Challenges for a New Futures Trader

[Mod-MattZ]

@autobahn

Thank you, I find your webinars extremely helpful with nuggets of information like this. It seem so obvious once pointed out, yet easy to be blind to something so obvious until pointed out.

The challenge in anything that involves psychology is to create awareness of our conscious and always automated (due to DNA) decisions. I believe that this is also part of the challenge in trading.
As individuals, we work opposite to crowd behavior and that is also the challenge of trading.
You are trading against a group, and you must be aware of your actions. If you are not, you will act against your own best interests.

The good news is that the minute you are aware, you change, well, at least I hope that some will change.

Let me use an example: Let’s talk about a common mistake that beginner traders do and it’s adding $$ to losing positions. Now, let’s say you tell a beginner “You will be inclined to add money to losing positions, but don’t. Here is why: It is proven statistically that 87% of the time, most prices will continue against you if you act in such manner” Now you made a fact conscious and that may alter the behavior of the trader. This is of course one example out of many that we need to be aware and my goal through this forum and discussion to bring to light as many perspectives and thoughts as possible.
It’s a world of difference when you know the facts that affect our behavior.

Matt Z
Optimus Futures

[Jeff]

So today was my first day on the Optimus platform. I’m not sure how the platform came about. If it was an off th shelf platform or if Matt had developers make I but I have to say it’s a pretty nice platform. Intuitive, easy to use and set up… 1st trade today was a test in very early trading where I seldom visit. Heavy volume. Market order entered and filled immediately and confirmation posted immediately. At first I wondered where to enter my SL… The I looked at the order on the chart and saw SL and TP on it. I just smiled and said it can’t be that easy… but yes, yes it was that easy… Click and drag and SL and the TP entered… Beautiful. Stopped out for 5 points but it was just a test. No locking up. No ghost orders, just worked perfectly and continued to do so until I turned it ogg. So Kudos to the developers of this program. Well done.

Ok, so , I only trade the NQ and since before I opened my account here I have looked at the NQ charts and noticed certain patterns develop on some days… Not everyday but usually fairly often. Todays chart was a perfect example of what I am talking about and it has the set up both long and short so I decided to screen shot it, make some notes and talk about it this evening.

Ok so first of all that blue line you see is the EMA. This past weekend I realized I really don’t have a concrete trading strategy other than an idea in my head. So in order to put th strategy together I need to see a decent chart of what II am looking for and what my goals would be. Today presented that chart.

So the goal is to get as much of the move as possible from about Point #2 to the blow off top… Then again on the short side from point #4 on down… The long side has about 125-150 points of movement in it and the short side from point#4 had about 60-70 points of movement. Timing perfect entries and exits on a chart like this, for me, would probably never happen… I would be happy with 1/2 of the move in any direction.

So that being said lets look at this chart and the different points I make reference to.
Point#1 is the first 4 bars or 20 minutes of the day. (This is a 5 minute chart) I see this as a danger zone to me. Market is moving very fast in both directions. Great for a quick scalp but not what I am looking for to enter a longer term trade. The one thing I do notice is that almost immediately the EMA line is holding. Although it looks like today that would have been a good entry point. It isn’t always the case at that time of the morning.
I really look for my set up at between 10:15 and 10:45. The early morning turmoil as I like to call it, has settled down and the market is giving us a clearer indication of what it wants to do. (Again, not always but these ar the times that seem to work best for me.)
You can see at point #2 I have an arrow pointing straight up. Thats the bar where I really felt my set up developing this morning. We just had a run up and then things took a breather and a bit of a shakeout even. Last 2 bars the ema pretty much held.
The next bar (The Doji bar) moved back down to the EMA which acted as support again. Thats my buy point… However with the new system I missed the fact buy and got in about 8-10 points later. Still, not.a bad entry and my strategy is confirmed when the EMA held once again anyway… Now I am in the trade and confident that I have it correct. My SL is just below the EMA and my TP is at 31.50. The really nice thing about this set up is that is you get in right at th bounce of the EMA, you can set your stop just below it and it probably won’t ever trigger. As you can see, the entire move up until point #3 the EMA line was never broken.
ok so lets address why I sold at 29… Market was moving up but seemed to be stalling at 27, 28 and pulling back to 24 or so then running up and pulling back… Just didn’t feel like a strong enough push t get us up to my 31.50 level. About 20 seconds before the end of the bar I moved my TP down to 29 and just as right before the next bar started it hit 29 then the next bar came and ran up to 34.50 or so LOL… I just laughed. Not going to care to much about 2 points. I recovered my loss plus posted a profit for the day after covering commissions… It was a good trade. In and out in about 13 minutes I think and was calm the entire time.
I also wanted to note that I had things going on at the house this morning so didn’t want to trade all morning. Thats the only reason I was even looking for an exit at this point.
So as you can see, between where I sold and up to point 3 it is pretty smooth sailing. Little bit of a pause for a couple bars here and there but nothing major going on. Certainly nothing that says sell.

