TimRacette

Hey compound trader, another statistic I would look at is expectancy: your (avg w x win rate) - (avg loser x loss rate) less commission. One thing I like to do as well is analyze my trades in groups of 20. This helps me see the bigger picture with a larger data set. As for when to go live, when I started I knew that my results would be a lot better on SIM compared to live. Looking back that was certainly the case as live adds the emotional element you just can't replace when SIM trading. That being said I learned a lot my first few months going live. I stated trading day trading on the YM and while sim trading I waited until I was consistently profitable on a monthly bases for 3 months. Then I switched to live with $1000 trading 1 contract. When I grew the account to $2000 I went to 2 contract and expanded form there. -Tim

Every so often a new product comes out that opens a new door to opportunity. Since the 80s when computers began their takeover of the trading industry a variety of new products have been created for traders to speculate, hedge, and insure against risk. Electronic index futures such as the E-mini’s (ES, YM, NQ, and TF) allow us to take advantage of price fluctuations tick by tick in the broader indices. ETFs have changed the way we group baskets of stocks together, allowing us to trade a variety of companies within one instrument. I've been trading the weekly options of ES futures and here are some of my findings... Options enhanced our ability to mitigate risk, by limiting downside and (in certain cases) allowing for unlimited upside potential. One of the drawbacks to long options trading has always been theta, or time decay. An Alternative to Futures Just like futures, options expire. The difference, as your option contract get closer and closer to expiration the value can begin to decrease dramatically (this can either work in your favor if you’re on the short side, writer of the option or against you if you’re a buyer of an option). That brings us to options on futures, more specifically weekly options on futures. At first glance you might think that weekly options would be extremely risky due to their short expiration, but let’s consider them for another purpose, day trading and short term swing trading using the ES weekly options. Weekly Options on Futures Weekly options on futures provide a nice alternative to straight up day trading futures, let’s have a look: What are the benefits? - No futures account needed - Limited risk (when buying weekly options) - Pattern day trade rule does not apply* * The pattern day trade rule states that if your account is less than $25,000 you may only make 3 day trades in a 5 day period. Futures accounts are exempt from this rule, along with weekly options on futures. Another positive to trading weekly options is that (thanks to the option Greek: Delta) going long options increase in value quicker as they move in your favor, and decrease in value slower as they move against you. ES Options on Futures - Theta What are the negatives? - Short time to expiration - Harder to set limit orders in anticipation of entry or target Because of the option pricing structure, if you purchased a weekly ES call option on Monday and price moves in your favor, but you hang on until Friday the option has the potential for expiring worthless. In other words, not only do you need to be correct on the direction of the move, the move also needs to occur within a rather quick window of time. For this reason weekly ES options make for a great day trading opportunity. In Summary The ES weekly options provide a low risk way to day trade the 15-min and daily levels. For traders without a futures account or hesitant about trading futures, these can be a great way to control risk, while still taking advantage of the short term price swings in the ES.

Thanks for the article. I like to leave my stop loose at first and as the trade starts to go parabolic tighten it more aggressively. For a long I start with a stop under the swing low, then when we move to new highs, pull back and make new highs again I will put it under the next swing low, then if we make new highs again I trail the prior days low. Vice versa for shorts.

I think a lot of people *including myself at first) get caught up in entering the trade. Finding the perfect indicator or retracement when really all of those indicators are just signals. Getting in the trade is the easy part. Adhering to an exit method that is consistent regardless of what the market does I've found to be much more important. Knowing your expectancy is the most valuable calculation you can make.

For futures trading: Candlestick Chart Volume NYSE Tick For swing trading: Daily Candlestick Chart 20 EMA 50 EMA

It's possible if you're using a different chart style like a heikin ashi, the high or low price shown may not reflect the actual quarter increment.

I've found the 7-10:30am (CST) to be the most lucrative time for day trading the US index futures and European Currencies. For swing trading I like to wait the first 15-mins after the NYSE open then execute my orders if my criteria is met. I ignore all intraday data when swing trading and just look at the daily charts.

For day trading I'm a fan of multi-item markets (as John Carter puts it). Markets like ETFs or index's or currencies that are made up of multiple stocks. That being said learning a specific stock like AAPL or GOOG that is heavily traded might give you that edge.

In my experience SIM is great for developing a methodology, mastering a set of rules, and learning how to follow them to the T. I think it's incredibly important to master this side of trading before going live because once you begin live trading it becomes a game of not managing trades, but managing emotions. You want to know your setups, your criteria for entry and exiting your trades before going live. It's also nice to have at least 50-100+ SIM trades worth of data to make some general conclusions about your method. The numbers have to make sense in order to take it live. That's my opinion anyways. Best of luck. I'd be interested in hearing how it goes.

I agree, and in my experience mindset is everything. Just think about the people you know who are really good at sports, most likely they succeed at a lot of things they attempt. I believe trading is the same way. After countless conversations with other traders, real estate investors, small business owners, and entrepreneurs I take away the same idea. They have created a winning mindset backed with persistence and that drive or passion for what they are doing. That's my take on it anyway. Good thread.

The smaller the time frame the more precise you have to be with your entry's and exits so for that reason I try and focus on one set of principles across a couple futures markets when day trading. When swing trading stocks I look at a wider variety, but longer time frame. I'm a big proponent of learning to trade by swing trading stocks.

I always liked this quote "The trader is the weakest link in any trading system" – Alexander Elder

I prefer top down. Identifying the larger time from the daily chart, then going to the smaller time frame. For very short term intraday trading I've found it can be more effective to just look at a 5-min chart (in my case) and base everything off that one chart without accounting for the larger time frames because the multiple time frames can contradict one another.

Aside from moving averages, simply looking at where we are in relation to the last swing high or low on a daily or weekly chart is an easy way to determine the larger trend. The simpler the better.

Great post Rande. I've found that with clarity comes confidence and emotional detachment. Always enjoy reading your posts.