Teacher and consultant to the futures industry since 1983
Teacher and consultant to the
futures industry since 1983
Home Links Feedback Search IR Special / Awards
|
Items you need to improve and protect your FCM or IB... 1. Very important and useful forms and letters for different applications for the FCM and the Introducing Broker. Visit our "forms" page. |
TRADING TIPS Don't trade when you are emotionally "down". This is another area where I have unfortunately had experience. It is so very important to be cognizant of the fact that nobody is always "up", or on the top of their game. I even resorted to watching my biorhythms with a little program I have, so that I knew when I was emotionally or intellectually at a dangerous level. If you try to trade when you are not functioning at your best, you will make mistakes and can damage your account equity. Please be careful not to undo all the good trading you have done by trying to force a trade when you really aren't up to the task and are not able to apply your full concentration to the trade because something else is troubling you. "Lean" on a winning streak. As futures traders, we don't like to think of ourselves as gamblers because we do our research and take calculated risks. Yet, like a gambling method, each trading system has good and bad streaks. It will cycle just like the market. When you recognize that your system or method is on a winning streak, you should begin to get a bit more aggressive with each trade until the losses start to appear with more frequency. When the losses start coming, back off again, and if you can identify this as a losing streak, lighten up even more, BUT DON'T STOP TRADING, or you will become "gun shy" and will be afraid to make the next trade. Watch your "GTC" orders. When you are in the market, you will always have a stop order in (of course). And also of course, you make the stop order "good-til-cancelled" so that you needn't renew it each day. If you then exit your trade in profit and the stop order was not hit, be sure to cancel that stop order before it has a chance to be hit and executed. You must remember that a GTC order is just that... good-til-cancelled. That means if you forget to cancel it, it remains active and could be elected and executed weeks, or even months later. That would put you into a position you really didn't intend to enter. Don't take it personally. This can be a real problem. Your system has given you another of those great signals. It is a strong signal that you have seen only a few times before, and on all of those occasions you profited well with the trade. This time it doesn't work the way you knew it was supposed to - the way it HAD to. Instead of abandoning the trade as you should, you choose to stay with the trade to prove that YOU are right, not the market. Well, kiss this trade, and probably a good portion of your equity good-bye. Markets change and you have to understand and accept that. Even though you may have gotten a strong signal, when the trade moves against you, get out and live to trade another day. Again, you've become a hero by accepting the fact that the market is ALWAYS right! Whining and crying is for children. So, you lost on another trade. That's what this is all about. When you lose, you analyze and try to discover what went wrong, and then move on. Remember if you find yourself whining about a loss, it is time to stop trading! You came into this risky venture knowing what could and would happen, so don't slip into the self pity mode... there are more profits out there just waiting for you to claim them. Patting yourself on the back can break your arm. If your trade was even more successful than you believed it would be, stay away from getting the "big-head". This can be as deadly as whining about the loss. Any kind of pity or pride can detract from the attention needed to concentrate fully on the development of your next trade. A surprise wind-fall is wonderful, and certainly welcome, but to dote on it can be a real distraction, and cause you to lose focus. In every situation, you must take the results as fact and move on. Along with the tip above, this can sound somewhat cold, but remember there is no place for emotion in this serious game of futures. Sometimes the best trade is no trade at all. If your system gives you no definite signal, stay away from the trade. There will always be another trade coming along soon, don't push your system to force a trade. When you insist that a trade must be made, you will usually be placing yourself in a losing position. When you hear the rumor, it's too late. "Hot" tips and rumors are always bad news, especially if you attempt to trade on them. By the time you get the news on television, even the financial channels, it's too late to trade on that information. By the time the news gets to the mass media, the locals and those close to the floor trading have already acted on it and anyone who enters now is simply fodder for the profit takers. Just stick to your plan and let the "flash-in-the-pan" traders lose their money on rumors. There are no "no-brainer" systems. It seems that the more money a trader spends on a system or systems, the more he or she thinks they don't, or shouldn't, have to do their own work to "tweak" or verify the system. Even the "turn-key" systems out there are not always going to work. As a trader you must work for results just as in any other job. The more you have to think about and plan your moves, the more possibility you have for success. If you purchase a complete system that