Originally posted by ctrader
Here is my story...
I want to start trading futures. I have studied the Dow index for a year now, and have developed a swing trading system that is returning approx $2K per month per $5 dow emini contract.
System features:
1. Long or short. Doesn't matter, don't try to predict, just react to current price relative to support/resistance levels.
2. Holding overnight, as tries to captures multi-day moves, ie my system has been short the cash index since yesterday at 10230. (profit of 150 pts).
Now being a newbie, I want to start out with the $2 emini... I know the liquidity sucks there, but I don't want to over leverage to start with.
I have $3K to open an IB account with.
With the $5 contract, I have never lost more then $125 on a trade, an am returning on average 80-120 a day (including loss days).
Am I kidding myself here, what is the chances I go bust, and more importantly what is the chances I will lose more then my account deposit, I am willing to lose the account deposit, but not the house.
thanks.
Hi C,
Few things:
First, the mini dow contracts are quite illiquid, especially now. You maybe should get some data and factor that into your system.
Second, you mention that you haven't lost more than $125 on a trade. What was your maximum loss, though, during a single day? You should track that as well, as your broker will be looking... i.e., if your max loss is $125 using closing prices, but intraday was $2000, your broker may liquidate. Or you might be watching it, scream "sh*t!", and break your rules.
Trading systems (algorithms), such as one you've developed, tend to take you in and out of trades at sensible levels. However, as a human you will not always behave sensibly.
More importantly, though, are market moving events. Someone in this thread mentioned a nuclear bomb. But it doesn't need to be that big. You should plan for, or at least be aware of the possibility of a move much larger and faster than you have ever seen. When the whole market is sellers, you might place a market sell order and find it filled at an obsene level (hundreds of points away in dow contracts; 50 points away in NQ is certainly not unheard of).
Most futures contracts have a daily "down limit", meaning that there is a maximum amount they can move downward during one day. However, that doesn't mean that's your maximum loss. It could go limit down several days in a row, with you unable to liquidate.
Keep an escape route. Other similar contracts, options, index tracking stock, a stock with close correlation to the contract. A similar contract traded in a foreign market, etc..
Don't be a Victor Niederhoffer. Unexpected events DO happen, and much more often than statistics would lead you to believe.
Understand in your mind and truely believe and accept that you really can lose your entire deposit and then some.
That being said, I would say go ahead carefully.