Then we get to point #3. 4 red candles. the one right before those 4 is a Doji. The Doji and the next one have topping tails. After that we have the one that really breaks down and for the first time since the move started, moved below the EMA. Put a piece of paper over everything to the right of that candle. I’m not sure I haven’t sold in this area if I was in the trade. Can anyone offer up an explanation as to why I should still be holding on there? Thats a really hard spot for me…
The next 2 red candles do hold and then the upward move continues right on to the blow off top on higher volume. So, even if I sold at around point #3, by the 2nd green bar it’s obvious that the ema is still holding and the upward trend is still intact. So again, not looking to get the entire mov but definitely has some possibilities for a nice 2nd or even 3rd trade of the day in there.

Then we get to the afternoon doldrums until we get to point#4. We get the 1st red bar breaking the EMA and the 2nd one confirming the move down. That total move is 60-70 points so there is definitely a trade to be had in there. Also notice that once the EMA was broken it never traded back above it for the entire move. Thats why this chart was so perfect to post and talk about. The set up are not always this easy to spot but today was just a picture perfect day on the charts. Wish I didn’t have so many other things going on. Unfortunately trading is not something you can just do in the background. It really requires my full attention. Maybe someone out there has written a program to take advantage of this kind of action.

Anyway, posting this for discussion. If my line of thinking is completely wrong please let me know. I do see these set up quite often. Many times they run 50-300 points. These are the types of set ups I really want to take advantage of in the future.

[Mod-MattZ]

@Jeff

If it was an off th shelf platform or if Matt had developers make I but I have to say it’s a pretty nice platform. Intuitive, easy to use and set up…

Glad Optimus Flow is working for you! Thank you for the lengthy posts, I appreciate the effort.

Matt Z
Optimus Futures

[Ben_M]

@Jeff I think your way of thinking is exactly in line and very methodical. Nicely done. Whatever the trade is the most important aspect is identifying why you made it, what you were feeling and doing at the time, and why you exited.

I wanted to see how the order flow looked during that time so here is a snapshot of the open:

I cannot read the order flow on these thinner markets, but it’s still very relevant. We can see the sellers trying to sell the lows without being able to push price lower, it caught them on the short side and immediately turned up with the buyers dominating.

Do you look at anything when entering these trades to validate order flow?

There is a substantial risk of loss in futures trading. Past performance is not indicative of future results. The figures here represent an opinion. The placement of contingent orders by you or broker, or trading advisor, such as a “stop-loss” or “stop-limit” order, will not necessarily limit your losses to the intended amounts, since market conditions may make it impossible to execute such orders. Please conduct your own due diligence if Futures are an appropriate instrument for you.

[Jeff]

Thanks for commenting Ben… It’s nice to know that my thought process is at least going in the right direction.

I don’t currently look at any order flow tools. I did like your webinar the other day and have read through your post on it. I think there’s a lot I need to learn about that before I try to implement it. I have to admit I smiled when you came in and posted your info here. I was thinking I would love to see a breakdown of how things looked in the order flow stuff, as I was taking the trad. I can definitely see where there would be a small edge to at least get in just at the right time. If done properly I could also see where I could tighten up my stop as well.

