bondtrader's Blog

Futures Trading, Musings, and Random Thoughts

Friday, September 03, 2004

Lesson For The Day

I will be posting not just my trading results, but also lessons I learned during the day. I hope to correct my mistakes by publicly acknowledging them, and hopefully this will keep me accountable from that point on.

Today I go back to a lesson that cost me money in the sense that I left it on the table. I TOOK MY PROFITS TOO SOON. Thinking about the holiday approaching and that today is the Friday before that holiday, plus it looked like a divergence was forming, I placed my profit target closer because I wanted to get it before it reversed.

Well, the major flaw in that kind of thinking is that... I don't know what the market is going to do next (a belief in 'uncertainty', as espoused by Mark Douglas in The Trading Zone). It would be nice and dandy if I had a crystal ball into the futures market, then I would know precisely where it's headed, where it's ending, where it's going to turn, etc., but I don't.

So all I can do is read the roadmaps and follow it. That's what indicators are: they are mere roadmaps. They tell what may happen next, but they're not really saying it's happening right now. The divergence that I saw forming was just a warning that the trend may end soon; it doesn't really say it's ending NOW. You never really know the divergence is correct until the market has reversed anyway. It is a warning for those who may be wanting to get into a new position that "hey, this thing may be over soon", but for those already in the position, it can't tell them "it's ending now" until the market actually reverses.

So when the indicators are green, go long and stay long until it goes red. When it turns red, go short and stay short until it goes green.

Never cut short your profits

As for it being a Friday before a holiday, well I just don't know for sure if traders all over the place have really gone for the day (or for the week) and called it a holiday. I JUST DON'T KNOW THAT. Therefore, I have no other recourse but to rely on the only thing I know - the indicators. This is the complete roadmap, the only guideline I have as I trade day in, day out.


Tuesday, August 31, 2004

So What's New?

It's been a while since I posted anything on my blog, and I thought it's time for a new update.

In my last post, I mentioned that I have been looking for other markets to trade other than the US 30-year T-Bond futures (ZB).

Two futures contracts I have been recently looking at are the DOW E-mini futures (YM) and Russell 2000 futures (ER2). I have been doing some simulated trading on these 2 contracts, and I have to say I like them better than ZB, and even ES or NQ (that's the e-mini SP500 and Nasdaq100 futures contracts, respectively). They just trend better and at least for my trading style, allow me to actually practice active trade management, i.e., moving stop to breakeven, and trailing my stops once the position has moved in my favour. These markets just trend better than the ES and NQ, and while the ZB does trend, it does it so painfully slow. Mind you, I haven't looked at the ZB again since I switched to YM and ER2.

For the last month, I have been trading the ER2 more than the YM, just a personal preference, because of the bigger moves in terms of dollars. The YM has a minimum tick of 1.00 point at $5.00/tick; while the ER2 has a minimum tick of 0.10 at $10.00/tick, with 10 ticks = 1 point or $100.00.

The following shows how "trend-y" the ER2 is:

ER2 trending
Note that my charting program has "AB" for Russell2000,
but for our purposes we'll call it ER2, as that is what
its more generally known symbol is.

This is a screenshot of one of my trading systems. It colors the bars green when the system is bullish, and red if bearish.

In this chart, the ER2 moved at least 60 ticks (6 points) or $600.00! It would move about 20 ticks before pausing, then would surge up again for another 20 ticks, and it did this 3 times within the time shown in this chart alone. It just leaves ZB in the dust! (sorry ZB traders, that's reality)

These are the types of markets that traders love. This market moves fast and quick when it decides to move, sometimes my charts don't update as fast as this market moves. But I like the trendiness of this market and personally, I think we have a winner. This is now my primary market for trading.

Any other ER2 traders out there, I'd love to hear from you.