Futures Trading Advice
Very
IMPORTANT
CONCEPT
Here it is:
The short version is this:
Only use the “Gold Line” Strategy that is explained in my strategy module and only do 2 to 5 trades a day. Take just 4-8 ticks per trade and get out with your profit. The “Gold Line” Stategy is the highest probability trade strategy that I have found. So, I suggest that you only use this one strategy. It is really difficult to not do other trades that look good, but just wait for the “Gold Line” to cross. This is what works best for me and I believe will work best for you to make money and not lose much money.
The Longer Version:
After you have practiced with a simulator and then practiced using real money with single micros, and have learned to use the “Gold Line” strategy (see Strategy Module, (click link for strategy module) is this:
1) Use a sizeable lot size, like 2 to 5 contracts (later 10 with more experience) and
2) Watch and wait for the perfect opportunity, where it looks like it is a sure thing, and you put in your, let’s say five contracts with a take profit set at four to six ticks and a stop loss set 8 ticks and you collect your win. Then you do that just one or two more times, waiting again for the perfect time. Then you are done for the day. Yes, done, done, done!
Sure there may be some days that you don’t win all of your trades, but with sufficient practice that should be rare. And if you do win 9 of 10 of your trades, using five contracts, five days a week for 50 weeks per year, after commissions you will have made $100,000. And that calculation is based on just two trades a day. Now, of course it takes time to find a winning strategy that works for you and it takes time to be able to use it effectively with larger contract sizes, since the larger loss possibility is more difficult mentally to learn to manage well. And of course there are always taxes, but there are people who do make this kind of money, and they are not trading micros to do it.
So, I just wanted to put this information out clearly at the early part of your learning so you can think about it. It is a very important concept. This is the concept of using the large contract size and just two or three very well placed trades a day is powerful. Or maybe you will want to do four trades per day. But the concept is the same.
Now, I want to be clear. You should expect it to take many months practicing in order to trade profitably, very likely three to six months if you learn from this course and do what I am suggesting. Persisting is important. Those who persist are much more likely to get to profitability.
What may be the worst mistake that traders make is not waiting for the trade that they are looking for. A second mistake that comes from that first mistake is to not stop trading for the day after reaching your goal. Just taking a trade here and there and not qualifying them adequately is a way to lose money. You can do it when you are on the simulator, but not with real money
WHEN TO ENTER A TRADE
Get in after the “Gold Line” cross. You will learn this in the next module called “Strategies.”
As it says below, only enter a trade in the direction that the trend is going, which will be the direction that the “Gold Line” is going. I recommend that you take no trades against the movement of the trend. Whenever I look at trades that I lost, most of them were against the trend and I think, “Why did I even get in that trade?”
Also, the “Gold Line” stategy will not work if volume is very low, like after the market is closed. And it also will often not work if the market is going sideways (consolidating), where the gold line will cross just a little and then go back the other way. It needs to be a “Gold Line” cross with energy, preferably when there has not been a one minute “Gold Line” cross in one hour of more.
when watching the video below
The Main Point that I would like you to note about this video is . . .
“The good speculator will always wait and have patience.”
THREE more OF
MY BEST TRADING ADVICES
Advice #1:
Best Practices For Entering A Trade:
Get in only if you can answer
yes
to all of the checklist questions below.
Otherwise just enjoy the view.
Here Are The Check-List Questions:
1. You have a high probability of winning – from a proven strategy
2. Appropriate stop loss is set (usually 8 to 12 ticks)
3. You are entering in the direction of the trend
Obviously there are wins that can be made going against the trend, but I recommend that you only trade with the trend, to help you keep your money!
If you don’t have a positive answer
on all three of these checklist questions above,
then I advise that you don’t get in.
If you are a new trader, which I expect that most of you are, then I suggest to get out early if the trade starts going against you, like two or three ticks the wrong way, just get out as quickly as possible, without waiting for your stop loss to be triggered. If it doesn’t start going the way you had hoped, you can switch your way to the other way, but this is not usually recommended from my experience. Remember, it is better to sacrifice a few dollars and not let the small losses bother you. It is part of trading, there will be losses. The larger losses are what kills a trading account. Don’t let them be a part of your trading experience. A high win rate is nice, but keeping losses small is even MORE IMPORTANT! One large loss can wipe out the gains from many good profitable trades! So, I will say it again:
Don’t Allow Large Losses!