The more I learn the more I realize I still have a long way to go before I become a trader. This month has been a huge month for me. Although profitable I am not referring to the gains in my account. More in terms of getting my head right in the journey to become a trader. Really thinking about what I am doing wrong, right and getting it all down on paper so that I can develop the good habits I need and get rid of the bad ones.
I will start looking at the order flow stuff as time permits… What I would really like to see is how the order flow stuff works in relation to the EMA line I use now. So for instance, if there is a pullback to the EMA line but it holds, what exactly is going on there at that moment in time on order flow.

[Mod-MattZ]

@Jeff

The more I learn the more I realize I still have a long way to go before I become a trader. This month has been a huge month for me. Although profitable I am not referring to the gains in my account. More in terms of getting my head right in the journey to become a trader. Really thinking about what I am doing wrong, right, and getting it all down on paper so that I can develop the good habits I need and get rid of the bad ones.

Proud of you! Your thought process is in the right direction, and I am happy you came here so we can point you in the right direction. The idea is right, not to focus on the $$ but the process, be conscious of your decision-making and risk management. Again, I am glad that you are not arrogant and thinking you “solved” trading because you had a good week. You recognize the challenge, and you won it as a trader. Keep focusing as you have so far.

Now, this is important as well: Once you have the process to the point that you feel comfortable, don’t make the second mistake that traders make. They think if they add more elements to their trades, in other words, more method. It does nothing to improve or sometimes worse, takes them backward.

Recognize and ask: “Is this going to help me become a better decision maker? In another method will help me confirm my trades better?”

Do you see where I am going with this?! Simplicity is key. There is a significant demand for Profile Trading and Volume Analysis, but it is also microdata, not for everyone. So, all I am saying is master what you do now and slowly see other things.

@Ben will keep writing and breaking down the elements necessary to understand the market profile and volume analysis. Once you learn the method’s core fundaments, you can decide whether it will help or not. I am sure others will contribute over time to the Market Profile Forum, where you and others can show the elements that help them analyze volume analysis.

Matt Z

Optimus Futures

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

[Ben_M]

@Mod-MattZ

Do you see where I am going with this?! Simplicity is key.

@Mod-MattZ This falls perfectly in line not getting your charts to clunky, but more importantly, mastering one thing at a time. If you get good at a lot of stuff that’s awesome, but the one time you need something to use from that toolbelt, you may not have it. Then that leads into “I knew so much about different methods, why did I miss this?”

That’s a hard one to take because it feels like you’re defeated on the loss, then also invalidating all your hard work studying.

A common question that comes up here is, “don’t I need to be super smart and know all my chart to be a good trader?” Maybe, if that’s what you really need. But myself, I was forced to learn JUST watching order flow.

When we got a feel for that we introduced charts, very basic levels and trends.

Then came historical data to reflect on and how to formulate that alongside our plan for the day.

It was very simple to learn, executing and meta-awareness was another story. More difficult to obtain objectivity and removing emotional reactions to winning or losing trades, bad days altogether, etc.

I’m going to @ a few people who have, thankfully, shared some of their strategy and start a thread to go over specific problems traders are struggling with. I’ll add the link when it’s complete!

[Link Coming]

There is a substantial risk of loss in futures trading. Past performance is not indicative of future results. The figures here represent an opinion. The placement of contingent orders by you or broker, or trading advisor, such as a “stop-loss” or “stop-limit” order, will not necessarily limit your losses to the intended amounts, since market conditions may make it impossible to execute such orders. Please conduct your own due diligence if Futures are an appropriate instrument for you.

[Ben_M]

@Jeff thanks for sharing that your “progress” has been a lot of personal reflection, observing your mentality in trading, etc.

It is really shocking how those things play such a big part in trading yet many people are not aware of it. Matt has set the stage very well in terms of acknowledging the mental process with trading while combining that with systems and procedures.

Trading, for me, has and always will be a journey. Not a journey of financial freedom, but mental freedom and reflection. Hopefully making me a better human and appreciating what we have in this life.

