There has to be rules. It doesnt matter if you’re a trader, carpenter, doctor or a pilot, there has to be rules. When you drive a car you must follow the rules of the “road”, but when your trading futures, rules can sometimes be hard to follow…and when you dont follow them, you get taught a lesson. I was reminded of that last Friday.
After having a decent week of calling the highs and lows, I fell off my horse. I remember back on the CME floor I would trade all week, and like many traders, I would order a check to the trading floor Friday morning. That’s what most floor traders did. I would make money Monday thru Thursday and pull a check at the end of the week to pay bills and go have some fun, but trading on Fridays was never good, and in most cases by the time the check got to the floor I was losing most of my week. Mondays were my best day and Fridays were my worst, days and last Friday was one of those days. While I fully admit I am “not” a big player I do live by a set of trading rules. These rules are designed to stop me from 1) over trading, and 2) no adding to losers. Those are my cardinal rules and I broke both. TopNotch uses a 3 to 1 ratio for his trading; in other words for every 1 point he risks he tries to make 3. I try and make 3 handles initially and use a 3 handle stop. Once I get the 3 handles I take part of the position off , raise my stop up to a break even stop and try and ride the position for a larger gain .
RE-PLAY #TRADINGRULES
When the ESM15 jumped up to the 2106 area after the jobs number came in higher than expected, I got short just before the 8:30 open at 2104.50. It looked right, and with over 310,000 ESMs traded before the 8:30 open, MrTopSteps trading rule “Counter Trend Friday” went into effect. After the sale, the ESM sold off down to the 2102.50 area, bounced back up and sold off a little again. It looked right but after the S&Ps opened at 8:30 they started moving up, and just before they did, I broke my cardinal rule; I add to my short at 2104.00. As the futures started going up, I didn’t not use my 3 handle stop, and watched the futures trade up to the 2109.50 to 2110.00 area. I had a stop in at 2011.25 and after an hour of watching the ES started to grind high I got out of half my position at 2109.00 and 2109.50. I’ll say it like it is; the bad trades wiped out a good share of what I made throughout the week but even worse it threw me off my game as I went on to make another “losing” trade. I want to point out something. I am not upset about the losses as much as I am for being a rule breaker. In the old days on the CME floor in the S&P pit or at the desk I could be down $2,000 to $5,000 and if I did it right I could make back but that was before algorithmic trading made up 80% of the volume.
When I went into Google to look up futures trading rules, I came across several stories, but before I even looked at them I went back to where I came from. The very same trading rules I made while at my S&P desk on the floor. The very same place that millions of big S&P contracts traded thru, the same place that I did the UBS program trading business, and the place I fought so hard for customers. Nothing is easy in life but the trading floor was like no other place on the planet, it was a smorgasbord of futures pits to trade in and thousands of customers orders to trade off of. Today we trade against thousands of robots that “don’t” make mistakes and unlike the old days of the CME floor, its almost impossible to trade out of a losing day. Once you break the cardinal rules the robots never let you off the hook.
Get up and Dust Yourself Off
Mondays starts a new week and a new trading day. For me it’s on to the next trade, but not until I go back and read my own trading rules (mrtopstep ebook) . Sometimes I do that when I fall off my horse. It brings me back to realizing that you can’t make mistakes like I did and expect to stay in the game. Use stops, don’t add to losers and after taking some losses step back, realize what you did and get up and dust yourself off.
In Asia 7 out of 11 markets closed higher (Shanghai Comp. +3.04%) and in Europe 6 out of 11 markets quoted are trading higher this morning (FTSE +2.46). This weeks economic calendar includes 18 separate economic releases, 10 T-bill pr T-bond auctions or announcments and 1 Federal Reserve bank president speaking and some very big names reporting earnings. Today’s economic and earnings scheduled starting with no economic reports and earnings before the open from ABY ACT AER AKRX AU ENDP EVEP ICPT LGND MBLY MNKD NAT RDNT RTRX RBC SSYS W, and after the bell from BDE BOX CLNE DEPO DRNA DPLO FMC FMI HALO IPXL LWAY MDR MIDD MR PAHC PINC PBYI RAX SCAI SCLN SF VRTU YY.
EMBRACE THE CHOP
Our View : On to the next is what I say. This week is the May options expiration and from the look of it, the stats are pretty favorable, and it starts out with today with; the S&P cash study shows the Monday of the May expiration week up 22 / down 9 of the last 31 occasions. Ill add the link to the stats below.
S&P Cash Study For May Expiration
Look, I know the ESM15 has not been an easy trade, but at the end of the day it’s doing the same thing it’s been doing for years; selling off and rallying. The only difference this year is the S&P is running in place. According to the Wall Street Journal “Investors have gradually been pushing back their expectations for when the Fed will act. Odds implied by federal-fund futures showed investors see a mere 7% chance the Fed will raise rates in July, compared with 10% ahead of the jobs report. September odds slipped to 22% from 27%. October odds were down to 38% from 45%, and December odds were at 55% from 62%”. I have said the whole time that there will be no interest rate hikes in 2015 and if stocks sell off hard there may not be one until 2Q of 2016. Our view is the ES made a low of 2057.00 in Globex and 2069.50 on Thursday’s trades and on Friday it made a high 2013.50, that’s a 56.5 handle rally in 24 hrs. The stats are good today; up 22 / down 9 of the last 31 and while I think there is more room on the upside it may not come as fast. The other part is Mondays are the lowest volume day of the week.
- In Asia 7 of 11 markets quoted closed higher : Shanghai Comp. +3.04%, Hang Seng -0.51%, Nikkei +1.25%
- In Europe 6 out of 11 markets are trading higher : DAX -0.33%, FTSE +2.46%, MICEX CLOSED , GD.AT -3.28% at 7.00 CT
- Fair Value : S&P -4.74, Nasdaq -4.66 , DOW -52.72
- Total Volume: 1.37mil ESM and 15.7k SPM traded
- Economic Schedule:There are no scheduled economic reports today.
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