Advice on Switching from Stocks to Futures

[jpennybags 11]

I'm into my third year of trading. I've transitioned from a swing/momentum style to a shorter time frame… I would describe it as scalping (to be more accurate, I rarely hold a position for more than 30 minutes, and take 3 to 5 trades per session). I've had success in trading stocks with this system, but would like to move on to futures.

 

After some experimentation, I've found that I like the way gold futures trade (GC). The price action hooks up well with my trading parameters, and I have a feel for how it trades. I've sim traded it for 3 weeks, and like where I'm at… feels right. I intend to start out with a single contract, but will eventually want to trade 3 (I don't need more).

 

I begin trading (sim) at around 4:00 am (CT) to finish around 2-3 pm. I use attached orders with a 15T stop and a 30T target (this combination works well for me).

 

What I would like to get some advice about:

 

1. Is there a better time frame to trade than what I mentioned above?

 

2. What I've noticed is that I will go through periods when I can do no wrong, but then something breaks down. These breaks only last for a few trades, and I could certainly live with the W/L percentage, but it troubles me as I haven't been able to pin down a change in market dynamics that causes the system failure. I didn't notice this when trading stocks… it was more give and take… not so streaky. Is this inherent to futures trading, or more specifically, metals futures?

 

3. From someone who has transitioned from stocks to futures… any pitfalls that I need to be aware of? Stupid things that I will do… because everybody does?

 

 

Thanks for the help, anything else you would like to add would be welcome too.

[Tams 20]

re: Advice on Switching from Stocks to Futures

 

 

Advice: don't switch.

[suby 10]

re: Advice on Switching from Stocks to Futures

 

 

Advice: don't.

 

Why not??????????????????????

[jpennybags 11]

re: Advice on Switching from Stocks to Futures

 

 

Advice: don't switch.

 

Well... that's no help. Or maybe it is. Thanks anyway.

[Tams 20]

if you are profitable with stocks,

why would you want to jeopardize a good thing?

 

futures is a dog's breakfast

don't let the glitter get you.

 

 

go spend some time with your family

use the extra money (while you still have it) for vacations

enjoy today

[jpennybags 11]

if you are profitable with stocks,

why would you want to jeopardize a good thing?

 

futures is a dog's breakfast

don't let the glitter get you.

 

 

go spend some time with your family

use the extra money (while you still have it) for vacations

enjoy today

 

I am profitable with stocks, but there was a time when I wasn't. Why do people climb mountains? Why does a husband try to argue with his wife? I turned down several good jobs (8 to 5 types) because I believed in trading. It would've been easier, safer, and more in line with the norm to have taken these jobs, but I wanted something else.

 

I didn't understand stocks when I started, but now I do. I don't fully understand futures and how they trade... I will. Right now it's a wash, but I can see the potential... and there is no glitter in my eyes (maybe some, but I'm not blinded).

 

The leverage, the preferable tax treatment (mostly the later) why not give it a shot? I will admit that I do not like the way futures trade... it's not like stocks, and I like trading stocks. We shall see, but like everything that has come before... I can see the potential.

 

I deeply respect your opinion, but knucklehead that I am...

[Predictor 11]

Futures is a very specialized sort of game. I like to think of myself as a "local" -- even though I'm just a small trader. I feel that I'm similar to a local because I trade same market every single day. I believe that overall futures traders who trade only 1 or 2 instruments are likely to do the best. Some futures traders are in every market and this isn't advisable unless you have a systematic strategy.

 

If you are a technical trader then you'll find that most stocks trade almost 1-1 to the futures anyway.

 

The leverage in the futures requires a much higher degree of skill to use then I imagine most stock traders have the skills to utilize. The leverage is something that should be monitored closely. The costs to making mistakes can be very high. I try to cap my risk around 5% per day (and rarely hit that). For a skilled trader, a risk cap of 3% up to around 7% is do-able...

 

The 24 hours markets provides more opportunities but also provides more opportunity for taking bad trades. In general, I recommend to set trading hours and trade those hours... although the futures market is often "sneaky" in that the best moves.. i.e moves the day traders expect often don't come round until the regular session is closed -- or until no one is watching. For this reason, I think that having enough leverage to hold overnight is a benefit but that in general trades should be closed at cash close due to the increased risks of holding over the maintenance window.

