My First Day Trading the S&P Mini's: Observations

I traded 41 S&P E-Mini futures contracts today. That's a whopping $196.80 in commissions. ($4.80 a round turn.) I ended up winning $325.


I had fun. You can get out whenever you want and then back in again. You can double reverse. One tick spreads, so you can use market orders. Instant execution. Mainly, I had a real time chart of the S&P along with my platform and scalped the highs and lows. However, one day does not a seasoned trader make.


Here are some observations. I got rid of my winners too soon. But then, how was I supposed to know they would continue to go in my favor? (The same way I knew to make the trade in the first place I guess--DUH!) Twice, I bought when I meant to sell. I have a duel head video card so I need to get a second monitor--quickly! I made too many trades, but I didn't care. I can adjust all of that later. I'm just getting my feet wet, and the old adage you can't go broke taking profits was in full effect. Once I got up one handle (one full point, or four ticks on the mini's--$12.50 a tick) I felt like taking profits. Sometimes I sold off half of the position to try and squeeze out a little more with the remainder. Oh well, I'm learning.


Trading futures reminds me so much of playing poker. Except: there is always a seat open. No shortage of action. You don't have to deal with all of the asshole players, floormen, dealers and the convoluted politics inherent with that business. No time consuming hunting and searching for good games--changing seats and tables--commuting--and all of the endless hassles associated with that dying game.


Trading futures is nameless and faceless. No cigarette smoke. You don't have to leave the house, fire up the car, and drive clear across town--for a maybe.


I feel that if I can successfully win for a full year that will still not be enough time to accurately judge results. It's going to take a while to determine if this is the real deal, but for now I'm just trading small (1 to 4 lots) and feeling my way around. I just go with what feels right. I've been watching the markets for years now, and this is my first foray in to the futures pits. So far I think I'll stick around.

So you decided that the market was going up how? Is it a "rigid" or "programmed" system that gives you a buy or sell signal or was it mostly from feel for how the market was moving or something else? Thanks for sharing your experience.

In my experience (2 yrs of e-mini trading) it is very hard to make money doing what you are doing.


Why?


1. Your strategy--scalping for 1 handle-- basically involves "picking up quarters on a railroad track" Random events--ie news, entry of big buyers and sellers into market, etc--that are difficult if not impossible to anticipate and model can kill you.


2. Even if you are not blown up by random events, you can easily be blown up by not limiting losses. My experience in trading the eminis is paradoxical. On one hand, you need to limit losses if you are really just scalping. On the other, there is so much noise in the market that it is extremely tempting to give yourself more room. This can be fatal. My experience is that you cannot make up for a few large losses with many small wins. Some people can, perhaps. I cannot. The psychological grind alone can really wear you down.


3. Psychologically, there is a tendency to overtrade e-minis. (I have long thought of them as the crack cocaine of the retail financial markets.) This has two effects. First, the transaction costs can mount very quickly. Second, and more important in my opinion, there is a tendency to "go on tilt", ie to start scalping more aggressively and probably more irrationally when you are losing. This can be fatal.


I don't want anything that I have written to be construed as trying to discourage you. Trading eminis IS fun, and you CAN actually make money. You can also ruin your eyesight, your mood, and your bank account if you approach it in the wrong way. Be careful!

Why did you trade up to four? Did you lay them on one at a time, as you liked a trade better and better? Did you average up or down? Or did you simply like some trades to begin with more than others? I doubt you over-traded in terms of frequency. At $5.00 per contract round turns, I have spent thousands of dollars in a day on commissions, you really can just go nuts.


And I don't think you should worry about not letting profits run just yet. I think it is actually more valuable, as you are developing a style and fishing for a niche, to be constantly taking tiny trades everywhere, rather than riding individual trades indefinitely, like an emotional rollercoaster.


It's much easier to develop a statistical sample of something that happens quickly a great many times. It is only by doing it a thousand times, that you will really get a feel for where you should let them run.


Most smart, well-capitalized people leave the little warbles to the little guys, so if you can beat them, you can grow your strategy out into something longer term from these seeds. Even if you can already predict a 4-hour move based on something everybody else is missing or not reading quite right, there's really almost no way to know if you are not getting lucky.


Also, don't get too used to thinking game selection isn't important. When you haven't really sorted out yet what makes a game good, and therefore you can't sort between them, it may seem that way.


Other than that, I am surprised at how good what you did sounds on the surface. You are already ahead of where 95% of people give up years before they even get to.


I guess the only thing I am tempted to caution is don't get caught in the counter-trend game, and be careful not to let the duration of your trades (or the size) start to grow.


Oh, more. Yesterday was a classic trend day, and the way I trade, and the way a lot of people trade, you can't help but catch it. So I would be angry at myself if I didn't catch that whole late down move. But by the same token, it's a very delicate business. You can guarantee yourself exposure to the entirety of every large move by buying whenever it starts to go up, or selling as soon as it starts to go down, and hanging on. But on most days you will get chopped to bits if you don't have a little more texture than that.


But so far as "a lot" of people trading that trend, look at the two counter-trend "tails" in the afternoon, one into 3:37, and one into the close. You can get a very good idea of the ambient population of trend traders from the size, and intensity, of these types of tails.


Finally, the way I usually measure my profits is how many points I made relative to the day's range. I'm shooting for a 1 - meaning 15 points on a day with a 15-point range - but I rarely get there. If I do better than a 1, I know I got lucky If my commissions are as high as a third of my profits, I am usually a little disappointed, but when you fish you use bait.


If you get a 1, I would say you over-exposed yourself. Don't shoot for a 1. You can make a fortune trading only once every several days. I did best when I lived in California, and my most important outer decision was whether or not even to go into the office. I rarely went in on Mondays - because the market hadn't screwed people's minds around enough yet - and I basically knew on what days my special counter-trend trades might set up, or not, before trading even began for the day.


