If you are running an automated strategy in TradeStation, you probably want an audible alert when it places an order. I made a video for you, explaining how to set that up:
If you have any questions, leave a comment below and I’ll answer!
If you are running an automated strategy in TradeStation, you probably want an audible alert when it places an order. I made a video for you, explaining how to set that up:
If you have any questions, leave a comment below and I’ll answer!
Trading and making a profit is a lot of fun, but it can be confusing as well. There is a lot to learn! One of the first questions you might ask yourself is, should I trade stocks? Forex? Futures? Options? Something else? Part of finding the answer to that is just learning about each market, so you can choose what makes sense to you. So let’s discover more about stocks vs forex vs futures vs options.
More markets are available for trading today than ever in the history of the world. The markets aren’t just available, but public access to them is easier than ever before. So choosing among them is more complex than ever. Let’s bring a bit of clarity to the issue.
Here is a comparison of stocks vs forex vs futures vs options. Following the table, I’ll talk a bit about why you care about each of these features.
|Definition||A stock is a type of security that signifies ownership in a corporation and represents a claim on part of the corporation's assets and earnings.||An options contract is an agreement between a buyer and seller that gives the purchaser of the option the right to buy or sell a particular asset at a later date at an agreed upon price.||A futures contract is an agreement traded on an organized exchange to buy or sell assets, especially commodities or shares, at a fixed price but to be delivered and paid for later.||Forex, also known as foreign exchange, FX or currency trading, is a decentralized global market where all the world's currencies trade.|
|Examples||Any stock sold over any of several stock exchanges||Buy or Sell Puts or Calls||Index futures such as ES, NQ, YM||Pairs of currencies|
|Any publically traded company||Spreads, Straddles||Commodities such as metals, food and fiber, livestock, grains, energy||EUR/USD, USD/JPY, GBP/USD, AUD/USD, USD/CHF, NZD/USD, USD/CAD|
|Ways to Trade||Oracle on Wilshire||Oracle on Wilshire||Coming soon||Forex Investing Live Signals|
|Commissions paid to broker||Yes||Yes, can be higher||Yes||No, in general. Instead you pay the "spread". The spread is the price difference between where a trader may purchase or sell the underlying asset.|
|Regulated||Yes. The SEC has jurisdiction over stocks and all publicly-traded companie. Stock brokers and investment firms are regulated by the Financial Industry Regulatory Authority.||Yes. The United States has two major government bodies regulating the financial markets: the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). Both organizations have a similar goal—to prevent fraud and other malpractice in the financial markets and to safeguard investor interests. Two nongovernmental self-regulatory industry organizations, the Financial Industry Regulatory Authority (FINRA) and National Futures Association (NFA), also help oversee the industry. All option contracts traded on stock/index as underlying are overseen by the SEC and FINRA whereas options contracts on forex/commodity/futures as underlying are overseen by the Commodity Futures Trading Commission and the National Futures Association.||Yes. The Commodity Futures Trading Commission (CFTC) has jurisdiction to regulate the futures markets with oversight over the entire industry. Each U.S. futures exchange operates as a self-regulatory organization governing its floor brokers, traders and member firms.||Not really. The foreign exchange market is by far the largest, most liquid market in the world. But despite its huge size this is a market that is far from extensively regulated and that has no single global body to police the massive 24/7 global forex market. How US Authorities Regulate Forex Brokerage Accounts: The National Futures Association (NFA) is the “premier independent provider of efficient and innovative regulatory programs that safeguard the integrity of the derivatives markets” (including forex).|
|Liquidity||Varies.||Options can be thinly traded, thus have low liquidity.||Varies. Some, like ES, are heavily traded, and have good liquidity. Others are very thinly traded, so have low liquidity.||Very High. Over $5 trillion traded per day.|
|Taxes||You pay long term (held over a year) or short term holding (ordinary income) taxes.||Can be quite complex. The tax treatment is tied to the tax treatment for the option's underlying financial instrument.||Futures contracts fall under the 60/40 rule, where 60% of gains are treated as long-term capital gains and 40% are treated as short-term capital gains (ordinary income) - regardless of the actual length of the holding period.||Taxed as ordinary income.|
|Dividends||If you purchase a stock sufficiently long before it distributes dividends, you receive them.||No||No||No|
|Ease of taking a short trade||Varies, but generally not as easy as going long.||Easy. Buy a put option.||Easy||Easy|
Leverage involves borrowing a certain amount of the money needed (usually from your broker) to invest in something. Leverage is used to increase the potential return of an investment.
Essentially, leverage allows you to pay less than full price for a trade, giving you the ability to enter larger positions than would be possible with your account funds alone It’s important to understand that leverage magnifies both gains and losses.
