[QUESTION] For Those Of You Who Trade Index Futures...

[Real Money]

Why do you trade indexes over other asset classes?
So much dumb money in equities. All kinds of choice constrained participants and participants without any market understanding. Endless opportunities.

How did you develop your strategy (strategies)?
Microstructure, quant finance, mathematics, statistics, prop and investment bank secrets, years of study.

Generally speaking, how would you define your edge?
Knowing everything, and combining the most advanced techniques with that.

What gives you the confidence to keep moving along when your trading isn't going well?
Huge edge.

What are your thoughts on trying to learn from a prop firm as a beginner?
Never worked for one. I can tell you the best advice is always the hardest to hear. Learn the yield curve, index spreads, and know which participants you can beat - which ones to watch.

Additional info.
When I learned about SPAN that was the key. In the futures game it's all about mark to market, and real time risk based margin. This means money can flow in and out of your account at insane rates, simultaneously.

The best traders have mastered how to gain and lose huge amounts of money at the same time, so that they come out ahead (way ahead). Managing millions of dollars in exposure with the gains offsetting the losses.

This is stuff like buying ES and selling YM (during your trade) in a vol adjusted ratio, or buy the rate futures for the long bond and hedge with 10 year by using the curve and DV01 ratios.

The market pays you to take risks that others can't handle or don't want, and those participants will pay you a premium for the courtesy.***

You can do things in interest rates and indexes that you just can't do in other markets.
All the pension money is spread between fixed income and equities.
It never stops moving and the participants are choice constrained and in many cases price indifferent.
Add in liquidity constraints and it becomes the traders who run the tables.

The opportunity is real. But, it's kind of like that movie ReadyPlayer1. You have to love the game, and you have earn it.

 

[Sekiyo]

What about the ones that are sponsors on this forum? I know that nobody is just going to hand you a strategy and you just start printing money, but I was looking to deveolpe some type of system around just trading the ES maybe only around the open and close since the bulk of trading is done then and the rest of the day is mostly quiet.

True. Volume is "U" shaped around the day.
But it doesn't mean that's where the opportunities are.
A trader really have to adapt I believe. Learn the rules. Get a framework.
I believe a proprietary firm like SMB capital make most of its revenues from fees.
They teach you the trade but it doesn't mean you're going to be successful neither.
If you can find a PROFITABLE mentor with a PROVEN TRACK RECORD then lucky you.
Anyway you're going to have to learn through trial and errors and gain experiences over time.

If you don't mind me asking, what is the reason for this? Is it because this is very difficult to support yourself from a trading account?

I am not living off my trading account because ...
I am not profitable yet. My losses still exceed my profits.
I still let some losers run and cut some profits short. Stupid me.

If you are using order flow and level II, how would you "backtest" something like this? I would guess looking at historical data this way is totally different than a live market.

I don't backtest anything.
I just spend my time live and learn this way.

 

[BeautifulStranger]

Reply to your post is inline below:

="lc3, post: 5137697, member: 520378"]Hi BeautifulStranger,

Thank you for the insights!

Could you please kindly share some literature or books that would be a good start for beginners? I have a stat/computer science background.
The following list of resources helped and are helping my development as a trader. These resources have value, but any resource that provides specific iways on how to trade may be risky to your development as a trader. Every one looks at reality differently and tunes into some things more than others. Your stated background excercises the analytical part of your brain, which can be good, but the market tends to operate in such a way to extract money from those new traders who think logically. The keys are to not believe your idea has greater value over market action, to be disciplined, and avoid big losses.

1. Trading for a Living - Dr. Alexander Elder
This book discusses how to develop a trading strategy around multiple timeframes. In addition, Dr. Elder provides stories highlighting some of the inside workings of major trading firms.

2. Millionaire Traders - Kathy Lein and Boris Schlossberg
This book interviews successful traders who each have a different trading style. Some of these trading styles conflict with one another in general, yet both of these styles can be profitable. The key is when using a strategy, define the conditions that are favorible for it.

3. Trading in the Zone - Mark Douglas
This is a must read and exceptionally well written book on trading psychology. You will certaintly accelerate your development as a short term trader by years by reading this book or watching it for free on YouTube. Yes, you absolutely need to read or watch the key resource several times. And no, your psychology is really not different than anyone elses.

4. Elitetrader.com
There are world class traders on this site who make an exceptional living from trading (This is not me) and are happy to answer well thought through questions. Spend the time reading through the posts and journals of participants who have a high post count and who have been an ET member for say, 10 plus years. From there it is still a sorting process, but emphasze those posters who support their statements.

When doing intraday backtesting what platform do you use? I implemented one by myself but I feel it would be better to use commercial platforms than reinventing the wheels.
I used Tradestation for backtesting. Be aware that Tradestation terms of service may require you to allow them to utilize the code you write for backtesting and other uses.

Thank you!
Best wishes to you.

 

[imjohn]

1. Why do you trade indexes over other asset classes?

Simplicity and Leverage. The 4:1 available for stocks is not enough for what I want to do.

2. How did you develop your strategy (strategies)?

Trial and lots of error. Had years trying a lot of different things that didn't work, or didn't suit my personality. After a while, I settled on a combination of rules that I could consistently follow.

3. Generally speaking, how would you define your edge?

I'm able to recognize and enter when the market is clearly moving in a direction, and I'm able to resist screwing around when it's not.

4. What gives you the confidence to keep moving along when your trading isn't going well?

A trade plan that prevents statistically inevitable drawdowns from blowing me up, and a history of making it through a bunch of other times it wasn't going well.

5. What are your thoughts on trying to learn from a prop firm as a beginner?

No experience and never thought about it.

 

[rcsmie]

I don’t live off my trading but ...

1. Why do you trade indexes over other asset classes?

The level of transparency, liquidity and availability.

But it’s a tough market.
Competition, Efficiency (?)

2. How did you develop your strategy (strategies)?

By tinkering, reviewing and putting the hours.

3. Generally speaking, how would you define your edge?

Autocorrelations -> Momentum.
Volatility break out.
Order flow.
Level II.

Purely directional ...
No risk free setups yet.

4. What gives you the confidence to keep moving along when your trading isn't going well?

Not the confidence.
The urge to “Beat the market”.

5. What are your thoughts on trying to learn from a prop firm as a beginner?

If it’s a legit one with professionals.
But most likely it’s a scam and a waste.

...

These are great questions.

when you are not doing well, you shouldn’t be confident. There’s no reason for you to be confident. No proof of your set up works. Where did that confidence come from??

You should identify your mistake by review your trades. That’s where your confidence should be. For myself, I look at my exit then realize I manually exit trades early but in reality that trade would not hit my stop loss. So if I stayed in, I’d come out winning instead of suffering a small loss.

Once the error is identified, I then try to come up with plan to prevent reoccurring of the same mistake.