Posts Tagged ‘futures’

Just 2 NQ Points A Day

January 19, 2012

Just 2 NQ points a day. That’s all I ask. Instead of trying to get every last tick out of a given move, I am content to consistently pull out a little bit, over and over. This is the intent of the strategy.

The strategy is based on these market attributes:
1. The index futures (NQ Nasdaq emini in my case) tend to back and fill a lot. One way trends are (relatively) rare. Important price levels are revisited over and over again.
2. Market prices tend to move. Price doesn’t hold still for long.

Two points and then quit for the day should be achievable almost all the time. I just want to make chip shots. Just be consistent and do it over and over.

On a 5 min NQ chart, around half of all the bars are wider than 2 points:


The average daily range for NQ lately is near 40:


A two point target is in the noise. But that’s the point: Instead of trying to drink every last drop of a passing river, I want to dip my cup in and just catch a little of what is flowing by. I don’t need to catch an entire wave. Just a little portion of it.

All this time as a loser, I have been trading in hopes of catching a big move. I might have a 5 point target and a 2 point stop. I was constantly setting myself up for failure. I would enter at the market and hope for a big move, ready to take the small loss if need be. That risk:reward might look attractive, but my stop was being hit nearly every time.

So I literally faded my strategy. I looked at the current market, and placed limit orders to fade moves roughly 3 points away from the current price. That put my entry at pretty much exactly where my stop loss would have been if I traded my old way. Once one of them hit and was filled, I set a disaster stop of 5 points (basically an arbitrary number at this point), and a profit limit order just two points away from my entry. Then I sat and waited. My profit target would be hit more than 80% of the time. If the market kept going against me, I waited for it to come back. I honored the disaster stop, but in the first 18 paper trades it was never hit. Most of the time, I could get out for break-even or just a small loss close to 2 points. That exit for a small occasional loss is exactly where my trailing stop for a profit usually was under my old strategy.

To avoid fading a strongly trending market and getting my disaster stop hit, I didn’t use this method near the open or market close. I avoided fading near the highs/lows of the day. I waited for the afternoon doldrums and tried when the market was listless, choppy and noisy, putting conditions in my favor.

Another positive element in this strategy is the very short time that I am exposed to the market. In some of the engineering applications I encounter in my work, a trade-off is made between accepting risk vs. having reduced performance. A probabilistic design method is employed. Instead of designing for the worst case failure mode at the worst possible time in all conditions, we look at the probabilities that these conditions may overlap. If the worst case failure only happens at very extreme conditions, and a vehicle only spends a tiny fraction of a percent of its service life at that condition, designing for this condition puts a large burden of weight and performance reduction for the entire class of vehicle across the whole service life. We can slim down the vehicle by only designing to a probabilistically acceptable failure condition. We still have to avoid a disaster, so we make sure any failure is not catastrophic by keeping enough margin in the system. We just allow a failure to cause an aborted mission or acceptable amounts of damage. Back to my trading: most of these trades last only a few minutes or so. While big adverse moves happen in the market, the odds that one of these moves come during the few short minutes that I am exposed to the market are very small. If I’m always in the market and holding positions, then the odds are high. But the shorter my exposure time, the smaller the probability of a big event becomes. Since the probability is not zero, I still have the disaster stop, just like in the vehicle design. LTCM didn’t have a disaster stop. They KNEW that it was statistically “impossible” that they would see the conditions that would blow them up. I am not naive like that. A non-zero probability is still possible. You have to prepare against it even though you will probably rarely see it.

The biggest weakness I see is if I end up fading a persistent trend. I’ve paper traded this strategy a bit, and on a strong trend day it’s easy to rack up two 10 point losses in a hurry. That wipes out a lot of winning trades. This strategy would be best used during choppy sideways markets. How to rigorously define that is not clear to me. I guess that’s where I often get hung up. I can’t know exactly if a move will turn out to be an adverse trend every time. I have to define a way that works much of the time an accept the few times it when it doesn’t. I want to take discretionary elements out for now. The book “Trading in the Zone” is helping me to think more probabilistically rather than in “right or wrong” terms.

So the idea is literally fading my old self to have a winning strategy. I’ll be doing some back testing with it soon. If you have any comments about this
approach, I’d love to hear them.

Feedback From Think or Swim on TD Account Migration

August 16, 2011

I was contacted by a member of the Think or Swim team working on the account migration problems. He saw my earlier blog post, and then sent me the following feedback on my points, also giving me permission to share. My original comments are in italics, and his answers are in bold font:

So it looks like TD is having all kinds of problems with this merging of accounts with ToS. I had new username problems yesterday. That’s an annoyance, but a one time pain.

I am still getting used to my username as well. I believe e-mails were sent to the address on file on Thursday but unfortunately there were cases where we received some bounces and/or were caught in SPAM folders. In cases where we were unable to deliver an e-mail a letter was mailed. Please note that you can change your username if you do not particularly like the characters that were added. That’s what I did.

Then I find they haven’t unified futures and equities into one account, so you have to manually segregate funds between two accounts. That is unacceptable. But their FAQ says they are working on the integration of the two and expect it to get worked out. When? Who knows.