Leverage is expressed as a ratio. A 2:1 leverage, for example, means that you would be able to hold a position that is twice the value of your trading account. If you had $25,000 in your trading account with 2:1 leverage, you would be able to purchase $50,000 worth of the instrument.
For example, Forex trading offers high leverage in the sense that for a small account requirement, you can control a huge amount of money. Forex trades can be 50:1 or 100:1 leverage.
Check with your broker or the product listing to determine the leverage available for the instrument you are trading. You can read more about leverage here: http://www.investopedia.com/terms/l/leverage.asp
Know how much you are paying in commissions! And factor them in when planning your trading strategy. If you are taking short little scalping or day trades, your commissions can eat up all your profit. Be aware!
If you are trading Forex, you often pay no commissions, but you pay the spread, instead. The spread is the price difference between where a trader may purchase or sell the underlying asset – that is, the bid-ask spread. This can be substantial, depending on your broker, so be sure to check what it is.
Why does it matter if a trading instrument is regulated? Government regulation is meant to assure that you, the trader, are not the target of fraud, mismanagement and abuse.
One of the main benefits of regulation is a controlled environment in which you can trade without having to worry about unfair practices like insider trading and the like. Not to say it doesn’t happen anyway, but the effect is significantly less.
For example, the SEC, which regulates the stock markets, investigates alleged incidences of crimes associated with the trade of securities in the U.S., including but definitely not limited to:
It’s nice to have someone looking out for you in these areas!
Liquidity is the degree to which an asset or security can be quickly bought or sold in the market without affecting the asset’s price. Cash is considered the standard for liquidity because it can most quickly and easily be converted into other assets.
Typically, the more volume there is (the more trades taking place) in a trading instrument, the higher the liquidity. If there is high liquidity, you can be more certain of buying or selling your trade at the “current” price, because there are lots of other traders wanting to buy or sell at that price, and your transaction can be executed.
If a stock, for example, is very thinly traded (there are few traders wanting to buy or sell that stock, you may have to pay more or receive less than the published price, in order to find a buyer or seller willing to complete the transaction.
Oh boy, taxes! You should know what the tax hit will be on profits you take on any trade. They do differ, and it will make a difference to your bottom line. Tax computations can be complex and at the same time boring, so it is easy to want to ignore them. However, you would be well served to read up on the instrument you want to trade.
Here are a few links to read about taxes and trading:
Stock market, and longer term trades: https://www.ally.com/investing/trading/tax-implications-of-trading/
If you are day trading or swing trading, or not trading stocks, you can skip this part, you won’t be receiving any dividends. However, if you are trading stocks, and holding for a longer time, you should be aware of the timing of dividends.
Here is a good page to read if you are planning to time your trades to take advantage of dividends: http://www.investorguide.com/article/12782/the-dividend-timing-trading-strategy-ws/
Markets go up, they go down. Most traders like to take advantage, and profits, going both ways. Go long when it is going up. Go short when it is going down. Make profits.
However, if it is difficult to go short, you can’t follow this plan. So be aware of your market, and whether you can just jump in short if you want to.
So now you have a better idea of whether you should trade stocks vs forex vs futures vs options. If you educate yourself about the market you are going to trade in, then you are that much farther ahead in reaching your goal of profitable trading. Then, all your decisions will be the right ones.
Today I’m doing a review of Options University, where you can learn all about options, and how to trade them.
First, you might ask – why do I want to trade options? And what are the drawbacks to trading options?
There are so many reasons options are a good choice. You can increase leverage, limit your risk, provide insurance for other trades, profit in bear markets, profit in a market going sideways.
(Plus, the Oracle on Wilshire uses them, and we’ve had lots of questions about the trades using options.)
Option trading is very attractive for the small investor as it gives you the opportunity to trade a very large exposure for only a small amount of capital outlay.
Your risk is limited to the purchase price of the option, so if your analysis doesn’t match what actually happens in the market, you can only lose that purchase price, not more.
Here is a hypothetical example to illustrate the leverage possible. Suppose you and your friend Joe each decide to buy a Call for CTQ on May 1st.
Let’s say that on May 1, the stock price of Cory’s Tequila Co. (CTQ) is $67 and the premium (cost) is $3.15 for a July 70 Call. “July 70 Call” means that the expiration is the third Friday of July and the strike price is $70. The total price of the contract is $3.15 x 100 = $315. (We ignore commissions for simplicity in this example.) Note that to outright purchase 100 shares, you’d have to pay $6700. So you are investing in $6700 worth of stock for only $315. Nice leverage.
Because your analysis of this trade looks good, both you and your friend Joe buy a contract each.
