Strategies/Methods for a New Futures Trader

Hello,
I am very new to trading. I opened an account with an online broker and got into investing earlier this year like many others. I initially just purchased stocks but became very interested in futures as I learned more about them. So, I started trading some through my online broker. Looking for a podcast I stumbled upon Optimus and was very happy to discover there were other brokers out there that has lower fees as well as to see the CEO be so interested in his customer’s success.

I initially had some success through pure, dumb luck and jumping on the large swings at the beginning and end of trading sessions and was up quite a bit. Once I started trading through Optimus Flow I really tanked though. Not the platform’s fault. I was overthinking it and looking back I was trading on too small of a time frame. I was missing the bigger picture. At some point last week I got down to a point where I haven’t been able to trade through Optimus due to low available margin.

Sorry to ramble but I wanted to provide a little bit of history to my experience level and where I am now. My main questions are these.

  1. I keep hearing about strategies/methods but I guess I am struggling to find them clearing defined? I have dabble with the basic trend posted on the blog the other day and had more success today after expanding to look at the hourly time frames. What other strategies or methods are good for a novice to try out?

  2. I really struggle with entry and exits. I know this is probably a pretty broad statement that applies to many traders but are there any general rules people like to follow?

I apologize if I am asking repetitive questions but I have looked through the forum and haven’t necessarily seen answer to the specific questions.

Thanks,
Wade

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Each trader has to develop his or her own method, and that is the challenge and the benefit of being a self-directed trader. You can develop entries and exits that sit ok with your risk tolerance.
I would suggest starting with the most basic:

  • Draw support and resistance
  • Choose three-time frames to give you a perspective of what is the trend, but trade off only one time frame only
  • Use moving average or other indicators to keep your objective (They may be lagging, but they will instill a discipline to look at a reference and not be impulsive)

There are no magic strategies that a mass of traders could follow and become successful. You will learn over time

If your struggle is developing/experimenting with a method for entries and exits, I suggest starting (as mentioned above) with simple support and resistance lines.
When making your plan, start by calculating reward and risk levels prior to entering a trade, then use those levels as a blueprint. Risk and reward behind your trades is very important as most trades may not go your way, so the winner must overcome losers.

Your biggest obstacle as a trader would be to “tame” yourself, controlling your impulses, and understanding there are universal rules that would help everyone.

Thank you,
Matt Z
Optimus Futures

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

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Thanks so much Matt. I really appreciate all your input. I look forward to learning as much as possible from this forum and experiencing the markets.

The best advice I was ever given is to develop a method in a three step approach.

  1. This is where you see a reason to enter when conditions are right. (Trigger)
  2. Where you enter. This follows the right price action (setup)
  3. Decide on exit. This is where you exit the position whether a loss or profit. Exits are where you decide you maxed out the setup or where the setup failed.
    This simple approach helps me focus and avoid the emotional trades.

Thanks for the reply.

I agree. I guess I’m looking for some ideas for methods to try. The internet is a wealth of information, both good and bad. And a lot of it doesn’t apply to me in ways. There is lots of scalping for 1 point on the E-mini S&P which is great unless you are starting with a pretty small pile of cash.

I am doing lots of hunting to find some entry points. That has been a struggle to this point. I played around on the simulator and hit that big jump this morning by playing the stochastic and RSI following the trend. Too bad it was fake money. But good practice for me.

I am working on exits too but at this point I am having a hard time balancing the risk with giving the trade enough breathing room to perform. I think it will come with time, but time is money both literally and figuratively.

I am looking for small budget strategies and methods to try, or at least some very rudimentary fundamental rules to follow while I develop what really works for me.

Thanks very much.
Wade

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The internet is full of educators and paper trading promoters of “scalping” and that is mostly geared towards those who do not understand the Bid/Ask spread and risk to reward ratios. They think a tick here and tick there fills the basket of trades, it does not. Try to find reasonable point values where risk and reward is asymmetrical.

