I'm very pleased with my decision to completely change my trading strategy. At this point I have pretty much done it all, traded every type of stock large-small, I've bought/sold options, traded forex, and now I finally found what I feel may be my calling, S&P 500 futures. I'm trading the /es.
You see, in my trading career, I have made some huge bold calls. I have had huge explosions, and also huge implosions of my account. It took me a long time to more or less figure out the game and how to play it. The thing about the market is there are any number of ways to extract money from it. Everyone has their own approach which is great, but as a novice coming into the arena, learning the ropes it makes it very difficult to know which strategy is right for them. Unfortunately, what happens is more likely than immediately finding out what works great, you discover what works horribly.
I, like a lot of people came into this game with visions of fast, easy riches. Chasing the dream, and seeing a constant barrage of BS from the options trading community, I cut my teeth on options. Huge mistake, the leverage options provide is staggering. If you get a trade right, the gains can be enormous. But options have an inherent design flaw. Just like the leveraged etfs, these instruments are made of poison, decay, rot. Most options are not liquid. You will most likely not be able to get out when you want and the spread is a mile wide so you can also forget about stops. Options are deadly, imho avoid trading them at all costs. Every once in a while you will see someone who made absurd gains, oftentimes over 100% I've seen people make 1000% gains on options. But in the long run this is a numbers game and by far the majority of options contracts will expire worthless.
I also had a stint where I got sucked into chasing penny stocks. There are a bunch of chat rooms out there where their whole game is they go around and manipulate the hell out of illiquid little penny stocks. It works well for the few people who are lucky to buy before the room stampedes and sell into their buying frenzy, but for the majority of the room, they can forget about it. Penny stocks are extremely illiquid and if they are not in play, if you are planning on swing trading them, prepare yourself for a long long stint of dead money.
Trading as a career, you don't need to hit home-runs every day. It's not about finding the next great stock that's poised to triple or shorting the worst trash company in the market down into oblivion. All you need is to find something that is always moving, something you can get in and out of, something that is relatively predictable (individual stocks are entirely unpredictable, becoming increasingly random and volatile the smaller a company is.)
Swing trading is tough, mostly because of the random overnight gaps. The problem with beta is when it goes against you. People like high beta stocks because that is how you make a ton of money riding a big move. This is why people constantly get sucked into penny stocks that move 5-10-50% a day, but what many do not realize is that often, trades will go against you and the higher the beta, the less predictable the movement and the more it can hurt you if the trade goes awry.
Honestly, these days I fear high beta, I fear trading individual stocks, I fear holding for extended periods of time and hoping for the best. The only thing I'm concerned about is mitigating my downside risk. I recognize that I cannot predict the future and do not know for sure how anything will move. Sure I have my theories, my biases, but being too stubborn and too biased has destroyed my account far too many times.
So now I keep my beta low, I keep my diversification high. The S&P is comprised of everything (technically 500 of Americas largest institutions) The thing is that 9/10 times any given security will move in sympathy of the broader market anyways. Individual stocks can basically be considered leverage for the indices. Stocks all do their own thing, but that is exactly what makes them more unpredictable.
Since I started scalping e-mini futures, I find it easier to quickly hop in and out of trades with much less fear of 'missing the move' or 'getting shaken out before the move' I am not attached to my futures in anyway, certainly not like I unconsciously find myself become attached to the stocks I ride for days, weeks, months at a time. It's important to have no attachment, no emotion. In fact I would say indifference is imperative to long term trading success. Futures are highly leveraged instruments just like options so the SPX doesn't have to move very much to produce good profits, you can ramp up your risk as high as you want by adjusting how many contracts you are holding at any given time. However, futures have the enormous advantage over options by being highly liquid with tight spreads so you actually can dance in and out of the market whenever you want! Unlike swing trading, you can actually use tight stops and not worry so much about getting shaken out. Swing trading with all the crazy random gaps, it's tougher to want to put in stops. Swing trading and the stress of trying to anticipate what tomorrow brings is just more stress than it's worth imo. Being up one day, down the next every other day, your profits completely out of your hands is just psychologically difficult to endure. In day-trading you make that day what you could physically pull out of the market. Don't get me wrong, it can be very stressful during the day, but it makes it easier to sleep at night when you don't have heaps of overnight risk on the table. Perhaps the best part of trading futures, they are open 24hrs a day Sunday-Friday. They can certainly ramp when liquidity is low in the middle of the night but there are no ruinous gaps to wake up to in the morning. There are even tax benefits to trading futures if you start making so much $ that becomes a concern.
