Enter the World of a Future

Now trading futures. This is a different game than the stocks I am used to. For one I can trade without the limitations of hours and day trading regulations, The day trading reg. is actually is a dilemma I have surpassed, but I am finding the freedom has its own pitfalls.

The voracity of the moves in the Emini S&P are substantial, and I feel like I am simply giving money to the floor traders on their little shakeout moves. This because within a few seconds my account can change by hundreds of dollars, I get shaken out, and then reverse the other direction.

Since I started trading futures last week the account has lost about 800 dollars on 20 or so trades. The few (three) winning trades I have pulled are under 100 dollars and most of my losers are about same or a little less. This is a pretty average and I am headed into dangerous territory if I keep up this average. 1 in 7 wins and each win is equal to a loss.

I am unable to trade a full strangle due my account size — I have not allocated more than 20% percent of capital to the futures trading area — and the covered call trade is getting stressful now that I getting closer to the 930 strike price.

The Cyber Cycles Oscillator in combination with the SMA (9) is helping find momentum and direction for now, but I am getting more nervous because of the loss in account balance. It is hard to think back when you were up.

The last two mornings I missed opportunities because I didn’t make it to the market until the opening moves had taken place, Now today, Wednesday, I was alert and attentive unable to hammer a good trade out of the open. My first trade today, profitable at first, turned into an equal distant loss in two red bars. Up $100 and then closed it out for a loss of $100. My stop had not yet been set. Shame on me. The first circle on the picture represents the enter of the trade and second is the exit. : (

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One thing which is a plus is my cataloging of the trades. Shortening my losses on a short call trade and marking the cost of commissions and P&L for each future trade is helping my mind get a grip on profitability of the naked call. This is helping justify the distance of options to sell OTM and an average cost to carry the trade for a few weeks.

This experience wouldn’t be possible with the early experience I had in trading options on equities, but there is still a lot more I need to learn about price chasing versus trend following. Having a more forward outlook is going to be crucial for trading futures, and the losses are greater when they come. I used this a learning technique with equities last winter to get a better grasp on hedging and the mechanical movement of the stocks.

The technique is simple. Sell an out of the money call two or three strikes OTM (out of the money), and then watch the market to allocate a hedge if needed. When I say hedge, I mean purchase underlying. This has worked in the past and it has failed. Sometimes making much money in a short time and others just burning my account with commissions and after hour losses. The technique does not always work in your favor and I wouldn’t recommend it for anyone not willing to devote many hours in front of the market.

Two things are happening now to me as a trader. First, my risk level has moved to a level of only risking a half percent or one percent on each trade, risking 2% is simply too much for this trader. Second, I am very happy trading futures, although the profits aren’t rolling in the door quite yet. This is where I want to be as trader. Hedging levered contract for clients and myself.

Stay Hedged, Stay Happy,

Margin of Safety