Thursday, January 8, 2009
Trading The Emini Russell 2000 (Part 1)
Am documenting how I have been trading emini futures for the period spanning July 2008 and the present.
Dec 2008 to Present
Each day, after the market opening bell, I'll wait for confirmation of trend - is it down or up as I thought it to be. If it's choppy, like yesterday's, I wait for a trend to emerge.
Unless I'm using market depth (Booktrader for IB users), I hardly go in right at market open. I used to enter based on pre-market conditions, but these days, I'm not going to trust anything that doesn't happen real-time.
I have to confess that whenever TF slides or rallies without retracing after market open, I'm always tempted to enter after the completion of each long bearish/bullish candle. D loves catching these moves. And I know a trader who had only 2 years of trading experience (but has trained hundreds of beginners in the region - and getting an obscene income from teaching) who trades only the opening bell and the last hour of the day.
The fairly-new-trader-cum-trainer is probably a lot more intuitive than me, and so are the others who trade the opening bell. To me, to trade the opening bell using just charts - if you haven't 20 years of trading experience under your belt - is no different from pure betting. I'm fully aware that I have missed a lot of opportunities by skipping the first 30min of the session, given that it offers the best momentum and hence a real money window, and many times, I kicked myself for being such a fraidy-cat.
But I'm a stubborn person.
Day after day for the past weeks, I sat and watched the only part of the day where there was momentum, and I did nothing.
Reason?
I'm not a gambler.
Have never been, and never will be.
If TF, for the rest of the session after the first half hour, simply refuses to give me that same momentum it used to give me in Aug and Sept last year, I'll just have to find another way to trade it.
Newbie
Over the course of 6 months of trading, I learnt that I do not do well having a concoction of indicators.
During those times that I was trading 5 ER2 contracts, I had MACD, SS, and 3 moving averages on, and I was monitoring 2 timeframes - and for the different timeframes, I have different periods for each of the 3 moving averages. Waiting for the perfect setup where every indicator says "BUY" or "SELL" was something I could never do. I will have to admit that I've in fact never once entered and exited based on those setups.
I was looking at chart patterns instead, without knowing that they were chart patterns.
On days that I made decent profits with just one or two entries, I had entered short on Head and Shoulder and tiple top patterns, without being aware that there were actually names given to such price actions. I just knew that if price keeps aiming for a certain resistance - and it doesn't matter that it's making peaks and valleys that are higher than the previous ones - it will plunge after a number of such failed attempts, at the time before everyone goes for lunch, or after they return from lunch.
I watch the 1min chart for that 3 to 5 point drop in seconds, after prices have consolidated for a while (forming triangles and wedges and what nots). I catch that move, and I'm done for the day.
With 5 contracts, 1 point will give me 500; 3 points, 1500.
Precision is key. I can't be wrong. And in the event that I'm wrong, I'll have to know that I am wrong within nano-seconds. I get out if price is not immediately moving in my direction.
On the days that I have to sit through the entire session for my trade to come back - those were the days I got impatient, and traded on patterns that I was not actually entirely comfortable with.
I do really badly picking bottoms and tops. Whenever I do that, I'll end up having to sit for hours to break even. Those happened to be times I didn't run fast enough. Once I'm losing 1 or 2 points in seconds, I will not run after that.
It's a rule that I don't take a 1 or 2 point loss.
I was ready to take a 10point loss in a worst case scenario, or I sit on my trade til I no longer have enough reasons to believe that the head and shoulder or triple or double top is actually going to happen.
This was how I traded the ER2 back in Aug and Sept.
Those were definitely easier months to trade than now.
Tapereading
In the months that followed ie. after ER2 went to I.C.E, I had traded the ES and NQ.
ES was a plague.
NQ was not bad actually, but I could never get the contract size right, and I coudn't settle on a way to trade it.
I was always tempted to tape-read and go in 30 times in 45 minutes. But it was an awfully tiring thing to do, and I started having difficulty with my vision.
My eyes couldn't focus on anything other than my charts.
I couldn't even read.
And that was enough to stop me from contiuing with a very profitable method of trading - by simply betting alongside traders who can move the market (they do so by luring sellers with big contracts when they want to buy, and luring buyers when they want to sell).
The challenging part is in telling the sincere buyers/sellers from those that are putting in bids and offers only to pull them the second the market took the bait.
Moving Forward: How I Plan to Trade the TF
I do best relying on just simple trend and price lines, charts and candlestick patterns. I'm still not great at reading volume, but am catching up. I am most comfortable looking at a clean chart with NIL indicator. I have a busy mind that wants to absorb everything. In order for me to focus on what I do best - reading price actions - I have to keep everything else out of sight, out of mind. Once I'm able to get my state right again (concentration plus CONFIDENCE), then I'll add just one indicator: the Keltner Channel.
I've only seen it being used by a forex trader months ago. I can't even recall on which site I had found it. Was playing around with the indicator the past few days, and noticed that it works wonderfully well on both forex and TF (don't know if it works on the other emini futures - will do some backtesting when I'm free).
I had totally forgotten how the forex trader had used the indicator, and I had no idea what parameters to key in. But after a few hours of playing around with it, I settled on 3 different sets of parameters - 1 for TF3min, 1 for TF hourly, and 1 for GBP crosses (Hourly).
I had to set my own guidelines and conditions for using the indicator (No, I didn't bother googling it. I decided that if it works perfectly the way I made it to, why bother about HOW IT WAS MEANT TO BE USED). I'm aware that if I publish them (which I will, after this post, and after I have had lunch and a good smoke break with Seabloke), I risk becoming the biggest clown in the blogosphere.
But I'm doing it anyway.
Coz THIS IS MY PERSONAL DIARY.