 

One of the strongest advantages a futures trader has is the ability to "push" our best trades with larger size. This requires a lot of skill to make use of and may not be appropriate if you don't have enough capital to enter at a lower leverage level. I actually feel pretty good when I break even, as long as I'm not losing, because I know that I can push a good a trade and make plenty. Breaking even in futures is not trivial and is a very good skill to develop.

 

As a futures trader, I don't get to pick but have to adapt to what the market is doing.. my opinion is that traders who are very rule-based (but lack complete systems) will have more trouble because you can't just go and pick a market that is going to move like you want -- like might be possible in stocks.

 

You need to be willing to re-enter in same direction as a stop in futures and be aggressive on re-entries or use larger stops. This is likely to be difficult for many.. also because the distribution of wins/losses I find it better to think of my trades as sequences or in longer stretches -- the futures markets are very random. If you look at each trade you may start to question why you lost that money or what sense it makes-- but if you are profitable overall then over time you'll see the difference.

 

Some of the best trades in futures can be difficult to execute because the risks. There is a tendency for the small trader to try to push the trades too far or take them off too quickly -- even experienced traders.

 

--

Blog - The Market Predictor

Edited July 31, 2012 by Predictor

[TheNegotiator 13]

1. Is there a better time frame to trade than what I mentioned above?

 

2. What I've noticed is that I will go through periods when I can do no wrong, but then something breaks down. These breaks only last for a few trades, and I could certainly live with the W/L percentage, but it troubles me as I haven't been able to pin down a change in market dynamics that causes the system failure. I didn't notice this when trading stocks… it was more give and take… not so streaky. Is this inherent to futures trading, or more specifically, metals futures?

 

3. From someone who has transitioned from stocks to futures… any pitfalls that I need to be aware of? Stupid things that I will do… because everybody does?

 

First off I'd say that you sound like you're set on at least trying futures. If that's the case then I say give it a go. There are lots of different markets to trade so look at them.

 

1 - I'm not sure if getting up at 4am is something I'd be especially keen on but if that's what you do anyway then fair play. If you want to trade gold futures, that period pretty much cover it by the looks of things if you want to trade it when it's liquid (which is something you'll always want to do unless you're a turtle )

 

2 - Gold is seen as an inflation hedge and a less risky place to have money. So it's affected by economic issues probably far more than individual stocks. It's possibly worth watching ES, DX(/6E), CL, ZN to get a feel for the overall market conditions. They won't necessarily always move in lockstep, but the point is that if they are all moving about quite a bit, gold is likely to aswell. Recently, if this is the 3 week period you are referring to when you sim traded it, there has been a great deal of news flow due to European issues. This kind of thing has bearing on the behaviour of futures markets. So being aware of all eco releases, speeches, unscheduled comments, geopolitical events and so on is pretty useful. That's not to say you should trade off them necessarily. Apart from this, without knowing your trading method, patterns, times or days when losing streaks happen and so on, it's difficult to say whether there might be systematic issues at work.

 

3 - Leverage is clearly the biggest thing to understand as a function of risk. So it's very important you are sticking to a strong risk plan. A reasonable size account (and actually any size) can be wiped out very quickly indeed and you can lose more than what's in your account. The other thing to be very very clear on is that futures contracts deliver. Gold rolls to a new contract every other month. One, you need to be trading where the volume and hence liquidity is and two, you need to not hold any position into contract expiry. I've heard horror stories of oil tankers rolling up on some poor trader's drive because they were delivered. Some futures are cash settled, but I believe gold is a physical delivery contract. It's not something that should ever happen, but it can happen. So just know that it's there and the contract you should be trading etc.

[suby 10]

Whats the best times to trade Oil?

[jpennybags 11]

Whats the best times to trade Oil?

 

(Ha!) I trust that question was not directed at me.

[jpennybags 11]

All… great stuff. The replies were complete and understandable so I don't really have any questions… much to consider though… thank you.

 

Note to Tams: After some thoughtful consideration… good advice. This 3rd year has been such a joy compared to the 1st year. Taking the time to enjoy the success… yea, cool. I can pull money off the stock market every day… some days are better than others, but there are no bad days.

[zdo 20]

2. What I've noticed is that I will go through periods when I can do no wrong, but then something breaks down. These breaks only last for a few trades, and I could certainly live with the W/L percentage, but it troubles me as I haven't been able to pin down a change in market dynamics that causes the system failure. I didn't notice this when trading stocks… it was more give and take… not so streaky. Is this inherent to futures trading, or more specifically, metals futures?