But what I would recommend is sticking to scalping small trends, and performing this type of sit-it-out discretion in regard to whole weeks or months or seasons to be trading or not. If you have a computer in your house and time on your hands, it can be tough not to let your entertainment trading get out of hand, I imagine. Having a 15-minute drive is the best thing that ever inserted itself into my mtehodology. But maybe I'm just projecting


eLROY

You got that right, the psychological grind is miserable. The thing is constantly moving - or worse still, not moving - and you have to watch constantly, just in case it actually yields a little information, or gives up a tiny hint on some odd tick or other.


The only way to overcome this, I guess, is to be very systematic and, in doing so, to ignore a large percentage of what is going on. In other words, you're just like a robot reacting to one narrow thing, and that one thing isn't very subjective to measure.


But so far as this picking up quarters on a railroad track, I totally disagree with you. If you are properly margined, all the random stuff should cancel out, and I think a lot of profits arise from the fact that people price in more fear of the random stuff than they need to.


As I alluded to in the previous paragraph, you just have to be like a robot that is blind to all that random stuff, and doesn't get thrown off the scent, no matter if the trail gaps up 50 points in 1 tick and then resumes again. THAT HAVING BEEN SAID, WHEN A WINDFALL PROFIT COMES YOUR WAY AND YET YOUR NORMAL, UNDERLYING REASON FOR BEING IN THAT POSITION, JUST WHEN THE RANDOMNESS HIT, STILL SEEMS, VALID, GET OUT!


The reason is, random events throw the whole dance out of whack, and change the rules completely. But I will concede that learning how to adjust to this, or not, is the main thing that thins out your competition. If these random events didn't throw everybody off each others' trails constantly, the market would be perfectly orderly and efficient.


eLROY

Yes, you are right, the key to minimzing the psychological grind is to tune out at much of the randomness as you can. Focussing on the signal as opposed to the noise is easier said than done though. It is not easy to become the robot that you rightly say you have to be to succeed with consistency in this game. Then again, nothing truly worth acheiving is easy!


I think what you say about people expecting more randomness than the mkt actually exibits is very interesting. This certainly explains panic behaviour around price spikes.


I am wondering if the insight still holds up if you substitute the word "volatility" for randomness.

If there is news or an event or a fast market

don't expect to get anything even close to resembling a one tick market.I would use limits.

>>So you decided that the market was going up how? Is it a "rigid" or "programmed" system that gives you a buy or sell signal or was it mostly from feel for how the market was moving or something else? Thanks for sharing your experience.


Well . . . to reiterate, this was my first day . . . but, I felt very comfortable in the arena. I would compare my experiences to sitting in medium soft 10-20 hold'em game where I felt like a small favorite. This does not mean, by any stretch of the imagination that I was indeed a favorite, (I could have been and probably was just lucky), but that is how I felt.


I've been playing poker professionally for 25 years and a lot of my poker playing experience came into play. Ironically, I'm better prepared to take small losses in the markets than I am playing cards. Playing poker I get stubborn, playing the futures I'm scared to death with every single tick. I have EXTREME respect for the risk. These things can get away from you and you can be like a deer caught in the headlights--this has happened to me on several occasions--even trading stocks.


Basically, at this nascent stage, what I'm doing is to look for entry points to buy and sell. If the S&Ps have made a good run, on the one minute charts, then I would start looking for a place to sell--nothing goes straight up--and vice-versa. However, at the same time, I'm also looking for a place where I'll say uncle if I'm wrong, and perhaps go the other way.


I've been watching the markets on a daily basis for years. I have a kind of "feel" for where things are going. I guess part of it is pattern recognition, but a lot of it is simply experience watching things unfold. An example of that is Monday's close. I felt very strongly that the market would go down farther in the last hour or half-hour. I guess I've just seen Monday's scenario unfold so many times that I had a good idea of how to play it. But now that my money is on the line things change, but sometimes you just have to jump in and see what happens--that's one sure way of getting focused.


Frankly, I was elated to pull off a $325 win, but when I saw how much I paid in commissions, and my commissions are some of the cheapest around, I was appalled. I don't think there is any way possible to win paying that high of a percentage for fees, so I'm going to have to work on that. For example: the S&Ps went down around 15 handles on Monday. In retrospect, had I just sold 2 contracts near the open and got out at the close I would have made $1500 and paid $9.60 in commissions! If I can ever get to that level then I feel this game has prospects, but my gut just wouldn't let me hold onto a trade for very long. When I first started playing poker I was the same way. It took quite a few years before I developed the ability to stick around and put in a long session when I was winning. I just hated giving back a win. It affected me psychologically. Perhaps if I get some wins under my belt and I start playing on the "houses" money I'll let my trades run a little bit longer, but for the time being I just don't have the stomach to do that--but I know that is what MUST be done.


I like trading the S&Ps. It suits my personality. Every day is different. I'm flat at the end of the day and sleep like a baby. I don't have to worry about down days and how that impacted my stock portfolio or how the market is going to open, economic reports, Greenspan, etc., etc. I must be concerned with those things, to be sure, but I react to the news--the news doesn't react to me. Maybe I'll report back in six months that I'm killing them or maybe I'll have given up. One things is for sure, at least in my case--you have to try.

I don't believe you ever play with the "houses"

money.This applies to trading and gaming.If you

win 5k playing poker and get robbed on the way home..who got robbed you or the house?When does the money become yours and not the house?What if you are plus 300 units today...lose 50 the next day and lose 50 the day after that and 100 units a month later...you think that is the houses money? Well I don't.As soon as I bank a buck it is mine.