[Jeff]

Thank you for the kind words Matt

@Mod-MattZ

Proud of you! Your thought process is in the right direction, and I am happy you came here so we can point you in the right direction. The idea is right, not to focus on the $$ but the process, be conscious of your decision-making and risk management. Again, I am glad that you are not arrogant and thinking you “solved” trading because you had a good week. You recognize the challenge, and you won it as a trader. Keep focusing as you have so far

Breaking down my trades, wins and losses is really helping a lot. One thing that clicked for me over the last couple days is my entry points on trades. When I enter at the right point, put my stop and take profit in place, I just sit back relax and wait for it to happen. Today I made 2 perfect trades IMO… I bought at the right time, set my stop at a 10 point loss and my TP at a 20 point gain. It’s a great feeling when the market moves as you expected based on chart formations and action. It hits your TP and you book your profit. The both trades executed perfectly and I hit TP on the first… The 2nd I set tp at 21 points figuring I would cover the commission on that trade and book a full 20 points… LOL. I bought at the right time, set my SL and the market moved up 20 .25 points. LOL. Missed my TP by .75 points and went back down and stopped me out. I almost closed the position at the top anyway but it was almost at the end of the 5 minute candle so I thought it would move up to tp on the next one… It didn’t. Going for that 1 extra point cost me 30. :). 20 in TP and the 10 point loss.
Anyway, I still felt like both were good trades. I made some other trades as well. 9 in all. 6 wins 3 losses. 1 of the losses was the 1 above. Another one I was up 15 points at the time and just had a feeling it wasn’t going to make it to TP. The 3rd loss was right at the end of the day. 10 minutes before the close where I always do terrible. I had already booked a nice profit for the day. up 9% on my little micro account that I have left. That inner voice said close out now, take your profit, tomorrow is another day. Not only did I not listen I broke all the rules on the last trade and booked a 1 point profit for the day instead of 36.

@Mod-MattZ

Now, this is important as well: Once you have the process to the point that you feel comfortable, don’t make the second mistake that traders make. They think if they add more elements to their trades, in other words, more method. It does nothing to improve or sometimes worse, takes them backward.

Recognize and ask: “Is this going to help me become a better decision maker? In another method will help me confirm my trades better?”

Do you see where I am going with this?! Simplicity is key. There is a significant demand for Profile Trading and Volume Analysis, but it is also microdata, not for everyone. So, all I am saying is master what you do now and slowly see other things.

I know exactly where you are going with this and understand completely. Thats why I am asking the questions of Ben that I do. What I really need to understand before I dive into the flow stuff is , well, can I make better decisions with it. I don’t trade everyday and have decided on days that I don’t trade , that I will spend some time trying to learn the order flow stuff. I do feel like the way I look at the market is successful for me and the way I trade. This month I have traded 9 days so far. Booked profits on 8 of them and took one loss of 8 dollars on a day when I made 1 trade. That brings me to the biggest issue I have. Not putting my stop loss in place.
I can’t really say why I put it in place sometimes and others I don’t. What I have noticed though is that when I buy at the right time, which for me is close to the EMA or SMA, that I can put my stop in place and won’t get stopped out unless I am completely wrong on the trade. When I buy into a candle that is already extended above the EMA is when I don’t use a SL. I figure I will just ride it down to the EMA and it will bounce. Today I did that but did use a SL set a couple points below the EMA… Of course it went down, stopped me out and turned around.

Bottom ine is I think I have my basic strategy which I am working on getting on paper. I just need to work on my discipline, buy at the right times and use my SL.

I know I share a lot of information and for most experienced traders it’s probably not helpful. Hopefully the people that come in with 5k or less to start accounts can learn from this. I know it’s been incredibly helpful to me to write about it. Eventually I will just keep a private journal but for now I can share my newbie experience with others. :).

[Jeff]

@Ben_M

It is really shocking how those things play such a big part in trading yet many people are not aware of it. Matt has set the stage very well in terms of acknowledging the mental process with trading while combining that with systems and procedures.

Trading, for me, has and always will be a journey. Not a journey of financial freedom, but mental freedom and reflection. Hopefully making me a better human and appreciating what we have in this life.

The mental aspect is similar in poker. I know when I am running well and my mental state is way different than when I take bad beat after bad beat. When I go on tilt, or fell myself getting to that point I just walk away. No one can make good decisions when on tilt.
I think we are on similar journeys.

