Maximise your 14-day TraderDock Demo
Wednesday, May 23, 2018
CME (Chicago Mercantile Exchange) is the largest futures exchange in the world and has markets spanning equities, energies, metals, bonds and agri-products. Your job as an apprentice trader is to find a market that suits your personality - watch it, learn what news influences it and trade it in simulation. Then over the passage of time and experience, tweak and refine your strategy, letting increases in your profit-making consistency guide you on the path towards market mastery. You also need to be OK with the fact that market mastery is a long way from where you currently stand - ten thousand hours of intense practice being a typical estimate. So, the question becomes how best to spend the first few hours on that lifelong journey. Our suggestions are:
- Read as much as possible about trading. A good place to start is How Futures Markets Work by J Bernstein as well as the classic Market Wizards series by Jack D. Schwager. Note in your trading journal the things from your readings that inspire or motivate you. Note areas of interest, areas that you have no interest, mistakes that you will try not to make and lessons that you will try to repeat. Know yourself by seeing what resonates within you from the accounts and experiences of others.
- Read the financial news. Again, note what elements interest you, which stories you’d be keen to follow daily/weekly/monthly. Note how you think the news items you are reading will impact the related markets. Check over the coming days if you were right.
- Check out the CME website. Start looking into the futures products that you would like to trade. If you have an interest in a particular market, try note the contract specifications to understand exactly what you would be trading. Note the trading hours, the tick value, the price increment, the contract months that can be traded and try to make sense of each of these values. Do your research and note your findings.
- Make the most of the TraderDock 14-day Demo period. It provides you with live market data for all supported CME products and access to the trading statistics in the TraderDock dashboard at the end of each trading day. To maximise your initial ascent on the learning curve the following exercises are fantastic:
No matter which market you begin trading, stay in that market with an open position for as long as possible during the supported trading hours. Open a position based on whether you would like to be long or short. Then when you want to close a long position, hit the market to get short and vice versa.
Risk Management Note: When you have an open position or an open working order, you should always be at your screen. The futures markets are both highly levaraged and highly volatile which makes mistakes costly. And as an apprentice trader, mistakes are likely!
This exercise requires an intensive amount of screen watching, making it a brilliant workout. Remember, the key to consistent profits is finding a pattern in the price movements of your market and executing trades to take advantage of that pattern. The only way to find a pattern is to watch the market move and there is nothing that triggers a trader’s intensity and concentration like an open market position. Therefore, maintaining an open position provides a marker (both graphically and emotionally) against which market moves can be keenly watched and related.
Open a new position with one lot. Try adding to this position one lot at a time but never allow the position to go more than two ticks offside. Can you get to five lots? Can you get to ten lots? Work out how to close the position for a profit. As soon as the position goes offside by two ticks or more, close it out! Get flat as fast as possible and start again. Keep trying this as many times as you can. Work on it for a few days noting what you learn from the experience.
Scaling to a large open position should only be done when the position is showing you a positive P&L. A positive P&L tells a trader that the trade idea or strategy is correct (at least temporarily). But the question then is whether they feel strongly enough about the trade to add to their position. Adding size to a trade brings the average price of the positions closer to the current market price and increases the reward/loss potential from each tick movement. Always keep in mind that you are searching for a pattern in the price movements. If you notice anything, note it. You can and will be wrong many times.
Enter as many trades as possible during the trading day, closing the position with either stop market or stop limit orders only. Stops could play an integral part in your strategy and can be a great friend to a trader who finds it difficult to cut losers. Being diligent about cutting losing trades is an integral part of any risk management strategy and therefore it forms an integral part of your trading plan. Stop losses can be an intelligent way to remove the emotion from your exit strategy and live to make another trade.