My Futures Trading Strategy
I'm going to consider my first account blow-up the cost of gaining experience. Through this experience, I found out that dynamics of the futures market is quite different from forex. It was also quite valuable as I found out I needed to look at volume-based charts rather than time-based charts. In order for me to trade futures properly, I think this post is necessary. I really need to take this step and document my trading process, just like what I did for forex. If I'm able to explain my thought process, I will be able to clearly follow it when I trade the markets live.
I really like this chart because it's quite practical. Here's what I mean by that. Each candle forms after 5,000 transactions. After look at various tick charts, I think setting it at 5,000 ticks smoothens the charts enough to clearly identify the relative highs and lows.
I plotted two major levels on this chart for this morning's session (which I didn't stick to my plan, shame on me). Looking on it in hindsight, it was entirely possible to plan trades around these two levels. Before I go to stage 2 of my analysis, I'd like to show the ESZ9 chart as I had more levels plotted.
I use the 500-ticks chart because price reacts to these levels quite well. Once you go down to the 100-ticks chart, I found that it becomes quite noise. For actual trade entries, the 500-ticks chart is quite optimal. For the most part, I use my moving averages to determine if it is a breakout trade or reversal. I tend to favor reversal signals because it follows my forex trading strategy. Why try to buy when the price already rallied? You're essentially getting filled in the tail end after everyone else have gotten in already. Reversals follow this classic saying of "buy low, sell high".
I have a two-stage process as I analyze and trade this market. Why don't we go through a breakdown of each stage.
Stage 1: 5,000-ticks chart
I really like this chart because it's quite practical. Here's what I mean by that. Each candle forms after 5,000 transactions. After look at various tick charts, I think setting it at 5,000 ticks smoothens the charts enough to clearly identify the relative highs and lows.
After I plot the major levels, I would either hop down to the 1,000-ticks or 500-ticks chart. There's a bit of flexibility here. By default, I would hop down to the 500-ticks chart as it would show 10 times more information. If the chart is choppy, I could easily adapt to the 1,000-ticks chart and see only 5 times as much information.
Finally, since I'm starting out, I will be focusing exclusively on the YM and NQ. I think the tick value on ES is a bit too high for me to tolerate.
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| YMZ9 5,000 Ticks Chart |
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| ESZ9 5,000 Ticks Chart |
I did the bulk of my trading on ES this morning. Once the levels are plotted, you can see that price is bouncing off them quite nicely. For my actual trades, I hopped down to the 500-ticks chart.
Stage 2: Taking trades on the 500-ticks charts
I use the 500-ticks chart because price reacts to these levels quite well. Once you go down to the 100-ticks chart, I found that it becomes quite noise. For actual trade entries, the 500-ticks chart is quite optimal. For the most part, I use my moving averages to determine if it is a breakout trade or reversal. I tend to favor reversal signals because it follows my forex trading strategy. Why try to buy when the price already rallied? You're essentially getting filled in the tail end after everyone else have gotten in already. Reversals follow this classic saying of "buy low, sell high".
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| YMZ9 500 Ticks Chart |
On this chart, there are two successful trades and one unsuccessful trade. I think it's entirely possible to maximize the reward to risk ratio by taking this approach. You'll always notice that I zoomed out of the candles. Instead of focusing on the choppiness of the candles, I sometimes use the moving averages for a smoothened view.
Similarly, this procedure works for ES as well. I opted not to show a chart since I would have to zoom everything out quite a bit. There were a lot more setups that I took on the ES to the point where I just got very greedy. If I were to trade the ES, I definitely would need to build quite a cushion with the profits from YM before hand.
I hope that this has provided some further insights into my trading approach. Now that I have established this trading process, I just need to remember to be patient and wait for the right moment. It's like poker. No matter how much you want to play aces, you need to fold them when the conditions are no longer optimal. You will get punished or rewarded by your decisions. Your job isn't to make money, it's to make the best decision.