Long Term Futures Position Trading

Hey Guys,

Just wanting to get some feedback on something i've been mulling over.

I'm interested in the possibilities of taking mid to long term positions using futures (specifically the mini dow jones) .

One of my concerns though is surrounding stops, and wether to use a tight stop (chosen using risk management) and face getting turfed out regularly, or use a loose stop (chosen using support levels).

I was just wondering if anybody had any experience with this kind of strategy? I'm very green on derivatives, but feel reasonably ok picking macro trends.

I'd be picking markets using a more macro approach, rather than strictly technicals. Although technicals would certainly play a large role in entries and exits.

If this is feasible, I'd build a strict system of rules including down time after getting stopped out etc.

Everything I've read says that diversification is key in trend following systems, and to only trade one instrument at a time is tantamount to signing your own death certificate, yet I can't really see myself holding more than one contract at a time. Perhaps 2 at an absolute stretch. Is this still feasible? If the trend goes against me, I get stopped out. If not, onwards and upwards. I guess the key is positioning stops so that I don't suffer unnecessary losses, but how to balance that against not getting turfed out on a reaction?

Obviously I've got an awful lot of learning before I even consider committing money to the idea.

Cheers,
Flip

I'm guessing that your talking about the YM ($5) Futures contract. If your new to this your going to have to do your research like find out every thing you can about this contract like... trading hours, expire dates, margins (initial, variation), contract symbol (the symbol changes after each expire date), what exchange is it traded on and what times it is most active.

Stops are one of the most important things in a trading system. You mention that you plan to have a long term strategy meaning that you plan to hold over night. This would require a rather large position size not only for your over night risk but also for your margin. Margins can be different depending on your broker. Most people use a margin of around 2% so you will need to take into consideration the possibility of over night gaps. An example of a position size would be... $14,000 for 1 x Contract, Stop @ 2%, Stop loss = $280 ($14,000 x .02)

I think the Idea of specializing in one contract is not such a bad idea. I know a lot of future traders specialize in just one contract like CL (Light Sweet Crude Oil) for example. With only one contract it limits your chance's of consecutive losing streaks opposed to holding a basket of shares.

Hope this helps

BTW most traders on here are technical as am I!

RADO said:

I'm guessing that your talking about the YM ($5) Futures contract. If your new to this your going to have to do your research like find out every thing you can about this contract like... trading hours, expire dates, margins (initial, variation), contract symbol (the symbol changes after each expire date), what exchange is it traded on and what times it is most active.

Stops are one of the most important things in a trading system. You mention that you plan to have a long term strategy meaning that you plan to hold over night. This would require a rather large position size not only for your over night risk but also for your margin. Margins can be different depending on your broker. Most people use a margin of around 2% so you will need to take into consideration the possibility of over night gaps. An example of a position size would be... $14,000 for 1 x Contract, Stop @ 2%, Stop loss = $280 ($14,000 x .02)

I think the Idea of specializing in one contract is not such a bad idea. I know a lot of future traders specialize in just one contract like CL (Light Sweet Crude Oil) for example. With only one contract it limits your chance's of consecutive losing streaks opposed to holding a basket of shares.

Hope this helps

BTW most traders on here are technical as am I!

Click to expand...

Sorry I meant to say Most people use a stop loss of around 2%

Since you want mix of technical and a macro aproach, and are not interested in intra day trading (smart decision) then I think Larry Williams (ireallytrade.com) is the perfect guy to get you started in futures. He has a free email series that will allow you ot get a feel for if he is right for you.

As for stops, put your stops at a sensible point, position size for whatever risk you are comfortable with and then find the instrument that will allow you to take that trade. It might be the futures contract, maybe a cfd, maybe an option.

You dont need down time after being stopped out, its part of trading. Learn from it an take the next trade. A long string of stops is different.

Yes specialising in just one market can be very profitable.

Best of luck.

I overcame the stop issue with moving my stop to B/E as soon as technically practical.
I do this with very short term trades and longer position trades.Stock or Futures.