I can tell you from experience that I have opened my laptop and got into a trade in less than a minute, which is generally not a good idea, since one minute may not be enough time to get a feel for where the market is going. In that situation, after I got in, I realized that the trade was going against me. I could have closed the position, but often I did not want to take the loss. And as the loss slowly gets bigger and bigger, I think, “surely it is going to come back,” but it usually doesn’t. The loss just gets larger and larger. If I would have just gotten out early, or set the stop loss at six ticks, I could have saved a lot of money and irritation. So, I hope my story will motivate you to be careful to not get in a trade without a stop loss. I think that about 1 in 25 people can get out of a bad trade easily, without having a stop loss set. Good for them. I have not found it easy. I need to set it.
But that is just for saving a trader from the really big losses. The habit needs to be developed to get out of trades early when it starts going the wrong way on you. Sure, no one wants to lose a few dollars. But the large loss that can develop if we don’t learn to get out early is so much worse. I am getting better at getting out quickly when it moves two or three ticks the wrong way. But, from what I read, most people are like me in the first few years of trading. They don’t want to take a loss, so they lose much more. Maybe it sounds crazy that we can just set the stop loss and accept that we have weaknesses.
We all have weaknesses. Let’s just face it and get in every trade with a stop loss. Most everyone will get better at trading with experience. But it often takes a lot of time to change this natural inhibition against losing.
I’ll admit that this is a very difficult area for me. I will sometimes not want to take a small loss, move my stop and then take a much larger loss than I should have taken. I’m slowly getting better at this from the pain of large lossess, but certainly some people can learn from what other’s have already experienced. That’s the point of this course.
Save yourself a lot of money by setting an appropriate stop loss, and then don’t delete or move it. Decide how much you are willing to lose on the particular set-up before entering the trade. And remember, trading when the market is volatile will sometimes mean that a larger stop loss, like 10 to 25 ticks is better, or you will likely be giving your money away. But you should still get out quickly if a trade starts going against you. And if you are going to be in a volatile market and set a large stop loss, be sure to be risking only a small part of your account, like 2 to 5%. If you have $1000 in your account and you get in a volatile market with one full contract, that is $50 per point, so if you lose 25 ticks, that is $312.50, which is about 1/3 of your account. That is way too much to risk. It is best to get out when it goes 1-2 ticks the wrong way. This is very hard to learn, to get out fast when the price starts to go against you. It can take years of large losses for many before they start to get this very important trading practice. Get out of a bad trade early!
And it is better to learn that with the simulator, not with real money. But I recommend not to trade the first 30 minutes of the market for your first few months of using real money. After a few months experience and learning how to get in at the beginning of a strong trend, you will start to get excited about the possibilities for making a lot of money. I don’t suggest holding through pull-backs, since you never know how far they will go. You can easily get back in when the trend has resumed.
Advice #2
Stop Trading When You Reach Your Daily Goal.
This is a great piece of advice that I learned from the website of a great trader.
I suggest you go to his website and spend some time there. His name is Barry Taylor. His website is called, emini-watch.com. Here is what he says:
- Stop trading for the day after making my 4 point (16 tick) target.
- Stop trading after being stopped out 2 times.
- Stop trading after 5 trades.
I think a four point target for the day is a great plan. Here is an example, similar to the example I gave above. If you have $2000 in your account and win all three trades each day, five days a week, with three contracts on each trade, you will have a daily revenue of $450. Now, subtract the commissions of $45 and you have $405 per day. Multiply that by five days a week and you have $2,025 per week, which is $8,100 per month. I don’t know about you, but to me that is good money. The big mistake most traders make is trading too much and not just getting into three or four good trades and then stopping. If you are trading a lot, you cannot be very discerning about only getting into the very best set-ups! This is a very, very important concept that does make a huge difference for the results a trader will get.