 

Future markets have ‘multiple crowds’ and fortunately they are more obvious. I experience it as an array of crowds … and at any given time, one set of crowds has more ascendancy and is influencing the auction flow more than others. Then! the auction ‘rulers’ change! Instantly or gradually!

Approaches:

>Many systemic traders tend to plod on through all the different market types with just the one or two edges … this works, but takes a certain type of ‘tolerance’

>More discretionary type traders who survive typically learn (not nec. consciously) which types of markets it’s best for them to avoid… otherwise the face can get very bloodied, not to mention the bruised and broken ribs and internal organs and various other injuries that don’t show. Coming up, I watched many of my models implement various flavors of this avoidance’ and it just didn’t sit with me so I decided to stick with making typing the auction more central than developing edges,etc. until I could

>Learn to quickly adapt to changes in “prevailing market conditions” / auction type / whatever you want to call it. This is statistically best accomplished by sizing up some edges and simultaneously sizing down other edges, but in the beginning it’s probably best to just simply switch between systems /edges while you’re developing a feel for these ‘crowds’ and you get used to trading methods that are not in your wheel house.. Then as you develop you can shift to up sizing on into your strengths / times you’re in alignment and size back when those times comes where you’re not in alignment… until you learn how to align other methods to other market types too…till ultimately you let the ‘numbers’ decide the methods and sizing instead of your ‘comfort levels’, etc.

 

This final way is the only way I’ve found to thrive at futures trading. It’s much harder development on the front end, but pays off and produces more ‘ease’ (at least for me) in the long run…You’ll quickly see how this way is one of those ‘roads less traveled’ – especially if the MarketTyping is really given primacy. For example (and I’m not really disagreeing with him, just using it as an example btw), closely compare Negotiator’s reply to number two with this reply. Generally, he’s talking correlates, dominant concerns, yada yada and then concludes it’s “difficult to say whether there might be systematic issues at work” for 2). Nothing ‘wrong’ with that. But by contrast - without needing any yada yada’s and without needing to know the particulars of your method at all, by really giving MarketTyping primacy I say categorically that “systematic issues” are NOT at work! Rather than putting energy into finding out what is wrong with the method and what to change / how to improve it, I’m saying start identifying other methods to ‘turn on’ as soon as conditions change

 

On certain levels for me “that’s futures trading” distills down to simply and nonjudgementally acknowledging that certain conditions will drive your perfectly fine ‘go to’ method(s) out of phase. How you deal with that ultimately determines the degree to which you thrive! That’s futures trading!

 

 

 

 

Replying to your full post generally – It feels like you’re ready. I’d say jump on in with both feet!… Trade real and live. Make mistakes, adjust, go back to sim to confirm corrections, then go real again… get dirty, wash, rinse … repeat… as fast as possible.

 

One barely related question I would recommend you ask yourself –

As I create this goal of switching to / adding futures trading, what other (life) goals do I need to dis-create?

 

HTH…All the best,

 

zdo

Edited August 1, 2012 by zdo

[jpennybags 11]

 

One barely related question I would recommend you ask yourself –

As I create this goal of switching to / adding futures trading, what other (life) goals do I need to dis-create?

 

HTH…All the best,

 

zdo

 

zdo... brilliant. Not only have you provided a description of what I've experienced in the market, you've also confirmed what I new in the back of my mind, but couldn't put into words... nicely done. I get it... thank you.

 

Please explain the question quoted above, and I'll let you go... thanks again.

[SIUYA 11]

I agree with pretty much most of the issues others have said - I have traded a lot of stocks (currently dont touch them as there are certain compliance restrictions as a result of my partners work - and hence trade mainly futures and FX now - switched gradualy 10 yrs ago, more permanently 4 yrs ago, exclusively now due to compliance)

they are different and Zdo states it beautifully.

 

Other simple issues to take into consideration over and above leverage, costs, margin etc; - market open and close - FX is addicitve, you need to close it, where as your own equity market generally closes - you are forced to take a break.

Equity markets offer many, many varied opportunities, better longer terms moves (partially irrelevant if day trading - but think boom opps)

Equitys give some measure of value - PE, cash flows, industries strengths. - how do you value FX or oil, or gold. So this may cloud any philosophical rationale you might have.