There are no small budget trading, but you can find low risk probability strategies. This comes with time but it takes many real time trades to build an arsenals of trades that you can examine and decide which trades you were able to maximize.

Nothing wrong with fake trades, but in real life just remember you will feel different and execution is very frustrating at times. On fake accounts you get filled constantly. I avoid fake account and test things on Micros and sometimes just trade on that contract.

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I have noticed that already and I can see scalping as a viable way to make some profit if you can trade certain contracts. I am trading the micros now. I have dabbled with some of the forex contracts but not risking much there.

What is a good resource for learning more about the Bid/Ask spread?

I can definitely tell the difference in the fake and the real trades. I am just trying to take it all in and learn as much as I can. I am fortunate to be able to work from home for the most part and I usually have the charts up to see what is going on.

Thanks very much.

The bid/ask spread is the difference between the buy and sell price.

For example, if you can buy at 4230.25 and sell at 4230.00, then that is a 1 tick spread. The market needs to move 1 tick before you can exit break-even (less commissions). If the bid/ask spread was larger, for example buy at 4230.75 and sell at 4230.00, you would need the market to move 4 ticks to break-even.

With futures, everybody trades on a central exchange and the spread is set by the market participants. Everybody sees and trades the same spread. On assets like Forex or CFDs, the spread is set by the broker, and different brokers can offer different spreads.

The smaller your profit targets, the more significant the spread becomes. If you want to capture 10 tick moves, then a 2 tick spread represents 20% of your profit. If you want to capture a 100 tick move, then it only represents 2%.

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The thing about the market, as we all know, is that it doesn’t distinguish between novice, advanced beginner, competent, proficient, and expert traders. It’s the same for everyone and the learning curve is steep since so many pieces of information have to be simultaneously taken in to make good decisions on a consistent basis.

The best way to get better at making these decisions is to have some theoretical understanding of how markets operate, participant behavior, trade management techniques, etc. However, it is far more important that the overwhelming majority of time is spent actually practicing making decisions in real-time. Trading is decision making, it is vital to practice doing that. A major advantage to learning by doing is that it builds active recall and spaced repetition into learning since many ideas have to be tied together into a more fluid, applicable understanding rather than learning facts in a more disjointed manner.

I know opinions on paper trading are mixed, but it was instrumental in my development as a trader and it is still useful when I’m trying to test out new ideas and potential improvements. For someone who treats it with diligence it is extremely valuable since it provides a relatively inexpensive way to learn. Beginners don’t have any concept of what they don’t know (unconscious incompetence) and there’s no sense in wasting money in a live environment before any skills are actually developed. I’ve written before about how I break down the skills of trading into three major categories - 1. market analysis 2. trade management, and 3. mental management - and the first two can be learned to a large extent in a realistic simulator. Pay for a software that puts you into a cue position so that you’re not filled just by the market touching the price (Sierra Chart, CQG, and I believe Rithmic all do this, TT may as well - @Mod-MattZ could probably get you set up with something).

So what do you do once you have a suitable platform? I largely used the scientific method to test strategies in real-time, testing innumerable hypotheses, using a variety of analytical tools - keeping what helps me and discarding what didn’t, figuring out what tends to work and what tends not to through direct experience, etc. The more time I spent doing that the clearer things like entries and exits became because I developed a stronger understanding of market participant behavior and how to trade using market-generated information. I learned in a very organic manner, there were plenty of set backs along the way, things that initially seemed promising wound up being dead ends and other things became very useful once tweaks were made. With persistence, my process became more refined over time and my skill set improved considerably. Through learning by doing, I was much more focused on what actually tends to work rather than getting too caught up in second-hand knowledge.

Let your questions and curiosity guide the learning process. Is there something in your current trading that can be improved? How can you improve it? What tools and skills would improve it? These sorts of questions will lead to skill development from a standpoint of what is practically useful. Pinpoint weaknesses and work on them.

