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Advice for a new futures trader

Do you believe that you should never trade against the trend. The /ES basically went straight down this Friday. You could have literally sold at any point during the day and made a profit. I on the other hand (stupidly) kept trying to predict a bottom and kept buying hoping for a pullback. A strategy which failed miserably and resulted in my biggest one day loss. I guess hindsight is 20/20, but I feel like I was totally overthinking today and should have just gone with the trend. Then again, the way the /ES just kept going down all day was pretty unusual. The whole episode is causing me to question my entire approach and strategy. Or perhaps I just didn’t have a strategy to begin with, which is the reason I got myself into trouble on Friday.

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Just as a follow up to the above. Obviously I didn’t exercise good risk management. Which is probably the biggest mistake I made, but now I’m questioning even the most basic things such as what time frame should I be trading off of, what technical indicators should I be using, etc.

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The is my opinion.

On Friday 23.8.2019, we had a news announcement about the Tariffs. Nowadays, there is a substantial impact from news announcement on the price of the Futures Stock Indices. The minute the news about the tariffs hit, the price has started declining.

Some traders could propose to follow Fundamental Analysis, but I would argue that the economic news report does not always affect the price. There are periods that both negative or positive announcements do not influence prices substantially. Therefore, you do not want to overwhelm yourself by reading the news day and night when you trade short term Futures strategies. Also, any news event could help your trading if you are standing in the right direction.

Although we are all brilliant on 20/20 hindsight, when there is a sudden price change that is accompanied by a sudden trend change, it’s better to trade in the direction of the change. It is up to you to decide how significant is the change in the direction.

If you stopped out when there was a change in direction, you might encounter additional opportunities to trade counter-trend. But, at some point, the insistence of getting in and trying to make your money back is a psychological trap. The attempt to recover lost funds may cause additional losses, and at times they could be more significant than the initial loss you encountered. Remember, your challenge is not only to find a winning strategy but also to have a mental game for your plan. It does not matter how good you the strategy is if you can not attach a strong mental game to it.

Don’t question everything you do when you have a bad day. Just because you had such a day, does not mean you need to replace your entire futures trading method. Quite often, you will find that that you overwrote your method and saw what you wanted to see (confirmation bias). You could tweak and adjust your trading method with risk and targets depending on the market volatility, but rewriting a methodology with each bad day will lead nowhere.

Finally, if you need to follow news events and announcements, we provide news.optimusfutures.com free of charge to our customers.

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Thank you,
Matt Z
Optimus Futures

There is a substantial risk of loss in futures trading. Past performance is not indicative of future results.

Thanks for the great advice. The mental aspect of trading is clearly very important.

You hear a lot about technical indicators. Some people rely heavily on them while others say they are just a reflection of what already happened and are therefore of limited value. Do you think they are helpful and which ones would be most useful to guide a beginner trader. Notice I used the word “guide” as I don’t think any one factor should dictate exactly what you do, but rather it should just be one more thing for you take into consideration when looking at the totality of the situation.

Thank you again for your time.

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The old argument of the validity of the technical analysis is as old as the markets. However, I believe that those who utilize and believe in it also use a risk management plan that accompanies their technical observation. Technical analysis alone does not exist in a vacuum that could profit a Futures trader if risk management is not attached. Whether you look at quantitative analysis, order flow, statistical analysis, or any other method, their input comprised of numbers that have traded, which is the past. So any price analysis does not have predictive powers; instead, it is an indication, hence “indicator.”

So whatever analysis you use, try to look at several time frames and see if the same applies. For example, if you are trading 5-minute charts, check a 15 minute and a 30-minute chart to see if the same price analysis would apply there as well. Again, you can choose time frames that suit you, but the key is to combine short term with longer-term analysis.

One of the tools that I like to use is ATR: Average True Range. ATR will not help you with price prediction, rather one that could potentially help you with a better choice of targets and risk management. It could potentially help with better price objectives when the market range grows. Also, it could avoid placing tight stops and get hit when the ranges are more extensive.
Maybe this article will help: https://optimusfutures.com/tradeblog/archives/average-true-range-stops-profit-targets-signal-confirmation

Thanks,
Matt Z
Optimus Futures

There is a substantial risk of loss in futures trading. Past performance is not indicative of future results.