Three weeks later the stock price is $78. The options contract has increased along with the stock price and is now worth $8.25 x 100 = $825. Subtract what you paid for the contract, and your profit is ($8.25 – $3.15) x 100 = $510. You almost doubled your money in just three weeks! You could sell your options, which is called “closing your position,” and take your profits – unless, of course, you think the stock price will continue to rise. So you close, taking your $510 profit. But, your friend Joe decides to hold. Here is what happens next:
By the expiration date, the price of CTQ drops down to $62. Because this is less than our $70 strike price and there is no time left, the option contract is worthless. Joe is now down by the original premium cost of $315.
To recap, here is what happened to yours and Joe’s options investments:
|Date||May 1||May 21||Expiry Date|
Okay this was a really simple example – there’s a lot more to it…
There are some drawbacks, such as lower liquidity, higher commissions, and time decay. Also, options are not available for all stocks. However, the most important drawback is that they are complicated. Options are very complicated to beginners. Most beginners, and even some advanced investors, think they understand them when they don’t.
And here is where Options University comes in:
Here is what Options University says about itself: “Options University is the leading source for options training, strategies, safer investing and better profits. We are an educational company teaching investors how to make consistent profits with options while limiting risk.”
Options University was originally founded in 2004 by Brett Fogle and Ron Ianieri. Courtney Smith, a long time trader, author and CEO of numerous financial firms is the new owner. The CEO of Options University is Steve Suminski.
Now I’ve never met Steve, but Courtney I’ve known for years. And this I know about him – he is very knowledgeable, very experienced, makes a bunch trading, and is passionate about teaching others to trade well. I’ve seen him teach, and he is clear, concise, and friendly and funny.
Courtney makes teaching videos, does webinars, and live events that are both fun and packed with information you can use.
And this is what one of Options University’s students had to say about Steve:
Options University offers courses for investors at every level. They offer online courses as well as live onsite training, and ongoing memberships and coaching and mentoring.
For beginners wanting an inexpensive but comprehensive training, there is Options Academy Starter.
At a more advanced level, Options University offers live, interactive trainings like Options Academy Online, as well as ongoing membership where you can learn the material in interactive online webinars and home study modules. You can also get coaching and mentoring, to be sure you are executing correctly (and profitably).
Options are complicated, but well worth your while learning, because the benefits of trading options far outweigh the effort to learn to use them well. And because our own Oracle on Wilshire uses them extensively, if you follow the Oracle, you’ll be happy you learned to trade with options at Options University.
They have many different course options (pun intended) for you to choose from. To really know and use options to the best advantage, one of their best courses is Options Mastery Online. And they are having a special 60% off price right now – I don’t know how long this special will be available. Here is their description of this online course:
Look, the main thing is, successful traders like you want to know how to trade options. Options University can give you great training. What’s not to like?
I’ll tell you what – you must spend a little money, and some time, some concentrated focused time, to learn how. That’s it. You must be dedicated to learning more.
I’ll close with another quote from a student:
If learning to trade Options looks attractive to you, click here to learn more about Options University.
People don’t know to ask this, but when is probably one of the most important questions to ask if you are going to learn to trade. Guess what? People generally decide to learn to start trading at a crossroads in their life when they need to make money to pay the bills that keep coming in!
Making a living trading, starting from zero knowledge and experience – that is just not going to happen. Trading is a tenuous business at best! Putting pressure on yourself to make money in the markets is like trying out for the baseball team before ever trying to hit a ball, with the expectation of making the cut.
So, when is the best time to learn?
The best time to start is, in my opinion, several years before the anticipated time you plan to start trading real money. If you start early you will actually know what is going on with the chart and have a decent idea of how to trade profitably when you make your first live trade. Take a slow measured approach to learning to trade. Then you can enjoy the process and learn well. Unfortunately, the majority of people I run into cannot allow themselves the luxury of a few years to encourage their skills to develop. Financial and emotional disaster are usually the result.
I only know of one student who was an “instant trader.” He was extremely gifted and took to trading as if he had done it his whole life, and he still is trading successfully. However, I know at least 50 people who were desperate to make a living and tried to start from scratch and make enough to sustain themselves. They all struggled, complained, and at least for the first many months only reduced the size of their accounts.
So, let’s get this out of the way: Statistically speaking, you are unable to earn a living trading when you start from point zero; you simply cannot learn enough in that short period of time to make yourself profitable. You can’t trade on hope and luck.
What is the answer?
Take some time to learn and practice simulated trading, and keep your job to support yourself during this time. Do not come to the markets with a tiny account and no knowledge. The successful new traders I have seen have planned their exit from their job and began the process of learning to trade well before they have come close to needing to be profitable to pay the bills.
