Day trading stocks is extraordinarily difficult. The overlapping levels of knowledge is staggering to me. I had always respected it, of course, but I'm beginning to glimpse just what it takes, and it takes a lot of time doing research and years of experience to know what to look for and what patterns trigger what actions.
Its not that every decision I make is bad, its not. Its just that the losers are outweighing the winners, and as long as there is a negative delta I can't state that I can do it, and it affects my confidence level.
However, I'm not doing badly at all trading e-mini futures and I'm starting to get a clue at forex, and it may well be that's where I spend my time.
In the case of the e-minis my entry points are when the futures 'take out' recent highs or lows. As I sit its 9:42 on Thursday, November 11 and the e-minis have just matched the previous low for the day of 1202 precisely. It didn't take out the low, but it did 'wick' it, and a bounce resulted.
I passed on that trade because its the end of the day and I'm done, and I have a profit for the day (1 winner and 1 small loser).
This behavior, this taking out of highs and lows, isn't something I've ever seen before in any other setting and its quite strange. Its also very tradeable. And, unlike trading stocks, it doesn't require knowing about news, or secondary offerings, or where pivot and 50 day moving averages are or any of the other things you have to juggle when day trading stocks.
It costs $5,000 or so for one mini contract and each point of movement is worth $50, with increments of 1/4 point at $12.50. These numbers make it something I don't want to trade a lot of because you can be down a lot quickly. It also means you can do quite well, and there have been quite a few days where I stared at a 10 point range during the day, which would have been $500, and I settled for $50 or $100.
This behavior -- not letting a winner run -- is something that will hopefully change with more confidence, but I'm at the point in trading where I tend to take the first profit that's offered up. I'm not actually convinced that taking the first bite and walking away isn't the right move, because there are plenty of times that you can be up small, then down big. The 'right' move, though, from an academic perspective, is to set stops once you have a winner and be ready to take a smaller win in hopes of a bigger one.
This is a learned skill, and I'm not very good at it. When I saw $250 this morning sitting right in front of me I took it, and I'm not sorry, even though had I managed the trade better I would never have gone negative and there was $600 there to be had max.
However, the main thing about the minis is that I'm not getting bled by the death of a thousand cuts the way I am with day trading. Although I feel like I've learned a huge amount there is still this huge invisible gap that I haven't crossed -- 'turning the corner', they call it -- and I don't know what that crossing looks like. I have to say that I enjoy the challenge, though.
In terms of forex I've been trading with the smallest increment you can, which is $10,000 worth of currency, and you need $200 to place a $10,000 trade. The standard size is $100,000, and it costs $2,000 to place this trade. This small size, the 10K size, is a very nice way to trade because the absolute dollars are small and the increments of win and loss are $1 increments -- each 'pip', or unit of change in the price of a currency pair, is worth $1 when you trade $10,000 worth.
A typical day's range in the Euro (EUR/USD) is 100 to 200 pips, so you can see that you can double or lose all your money in one typical day. 200 pips = $200, which is what the trade costs. The power of leverage! However, the absolute dollars are relatively small, losing $20 on a trade means I lost 10% of the cost of the trade, but its still just 20 bucks, and that is cheap tuition to learn.
Trading currencies is also completely bereft of the complexities of the stock market, there are no CEO scandals or drugs that don't get approved or earnings misses. There are events which influence the currency markets, of course, but they are more of the geo political kind and policy type things like 'printing more money to make your currency less valuable' aka 'quantitative easing'.
Mostly its just you and one currency pair, moving up, down, sideways, rinse and repeat. Currency action can be very fast, and you can be up and down 10 pips quickly. You can also suddenly be down 50 pips if you're not being careful, and that can end the party if you aren't on top of that.
I'm still trying to learn what works for me and my style in terms of time frame, and I think what I like is the very short term scalp of 5 or 10 pips. This limits the time that I'm in a trade and it doesn't close the door to larger wins if I manage the trade well. The short term motions are in the scale of 20 or so pips during the course of an hour, and within an hour there can be 2 to 3 signals to trade using the setups that I'm working on, sometimes less if there is no clear trend, aka a 'chopfest'.
It won't be hard to scale up the forex if I become proficient, and I can turn $10 wins into $50 and $100 wins by just changing the size of the order. This all requires confidence, of course, but the learning curve is manageable. The learning curve for the minis is steeper because of the amount at risk, so I'm content to stick with a strategy for the minis of focusing on highs and lows.
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