Sure I'll get stopped out for Brokerage more often --- but when I'm off and running
my expectancy is far better than sitting watching a stop get taken out and bleeding to death in the process.

My view is that if we have a technical entry it should move in our direction STRAIGHT AWAY.
If it comes back on us faster than we can move our stop then the technical entry generally proves to be wrong.

I don't care how often my B/E stop is taken out.
But if my initial stop gets taken out without me being in the position to move to a B/E stop ---often--- then there is something seriously wrong with my analysis.

I trade FTSE and on occasion DAX index futures. I don't think I've ever lost 2% on an individual trade.
In fact I don't think I've lost 2% of capital on 5 consecutive losing trades in a row!

Frankly I think the key is to be decisive.
Black or White
Right or Wrong.
Procrastination is a killer.

RADO said:

I'm guessing that your talking about the YM ($5) Futures contract. If your new to this your going to have to do your research like find out every thing you can about this contract like... trading hours, expire dates, margins (initial, variation), contract symbol (the symbol changes after each expire date), what exchange is it traded on and what times it is most active.

Stops are one of the most important things in a trading system. You mention that you plan to have a long term strategy meaning that you plan to hold over night. This would require a rather large position size not only for your over night risk but also for your margin. Margins can be different depending on your broker. Most people use a margin of around 2% so you will need to take into consideration the possibility of over night gaps. An example of a position size would be... $14,000 for 1 x Contract, Stop @ 2%, Stop loss = $280 ($14,000 x .02)

I think the Idea of specializing in one contract is not such a bad idea. I know a lot of future traders specialize in just one contract like CL (Light Sweet Crude Oil) for example. With only one contract it limits your chance's of consecutive losing streaks opposed to holding a basket of shares.

Hope this helps

BTW most traders on here are technical as am I!

Click to expand...

Very helpful. Thanks to everyone!

One question I have, you mention if I'm holding intraday then I need a large position size, can I not hold one smaller contract with a high margin (to guarantee I get stopped before I get a margin call)? Or is there something I'm missing?

@beachlife thanks for the advice, very helpful! Will check out the website.

@tech/a your point about b/e makes sense, thank you! I definitely plan on using a technical entry.

My aim is to build a system that (with some degree of accuracy) will put me in mid to long term up trends and get me out of corrections and sideways markets. Hopefully I can build something and then backtest it successfully.

I plan to sit down and go through some introductions to futures type books to fill in some blanks, as well as all the market wizards books (though I know they were written during a different era). Most of the books on CTA funds, the turtles etc strike me as not really what I'm looking for though. Is there anything else that should be on my radar?

I really appreciate the replies, thank you!

A good book I read before I started trading futures was "Futures made simple by Kel Butcher" it's a good entry level guide to trading futures. It teaches you about the contract specifics like tick value, trading hours, expire dates, contract symbols and the fundamental background of each contract. And to answer your question you only need a large position size if your holding over night for a long term strategy. A man by the name of Nick Radge Once said during a seminar for the ATAA "The only thing you have control over in trading is how much money you lose" for some reason that saying has always stuck in my mind and its probably why I don't like holding positions over night because of the uncertainty of not knowing what's going to happen when the market opens the next day. I still do occasionally hold positions over night but usually only if I am in a position of having a good unrealized profit and my system hasn't told me that its time to sell yet.

No you dont need a large position size, but first there is no such thing as being wrong. If for example a system has a 60% win ratio, then 4 out of 10 trades will lose. So provided that you followed your plan, there is nothing wrong with being stopped out. In your plan you should write I expect to lose 4 out of 10 trades (or what ever your backtesting says your system will be), and when it happens, forget it. Trying to be right all the time will turn your head space into a mess and you will lose money.

For position size it's best explained with an example. Let say you wanted to buy ES at 1670 and you wanted your stop just under the moving average at 1637. That's 33 points at risk. ES is $12.50 for every 0.25. So 33/0.25*12.50=$1650 at risk for every contract traded. But say you only want to risk $500. To trade the futures contract you would need to reduce your stop to 10 points so your stop would be 1660, way too close.