In summary, don’t expect to get rich quick trading (or even be profitable!) unless you have spent the necessary time and practice to be competent at your craft. Beginning trading and needing to be profitable to survive will fail you every time.
I use TradeStation for my own trading, and to develop indicators and strategies for my clients. So I thought I should tell you what I like about it, and what I don’t like. And if you want to open an account, you can get a 1/2 hour free consultation with me.
I’d like to say there’s only one reason I trade with TradeStation. But there isn’t.
Tradestation is really all-in-one. It is a platform with great tools, has a great datafeed, and is also a broker.
Trade Smarter Today – Open an Account at TradeStation (and get a 1/2 hour free consultation with me).
TradeStation has a desktop application, a web (browser) application, and apps for your phone or tablet, so you can monitor your trades whereever you are, with whatever device you have available.
TradeStation caters to every type of investor or trader: professional investors, speculators, institutional investers, traders like you and me.
Here’s a snapshot of the desktop application. At the top you see a slew of icons, so you can quickly and easily apply tools. On the left is a chart with several indicators showing. On the right is the Matrix, where you can click to place an order, see it appear, and drag it around to change its price.
You can also use a simulated account to practice trading, and you see that at the bottom of this image – it shows you what account you are trading on.
Here’s a picture I took right from TradeStation’s website showing a woman using TradeStation’s phone app to monitor her trade.
Using the RadarScreen, you can watch and rank up to 1,000 symbols in real time. You can use nearly any indicator on your symbols, and apply alerts, so you know when a stock or instrument is primed for a new trade, or an exit. Here’s a snapshot of a RadarScreen in action:
OptionStation Pro has:
You can build, evaluate, trade and track your options strategy position with ease.
Here’s a picture of a typical OptionStation Pro screen:
When I first got into trading, I of course did what comes naturally to me as a software developer – I started writing my own indicators and strategies. Because it is easy to get started writing in EasyLanguage, I just gravitated to TradeStation and EasyLanguage. It is true that it is not always easy if you are attempting to code up something a bit more complicated, but it is very easy to get started.
You can build indicators and strategies for charts and RadarScreen, you can load up a bunch of back data, and backtest and optimize with ease.
Also, if you run into trouble with this, or just need some help getting going, I can always help you – click here to find out more.
TradeStation has great telephone support – I am always amazed that they can answer quickly and answer knowledgeably. What a bonus! You don’t have to stay stuck for days on end waiting for answers. This is a big plus for me. If you have an EasyLanguage coding problem, instead of calling, you use the Forums, which I discuss next:
I love the TradeStation Forums. Hundreds (thousands?) of traders are posting there all the time, and there is a wealth of help and information available. If you have an EasyLanguage problem, just post it in the Support Forum, and a TradeStation engineer will get back to you within a day. Complex problems get solved in a hurry this way.
You can search for answers to your problem, as well, and often find the answer has already been posted in response to another trader who asked the same or similar question.
Here’s a list of all the topics in the Forum:
TradeStation has lots of stuff to teach you how to use TradeStation, and how to trade. They have:
You can ask questions and get real-time answers during live webcasts.
The TradeingApp store, available right from the trading platform, has hundreds of 3rd party tools – these are written by non-TradeStation coders, and many of them are pretty nifty. You should check it out! There are:
Of course every platform has some drawbacks. One of these for TradeStation is platform fees. It is $99.95 a month for the platform. Of course there are conditions where they will waive this fee. If you trade a sufficient volume of shares or contracts per month, or if you retain at least a $100,000 account balance, this fee is waived.
Depending on your commission agreement with TradeStation, you can get flat fee, per-share/contract or unbundled pricing for your commissions. Some commissions are quite competitive, others not so much.
TradeStation does not have any commission-free ETFs.
TradeStation, every year, receives plenty of awards. Here are just a few of them:
Clear the cookies from your browser! Then, if you are going to open an account at TradeStation, and would like to have a free 1/2 hour consultation with me about any TradeStation or EasyLanguage subject, just click the “Open an Account” button below.
But be sure to clear the cookies from your browser first, as that is the only way to assure you open your account through my link. As an affiliate, I do receive a small commission if you open your account through my link.
(and get a 1/2 hour free consultation with me).
Then, once you have opened your account, contact me and we’ll set up a time for the consultation.
What is it that makes a great strategy? How do you know if you have the best trading strategy?
Of course you need a great system, a great strategy. You don’t just plunk your money down and trade any old thing. So you find a system, a strategy – maybe you created it yourself, maybe you took ideas from someone else, maybe you bought one. How do you know if it is any good, or even great?
