Making money trading futures requires a combination of
- Knowing your context
- Being prepared
- Executing at a good entry point
- Controlling your risk
- Letting your profits run
- Not letting a fat gain vanish
- Letting the market tell you the trade is done
).Today was such a day for me, and I'm going to share it because I think it is particularly instructive.
Here is the context visually:
What have we got here? On the Daily level, a 25% rally in a massive bear market.
Day before yesterday: a large up day after days of rally, bumping up against the 500 level, followed by
Yesterday: Failure to penetrate above 500, trading down significantly (enough to suggest a possible end to the rally).
Today: taking off fast in the first hour, "stretching the spring" back almost to the 500 level.
And finally, a trade that's about as good as it gets:
I began the day looking for a good place to go short (and pleased to see an initial rally).
I entered where my judgment suggested the stretch was reaching it's limit (Short at 499.0, at 10:38:59).
I had my Limit Entry order resting in the market, waiting for my price.
I immediately placed a Stop Exit order into the market at 499.80.
My risk/reward on this trade I considered to be less than 1:100.
This may seem fantastical, but if the market fell to 420, and I was short the whole time, I'd have an $8k gain. For the possibility of this, I was willing to risk $80. 80/8000 = 1/100 .
Yes, it would be quite a feat to hold on for such a ride, but that is exactly the challenge I set, provided that the market chose to cooperate (it rarely does!).
So, I'm in, my $80 is on the line (whoopee!). I expect it is highly likely the market will take out my stop. I deliberately put the stop very close, because a break above 500 could be explosive, and was certainly possible. I'm aware of the previous peaks just above 520. That could be the real place to get short. (There's no way you can know the turn point - but you can make reasonable surmises and then manage your funds accordingly).
I was not stopped out. This is a minor miracle, but proof positive that the market does not care! The net order flow is what it is, with or without you. All the times you thought the market "came for" your stop, that was just the order flow (which, paradoxically, might have included "running the stops"). Bottom line is, your entry is well chosen, or not. Your stops are wide enough, or not. And that's just that. The market's movements have nothing to do with you personally (realizing this is part of "Success in Trading").
So, the market drops to 497.5 in just a few minutes (1045). If "swinging for a single". that would have been enough to get on base (i.e. take profit, get out). That was not my game today.
Then the market retraces to 499.3 (1048), prompting the urge to bail on the trade with a tiny loss (you know that imp?). I resist - I am trading my plan, I will lose $80, or win much more than that.
Finally the market breaks down for the first time, and then fakes back up a few times, and then begins breaking down big-time. By 1347, I'm sitting on a large open-trade gain. Now, for the first time, I move my stop (to 488.2), above the previous peak, $500 above the market, and way more than a "swinging for a single" daytrading stop.
On the chart, you can see the progress as I moved my stop 3 more times to ensure a bigger profit in the case of a serious reversal putting an end to my premise. (Vertical and horizontal lines are color-matched to show when the moves were made.)
Finally, at 1524, a "last hour rally" shows sufficient strength to elect my stop at 479.5.
My trade closes with a $1945 gain.
This is a sweet profit, but what is even sweeter is knowing I traded exactly according to plan. With a good profit in place, I never put a stop too tight to knock me out of the next leg in my direction. Nor did I fail to accept a stop previously placed with calm calculation, at a point which confirmed a market turn per my own way of looking at it. I let my profits run, and I let the market end my trade.
Of course, everything I did right today, I've done wrong on many other days.
That's the nature of learning this game, and it takes time.
In my private journal, every day of note, good or bad, gets recorded and analyzed.
In this public post, I offer a specific example of "doing it right", and I invite others to share their successes here as well.
Happy Trading!