Which means I can write whatever I want. Hur hur hur...
Keltner Channel
The reason that I like the Keltner Channel is that it caters to what I need (with the other indicators, I feel LED by them, and had to make compromises so that I could use them).
I was looking for something to hem in prices (without the MACD, SS, and RSI, it takes a lot of work to gauge if price is overly extended). Bollinger band was something I keep adding to my charts only to discard it after a few weeks, coz it distorts my candles and I get really frustrated when I can't read my candlestick patterns accurately.
Keltner channels enclose prices but do not distort candles. The best thing about the KC is that instead of distracting me, like the other indicators do, it actually helps my reading of price actions.
It's like finally finding a mate that doesn't annoy you (sorry, Pilot, I took your script - and congrats on finally finding Seabloke and me a sister-in-law!! LOL!!!).
Ok, it's Seabloke time!!!
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6 comments:
Hi Juliana :
Thanks once again for giving us your insight on how you trade the e-minis futures.
May be I'm still new in this but I felt that at times the indicators seemed "lagging" and the ES or TF might have moved a couple of points before the signals appear & I'm rather hesitant to enter then. And there would always be the time when the trade was entered, the trend changed, and when I reverse the order, the trend switched to the other direction.
From your post, do you advise it's better to avoid trading the e-minis on the 1st 30 mins when the market opened?
Thanks once again,
Tony Chai
Congrats, Tony, for being the first person to post an unmoderated comment LOL!! I turned moderation and word verification off coz I realized they are giving problems to some who had wanted to leave comments.
Re your question on trading the first 30min - I won't say it's better to avoid it, it's just that I won't do it personally. For those who can manage their expectations and risks properly, trading the first 30min is actually very rewarding.
You know how the first few candles of the 3 and 5 min charts sometimes don't quite make sense - they are just all over the place, with long shadows and a bullish candle can turn bearish in seconds. If you are not greedy, and happen to be on the right side of the market, you could catch at least a point or 2 in under a minute (not in today's market though). Hold it any longer and the direction could turn against you. When that happens and you bail with your loss, you'll soon kick yourself for getting out coz the direction will change again and had you not bailed, you would have gotten your money back, or even made a profit. That will cause you to hang on to a losing position the next time, and if the market doesn't come back, you'll be stuck with your 5 to 6 point loss.
There are only 3 things that can happen once you enter a trade - the market either goes with you, against you, or nowhere. So you place your bet, and if you're wrong, you had better get out as soon as you can. Because everything happens so fast, some prefer to set a stop loss, which sometimes works against them. You could get stopped out before price hits your target. And it happens just too frequently.
I used to think that it shouldn't be difficult to get a 2 to 3 point profit from a 6 to 10 point move in that first few minutes. In reality, you'll be lucky if you can get a full point. The nice long consecutive bullish or bearish candles look like a no-brainer IN HINDSIGHT. In real time, the candles turn from bullish to bearish to bullish - there were times in the past that I would buy and sell on the same candle and still made money.
I think the start of the day trades are easier for those who enter and exit using indicators - they see a cross over, they enter, and then they just hold their trades from minutes to hours depending on when their indicators tell them to get out. They avoid the whipsaws in that first part of the day. But if the stoploss is not set in a way that takes into account the volatility of the market during that period, what's initially a winning trade could get stopped out in a heartbeat.
That's just my experience with trading that part of the day. It's by no means an advice. Others might have better luck than me, or like I said, have better intuition, and better money management.
And floor traders and professional traders definitely have an edge, coz they can go in and out grabbing a few ticks per trade without having to worry about commissions and fees.
I prefer to trade off patterns that I can recognize, rather than just placing a bet and a stoploss. But for those who trust their systems to generate a net profit for them in the long run, and who are not bothered by consecutive losing days (coz their systems just simply don't work during those days), I would say that it's worth going for it. After all, you can't be wrong all the time :-)
Re indicators - yes, all indicators lag. But if you consistently use the same set and stick to entry and exit rules, they take the emotions out of your trading. And the ones that work will in the long run pay you handsomely - provided that you do not intervene at all, and provided that you use the right stop to minimize loss during times that they don't work. With TF and even ES, because of the volatility and spikes, you can't set a tight stop. But the market these days just simply doesn't justify a wide stop...in the absence of momentum and orderly intraday price actions, the best way to trade TF now is actually to swing trade it. That is, if you can sleep with open positions. I can't.
Hope that helps. This is actually not the best time to gauge if it's worth trading the emini futures. They are still very good daytrading instruments. It's just that the market's very jittery now, and if you really want to trade, you'll have to be prepared to take whatever the market offers. Which means you don't set a target of a few points per trade.
JIJ,
I read your blog via google reader, and really appreciate your insights. I'm trading paper trading stocks right now rather than forex or futures, but when you talked about being a "patter reader", something clicked with me, as I seem to respond best to reading charts when I focus on candlestick bars and my brain often recognizes set ups that don't necessarily have a name (or maybe they do and I don't know), but when I see, I will go, this stock is going to do x, y or z, and often does. So, I'm going to focus on the patterns for a bit as everyone's learning / understanding of the world is different.
Thanks,
Charlie
Hi Juliana :
Thanks for your in-depth sharing of your experiences.
You were mentioning about cutting loss quickly. In a situation when I have set a 5 point stop loss, it's a real test of predicament whether to cut the loss manually at 2 points or let it see whether it would turn around before the 5 point stop loss. I guess I still need more experiences to determine the volatility magnitude in setting up my stop loss if there's such a term for it.
Regards,
Tony Chai
Yes, Charlie, and everyone trades differently. All best :-)
No, Tony, 5-point stop's not for this period. I would think a 2-point is max.
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