Can you make a reasonable living trading futures; say $50,000 per year net profit, which equals $200 per day?
Assuming four trades per day at one contract per trade with a 75% success rate, you would need a net profit of about $125 per trade, no matter what index you are trading. So, a strategy of $125 target/$125 stop, 75% success rate, four trades per day ought to do just fine.
Simple strategy, simple assumptions, and yet the vast majority of new traders fail. Hmmm.
There 419 futures trading rooms (FTR). So I developed a plan to analyze them, which allowed me to find the 10 best and the five very best rooms. For me, any room without a factual track record (actual dollar/ trade - not silly summaries like "winning trades," "winning days"), I set aside. No track record, no interest. Scratch 242--177 left.
Many trades, little profit. Factual track records will show that many FTRs don't achieve a "reasonable living." Some rooms post inaccurate or unreliable records (relative to what I observed directly in the room). Still others employ shenanigans to camouflage actual performances. Scratch 34 more-- 143 left.
Even with a factual track record, any room unwilling to communicate exact trade strategies (entry, target, stops) in real time I set aside. Surrogate instructions: "Sell short" (PureTick), "Consider Buying" (Millennium) tell you nothing about the actual trade.
I only accept direct knowledge where I can understand and replicate in real time their entry, stops, and targets. Many FTRs that post the largest profits at night hide their trading strategies by day. As a newbie, I refuse to pay for any expertise specifically hidden from me. Scratch 24--119 left. For each of these I observed and measured 50-1000 trades prospectively; usually four rooms a day, spanning 3.2 years, > 18,000 trades. These FTRs taught me additional profitable truths.
Index trade success varies by room; some have supreme success at one index, acceptable profits at a second and marginal at a third. After 189 NQ trades, Alpha Wave Traders averaged -$8/trade; after 100 YM trades Emini Professor averaged $12/trade and yet in both FTRs they did fairly well trading 6E. Measure average profit/trade for each index and if you see steadfast differences, weight your trades accordingly.
Daily profits vary by day of the week; certain days can consistently outperform others. Daily differences, termed diurnal variation, exist with uniformity and financial clarity. For example, for 26 Fridays Alpha Wave Traders had their least profitable day; for 25 weeks Trader Shark was most profitable on Fridays. Determine average profit per day, if your FTR exhibits diurnal variation--weight your trades accordingly.
Official targets may not achieve optimal profits. As pretentious as that sounds, I can assure you that when mathematical push comes to statistical shove, head traders cannot defend (much less define) the financial worthiness and probabilistic suitability of their chosen targets.
How can you tell as a newbie? At the end of the day, armed with 20/20 perfect hindsight, ask if you made the most profit from each trade? While the methods to ask and answer that question exceed this space, you will instantaneously see far more profitable targets exist than the ones you are using. Ask what is the optimal target, in a mathematically defined manner, and in 50-75 trades in Mr. Market will tell you-- weight your trades accordingly.
Fixed targets never maximize trade profits. Try this: choose three different fixed targets and three identical trailing stops. Compare each in a series of trades. After >18,000 trades, this type of evaluation is most revealing. Simple, straight forward, the trailing stop asks "how much money can I make in this trade" while the fixed target asks "can I just make the fixed amount only." Trailing stops rule. Determine your own--adjust your trades accordingly.
Drop counter trend trade-- they statistically generates less wealth less often, everywhere I have been.
Official stops most likely do maximize profits. Nearly 20 FTRs use two point stop for E-mini S&P 500 (ES) trades. In one FTR, maximal profits (over 925 trades) were achieved @ 3.50 pt stop. In another 1.75 points. When trades get stopped out, record by how much and then observe if those failed trades eventually go on to be profitable. With as few as 50-75 trades Mr. Market will show you what sized stop is financially in your best interests; adjust your trades accordingly.
While vast majority of new traders fail, the vast majority of trading rooms I observed did not mathematically achieve trade profits sufficient for a reasonable living.
This might also explains the pandemic failure of mentorships. Secondly, I believe that the most successful head traders have true talent, above and beyond their experience, indicators, etc. Talent is not transferrable like knowledge. Students can watch talent but they cannot leave with it. The basic model of teach and release(C) will fail in the presence of true talent.
MY ADVICE FOR PROFITABLE TRADING
Find the best rooms. Stay in the best rooms, measure every trade, stratify performance by index - by day, question the worthiness of any fixed target or stop. Probe the comparative profit of each. Quit counter trend trades. Adjust your trades accordingly.
Full length mathematical digests for most of these truths can be requested.
Disclaimer: All FTRs mentioned above, their employees or their affiliates were not aware of, did not contribute to, nor approve of this study or its imprimatur. Handley did not receive any third party compensation to conduct these studies nor has Handley received any formal training from these FTRs. Additional disclaimers or inquiries can be directed to email@example.com. Handley is a not a licensed broker or agent.--Dean Handley: PhD, MBA, JD.
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