How I Trade Futures and Commodity Contracts
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20 Day Fading Strategy

November 8, 2013

My First Month Fading 20 Day Trends

Today was exactly thirty days since I started trading 20 day or 1 month trend fades. I learned about this strategy online at a trading site and I really like this strategy. I think the reason why I like it is because I get to trade against the trend which feels really natural for me to do most of the time. Here are some of the things I learned after my first 30 days of trading this strategy. My even shared the rules with my online futures broker and he thinks it’s pretty nice strategy for short term swings.

Don’t Trade During Quiet Periods

One thing I really learned the hard way was to avoid trading on Friday’s and days when there’s nothing going on. It seems after much testing that this method really thrives on volatility and liquidity and if there’s none around I just stay away from the market.

Another important fact I learned was to avoid entering orders too late in the trading day. Anytime before lunch time in Eastern time zone is acceptable but anything beyond that or after lunch begun is just trading too late in the day.

Trade Very Liquid Markets

One of the firs things I learned when I first begun trading was to use simple indicators and trade liquid market. The futures tradingproblem with most commodity and futures markets is the fact that they are cyclical. What I mean is they go through periods of high liquidity and volatility and periods of low liquidity and volatility. So when I say tell you to select a liquid market I’m referring to how the market is doing when you are trading it. For example, orange juice and lumber are not liquid markets. However, during January hurricane season the liquidity and volatility in these two markets picks up. So always look at what the market is doing now instead of historically.

Be Loyal to Your Strategy

When ever I would start trading a new strategy and things didn’t go my way I would quickly abandon it for something else. I learned over the years that all strategies regardless of their effectiveness go through periods of winning and losing and it’s just part of the game.

So don’t be to fast to judge your trading strategy and back test it to see how effective it really is in the long run and not just over a period of a few weeks. Most great futures strategies go through losing streaks, this is called drawdown’s. This is a period when traders are not making money and are losing instead.

Everyone goes through a draw down and the key is not to panic while you are in one. Everyone usually gets out as long as you don’t risk too much on each individual trade.

If you get a chance check out this article about Discount Futures brokers at one of my favorite sites.

By

FFW

How to Trade Breakouts

November 6, 2013

Make Sure to Follow the Major Trend

Always give your position enough room for unexpected volatility, often times trades get stopped out and turn around to move in your direction. Give the position enough room to prove that it won’t be going your way. A good way to do is is by having a set number based on a trend line or an indicator. This way you will know objectively if your position level is violated.

Be Patient and Give Position Time to Work

I use a simple ADX indicator to tell me that the trend is strong. If you prefer you can use a moving average or another indicator. Whatever indicator you use, be consistent.Don’t add to losing trades because they are losing  trades Adding to winners is allowed if you are disciplined if the position goes against you. The longer the market is range bound the better it will breakout in the direction of the trend

Good breakouts happen after the market consolidates and coils up for at least 90 days. Most breakouts that occur trade futures and stocksin less than 90 days tend to be weak of fail. One statistical test proved that the best breakouts actually occur every 180 days so forget about those 50 or 80 day breakout patterns many traders like to use. The best way to  trade breakouts is to wait patiently for the market to keep consolidating and then catch a breakout when there is a fundamental event that’s coinciding with a strong move. This is the way most long term traders trade breakouts with a higher percentage of profitable trades compared to losing trades.

Use Some Type of Filter Before Entry

Before you enter the position you should always have a filter that makes sure your entry has the highest possible rate of success. When I trade breakouts I always use a linear moving average regression filter to help filter good trades from bad trade. I always recommend you use some type of a filter in your trading.

One very good trader I work with uses the tick and trin filter when he day trades the E mini SP Futures contracts. I personally don’t trade emini futures that way but I suggest that you use any type of filter consistently in your trading. Even if it’s as simple as a time filter or an additional condition the market must go through before you execute the trade.

Next time I will talk about how to adjust volatility and reduce your exposure during morning bond trading sessions.

Wishing you success with your day trading!

FFW

Finding Good Broker

October 2, 2013

Over the last few years I’ve been changing Futures Brokers very often. One concern and reason why I switch Brokers with such frequency is because I’m often told one thing and when I see my monthly statement I see tons of different charges that I was never told about. Commodity trading is hard enough without having to deal with this time of nonsense.

Extra commission fees, extra wire fees, extra charge fees. Everything has a different fee to it, it reminds me of the time I traveled to Italy and the waiter wanted to charge me a napkin fee.

What I was looking for was a simple Futures Commodities broker who can provide good execution and good equity runs. I didn’t need any bells and whistles and I traded using my own trading platform so I didn’t need that either.

I simply needed their connection to the exchange and nothing more than that. What one of my friends did was test swing trading and day trading new yorkout three different Futures Brokers and traded identical positions with each of them. He wanted to see difference in execution, cost and service and he surprisingly ended up leaving all of them. He did say that one was better then the other but he didn’t like any of them in the end. I tried trading through a stock broker but they didn’t have commodity online trading and that’s something I still trade a bit.

I won’t name the brokers that I tried but I can tell you that big promises and great platforms was what I was promised but after the check was sent I got very little in the way of tech support or any other type of trading help.

