Today I was shut out of day trading because my account balance fell below $25K pending a deposit of more money. If you are a 'pattern day trader' you have to maintain a minimum balance of $25,000 in your account.
This regulation was established after the dot-com bust when enough people lost their shirts day trading that they decided that you had to have more skin in the game. In an important way this prevents people from completely wiping out, unless you do it all intra-day. Once your balance falls below 25K you can only close positions until you deposit more money.
Anyway, because of this I decided to do intraday futures trading today, something that doesn't require a 25K balance. I'm trying to work on very short term scalps. In forex this means a few pips, 5 or 10. In terms of futures this means a half point or a point, with the possibility of making more.
The setups for this are based on 2 minute and 10 minute charts. The 2 minute chart is used to trigger entries and the 10 minute charts are used to describe the short term trading environment.
I had mentioned that my futures trading has, until now, been based on finding entry points when previous highs or lows were taken out, so this was a new thing. My first trade of the day was actually one at 3 in the morning when I happened to be up and was based on the perception that the futures had bottomed out for the night. This turned out to be correct, which worked for my first trade of the day. Had I set a limit sell I could have done much better, but se la vie, a win is a win.
Let me repeat that. A win is a win. The markets are in constant motion, and if you can successfully dip your cup into that stream and get 1/4 cup instead of a full cup you must be happy about that. There is nothing wrong with learning what the opportunities are in order to not leave obvious money on the table, as I am doing now, but if I walk away from a trade with a profit then I win, pure and simple.
My hesitation about trading futures intraday has been that each point is $50, with each increment being worth $12.50 and a bid/offer spread of $12.50, which means you are down $12.50 as soon as you buy. However, I decided it was time to take the plunge.
So, I made 11 trades today. On the day I grossed $100, about $300 in profits in 7 trades and a little over $200 in losses in 3 trades and after commissions netted about $15. Commissions on futures are $7 per round trip.
I started out the day trying to follow the big swings, but ended the day duplicating what I had done with forex, have a 2 minute and a 10 minute chart. When I looked at the trades for the day the losers were clear violations of the 2/10 setups and looked stupid on the 2 minute chart. This was encouraging because in all but two instances I had terrible entry positions and still didn't get killed. I had one perfect trade in terms of execution, got in at the right time and out for a point.
The technicals I'm using are the stochastic and the MACD, two of the most popular technical analysis tools. Both measure changes in moving averages, so its valid to criticize using them together because they both measure the same thing. However, they operate on different time frames. Stochastic is good for signaling entry point and the MACD, which moves more slowly, is good for indicating the general up or down trend.
So, I'm encouraged. This sort of trading, based on technicals, is easier than day trading because the technicals are the objective viewpoint and your role is to execute at the right time.
This sort of trading can complement a day trading strategy based on the SPY, which is the ETF that tracks the S&P. Since these are S&P futures I should theoretically be able to go long and short in the SPY at the same time.
To review, 1 point in the futures is equivalent to 10 cents in the SPY. For 100 shares of the SPY's you get $10 for a movement of 10 cents vs. a movement of $50 for a movement of 1 point. That's 5 to 1 leverage at work for the futures!
Why trade two securities that are based on the same thing? Well, each is different. The futures trade after hours, for instance, and have more leverage. I have 4 to 1 leverage in the day trading account and can mirror moves I make in the futures market with more room for error since the SPY's trade on pennies, not $12.50 for each tick. There are also day trading opportunities that I can't take advantage of with the futures, so having a day trading account that I mostly trade the SPY's with is useful.
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