futures trading is correctly viewed as high-risk but IMO incorrectly viewed as volatile. There is more volatility in many stocks on the NAZ than in the futures markets on a day to day basis. What futures trading does do is that it gives you tremendous leverage--the equivalent of buying stocks on 2% to 3% margin, and therefore relatively small movement in price can result in one either making or losing a lot of money. It is this leverage that presents both risk and reward -- and successful trading of futures requires the ability to deal with this factor.
Surprising as it may seem the development of a workable system is not that difficult or complicated. The two systems that I have used for years are quite simple and entail filtering for the trend within a particular market and adjustment for volatility before entering or exiting a trade. There are probably better systems and there certainly are more complex systems. What I do know is that these systems that I use have worked fairly consistently for several years with minimal fine-tuning. The essentials of any good system includes trading with the trend, letting profits run and cutting losses short. Any good system must generate a signal for entering a trade AND exiting that trade.
What I have found to be the most difficult part of trading futures is the ability to stick with the system especially when one goes through periods of draw-down(bad trades), and not letting the elements of fear and greed get to me. The former(sticking with the system), I have now, after years of trading mastered. Every day, I generate my signals based on the systems that I use, call them in to the broker and don't even track what is happening thereafter--if I get an execution, my broker calls me.
Second, to minimize the fear and greed component in trading, I never use more than half my capital for trading futures when taking postions--the rest is there as a reserve for when I face a draw-down which sooner or later I will. I am also diversified into at least four different markets.
Third, I always have a stop-loss when I enter a trade--so that when I am wrong, I'll not get hurt too badly.
In one sense all of the above are integral parts of a good trading system but STICKING to it is very difficult and most futures traders lose because they are unable to do so -- not because they don't have a good system for generating signals for entry and exit. For example, when one has four consecutive losing trades it is human nature to wonder if the system has ceased to work. Another instance would be the situation that I am in right now--I am long the S&P and have over $7000 in profit per contract, but my signal today for closing the trade and going short would have caused over $3000 of that profit to be given up. One is tempted to close it out and forget what the system says, but if I exited, and the market continued higher then I'd be giving up a lot of potential profit. I need these big winners to make up for the frequent smaller losses--only 40% of my trades are winners but the $win/loss ratio is very much in my favor.
At the risk of being redundant as to the importance of following the system I'll give you another personal example. I have posted on other threads that I feel that the gold market is poised for a major upside break-out. I am long several mining stocks as a result. However I am short the gold futures market because the system took me short. This is contrary to my own belief as to the outlook for gold, but I will follow the system and when the system takes me long, I'll follow that signal too.
I hope that this has been helpful to you and is somewhat responsive to your posting. |