I started with a new firm a few weeks back and I’m keeping my fingers crossed that things are working out. I’m not having any problems so far and the rates are reasonable and fully disclosed. This is what the biggest problem was I didn’t get full disclosure at my previous broker and that’s why I left them.

I trade many Dow Jones Futures contracts using 5 minute bar charts and my margin is about $200.00 per clip at this time. My buddy trades on the floor and tells me my rates are not all that bad compared to some of the traders he deals with on a regular bases. He also uses my clearing firm for his IRA, yes I didn’t know but you can trade IRA account’s through a futures brokers.

I think I’m going to get another one just to compare and I will update you when I have something to report soon.

I hope this article was useful to you and I recommend you stay away from brokers that promise the moon and deliver very little.

FFW

Measuring Pullbacks

August 10, 2013

There are many different ways to measure pullbacks. I however use objective projection points to measure pullbacks. What this does is tell me exactly how far the market pulled back and how much more movement is needed for me to enter the trade.

Pullbacks Should Be Measured

One indicator I use is a 30 day moving average. I wait for the market to pullback below the average and as soon as the market crosses the average once again I jump back in after the old bar high is taken out. There’s a similar system to that one that’s called the holy grail that I heard about a few years back but the difference between that system and my strategy is I use a moving average that is a coefficient based. It’s sometimes referred to as a end point moving average, but it does a great job of keeping the lag out of the system.

Most traders don’t really know much about this method of trading but I typically measure Fibonacci points such as 33.33 as similar to measure the pullback levels. Once the market trades above my moving average and then pulls back below the 33.33 as typically just wait for the second or third bar on the cross back up to begin trading the session.

If I’m trading the mini Dow Jones contract I will place a stop at around the 3 percent from my entry level and if I’m trading the Russell I will place a stop loss at around 4%.

My technique works about 55 percent of the time and I place a profit target based on the last high swing or approximately 2 times the risk. Most pullbacks are profitable between 55 and 65 % of the time so I’m not too surprised at the profit to loss factor.

I don’t trade during holiday’s or when major news is coming out and I always try to read the news. I tried trading this method on corn and other markets but it seems to work well with financials mostly. The time frame you want to use is a few days or a week at the most, it’s purely a short term swing trading strategy

Good luck following my pullback swing trading strategies  and before I forget; if you want to trade options on commodities you can sell spreads instead of going long the position. It seems to work very well when I hedge myself and don’t expose myself completely. Don’t sell options naked unless you want to really lose your assets.

FFW

Correctly Placing Orders

April 3, 2013

There are so many things I can tell you about placing orders correctly but I’m only going to share one thing with stock trading usayou today. It’s the fact that many of commodity brokers need very special instructions to take an order. You can’t just say buy that if it goes here and sell that if it goes there. You have to specify the type of order you are putting in so that the trading desk or the floor desk will be able to take your order and process it correctly.

There are two basic orders that I use and they are limit and stop orders. I don’t use market orders in commodities or futures trading but I do in my stock trading. My best advice is to never ever use market orders when trading commodities unless you are trading bonds which are very liquid markets.

The commodity market is not as liquid as the stock market so there’s a big gap between the buying price and the selling price. You need to consider this when you are placing orders to buy or sell.

Another thing that you need to do is understand that a stop order becomes a market order and once that happens you are back in the situation we discussed. So make sure you place stop orders only on markets that you know have depth to them.

Never place these type of orders on grains, softs or energies. These markets are not liquid and will cause you lot’s of slippage and I mean lot’s of slippage. So be very careful.

Hope this was useful to all aspiring traders.

Professional Day Trader

FFW

Channel Trading Patterns

January 12, 2013

Volume Typically Precedes Price

One of the most important part of profitable day trading strategies , especially channel breakouts is figuring out how big the channel is going to be and how far it’s going to measure before you enter the trade. My projection for my profit target is always double the distance between the distance of the channel. In rare occasions I may use the a volatility measurement to figure out the distance but I can do it visually for the most part.

The second even more important aspect that I don’t think traders pay enough attention to is volume. Price usually follows volume, not always but enough times that you need to pay careful attention to make sure there’s volume on your side when you are trading channel breakouts.

There are a few good trading patterns that mimic channel breakouts and they work just as well.

For example the triangle pattern or a better example a wedge is a great example of a chart pattern that works very well in place of a channel breakout using support and resistance areas.

If you want to use actual indicators there is a cool trick I use with the Stochastic indicator that most traders don’t commodities marketknow about. I use the stochastic in reverse of how it’s supposed to typically be used. Instead of selling when it goes above 80, I buy and when it goes to 20 I sell, so I’m completely using it the opposite way from how it’s supposed to be used in theory.

The second trick I use is gaps. I use them as my trade filter and never ever consider going against the gap. You should never consider going against the gap or the direction of the trade if the position is going to against you.

The gap is something I only use as a filter but I never go the opposite of the gap. This is something I learned from a professional floor trader a few years back and I follow this rule completely.

So to sum up my style

1. I never go against the trend

2. I always follow the direction of the gap.

3. I follow volume on about 70 percent of my trades

4. I reverse the rules for the Stochastic indicator

I hope this helped you get a good feel for how I analyze markets and my trading style. If you want to read some good articles about day trading and stock trading strategies check out this cool site.

FFW