I’ve made a video for you where I cover everything you should consider when evaluating your strategy:
These are all the things you should cover when you consider a trading scheme, system, or strategy:
Let’s look at these one by one.
Your strategy must have
This seems obvious, but I have to tell you, I’ve had a number of people discuss their trading scheme with me who really have no clear idea about exactly how they enter a trade, for example. They just wave their hand at a chart and say, I’d get in here.
You need very carefully thought out entry and exit rules. Always use stops! Even if you have some calculation that will take you out of a losing trade, be sure to place a stop well below the possible calculated loss exit, to insure against surprise down moves.
And, your rules should be simple. They should be easy to follow, easy to determine if they are really working. Some folks get all caught up in very complicated intricate calculations, with the feeling that the more conditions you have to satisfy to enter a trade, the more likely it is to be a winner. But, then figuring out if the market actually has all those conditions gets to be very time consuming and confusing. If you want to program an automated strategy to use these conditions, the more complicated the conditions are, the harder it is to determine if the strategy really is executing the rules correctly, or if it has a bug or error. Simple Trading Rules!
You want your strategy to be easy to use. If you use TradeStation (or another platform that has automated strategies) you can write or have written for you an automated strategy that follows your trading rules. You might or might not want to acutally automate it. You might want to use it for backtesting your rules, and as suggestions for trades as you move forward. Or, you might want to just automate it, and let it place all your orders.
If you don’t use a programmed strategy, you want to be sure you don’t have to spend too much time calculating whether to enter a trade or not, what instrument or stock you want to trade, and when to enter the trade. Some people create spreadsheets with fields that help them determine whether to take a trade. Make it easy to use!
And lastly, you want to be able to backtest your strategy. If you have an automated strategy, you can backtest it on as much back data as you can get, and see how it would have done in the past. Of course this does not guarantee it will do well in forward trading! But I bet you would not start trading a strategy that did badly in backtesting, and that is one of the best uses of backtesting there is.
To be sure your strategy is accurate, you must include in the calculations, both commissions and slippage. This is so important, I can’t stress it enough.
If you are doing long-term trading – buy and hold – it is down in the noise level, not that important.
But if you are holding a trade only 5 minutes, or only a few hours, or a few days, commissions and slippage can loom large in the profitability of your strategy. I go over this in detail in the video above, but I’ll cover a few points here.
If you are taking 2 points profit on the ES emini, for example, that is a gain of $100 per contract. But if you pay $5 commission and fees, and get one tick of slippage on either end of your trade, you end up with only $70 per contract on that trade. When you then look at your Profit Factor, or your Average Trade Profit, given all your losing trades and winning trades, you may find that you have gone from a winning strategy to a losing strategy.
For a simple example, let’s look at the equity curve over 3 weeks. Here is a nice strategy that takes trades in the morning on the ES emini. As you can see, this snapshot shows it taking a short position with 4 contracts, and exiting with a profit.
This is what the profit equity curve looks like over the three weeks of data on the chart, not including any commissions, fees, or slippage:
Pretty nice, huh? Let’s start trading this strategy! WAIT! Not so fast…
This is what the profit equity curve looks like with standard commission and 1 tick of slippage on either side of the trade (1 tick slippage on entry, 1 tick slippage on exit):
Oops. Commission and slippage ate up all our profit and more.
Be sure you account for them.
You must also be sure that your backtesting shows possible trades, not impossible ones. I’m not going to go into much detail here, other than to say: I had a client show me a strategy he had developed for TradeStation which in backtesting made a kazillion bucks. But, trading forward it just refused to take the same type of trades at all. His problem was that his strategy entered and exited almost all the trades in the same bar. Thus, because the calculation of what the price does inside a bar is problematical, these were not realistic trades.
Which brings me to the last point under accuracy: make sure forward trading is “just” like backtesting. It won’t be exactly like it because of slippage vagueries and other issues (again I won’t go into all the details here).
Automate your strategy in simulated mode (so you don’t lose any real money). If you are day trading, let it trade for several hours. Be sure you show your actual trades, not just the strategy trades (contact me to find out how to do this, if you are not sure). Let’s say you trade from 9:00 to 12:00.
Then, turn your strategy off, then on again. Now, the trades from 9:00 to 12:00 are backtested trades! They are now in the past, calculated on past data. Since you are showing the actual trades and the strategy trades on your chart, you can see if they are the same except for slippage. If they are pretty close, you are good. If they are quite different, you have an accuracy problem.
A great trading strategy is robust – this means that without optimizing for each chart, you can put it on multiple symbols, multiple bar times, and it does well. You want a robust strategy, not one that must be niggled into working for just this stock or futures symbol, and for just this granularity of chart time.