Futures - no issues with shorting, borrowing stock, rights issues, ipos, less paperwork - need to watch expiries, and arguably economic releases.

Compensation schemes- re MFG and PFG issues.

Look at which future to trade - they trade differently - some suit different personalities and ideas - also look at the slippage - some can shock - eg; what looks like a nice moving instrument might be one that moves violently on occasion which is what forms it move.

understand limit up and limit down issues.

 

Go for it - try - it might be either better, worse, complimentary.

[TheNegotiator 13]

2 - Gold is seen as an inflation hedge and a less risky place to have money. So it's affected by economic issues probably far more than individual stocks. It's possibly worth watching ES, DX(/6E), CL, ZN to get a feel for the overall market conditions. They won't necessarily always move in lockstep, but the point is that if they are all moving about quite a bit, gold is likely to aswell. Recently, if this is the 3 week period you are referring to when you sim traded it, there has been a great deal of news flow due to European issues. This kind of thing has bearing on the behaviour of futures markets. So being aware of all eco releases, speeches, unscheduled comments, geopolitical events and so on is pretty useful. That's not to say you should trade off them necessarily. Apart from this, without knowing your trading method, patterns, times or days when losing streaks happen and so on, it's difficult to say whether there might be systematic issues at work.

 

This final way is the only way I’ve found to thrive at futures trading. It’s much harder development on the front end, but pays off and produces more ‘ease’ (at least for me) in the long run…You’ll quickly see how this way is one of those ‘roads less traveled’ – especially if the MarketTyping is really given primacy. For example (and I’m not really disagreeing with him, just using it as an example btw), closely compare Negotiator’s reply to number two with this reply. Generally, he’s talking correlates, dominant concerns, yada yada and then concludes it’s “difficult to say whether there might be systematic issues at work” for 2). Nothing ‘wrong’ with that. But by contrast - without needing any yada yada’s and without needing to know the particulars of your method at all, by really giving MarketTyping primacy I say categorically that “systematic issues” are NOT at work! Rather than putting energy into finding out what is wrong with the method and what to change / how to improve it, I’m saying start identifying other methods to ‘turn on’ as soon as conditions change

 

When I mention "systematic issues" just to be clear, I'm talking about whether there are flaws to the method or the application of said method. I'm not saying there are but as I pointed out, without knowing all the details I think it's difficult to know. That being said, if the method is working for a period then suddenly stops and repeats this cycle, then yes there's a decent chance it's to do with who's controlling the market and the context that goes with that. Part of what I do (and talk about lots in the forum) is based on market auctions and "Market Typing" is a fundamental part of this. The reason I hadn't mentioned it was due to an assumption that having traded for 3 years, jpennybags would have at least some idea that there will be different times in a market where different strategies work better than others. So I was focussing more on the recent 3 week trial period. I think maybe the assumption was at least in part wrong, bearing in mind that I've never traded stocks as such. This statement of course relies on another assumption. This is that the method JPB is using is to look for stocks exhibiting certain behaviours and then trade them, rather than trade either 1 or a hand full of stocks all the time through all conditions.

 

Either way, I agree with you zdo!:thumbs up:

[jpennybags 11]

2. What I've noticed is that I will go through periods when I can do no wrong, but then something breaks down. These breaks only last for a few trades, and I could certainly live with the W/L percentage, but it troubles me as I haven't been able to pin down a change in market dynamics that causes the system failure. I didn't notice this when trading stocks… it was more give and take… not so streaky. Is this inherent to futures trading, or more specifically, metals futures?

 

I'm quoting myself now, but a better explanation may be in order.

 

When I say streaky… I go through periods that last 2 days where I don't book a loosing trade (8-10 trades). Commonly, I would be in error to make the assumption that I could extrapolate these results from such a small sampling of 3 weeks sim trading… or would I? I do find the results troubling though… it indicates to me that there may be periods that a trader may just need to sit out, or go find something else to trade… and these periods may be lengthy at times (haven't seen it yet).

 

Individual stocks trade well worn paths throughout the day (each with a different character), and if you trade the same one for weeks or months at a time you will develop an edge. Part of the appeal for moving into futures (aside from the other advantages mentioned) was that I could trade the same thing day after day.