By focusing more on understanding market behaviors and how to execute on those behaviors (aggressive vs passive entry, scaling, etc.), things like entries and exits become more clear. This is gained through considerable time spent trading, studying, and thinking, there’s no way around that. You may be able to find memorized setups but I don’t think that’s nearly as robust as having an understanding of what’s happening in real-time and making trading decisions based on the overall context. Trading based on understanding also provides substantially more opportunities.

Learn about auction market theory, build off of core principles like how the consumption of liquidity is what causes price to tick up and down, inter-market relationships, and so on. Learn how to interpret tools like price action, order flow, Market Profile, etc. I’ve written about some of the traders who have influenced my thinking in other posts if you need more ideas. Discretionary trading is built largely on deeply understanding fundamental principles rather than simple memorization. I know you’re asking for a more concrete answer than what I’ve written, but looking for a simple strategy to copy is not the path to becoming a true discretionary trader.

It is useful to have a consistent method to decision making. I basically ask myself questions throughout the day. Things like: Is it easier to make money as a bull or as a bear in my core instrument? Is the market as a whole more risk on or risk off or mixed risk? How one-sided or two-sided is the activity? Are traders behaving aggressively at price extremes or are they waiting for pullbacks? These types of questions act as filters and help me get to a decision on how to structure my trades based on what’s happening in the market. Keep in mind also that it is useful to view the market from both the bullish and bearish perspective. Over time, asking these types of questions becomes much more automatic. I’m looking to make decisions based on objective information as much as possible, but there will always be some element of subjectivity in interpretation.

Anyway, this is a big picture framework of how I approach discretionary trading, it took a considerable amount of effort to get good at applying these ideas in real-time but it has been very worthwhile. This is the perspective that emerged from my path, enjoy your own journey and be pragmatic in your approach. Good luck!

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Looking for asymmetric risk/reward opportunities is a sound approach. So too is scalping in the right environment and for a trader who is comfortable doing it. Yes, tick-to-commission ratio does play a more significant role when the reward is smaller. However, it can be a reasonable approach if a trader has a sufficient probability of success to justify the risk relative to the size of the reward. In some market conditions, scalping is actually a better approach than attempting to hold for a larger reward (for example, a trading range that is tight to the point of needing to use limit orders to fade the extremes - in such conditions the market is doing a very good job of facilitating two-way trade and so contracts are changing hands continuously in a small range and there isn’t much directional conviction, otherwise the market would be moving more directionally). If a trader is willing to wait to only take asymmetric risk/reward trades, that’s a reasonable approach. If a trader wants more opportunities throughout the day, then it helps to have additional tools in the bag. It comes down to what the market is doing along with an individual’s trade-type preference and skill. There should be a methodology behind what is being done regardless of how a trader chooses to structure trades though.

John Grady and Peter Davies both explain the concepts well along with practical matters like the impact of market and limit orders on price movement, the relationship between liquidity and volatility, and so on. If you want a deep dive into market microstructure read Trading and Exchanges: Market Microstructure for Practitioners by Larry Harris. Interpreting order flow is primarily learned through real-time observation, experimentation, and experience though.

As a side note, I’m likely not going to be around on the forum for some time again and don’t want to just disappear without saying anything lol. I’ve enjoyed spending time talking with all of you, trying to articulate ideas, and I really want to thank you guys for creating an environment where we learn from one another and challenge each others’ thinking. I’m going to be splitting my time between continuing to actively trade and also pursuing another long-term goal of becoming a physician, so time will be stretched too thin to also be able to continue posting here since school will be starting soon. I love trading, I’ve been fortunate with it and have learned a lot about the craft itself as well as life in general. It has shaped me into the person and thinker I am now, and I will continue doing it and improving at it for the rest of my life. As my understanding and skill set in trading has progressed, it’s opened up time to pursue some additional goals and so I decided it’s a good time to go for it now. Long term I’m planning to split my time between continuing to trade for a living and working in medicine. Happy trading everyone! We’ll talk again!

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Very good insight and information. I really appreciate the thought that went into your post. I am going to digest it all and keep studying and learning more about the market itself and looking for ways to capitalize on it.

Thanks very much/

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