For example, the strategy we use when we buy stocks or futures and report in the Oracle on Wilshire, does well over 10 or more years on many stocks, many commodities, and many funds, on daily charts and weekly charts. Here are a few of the equity curve lines for some of them, without fiddling with the strategy, just placing the strategy on the chart.
Oracle Daily ES emini trading 2 contracts 7 Years
Oracle Daily Facebook Since Inception
Oracle Daily DX Dollar Index 7 Years
Oracle Daily VSAT 7 Years
Oracle Weekly VSAT 10 Years
The Oracle is a robust strategy, and you should be looking for robustness in your strategy.
To check that your strategy makes money over time, I want to reiterate that you must account for realistic commission and slippage in your backtesting.
There are also a number of measures you can check to determine if your strategy is making money over time and doing well for you. These include
I’m going to briefly cover these – be sure you check all of them when you are evaluating your strategy.
It’s always nice to have a high percentage of winning trades, but it is not necessary. It depends on how big your winning trades are and how big your losing trades are. If you have very big wins, and tiny losses, you can go with a smaller percentage of winning trades. However, what if you didn’t actually manage to get into that trade that turned into the big winner? That changes your percentage of winning trades to even less. So, higher percentage is generally better.
For the Oracle strategy running on the ES emini that I showed the equity curve for above… Oh, well, let me show it again here:
For this strategy on the ES, the Percentage Winning Trades is 60%:
You need to know what your average trade net profit is. Be sure you are including commissions and slippage in your calculations. You average trade net profit needs to be big enough that if your slippage estimates are off in the wrong direction, or you miss a trade, or some other adverse event occurs, you have room enough to still be profitable. Here is the Average Trade Net Profit for the Oracle on the ES:
The profit factor is defined as the gross profit divided by the gross loss (including commissions and slippage) for the entire trading period. This performance metric relates the amount of profit per unit of risk, with values greater than one indicating a profitable system.
Here is the Profit Factor for the Oracle on the ES. This a Profit Factor well over 1, indicating a profitable system:
The RINA index combines Total Net Profit, time in the market, and drawdown calculations into a single reward/risk ratio. The larger the number, the more efficient and risk adverse the strategy.
Look for a RINA index over 200 to show a profitable system. This is a good overall metric to determine if you have the best trading strategy. However, it does not take into account a single big winning trade that may skew the results, so be sure to check the other measures as well.
Here is the RINA index for the Oracle on the ES. This RINA index is not over 200, showing that it is not as profitable as we would like:
We’d like to have small drawdown, compared to overall profit, peak to peak or trade to trade. Be sure to look at this metric as well as all the others.
Here is the max drawdown for the Oracle on the ES:
ROI is the gain of an investment minus the cost of the investment, all divided by the cost of the investment.
ROI = (Gains – Cost)/Cost
For example, if you buy 20 shares of Joe’s Pizza for $10 a share, your investment cost is $200. If you sell those shares for $250, then your ROI is ($250 – $200)/$200 for a total of 0.25 or 25% ROI.
You must include your commissions and slippage in your cost.
One way to increase your ROI is to use leverage. Note that leveraged investing or trading exposes you to higher risk.
From a very simplistic point of view, what trading a leveraged instrument means is, you can control a large quantity of something with a much smaller deposit into your trading account. One way this can happen is your broker “loans” you the money to buy or short futures, forex, or other instruments.
As an example, let’s say you have $10,000 in your trading account you could trade shares of a stock with, and a futures account where you have $10,000 that you can trade the ES emini. Of course you have much more in your account, because you don’t want to place your entire account on a single trade – so we asume the $10k is what you can afford to place on a trade. (I’ll talk about money management in a different post).
Let’s say the stock you want to buy is trading at $100. You buy 100 shares. If your stock goes up a dollar, it is now at $101. It has gone up 1 percent. You sell, and you make $1 x 100 shares = $100. You made $100 on a $10,000 investment.
Let’s say the ES is trading at 2000. Depending on the margin requirements of your broker, you could buy, say, 3 ES contracts with your $10k. If the ES goes up a point, you make $50 per point. To compare with the stock trade, we say it goes up 1%, and you get out at 2020. You sell, and you make 20 x $50 x 3 contracts = $3000. You made $3000 on a $10,000 investment.
This is a very simple discussion of leverage – there are lots of resources to learn more, and you should make the effort to do it.
You can easily increase your leverage by trading futures, options, leveraged ETFs, and Forex, to mention a few.
How much time do have to pay attention to your trading? Do you want to be a full time trader? Do you have a full time job, so you can only spend an hour or more a day determining your trades? Do you just want to be a long time investor? Do you want to have someone else suggest trades and you just go take those trades?
