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Most traders should avoid FX, options, futures
- Thread starter detective
- Start date
If I remember correctly I would try to have a 4:1 r/r ratio. Risk a couple hundred in hopes to make about 800 with my tiny account.Quote from detective:
But if you have the discipline and experience, you can tell when a trade doesn't feel right or isn't acting the way it should and you get out of the position. No stop needed.
How do you set your profit targets? Is it based on how the stock behaves or TA point on the chart or fixed amount?
Quote from detective:
In my experience, the manipulation actually makes it easier to play these stocks, if they manipulate it too high, you short and wait, if they manipulate it too low, you buy and wait. If you are willing to be flexible and go both long and short, and also be willing to hold on to these stocks for more than just 1 day. And the default risk? We're not talking about junk bonds here, these stocks will trade whether they go bankrupt or not, in fact, I've seen stocks actually rally huge in the pink sheets market after a chapter 11 announcement!
Very true that it is easy to time (short) huge, over-extended rallies in small caps.
However, this ease come with a nasty price:
1) There are fewer stocks like these since most now correlate with the SP500.
2) At one point you will experience a liquidity crunch like Timmy Sykes fund did (it almost blew his fund up).
3) Also, what if the stock gaps down due to a bad news announcement (law-suit, etc.) and it blows right past your stop. Just because it hasn't happened yet doesn't mean it won't in the future. And this is a risk you carry whenever you have small cap exposure. The Fx and futures market are almost 24/7 so you can always manage your position.
You can say the moves in ES are cleaner and you can follow such and such signals. But you are playing with a bunch of other bigger players doing the exact same thing and probably doing it better than you are. And don't forget bots which are the leech of the futures market eating away at the profits of traders bit by bit.
I was talking about long term trading. If we are talking day-trading I absolutely agree with you.
detective, could you give us an example of a recent small cap trade? I am asking since most of the stocks I find correlate with the SP500. Very few are independent of it.
I would like to also mention that fx and ES are markets for very well capitalized traders (100,000 USD at least).
I would like to also mention that fx and ES are markets for very well capitalized traders (100,000 USD at least).
This is actually a good thread and gets to the core of the issue. Although I am arguing against your position, I see the following:
I think it will be important to invest in or trade asset classes that do not correlate with the general market and are independent of a large demographic trend (i.e. boomers).
It could be that we are in for a 10-20 year period of choppy ranges on the SP500 and currencies in general. SP500 and other world indices could easily turn into Nikkei and since most CBs are adopting a ZIRP, there really isn't any strong pull in either direction in fx (i.e. carry trade).
In short, there is a strong indication that the long term trends in fx and futures will not be returning any time soon.
I think it will be important to invest in or trade asset classes that do not correlate with the general market and are independent of a large demographic trend (i.e. boomers).
It could be that we are in for a 10-20 year period of choppy ranges on the SP500 and currencies in general. SP500 and other world indices could easily turn into Nikkei and since most CBs are adopting a ZIRP, there really isn't any strong pull in either direction in fx (i.e. carry trade).
In short, there is a strong indication that the long term trends in fx and futures will not be returning any time soon.
Quote from detective:
Ranking the various financial instruments for difficulty in forecasting moves and trading the swings, stocks are the easiest, because they are the least efficient. The most efficient and liquid market is the FX market, and IMO, it is the hardest to predict.
FX and futures seem more appealing, because there are only a few currencies/indexes/commodities needed to keep track of, there is a lot of volume and they are popular among traders. It is a lot "sexier" to trade ES or the euro compared to some no-name small cap stock that's trading 20 times normal volume because of some press release. In the stock universe, there are thousands of potential candidates to trade, and it seems like more work, and it is more work to search and filter out stocks to trade, but once they are filtered out, the moves are more predictable because there is a ton of retail money in stocks, especially popular small cap stocks where big money doesn't bother to swim in and the little fish are left to themselves to be eaten by bigger fish, i.e., sucessful retail traders. These markets are less efficient. Sharks, the sucessful fund managers and institutions don't even bother with most of these small cap plays that attract the daytraders due to the illiquidity.
In the futures and FX universe, there is no such inefficiency, but there is one thing that big traders and institutions need, and that is liquidity, which is only available here, along with a few big cap stocks which usually just follow the market anyway.
With options, the bid ask spread is a big bogie to overcome and options usually only exist for the bigger more liquid stocks anyway.
Yet I see small time traders here trying to trade ES and the euro or yen and I have no idea why they even bother, because those are much more difficult markets to game than the daytrader flavor of the day small caps which trade on NASDAQ or AMEX which they can trade easily due to their small size.
I'm sure most of my advice will fall on deaf ears by most small time traders who continue banging their head against the wall trying to make a few points per day on ES or some pips on the currency markets while having no edge using huge leverage to make up for the lack of volatility in those markets. My most valuable advice to these traders is simple: TRADE SMALL CAP STOCKS.
Let me guess. You have never implemented let alone contemplated a disciplined system of trading?
Good luck. You're going to need it.
Quote from detective:
Ranking the various financial instruments for difficulty in forecasting moves and trading the swings, stocks are the easiest, because they are the least efficient. The most efficient and liquid market is the FX market, and IMO, it is the hardest to predict.
Once you develop your technique the reverse becomes true.
I trade the ES by monitoring bar closes on four timeframes. The 4-hour, 2-hour, 30-min and 5-min.
For example, a key reversal on the 4-hour that closes above a major level may be concurrent with a double bottom on the 30-min which may be concurrent with several rejections of the low on the 5-min. That's a trade.
I find the ES adheres to these types of patterns far more than stocks.
For example, a key reversal on the 4-hour that closes above a major level may be concurrent with a double bottom on the 30-min which may be concurrent with several rejections of the low on the 5-min. That's a trade.
I find the ES adheres to these types of patterns far more than stocks.
I disagree with the notion that currency futures are the most difficult to swing trade. Technical analysis is a huge tool for FX traders...from bank dealers down through retail traders. Learn the trade and you can do fine.
Quote from detective:
Ranking the various financial instruments for difficulty in forecasting moves and trading the swings, stocks are the easiest, because they are the least efficient. The most efficient and liquid market is the FX market, and IMO, it is the hardest to predict.
HA good luck with this argument. I've been stating this on ET for years.
You guys who dream of making it in any other market than stocks, take a good long look at the P&L threads to see who is (and isn't) making money.