Trading Futures: Mini-sized DOW

[carltonp 10]

Hello Fellow Traders,

 

I've posted here before and received some helpful advice so I thought I would try again.

 

I starting to dip my toe into in trading Futures, mini-sized Dow. I've researched in quite some depth the nature of the product and I understand the basics. For example, If I bought 10 mini-sized Dow contracts and the current price of the contract was $10548 and it moved 27 points to $10575 that would equate to a profit of $1350.00

 

10575 - 10548 = 27 points

27 Points x $5.00 per point = $135.00

10 Contracts x $135.00 = $1350.00

 

Now, I was wondering if someone to give some idea on how they manage risk? I'm sure some of you would say I ought to manage risk in futures the way I manage risk with equities.

 

However, I'm having problems translating the way I manage equities to the way I might manage futures. For example, when I'm trading stocks I normally base the number of shares I wish to trade on how much I willing to lose/risk on a trade. So if I stock is currently priced at $8 and the high was $10 and the low was $7 my entry would be the high and stop would be the low.

 

Now if I wanted to risk say $100 I would purchase 33 shares:

 

Number of shares: 100/(10-7) = 33

 

Can someone please guide me as to how relate the above risk management to futures, mini-sized DOW?

 

I only intend on buying one contract to start off with. Because the mini-sized DOW works on a point system and I'm only going to be trading a single contract I'm quite confused.

 

If you guys could show me how you manage risk, or point me to relevant websites I would be very grateful.

 

I hope I've explained myself well enough to get some positive feedback, however if you need additional clarification please let me know.

 

Cheers

 

Carlton

[Tams 20]

Hello Fellow Traders,

 

I've posted here before and received some helpful advice so I thought I would try again.

 

I starting to dip my toe into in trading Futures, mini-sized Dow. I've researched in quite some depth the nature of the product and I understand the basics. For example, If I bought 10 mini-sized Dow contracts and the current price of the contract was $10548 and it moved 27 points to $10575 that would equate to a profit of $1350.00

 

10575 - 10548 = 27 points

27 Points x $5.00 per point = $135.00

10 Contracts x $135.00 = $1350.00

 

Now, I was wondering if someone to give some idea on how they manage risk? I'm sure some of you would say I ought to manage risk in futures the way I manage risk with equities.

 

However, I'm having problems translating the way I manage equities to the way I might manage futures. For example, when I'm trading stocks I normally base the number of shares I wish to trade on how much I willing to lose/risk on a trade. So if I stock is currently priced at $8 and the high was $10 and the low was $7 my entry would be the high and stop would be the low.

 

Now if I wanted to risk say $100 I would purchase 33 shares:

 

Number of shares: 100/(10-7) = 33

 

Can someone please guide me as to how relate the above risk management to futures, mini-sized DOW?

 

I only intend on buying one contract to start off with. Because the mini-sized DOW works on a point system and I'm only going to be trading a single contract I'm quite confused.

 

If you guys could show me how you manage risk, or point me to relevant websites I would be very grateful.

 

I hope I've explained myself well enough to get some positive feedback, however if you need additional clarification please let me know.

 

Cheers

 

Carlton

 

my questions: (the answer can affect your venture into futures trading)

 

1. do you use margin to trade stocks? how much margin do you usually use?

 

2. what percentage of your account do you use to buy 1 stock?

 

3. how long do you hold your stock?

 

4. what do you do when a position goes against you? do you have a plan before hand? or react as you go?

Edited May 9, 2011 by Tams

[zdo 20]

re “how relate the above risk management to futures, mini-sized DOW?”

As you have described it, you are switching from variable sizing with stocks to fixed sizing with YM. So, you will have to change the way you determine your “risk”

 

The ‘guidance’ I would offer you

1. also switch from ‘how much I willing to lose/risk on a trade” to “the tested optimal amount to lose per trade specific to the system I am trading”

2. one contract trading is a tough game to win at. Consider, if you have the capital, re-introducing sizing calculations ie multiple contracts, into the mix…

hth

zdo

[carltonp 10]

Tams

 

Thanks for responding

 

At the moment, I well capitalized so don't really need margin.

 

I use no more than 2% of my account to buy one stock.

 

I hold my stock for maximum of seven days.

 

I have a pre-defined stop for when I position goes against me..

 

So, any ideas?

 

Cheers

[carltonp 10]

zdo,

 

I don't fully understand what you're suggesting.

 

Excuse me if I sound rude, but can you help me or no?

 

Cheers

[zdo 20]

carlton,re "but can you help me or no?"

I can only try . Basically, I'm encouraging you to delve a little bit more deeply into mm and sizing

Let me rephrase my suggestions and see if that helps. But first a question - do you understand the difference between variable sizing and fixed sizing and how in the quote below you are switching from variable to fixed?

 

For example, when I'm trading stocks I normally base the number of shares I wish to trade on how much I willing to lose/risk on a trade. So if I stock is currently priced at $8 and the high was $10 and the low was $7 my entry would be the high and stop would be the low.

 

Now if I wanted to risk say $100 I would purchase 33 shares:

 

Number of shares: 100/(10-7) = 33

 

Can someone please guide me as to how relate the above risk management to futures, mini-sized DOW?

 

I only intend on buying one contract to start off with. Because the mini-sized DOW works on a point system and I'm only going to be trading a single contract I'm quite confused.

Your previous method will not transfer directly. The only thing that can transfer is the preferred amount at risk per trade approach ( which I argue against below). So, with one contract, by whatever method the amount is derived - if you are using a dollar amt. stop, then simply divide that $ amt at risk by 5 and that's how many ticks away from your entry to place your stop.

 

Now to rephrase

Suggestion 1 was a more general trading suggestion to base placing your stops in the neighborhood of what has tested out to be the best stop method for your particular trading system instead of placing your stops on how much you are comfortable losing (ie syschological reasons). If you transfer the "Now if I wanted to risk say $100 " way of setting risk over to one contract YM trading, you might get lucky enough to put your stops close to where they actually should be and survive - but I doubt very seriously that approach would thrive.

Suggestion 2 was simply pushing you to delve a little bit more deeply into mm and sizing on your own

 

All the best,

 

zdo

[BigAl 10]

Hello Fellow Traders,

 

 

10575 - 10548 = 27 points

27 Points x $5.00 per point = $135.00

10 Contracts x $135.00 = $1350.00

 

Carlton

 

Hey, Carlton.

 

Here is how I reduce risk. It has worked very well for me for several years now.

I use scaling out to reduce risk. I set my 1st target or half my position at 10 ticks. It is the magic number for me. Not the holy grail but works a high percentage of the time. This gives me a break even cushion and reduced the % of my loses.

 

From your scenario above:

 

Your trade earned 270 ticks

 

Scaling out:

5 contacts x 10 ticks = 50 ticks

5 contracts x 27 ticks = 135 ticks

 

Scaling out earned 185 tick but it reduced the risk from 100% to 0% once you've captured the 1st 10 ticks. It's nothing new. Scaling has been around for a very long time because is lowers the overall risk to your portfolio.

 

Trade Well!

 

BigAl

[carltonp 10]

BigAl

 

Thanks for responding mate. I will play around with scaling in and out

 

Cheers