Be sure what you decide to do about your trading fits your time constraints.
It takes money to make money, and that’s the truth. If you have $5000 and want to make a living day trading, guess what? It probably won’t happen. You need to be well enough capitalized to be able to 1. Take the trades you want to take, and 2. Be able to absorb the losses that will inevitably come your way.
Do you want to make a living day trading? Do you want to get filthy rich trading? Do you want to dabble a bit? Do you want the ego satisfaction of finding winning trades?
Be sure you know what your goals are. Then, don’t fool yourself. Find out if your goals are possible given your time and money constraints. If you are not sure, ask!
Your strategy is only the best trading strategy if it fits your personality. Do you like the adrenaline rush of quick little scalping trades? Do you need calm consideration before taking a trade, and plenty of time to decide if it is time to get out? Then day trading is not for you! Do you need the boost to your self-esteem that finding your own trades brings you? Do you just want someone else to make the decisions for you? Do you just like dabbling in stocks?
Here’s a diagram of all the features that make up the best trading strategy, outlining everything I’ve covered in this post. You can download it to your own computer, if you like. Just right click on it and choose “save image as…”. Then, when you open it in an image viewer, it will be large enough that you’ll be able to read everything.
Hope this helped!
Whether you are new to trading or an old pro, you need to know the rules you will follow to be profitable trading. Just as in any other endeavor, you have to plan to be successful, and you must have a set of rules you will follow.
Simple Trading Rules – what does that mean? It means two things:
Here are the rules you should be using to trade:
Traders have a common problem: we have too many choices and too much information. The ever increasing speed of technology presents us with more information, ideas, news, advertising, and persuasion than we can absorb and interpret. On top of that, we have hundreds of tools to chose from to help us with our trading decisions.
Some traders try to use too many tools, looking for signals to line up before taking a trade. The more tools they use, the harder it becomes to make a decision. You probably have heard the expression “paralysis by analysis.”
As I said above, K.I.S.S. is king – the simplest solution is often the best. We like to assume that more information must be better, but this is one of the trading fallacies you should avoid. I’ve heard it said – and I believe this -that the discretionary trader who masters one or two methods of organizing market information are the most successful, and the happiest.
How to simplify things in your trading:
I am not urging you to use any specific charts or tools here. You should decide on your tool of choice after you carefully research and test, and it should even match your personality and learning tendencies. For example, if you are very visual, pattern recognition or market profile might be the tool for you. If you lean towards statistics, you might like pivot and support and resistance numbers. The point is that you need to find the right tool for you. I’ll present a number of tools and how to use them on this blog.
Is Day Trading Hard? I’m glad you asked…
The answer is yes. Yep. Indubitably.
But, it can be learned, some can be successful at it! Not all, but some…
By definition, day trading is the regular practice of buying and selling one or more security positions within a single trading day. No position, long or short, is held overnight. The idea of day trading lures many people into taking up trading. They think they will make some fast money and live the “dream” if they just learn how to “day trade”.
The appeal is obvious: No boss, working from home or wherever you get a good internet connection, and making a lot of money – it comes with a certain prestige, that cachet of success permeated with the scent of easy money.
However, once you try it, you quickly realize that it’s time intensive, stressful, and extremely difficult to make consistent money.
I made a video to show you the difference between day trading, swing trading and long term trading (investing), and some of the problems day traders encounter that longer term traders don’t face.
There is a great quote from James Altucher, that I’m going to quote in it’s entirety here – it makes me laugh, and I hope it makes you laugh too. Be sure to read the rebuttal at the bottom
Everyone wants to be a daytrader. Let me tell you the best days. You get in at 9:25am. You make the trade your system tells you to make at 9:30. And by 9:45, the trade is done, profitable, and you’re done for the day: $1800 richer and happy about it. Even better are those stories of people who took $3000 off of their credit card and “18 months later I had $25,351,011.45 in the bank!!!” The first day I decided I was going to be a fulltime daytrader, on May 18, 2001, I was so excited I couldn’t sleep at night. It was unbelievable to me how much money I was going to make.
But its all a lie to yourself. I still occasionally daytrade. And I’ve daytraded for other people. I’ve daytraded for hedge funds and for prop trading firms. Right before I started daytrading, an old-timer who had spent 40 years in the business told me, “Don’t do it. Why do you want to be involved with those people.” But I wanted to be “those people”. I was one of them. I was a TRADER.