[Jeff]

I really wanted to skip this months analysis. LOL. Instead I decided to break it down into 2 parts. What I did right and what I did wrong.
So 1st lets look at what went right this month…
1)We have a profit for the 1st time since I started.
2) I now understand the process much much better and am building confidence with lots of good trades.
3)When I stick to the rules I do very well. Better than 70% win rates in trades and this month was over 90% of winning days. Until the last 3.
4) I am getting much better at picking entry points.
5) I did try opening up my trading range oil each trade. Setting my stop lower than normal. It didn’t work but I put this in the positive category because I am willing to try new things and test then. As a new trader I think I have to test new ideas and see what works and what doesn’t. Trading the NQ there is a decent amount of volatility and as such I get stopped out more than I would like. However my conclusion is that I need to just take my small losses and when the trade turns favorable (If it does) I can get back in.
6) This goes along with 4 and 5. Picking the right entry points allows me to keep my stops tight and not get triggered as often.
7) Going forward I will be doing a different spreadsheet. One based on my strategies. I’ll break it down by strategy. Wins and losses and point gains and losses for each strategy. I’ll also break it down by long and short trades.
8) Started using Optimus flow this month. The new platform worked flawlessly even during the busiest of times which tells me the last platform did indeed have some glitches in it. I now make trades with confidence knowing I don’t have to worry about the platform.

Ok so lets look at part one of this months spreadsheet.

Up until the 26th I had good steady growth. Trades were going very well with many trades being in the 20-30 point range.
Started the month out with 5 winning trades in a row for a total of about 75 points.
March 9th we then had our first losing trade for 6 dollars.
On the 11th I did open up my stop to 15 points instead of my normal 5 or 10.
On the 22nd I was just practicing with the new platform. Put a stop in place just to see how it reacted when it hit.
March 23rd and 24th had 8 winning trades for 125 points total. The 2 losers really hurt and is where I decided opening up the stop loss was not going to work.
The next day I had 4 winning and 4 losing trades but with the tighter stop losses back in place it limited my losses.
The 26th was my bestriding day in 2 months. 4 winning trades and no losers really boosted my account by 12%.
Overall I was very pleased with my progress for the month. Picking better entries and really thinking about each trade. Not just trading random bars trying to scalp 10 points or so.

Ok, next up the last 3 days of the month and what I did wrong.

[Jeff]

Now we can look at the rest of the story. (To steal a quote from the late Paul Harvey).
The last 3 trading days of the month. There were so many trades I didn’t even bother trying to reconcile them at the end of the day.

1. I broke the rules and traded the last 10 minutes of the day… Big mistake
2. I didn’t trade set ups. I tried scalping.
3. 1 mistake ended up leading to multiple others. For instance on the 29th I misclicked. It was a small mistake and I got out quickly but of course I wanted to make that money back… 20 or so trades later I just gave up. Overall a small loss for the day and Tomorrow is another day…
   My mental state at the time was that I was looking at the spreadsheet everyday and for the month was up about 90% of my trading days and didn’t want to add a loss and blow my percentages LOL.
4. The 30th was another mistake on my part. I had a short position. Had been in it for 2 candles already but really felt like it was going to go my way… On the 3rd candle I was getting nervous and just wanted out of the trade so when it started going my way I closed the position with a smaller profit but as I did it really picked up steam to the downside and hit my TP that I had forgotten to delete. By the time I caught it I was down pretty good (Yea should have left the trade in and just gotten rid of the TP.) Anyway, wanting to get that money back I entered a whole bunch of trades in the last 10 minutes. Again I ended the day with a small loss but frustrated about the mistake. If I had just deleted the TP I would have had another winning day…
5. And now the final day of the month… At 2 pm I was finished. Closed out of the computer. Best day in 2 months with a 122 dollar profit and account was at 998. 2 dollars short of 1k but was up 59% for the month and feeling great. Finally felt like all the hard work and study was paying off and account was on the road to recovery.
   And then 3:30 came and after looking at the spreadsheet I was thinking just one more little trade to get me into the 1k bracket. Needless to say, everything went wrong. 1st trade went against me and instead of letting my SL trigger I kept moving it lower. The lower I moved it the lower the market price came down to get me. I really felt like I was being chased and someone really wanted to grab my SL bad. I lowered it 5 points, then 5 more then 5 more and finally the loss was to much so I let it trigger. Of course as soon as it triggered it turned around and ran up huge and would have given me a nice profit if I had just not had a SL in place at all.
   I don’t go on tilt easily. Normally I can get a bad beat or have my stop loss trigger. Look at the trade and see if my timing was off or it was a bad trade. If the trade still looks good I jump right back in. I just don’t get ruffled by the small losses… That trade did put me on tilt though. The uncanny way the market followed me down and then turned around to run hard in what would have been my favor… For the next few minutes I was the greyhound dog chasing the rabbit around the track with the only difference being this rabbit was moving back and forth. I was buying and selling and reversing like a crazy.
   When all was said and done I had given up my profit for the day plus another 50 points plus 50 round trip trades. (Your welcome Matt) :).
   