Another very good trader, John Blythe talks about stopping trading after reaching your daily goal. You can watch the video where he is interviewed on here on Trading-University.TV John talks about how the subconscious mind trys to accomplish a goal and then he also talks about how we are all able to trade better when we are fresh and how, if we don’t stop after we are up, but keep on trading for more than we need to or should, we end up usually giving back part or all of the money that we made in the early part of our trading. So, as Barry and John say, stop when you’ve reached your target, or 5 trades.
Advice #3
Protect yourself from losses
and stick to a strict formula.
Here is a short quote from a famous trader.
Benjamin Graham, writer of The Intelligent Investor, which Warren Buffett calls the best book on investing ever written, gave three key lessons that may help you start trading futures. Though he was talking about “investing,” not day trading, some of the principles are the same for day trading.
There are 3 principles to intelligent investing:
(In futures day trading, we are not investing, rather, we are speculating, so don’t expect all of the three points below to apply to what we are doing – but there are two important points that he makes that I will discuss below.)
- Analyze for the long term, protect yourself from losses, and don’t go for crazy profits.
- Never trust Mr. Market, he can be very irrational in the short and medium term.
- Stick to a strict formula by which you make all your investments, and you’ll do fine (underlining mine).
With day trading futures, we don’t need to analyze for the long term, but I will discuss two of the things that Graham said above.
1) Protect yourself from losses and
2) Stick to a strict formula.
I will start with the first of these two. So, what are the best ways to protect yourself from losses?
The best ways to protect yourself from losses are:
1. Don’t get into a bad position in the first place.
2. When you recognize a risky position, get out quickly.
3. Always have an appropriate stop loss on all positions.
And the other thing that he said that I am highlighting is, stick to a strict formula.
Another way to says that is: “Have rules that work, and follow them.”
Let’s consider the analogy of flying for a moment. Think of trading as flying.
You can enjoy the ride and get to where you want to go fast when you follow the rules of aerodynamics, that is, the rules of flying. But it won’t be a good trip if you don’t follow the rules of both aerodynamics and the rule that says, always do a pre-flight check, which will protect you from leaving the ground without enough fuel or with some critically important problem. Who would want to fly with a pilot who doesn’t bother to do the pre-check or thinks that the rules of flight are not very important? It is because of the severity of the possible consequences that a pilot will take the time, every time, to do the pre-flight check before leaving the ground and then follow all the rules of flying while in the air. All the rules of aerodynamics apply to flying every time that you fly, not just most of the time.
It is the same with trading. The science of aerodynamics is about laws that have been found to be true. If someone has not learned the laws of flight, the laws still apply. It will go much better for those who fly to always follow the rules for flying.
It is the same with trading. If someone wants to make money trading, they will do much better if they follow the rules for trading. Of course, if they don’t know the laws, they will have a hard time following them, but the laws will still apply. And if a person doesn’t like to be constrained to follow rules, and so won’t consistently follow the rules, the rules, or laws will break them, because the laws will not be broken. How much better it is to go with the laws and rules that give prosperity, than to go against them. It is good to make the rules and laws of trading one’s friend and even to love the laws and rules of trading if you want to enjoy the benefits that go with these laws and rules. If you choose to love the laws and rules of trading, so that you practice and follow them consistently, you will see amazing results. It is inevitable.
I will give an example of a good general rule of trading, but first let me give an exception to this rule. Here is an exception: If the price action is bouncing back and forth across the moving average every minute or two and it is later in the evening, then this would not apply. But generally, do not get into a trade within three ticks of the 20 EMA (exponential moving average) line. Wait for the move up or down to be confirmed with about four points before getting into the trade so you don’t find that it actually ends up going the other way. That general rule will save you a lot of lost money and annoyance at losing. It is not an exact science, but because the 20 EMA line is accepted by so many traders, this wide acceptance causes it to be even more accurate.
But, above all, choose to use only the best strategies and trading times that you know work, strategies that you know consistently win. Repeat those and include very little of the other stuff. That is, if your goal is to make money. And of course your goal is to make money, otherwise you would not be taking time to learn how to trade profitably. Anyone can click buttons to trade.
Yes, anyone can click buttons.
Repeat after me,
“I won’t just click buttons, I’ll use good strategy with discipline.”