I completely agree. The plan is to deliver this functionality using our new clearing firm inside of a month. We need to thoroughly test the functionality given we are using a new clearing firm but we are getting close.

Now as of this morning my account shows zero cash, but a single position in an FDIC insured account. I assume that this is the overnight sweep into an interest-bearing (LOL) deposit account. ToS did this as well, but still credited you with cash and buying power. So basically now you can’t trade pre-market. I have no idea if this is permanent or just a temporary glitch. If permanent then you’ll have to tell them you don’t want cash sweeping overnight.

This was a temporary glitch. We feel we have addressed it today and will be monitoring very closely overnight and tomorrow.

So these are pretty heinous issues. Before I get out the torches and pitchforks, I’m going to give them a bit of time to see if they can sort it out. After all, this is only trading day #2 post-integration. However, they need to resolve this very soon or a lot of traders are going to bail on them as they miss opportunities in the markets.

You are 100% right. I assure you we are working tirelessly to iron out the issues you have mentioned. I personally only left the office for 3 hours yesterday and 4 hours the day before. Not looking for points here – just want you to know that we are on it.

So a little patience is in order here. It seems that the same people who gave us great support under the old management are still working the issues now. Here’s hoping the wrinkles get worked out soon. Until then, as The Fly says, go eat a sandwich.

One Trade Today: S&P 500 e-mini (ES)

October 6, 2009

I took one quick trade just after the open today for +2.5 points. I annotated a chart with some of my thoughts during the trade:


I mentioned on twitter that when we open at or above R1 (or at or below S1) we tend to have a trend day more often than not. I’ll have to test that out and get the stats on it. But that along with the break above the first opening swing told me to go long. On the retrace, I stayed, and it paid. And of course, I got lucky too. But half of luck is preparation and having a plan, right?

Must-Visit Blog: Simplicity in Trading by @FuturesTrader71

September 30, 2009

I always study the tweets of @FuturesTrader71. I was very glad to hear that he has started a blog! He’s a pro futures trader out of the CBOT building. It’s always great when someone with talent and skill is willing to share it. I’ve added his new blog to my blogroll here, and I’ll be reading every post.

S&P E-mini Futures (ES) Trades: 7-28-09

July 28, 2009

I took two trades today off the open in ES. Here’s the chart:


I used a 133 tick chart of ES. You can see my Shaded Opening Range Indicator on there (set from 0930 to 0931), as well as my Volatility-Based Trailing Stop. I’ve also got two exponential moving averages: one is a 5 period and the other a 20 period. But instead of using the close in the EMA calculations, I’m using the pivot point of each bar, or (H + L + C) / 3. I got the idea from John Person’s book, Candlestick and Pivot Point Trading Triggers + CD-ROM: Setups for Stock, Forex, and Futures Markets. Finally, you see a study I called PACD (Pivot-based Average Convergence Divergence). Nothing too exciting–just the MACD using hlc3 to compute the EMA’s instead of close, but I changed the inputs to match the EMA’s (5, 20, and an arbitrarily chosen 5 signal line). This is showing if the 5 EMA is above the 20 EMA or vice versa, and could be used in place of the EMA’s eventually. None of this is set in stone, and it is a bit discretionary, but it’s working for me.

The first trade was a short on a pullback inside the 1min OR. The Volatility Stop was pointing short, and the NYSE A-D ratio and Tick were down and going lower. The market was fading the A-D line, but I expected the futures to fall, and 969 was the overnight low, 2 points below my target. Soon after entry, everything switched directions, but I still waited to see if it would go my way. I was within one tick of being stopped out for a bit, and then got a push back lower. I stayed with it, but in hindsight, the Volatility Stop switched directions and the 5/20 hlc3 EMA’s had crossed over (or equivalently, the PACD went above zero). I should have bailed out there for a smaller 1 or 2 tick loss, but I stayed with the original stop and it was hit, -5 ticks. Then I went long on a bounce off the OR high, stop under the OR low. This time the internals were with me, and the PACD and Volatility Stop were as well. I set a profit target for 8 ticks, and was filled. If I had margin for multiple contracts, I could have traded two, sold one at this first target and let the other go with a trailing stop, and I could have had a point or two more, but I’m happy to stop with a net positive day at +3 ticks or 0.75 points. For my personality and where I’m at as a trader, I’d rather be net positive by a fraction every day than be up big some days and down big some others. That will change down the road as I pursue net profit over time as the primary goal, but consistency and confidence is what I want to gain right now, not bags of money. Consistency first, moneybags afterwards.

My strategy lately has been to play for smaller profits, and keep wider stop losses–the exact opposite of the 1:5 Risk:Reward home run trades I have historically tried. I never would hit my targets, and I often got stopped out. So I’m bringing the two closer together, and it’s working. I intend on watching the tape and getting out in a controlled manner (like I should have on the first trade) if things aren’t shaping up as planned. The stop loss is just in case of disaster. I also don’t get greedy and take the money when it’s there at a closer target, which is different than in my past. So far so good!