   
   
   I had really done my homework that day too. marked up the resistance levels that then became support and traded really well the entire day. I turned the computer off at the right time as well and should have went and found something else to do.
   I blew almost my entire months work. Very frustrated with myself and it took me awhile to shake that one off.

Now that I have shaken it off. I know the mistakes I made. I know when I shouldn’t be trading. I know when I break the rules I lose. Discipline.
On a positive note I have gained confidence with all the positive trades I made. Going into April I do feel like I can do well and if I stick to the rules I can really limit those down days. Up until the 31st I was really proud of the fact that my daily losses were very small for the month compared to previous months.

I’m not blaming the platform for the day when my TP didn’t get deleted and I took a loss when I exited early. I do think it would be better if it were designed so that the TP and SL were automatically deleted when you exit a trade early. For now though I have to make it a rule to delete the TP and SL before I exit a trade early.
Thats the monthly update for March and thats the rest of the story. :).
The rest of the weekend I will modify my strategy and rules and make a new spreadsheet to focus more on the process next month instead of the actual P&L.
Hope everyone is enjoying a the weekend.

[Jeff]

Here’s the new spreadsheet I’ll be using going forward.

There is actually 1 more row above the strategy row defining what each strategy is. I didn’t include that because I figured everyone has their own patterns or strategies they use anyway so doesn’t matter what mine are. If people really want to see it I will include it.

The space in between each strategy is for a L or S for long or short. For days that I do both there will simply be 2 rows. One row for longs and 1 for shorts.

The space under each strategy will be for how many points won or lost. The losses will be in parentheses.

I’m hoping by utilizing this spreadsheet that I can breakdown my wins and losses more and see whats really working best for me. After a couple months I may decide to refine this and only use 3 or 4 things that really have a higher win rate.

[Mod-MattZ]

@Jeff you are becoming more self-aware of your thought process, the mechanics of your execution, and the best way to track it. Congrats on the process! Keep posting and being accountable.

Matt

[Jeff]

Thats Matt. I feel like posting here is keeping me accountable. :).

This past week was different as far as trading goes. Volume was very low it seems and the patterns and set up I use were few and far between. On Monday I didn’t start until later in the day and missed some nice set up in the morning. For most of the week though the lack of patterns and set ups led to to try hard at scalping.
Had a minimal profit for the week. I did use stop losses on every trade though. Got stopped out 4 out of 6 times on Friday. All 4 of those times I was stopped out it was only by less than 3 points. All 4 of those times, if I didn’t have a stop loss, would have gone on to reverse and give me a profit. I set my stop at 10 point below my buy in. My TP is 15-20 points above.
Looking back on the week I feel like with the low volume I probably should have lowered the stop low to 5 points and the TP to 10points. I think it’s one of those things where I have to adjust to the market. As a newbie it’s a bit harder to adjust. In the 4 cases above I was actually right in that the market was going higher, just my timing was off or my stops were to tight.

I am really enjoying this learning process. This week the market showed me a different version of itself. Using stops keeps me in the game. Looking back on the trades I got stopped out on, I traded it right. No regrets and a small profit for the week is always better than a loss. :).