So the answer is to go to your trusty cfd provider that offers $1 per point. So $500/33 = 15 cfd's. That's the beauty of cfd's, you can position size for exactly what your risk tolerance is. So now you have a small position, smaller margin, small risk but still have a wide stop that will be a good distance from market noise.

So you can trade the S&P 500 with small positions, small $ risk, wide stops and safely hold over night. There is a daily interest cost with cfd's, but thats the price you pay for the convenience.

You can also mix and match. Say your position sizing says you can buy 1.5 contracts you either have to buy 1 or 2, so risk more, or not enough. So what you can do is buy 1 contract and take a trade for the balance with cfd's.

What the best instrument for you will be will depend on how much you are prepared to risk on each trade, but you dont have to hold large positions if you dont want to.

RADO said:

A good book I read before I started trading futures was "Futures made simple by Kel Butcher" it's a good entry level guide to trading futures. It teaches you about the contract specifics like tick value, trading hours, expire dates, contract symbols and the fundamental background of each contract. And to answer your question you only need a large position size if your holding over night for a long term strategy. A man by the name of Nick Radge Once said during a seminar for the ATAA "The only thing you have control over in trading is how much money you lose" for some reason that saying has always stuck in my mind and its probably why I don't like holding positions over night because of the uncertainty of not knowing what's going to happen when the market opens the next day. I still do occasionally hold positions over night but usually only if I am in a position of having a good unrealized profit and my system hasn't told me that its time to sell yet.

Click to expand...

Thankyou. Will check out that book. To my naive mind it seems like my risk is of two flavours, theres technical risk of the kind we've talked about and then there's also 'entry risk' (dont know what else to call it) - I am in a far weaker position when a trade is first opened vs when it is reasonably profitable, especially in regards to holding overnight. This sort of goes to your point about overnight gaps. If I can call the overall direction, this second type would decrease the longer I hold the contract. Does that sort of make sense? Not sure if im being clear.

Beachlife. Thanks. I've had a look at cfd's. Will continue to investigate and with a little luck wont send myseld cross eyed!

To an extent what im trying to build is discretionary, and so im not sure how Ill generate entry signals. May just start with some basic holding and exit rules and try running it in different historical envirinments with a predetermined start to see how it performs when I throw it at bulls (how much it catches) vs bears (how little it bleeds). Will need to figure out some basic reentry rules.

Thanks again guys! Much appreciated.

flipwilson said:

Thankyou. Will check out that book. To my naive mind it seems like my risk is of two flavours, theres technical risk of the kind we've talked about and then there's also 'entry risk' (dont know what else to call it) - I am in a far weaker position when a trade is first opened vs when it is reasonably profitable, especially in regards to holding overnight. This sort of goes to your point about overnight gaps. If I can call the overall direction, this second type would decrease the longer I hold the contract. Does that sort of make sense? Not sure if im being clear.

Beachlife. Thanks. I've had a look at cfd's. Will continue to investigate and with a little luck wont send myseld cross eyed!

To an extent what im trying to build is discretionary, and so im not sure how Ill generate entry signals. May just start with some basic holding and exit rules and try running it in different historical envirinments with a predetermined start to see how it performs when I throw it at bulls (how much it catches) vs bears (how little it bleeds). Will need to figure out some basic reentry rules.

Thanks again guys! Much appreciated.

Click to expand...

You could always use a hedge and trade positions on the index futures contracts.....Long ES, Short YM for example...

You can even chart these "new instruments" that you create by plotting the difference between the two...

CanOz said:

You could always use a hedge and trade positions on the index futures contracts.....Long ES, Short YM for example...

You can even chart these "new instruments" that you create by plotting the difference between the two...

Click to expand...

I like the idea of hedging my entry. If I could keep myself essentially flat with a wide stop on the underlying contract, this would give the market some time to move without exposing me to all the downside of the wide stop. Something like using options to hedge with an index collar?

The more I complicate it, the more certain I am I'll blow up.