 

My question was "Is this streaky nature inherent to futures trading?" I think from the replies I've received the answer would be yes. There are stocks that trade this way too… the one's I avoid. My trading system is "a one trick pony"… I'm successful due to good money management skills and knowing how to apply the method. When trading stocks I have periods where I string together an entire week of good days, but each day was W/L 4/1, 6/2 and the like. More commonly though it's 3 mediocre days (maybe an occasional loser or flat day) and 2 good days that make up my week.

 

When I trade simulation, I trade it just as I would if it were real. I make that distinction, in that I'm not really testing a method, but testing myself in applying the method. When I hit that soft patch (2-3 losses), I recognize it as something that is outside the system parameters… I pull the plug and wait. This rarely happens when trading a stock… usually it trades within the parameters… no need to pull the plug. That said, I may have just happened in on an odd 3 weeks in the GC, and I'm making too much of it…

 

In conclusion: zdo's reply struck a cord with me, as it's something I've had rolling around in my head for the past weeks. I'm a discretionary trader with a single simple method that works. Trading a futures market… a market that may have players that are in control for extended periods … I may need to develop several simple methods to compliment.

[zdo 20]

...Please explain the question quoted above.

 

re “As I create this goal of switching to / adding futures trading, what other (life) goals do I need to dis-create?”

A word cloud from that final question would look very much like a word cloud straight out some law of attraction bulsht… but this is really not the case at all and more indicates the limitations of words period.

 

But this is TL so …

Oh lord … what have I done ???

… speaking of ‘indicates’, in a recent post, someone just joked that TL is not a place where you can freely discuss indicators (:haha:without certain lab monkeys throwing sht at you, etc…)

… and sad to say but using both obfuscated and blatant attacks, by name calling them snake oil “vendors”, etc etc… we also run off well intentioned coaches and ‘trading psychologists’ who are actually trying to learn about people and traders, improve, and contribute

…well TL is not a place where we can freely discuss this kind of content either… mostly because it’s not taught in any schools, universities or trading courses or books … this business of ‘dangling’ goals is not even in the edges of our prevailing paradigms - so I best shutup… Check for a PM – coming to an inbox near you soon

[bobcollett 10]

Hi jpenny,

If you are scalping stocks profitably, well done. One in a million.You and Al Brooks.

Now you want to scalp futures.... hedges?

Every morning at 8.30am I check the stock futures market. If its up I know the market will open up , 90% of the time. Thats the biggest edge of the day.The professionals have told me their direction.

Now why do you want to reverse the process?

Professional futures traders base their decisions on fundamentals.

Are you an economist?

Tams is right.Leave it alone.

Or if you are adament, look at commodity futures.

kind regards

bobc

[jpennybags 11]

Hi jpenny,

If you are scalping stocks profitably, well done. One in a million.You and Al Brooks.

 

Thanks for the sound advice. Who is Al Brooks... never heard of the guy. I'm a quirky dude... scalping is the only way I've found to make a consistent buck. It may not work in the futures market, but I'm not such a hack (nor bleary eyed dreamer) that I'm going to get beat up too badly... no shame in running away.

[Tams 20]

All… great stuff. The replies were complete and understandable so I don't really have any questions… much to consider though… thank you.

 

Note to Tams: After some thoughtful consideration… good advice. This 3rd year has been such a joy compared to the 1st year. Taking the time to enjoy the success… yea, cool. I can pull money off the stock market every day… some days are better than others, but there are no bad days.

 

 

There are people who switch from a "stock trading operation" to a "Happy and content future trader".

 

There are people who switch from a "long-term consistent profitable stock trading operation" to a "losing-it-all" down and out future trader.

 

 

I know a few of the first one (count with one hand).

I know plenty of the second one.

 

Sad, life is brutal.

[jpennybags 11]

There are people who switch from a "stock trading operation" to a "Happy and content future trader".

 

There are people who switch from a "long-term consistent profitable stock trading operation" to a "losing-it-all" down and out future trader.

 

 

I know a few of the first one (count with one hand).

I know plenty of the second one.

 

Sad, life is brutal.

 

In my mind, this is a simple business decision to take advantage of a preferable tax treatment, and make my operation more efficient. Most would find my trading style to be pedantic, and too workman like (boring), but it's a style that should be able to be transformed to trade other markets. I may be proven wrong, but so far I don't see any reason to abandon the project.

 

As said earlier… I respect your opinion. If you have some insight as to why all this losing / unhappiness occurs, please offer it up… I'll listen.