>>You probably have posted this before, but could you give me your opinion and any references you are aware of on the subject of trading commodities and index futures and options rather than trading stocks and stock options.I am not clear in my mind as to the best route to go on this question.<<
Hi Wiley -- this attempt to respond to you represents a form of therapy for me to get this week's trading out of my system and to relax for the weekend:)
First, I'd like to refer you to a response that I penned to you when this thread was started. I had a vague recollection that you and I had chatted about this and was able to find the link.
exchange2000.com
I don't know that I can cite you a specific reference relating to the different instruments that you cited and the pros and cons of trading these different instruments. There are a couple of books on futures trading that I have recommended to others in the past--Murphy's "Technical Analysis of Futures Markets" and Kaufmann's "New Commodity Trading Systems and Methods". I would also recommend Elder's "Trading for a Living"--this one being more for some of the psychological aspects of trading--which I think is as important as trading techniques.
As far as futures vs options--trading the former is more risky than buying options given that in the case of the former the risk is in theory unlimited. The other side of the coin is that you don't have to worry about the whittling away of premium as time goes by in the case of the futures the way you do in the case of options. It is this factor that makes trading options successfully on the long side so difficult. I have been able to consistently make money trading futures -- which is more than I can say in the case of trading options.
Nowadays the only time I trade index options is thru selling naked options. Both in terms of this strategy as well trading futures, the need for discipline is critical--if you can't cut losses you should not trade futures or sell naked options. The lack of discipline in this regard would be disastrous.
With regard to trading stocks vs the indices--in the case of the former one is subject to the vagaries of a particular stock or sector. When one trades an index like the SPX -- one is subject to the vagaries of the market as a whole. Some like the one vs the other -- a matter of personal preference for the most part. In both cases trading options on the long side is only for the very nimble.
The need for a trading plan is considered critical in being a successful trader--this is even more so when it comes to trading futures. One needs to be clear as to entry and exit and when one decides to say that one is wrong and cut ones losses--and all this needs to be known even before one enters the trade. Money management is critical.
I have been a position trader in various futures markets for years using a mechanical system that has served me well. Although I post about the S&P futures, I also have positions in other markets such as the bonds and currencies. I do this to spread the risk -- so on a day like this the bonds helped to compensate for the hits that I took on the S&P. Mechanical vs other systems are a matter of personal preference--I have found that the former works for me and I abide by the signals to the letter--no exceptions.
I am supremely confident that over a span of a year I can make a significant return through position trading--with minimal effort. Signals are computer generated --and all I need to do is to call in the stops shortly after the market opens.
I tried day trading some years ago and lost money. In part because Pat, who is an experienced day trader, is there for me to chat with, I have decided to give day trading another try--the jury is out on whether this is something that I will be successful doing. I'd like to give it about three months and if at the end of that if it is not profitable, I will give it up. At this point, I have had a couple of very good days and then we have a day like today which was not. I am ahead at this point -- but not by a whole lot. If you have questions regarding day trading, Pat is a whole lot more qualified than I am to advise you.
Don't lose sight of the fact that 85-90% of futures traders lose money. However, futures trading is a zero-sum game and therefore the 10-15% of traders make all the money that the losers part with. Therein lies the reality of futures trading -- and the attraction that drew me to this form of trading, as I sought to become part of that select group of winners.
I have made my share of mistakes, lost money, attended seminars, bought systems -- it is an education -- and one never stops learning. One does need to know oneself. Like today, I was trading my usual number of contracts in what was a very volatile market--I found myself getting edgy and not able to stay with a plan. I realized that I was over-committed given the volatility and the potential for loss and cut back the number of contracts that I was trading--and then it was very easy to handle the fluctuations.
Finally, noone should even consider trading the stock index futures unless one has at least $50K of discretionary capital--money that one can afford to lose. I would not advise trading the mini because the transactional costs as well as slippage would make it difficult to be successful--there may be those who are trading the minis successfully --but I don't know of anyone who does.
Hope all of this is helpful to you and is at least partly responsive to your questions.
Have a good weekend |