Anyways I am very pleased with the direction I'm taking my trading career. I feel like I have learned a lot about this business and the markets in general. My new focus is on mitigating downside risk and hopefully if all goes well I'll be at this business a long time building up my account a little more every day!
You see, in my trading career, I have made some huge bold calls. I have had huge explosions, and also huge implosions of my account. It took me a long time to more or less figure out the game and how to play it. The thing about the market is there are any number of ways to extract money from it. Everyone has their own approach which is great, but as a novice coming into the arena, learning the ropes it makes it very difficult to know which strategy is right for them. Unfortunately, what happens is more likely than immediately finding out what works great, you discover what works horribly.
I, like a lot of people came into this game with visions of fast, easy riches. Chasing the dream, and seeing a constant barrage of BS from the options trading community, I cut my teeth on options. Huge mistake, the leverage options provide is staggering. If you get a trade right, the gains can be enormous. But options have an inherent design flaw. Just like the leveraged etfs, these instruments are made of poison, decay, rot. Most options are not liquid. You will most likely not be able to get out when you want and the spread is a mile wide so you can also forget about stops. Options are deadly, imho avoid trading them at all costs. Every once in a while you will see someone who made absurd gains, oftentimes over 100% I've seen people make 1000% gains on options. But in the long run this is a numbers game and by far the majority of options contracts will expire worthless.
I also had a stint where I got sucked into chasing penny stocks. There are a bunch of chat rooms out there where their whole game is they go around and manipulate the hell out of illiquid little penny stocks. It works well for the few people who are lucky to buy before the room stampedes and sell into their buying frenzy, but for the majority of the room, they can forget about it. Penny stocks are extremely illiquid and if they are not in play, if you are planning on swing trading them, prepare yourself for a long long stint of dead money.
Trading as a career, you don't need to hit home-runs every day. It's not about finding the next great stock that's poised to triple or shorting the worst trash company in the market down into oblivion. All you need is to find something that is always moving, something you can get in and out of, something that is relatively predictable (individual stocks are entirely unpredictable, becoming increasingly random and volatile the smaller a company is.)
Swing trading is tough, mostly because of the random overnight gaps. The problem with beta is when it goes against you. People like high beta stocks because that is how you make a ton of money riding a big move. This is why people constantly get sucked into penny stocks that move 5-10-50% a day, but what many do not realize is that often, trades will go against you and the higher the beta, the less predictable the movement and the more it can hurt you if the trade goes awry.
Honestly, these days I fear high beta, I fear trading individual stocks, I fear holding for extended periods of time and hoping for the best. The only thing I'm concerned about is mitigating my downside risk. I recognize that I cannot predict the future and do not know for sure how anything will move. Sure I have my theories, my biases, but being too stubborn and too biased has destroyed my account far too many times.
So now I keep my beta low, I keep my diversification high. The S&P is comprised of everything (technically 500 of Americas largest institutions) The thing is that 9/10 times any given security will move in sympathy of the broader market anyways. Individual stocks can basically be considered leverage for the indices. Stocks all do their own thing, but that is exactly what makes them more unpredictable.
Since I started scalping e-mini futures, I find it easier to quickly hop in and out of trades with much less fear of 'missing the move' or 'getting shaken out before the move' I am not attached to my futures in anyway, certainly not like I unconsciously find myself become attached to the stocks I ride for days, weeks, months at a time. It's important to have no attachment, no emotion. In fact I would say indifference is imperative to long term trading success. Futures are highly leveraged instruments just like options so the SPX doesn't have to move very much to produce good profits, you can ramp up your risk as high as you want by adjusting how many contracts you are holding at any given time. However, futures have the enormous advantage over options by being highly liquid with tight spreads so you actually can dance in and out of the market whenever you want! Unlike swing trading, you can actually use tight stops and not worry so much about getting shaken out. Swing trading with all the crazy random gaps, it's tougher to want to put in stops. Swing trading and the stress of trying to anticipate what tomorrow brings is just more stress than it's worth imo. Being up one day, down the next every other day, your profits completely out of your hands is just psychologically difficult to endure. In day-trading you make that day what you could physically pull out of the market. Don't get me wrong, it can be very stressful during the day, but it makes it easier to sleep at night when you don't have heaps of overnight risk on the table. Perhaps the best part of trading futures, they are open 24hrs a day Sunday-Friday. They can certainly ramp when liquidity is low in the middle of the night but there are no ruinous gaps to wake up to in the morning. There are even tax benefits to trading futures if you start making so much $ that becomes a concern.
Anyways I am very pleased with the direction I'm taking my trading career. I feel like I have learned a lot about this business and the markets in general. My new focus is on mitigating downside risk and hopefully if all goes well I'll be at this business a long time building up my account a little more every day!
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