Don’t do it: Here’s why:
– Suicide. At some point you will feel suicidal. That doesn’t mean you lost all of your money. You might just be having your worst week in 2 or 3 weeks. But for whatever reason you bought when you should’ve sold and that sent your head spinning and now you need to be talked off the ledge. I’ve talked many people off the ledge in the past 10 years and had to be talked off a few times myself. Its not a pleasant feeling. Why do that to yourself?
– You’ll overeat. Why not? You just put on the trade and the second you did it went against you. So you put on more and it went against you some more. So now you are staring at it and you are feeling bad. Your body needs to feel good. Your body is very short-term in its thinking. Its saying, “you did something that made me feel bad so now I need a doughnut. I know that will balance the bad feeling so go do it. Hurry.” So you eat a doughnut. The trade goes against you more. Screw it, you eat 5 more doughnuts. Six. Seven. I’m getting sick even writing this. Eight. Nine. And so on.
– Your eyes go bad. Imagine you have two screens in front of you and thousands of numbers and they are all blinking and changing from green to red to green. You’re staring at these numbers for thousands of hours over the course of years. I can’t read books close to me anymore. The letters all melt together and look like a kaleidoscope. I have to take my glasses off to read them. Although, is that so bad? Maybe I won’t need glasses anymore eventually.
– Social life. Do you really think that losing $500,000 of your client’s money in a day is going to make you a happy, chipper person when you go out with your friends that night. One person told me, “play with your kids. Kids always make you happy.” What the hell? Do I really want to listen to a four year old jabber about something when I’ve got money on the line? Forget it.
– Blood pressure. When I have a trade go against me, I can sit there and feel the blood pumping through my entire body. I can feel my heartbeat. That might seem like a superpower but it isn’t. If you hear every single pulse going all through your body then something very bad is happening.
– Nothing productive. My biggest regret in life is the hours I spent watching trades when I could’ve been making a website business or starting some other kind of business that could’ve actually been helpful to people. Like a doughnut store. Who am I helping by trying to snatch a few thousand dollars out of the market every day? If anything, its like I’m trying to pick someone’s pocket – the unfortunate, overeating, suicidal, bastard on the other side of my trade.
– No career. When you sit there and trade every day you’re not networking with friends or other professionals. You’re not learning anything new about the world or business. Every second you sit there watching a trade you are removing yourself further and further from any notion of a career since daytrading is not a career. You are closer to being an inmate in a mental institution and not a functioning member of society that your kids can be proud of.
– Its impossible. I know some very good daytraders. In the long run it is possible to make money daytrading. But it’s hard and it takes years to build the psychology. Every good daytrader I know suffers from all of the above. You have to be extremely humble, have no delusions of grandeur when it comes to your market opinions, take losses as quickly as possible, and not get discouraged. Alas, in the long run, I have none of these qualities. And neither do you.
Now don’t get totally discouraged from this, remember I put it here to make you laugh. Now, of course there are gems of truth in this quote, and things to guard against. But, read this quote from Chris, who commented on James’s post above:
Honestly this sounds like a post from some one who tried day trading and crashed and burned and is a little bit bitter about it. I know many people (most of them close family friends) who day trade and make a substantial living from it. Through perseverance and dedication they made it work for them, so much so that they were able to retire early than most and thus able to have more time for family and friends.
So the upshot is, is day trading hard? Truthfully, day trading is like many other professions, you have to
and then you may become a successful trader.
You need to be familiar with WHICH news affects the market you are trading, and HOW and WHEN that market is affected.
Watch this video, where I explain it in detail.
Whether you trade futures, stock, forex, your trades will be affected by news. You need to be careful when news comes out that your market will react strongly to – your trading platform can become overwhelmed with data and you won’t be able to keep up. For example, here is a chart showing the behavior of the ES emini when the FOMC announcement occurs.
If you are day trading, you should check early what news will be coming out and how likely it is to have an effect on the markets. A site you can go to for both of these is
If you see a red star, you will know that that news is likely to make the markets move.
A gold star is much less likely to move the markets, and a dot or no dot or star is news the markets will likely ignore.
Watch your chart(s) carefully during these news events for many days and weeks, and you will begin to see the pattern of reaction to news. There is nothing like personal experience to teach you what is likely to happen. Take some simulated trades during the big news reactions, just to see what happens on your platform. Then, when and if you take actual trades during big news events, don’t be surprised if real fills are not really the same as simulated fills!
I myself just stay away from daytrading during news. It is too risky for me.
Controlling our emotions is always a challenge when trading! If you know how to take a “free trade”, you can sit back and relax, get that cup of coffee, really have fun trading. This is one of those trading tips you can really use.
Watch the video below to see it in action.
You can take a “free trade” no matter what instrument you are trading, and no matter the time frame – day trading, swing trading, long term trading – it can be done anywhere, anytime.