you can't adjust for market conditions, you may experience some success, but when the market changes, the program is useless. Start with a well developed shell of a trading system; one that makes you put in several parameters. This is a system that will make you work, but at the same time give you the latitude to adjust for changing market conditions. Diversify with non-correlated commodities. You could hardly consider your portfolio diversified if you are short the DMark, the Yen, and the Franc. If the dollar strengthens, your portfolio loses all the way around. True diversity will happen if you are trading different "families" of futures contracts. Almost all commodities are somewhat correlated, i.e. the animals eat the grain, the dollar's strength affects the bonds and stock indices, etc., but look for some of the least correlated groups and work from there. Watch the Open Interest. If you are in a profitable position and want to stay with the trade, better watch the open interest. As the futures contract approaches delivery, the open interest will drop quickly as the other traders "roll" their contracts to a more active month. If you don't roll soon, you will be caught in a squeeze; where you need to liquidate your position, and there are so few open contracts that you will end up getting hurt on the fill price when you do exit. With a few exceptions, you should consider leaving a trading month about two to three weeks before first notice day. Nobody is to blame. Trying to assign blame, or blaming yourself for a losing trade is as bad as patting yourself on the back for a winning trade. All this activity does is detract from your main job, planning your next move with a clear mind and full concentration. A losing trade is that, and only that. Put it behind you and move on. Things change. Don't get complacent. Even when your system is working, don't think it can last forever because things change. The markets are very fluid and we have seen many changes in the markets just over the last few months. You should continually compare your results, (win or lose) to the your indicators to see if there are ways you can improve your system's efficiency. Remember, this is a job and you can't expect to get ahead or even just stay with the pack if you aren't constantly trying to improve. Not every indicator means something. Sometimes when we are working to improve our system we will try the addition of a new indicator. It seems to us that the indicator should be important, but when we test the system, it never seems to make a difference. The best thing we could do at that point is let it go. Too often an indicator we think is important has no relevance to the trading in the markets, but since we spent so much time trying to prove its meaningfulness, we are determined to force it to work. In the long term, (or even the short term) this forcing will hurt the overall performance of our system, and therefore our account equity. Pay attention to the bullish consensus. One often overlooked, and telling, indicator is the bullish consensus. If the market is trending up and the bullish consensus number is 50% to 70% it may tell you something. The market is bullish, and only 50% to 70% of the potential buyers have gotten long. If the method you follow indicates a mild buy, and you are just not sure; the above indicator may help you make the decision to be long also. However, even if your program finally indicates a strong buy signal and you see the bullish consensus at 80% to 90%, it may be too late. The consensus number is telling you that 80% to 90% of the potential buyers are long, and if you jump into the trade now, who is left to buy and drive the price higher for you to be able to profit? Stops placed based only on the amount you are willing to lose are laughable. Many things have to be considered to place effective and logical stops. If you place your stop just to limit the amount of dollars you are willing to lose, you may be placing it within the "range of the day" or inside a gap that may be filled, or even at a break-out point. Learn how to place meaningful stops just like you have learned to place your entry orders. Paper trading is worth every penny you have at risk. When you paper-trade to test a system you have developed, odds are good that you will make money. When you paper-trade, you usually don't take into consideration the slippage of the market. You also forget that most often when you see a price print on the quote screen, it doesn't mean you could really be filled at that price. You must also take into account the time it will take for your order to get to the trading desk and the floor. Then, how about the commission costs, the scalping on the floor, and the response time of the clearing broker? Most importantly is the psychological factor. If you have no real money at stake, you will tend to be more calm about the trade, and will also tend to remain with a trade through a greater losing period in order to "get" that profit. Paper-trading has very little meaning. The real test of any trading method is to put the money up and get in the trade. Look for the strong risk disclosures. When you get the phone call talking about futures trading, or when you see an ad for trading, check the risk disclosures. The NFA and CFTC require that all futures companies tell you that "Futures trading involves risk, is not for every trader, and only risk capital should be used". If you don't hear (or see) any risk disclosure on a presentation... run away! You are an adult, and you have heard the saying "if it sounds too good to be true, it probably is" a thousand times. If the person calling you isn't discussing risk, but talking about how many thousands, or millions you can make, be afraid... be very afraid. This business is risk, and you shouldn't do business with someone who is afraid to confront the facts. Don't change your opinions while you are in the trade. After your research told you to "take" the trade, leave it alone. News and fundamental factors change all the time, and you must not pay attention to the "noise" once you are in the trade. If you are properly using your trailing stops, then you needn't worry about the change of information. You had determined your stop-loss and somewhat of a goal before you entered the trade, and if you change your mind now, it could do more harm than good. Certainly at times this could hurt your position, but if you are working with all the previous tips in mind, you should "stand fast" and let your position work the way the market will work it. Trade the active month. With activity slowing a bit in most futures contracts, this is more important than ever. We are experiencing some slowing in trading, even more than what one would expect for this time of year. It is therefore of the utmost importance to stay with the most active trading months to avoid getting hurt on your entry or exit price. Couple this with the fact that about this time of year the volume drops for the holidays and you are in a situation that really requires your attention. Yes Virginia... seasonal trades do work! Just don't care what the NFA may try to tell you, seasonal trades are a reality and they are productive. It is important that you research various seasonal opportunities and look for possible longer term trades. Do not take the word of a high-pressured sales person and jump into a trade. Often these trade recommendations are just what the companies are "pushing" this week or month or whatever. You must do your research carefully and you may find a real gem of a seasonal trade. Yes, it is work, but then again, this is your money we're talking about here, isn't it worth it if the trade can be a real contributor to your equity growth? STOPS; revisited! If you've been a follower of the tips, and if you are a trader, you will probably admit that sometime since stops were first mentioned, you blew-it and didn't use one 'cause you just knew that trade would work. Don't feel bad, we have all done that. I hope you took it as a sign to remember the stop... always! I felt it was important to bring it up again during the holiday season, since that is when the markets lose a lot of their liquidity and the prices can be irrationally volatile. Be real careful and never forget to use the logically positioned stop. Don't spread into a loss. Here is another rule it seems we all like to break especially if we were trying to "leg" into a profitable spread. I was quite good at this actually. As an example, if the TBonds opened much lower, and I anticipated a rally off the lows, I would go long one of the months. Then when the bonds rallied 10 to 14 32nds, I would go short the other month. This puts you into an instantly profitable spread, and if things continue your way, it will continue to become more profitable. My rule was that if I went into the first position and the market started moving against me, I was to exit, with a small loss, at once. This would be my way of limiting losses. The only problem was that with the ego in the way, I didn't want to admit the loss, so would instead of exiting the losing position, I would put on the other side of the spread. I was now spread into a loss, and had to "play hell" trying to get out without destroying my account. The impeachment will NOT shut down the country. This is always the time of the year to be careful with your trading because of the volatility. We have less volume, the portfolio managers are "window dressing" for the end of the year to enhance their performance, holiday spending can change the character of several markets, and there are other normal factors. If anything, the impeachment of Mr. Clinton will only offer futures traders new opportunities, but be careful. Many trading systems have trouble during year-end activities, but if you are aware of it, you can lighten your positions or just take the holidays off and enjoy the festivities. Carefully trade gaps. The key word here is "carefully". If you are a technical trader, and you use charts in your analysis, watch for gaps. The old saying that a gap must be filled before the price can continue is quite often true. It may not happen, but if you place your stop tightly under the gap when you get in at the bottom opening; or tightly above the gap when you enter short, you can usually limit your loss to a small one if the trade does not work. As usual, if you want to discuss this further, or just want to argue about my tips, I welcome all calls. Stick to the basics. Often it happens. As we trade with the basic premises set forth on the last two tip pages, we can become convinced that we know more about the markets than our system or methodology does. So we take more chances and begin second guessing our own system. We start to allow objectivity be taken over by subjectivity, and we start to let the losses run 'cause... We KNOW these markets. That's when the losses start to pile up, and the equity suffers. Well, it's time to go back and read the tip-of-the-week pages once again, and get back to, and stick to, the basics of trading. Get in touch with us by
email.
|
