Why folks lose money daytrading ES

G

gmst

Over the last 5-6 months, I lost more than 10k trading 1 ES contract, I was consistent - lost money every month. 10k equals 200 points, over 5 months, so each month I lost around 40 points. Meanwhile, I was making money trading FX and was using this money to burn while trading ES. I was obviously doing something correct with FX and something very wrong with ES. I had a hard time to understand what I had been doing wrong with ES. Finally, I have some insights about how I managed to lose so much money trading ES. I hope reading these insights will help some struggling traders. I will write this post over next few days, throwing one idea at a time. Experienced traders please feel free to critique.

Following suggestions apply to struggling or new traders not veterans.

Recommendation 1) Its best to not trade first 20 minutes of the day from 930 to 950 EST. Reason is market has still not find its general direction for the day and is very volatile during this period. ES typically changes direction multiple times in first 20 minutes which means higher number of whipsaws. Also, its a good idea to stop trading after 330 EST. Markets at this time can become very volatile and new/struggling traders will most likely lose money if they trade during this period.
 
Recommendation 2) If ES is going down, its a fools game to short for further downside on a small upmove and vice versa. Example: Let us say ES makes a sharp, fast and big move down from 1383 to 1376 within 3 or 4 five minute bars (i.e. in 15-20 minutes), and then it rebounds to 1378/1379, it is generally a losing proposition to short 1378/1379 thinking that it is just a correction/pause in a much longer downmove. More often than continuing to go down, ES will change its direction or it will not go anywhere (you lose on spread and commission in this case), chances are 1376 will be low for maybe 1-3 hrs before it breaks (if it breaks). The probability that the downmove completely reverses and prices start an upmove is pretty significant. Similar is the case against buying a pullback in an upmove.

I have tried to explain using above example, but I am sure many readers will find it confusing and hard to understand what I am saying. "To put it succinctly, on most of the days, ES has a tendency to reverse intra-day direction 1-2 times after a big move in one direction, so its a better trade to look for reversals with a tight stop rather than bet on continuation after a small pullback, after a big move in one direction. The fundamental reason for this behavior is that trend days on ES are rare."

Enough for today - I welcome veteran ES traders to chime in.
 
Quote from gmst:


...

Following suggestions apply to struggling or new traders not veterans.

Recommendation 1) Its best to not trade first 20 minutes of the day from 930 to 950 EST. Reason is market has still not find its general direction for the day and is very volatile during this period. ES typically changes direction multiple times in first 20 minutes which means higher number of whipsaws. Also, its a good idea to stop trading after 330 EST. Markets at this time can become very volatile and new/struggling traders will most likely lose money if they trade during this period.
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Kudos to you for directing your insight to newbies. It shows some baseline experience. However the much more important criteria for your recommendation is risk tolerance, trading style, techniques and methods. Newbie or veteran does not matter. Some traders, newbies and veterans, trade only during the first (and/or last) hour of regular trading sessions. There is a reason the first hour or so is called the golden hour.

One thing most people on this site do not get is that your job as a trader is to make money. Period. The volatility component is not a bonus, it is a prerequisite for doing the job! I am not suggesting or advocating making money by any means necessary, but only within the parameters of your risk tolerance, trading style, money management, techniques, and methodologies. Making money by "disciplined" (and ethical) trading is critical for longevity.

If your style shuns volatility, then come to grips that you are a trend follower or swing trader: Trade accordingly. Day-trading index futures is not trend following nor swing trading.
 
You and I are basically polar opposites. I trade the ES very well but not so well in the FX markets. I'm very active in the ES right after the opening bell. I love the volatility and change of direction. It doens't always occur though. I agree with you on the 3:30 issue. That's when mutual funds do their exits and entries and the market becomes highly unpredictable but when it gets going in one direction it generally continues in that direction. That being said though, I tend to avoid that last 1/2 hour mostly because I don't want to give profits back with no time to recoup them.

Quote from gmst:

Over the last 5-6 months, I lost more than 10k trading 1 ES contract, I was consistent - lost money every month. 10k equals 200 points, over 5 months, so each month I lost around 40 points. Meanwhile, I was making money trading FX and was using this money to burn while trading ES. I was obviously doing something correct with FX and something very wrong with ES. I had a hard time to understand what I had been doing wrong with ES. Finally, I have some insights about how I managed to lose so much money trading ES. I hope reading these insights will help some struggling traders. I will write this post over next few days, throwing one idea at a time. Experienced traders please feel free to critique.

Following suggestions apply to struggling or new traders not veterans.

Recommendation 1) Its best to not trade first 20 minutes of the day from 930 to 950 EST. Reason is market has still not find its general direction for the day and is very volatile during this period. ES typically changes direction multiple times in first 20 minutes which means higher number of whipsaws. Also, its a good idea to stop trading after 330 EST. Markets at this time can become very volatile and new/struggling traders will most likely lose money if they trade during this period.
More...
 
you are trading one of the most efficient,most liquid market in the world. i've been saying this for many many years..more efficiency-less profit or chance of any success. specially on retail level. specially on retail level with high leverage products.you have to realize that you are trying to compete with whole entire world of all sort of math\hft,programming geniuses,Phd's in any possible fields + your own demons. i would start with a stocks. slow moving stocks.
 
Quote from the1:

..... That being said though, I tend to avoid that last 1/2 hour mostly because I don't want to give profits back with no time to recoup them.
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the ES is open 24/7 except saturdays and holidays :confused:

hell it's even open now as I type on a Sunday 6:35 pm NY time
 
When trading FX were you trading the spot market or futures ?

If you were doing well trading FX, why on earth would you continue to trade the ES and consistently lose money? Are you a masochist ?


STICK WITH WHAT YOU ARE MOST PROFICIENT AT.
 
That opening volatility you speak of, that is precisely what defines the one strong move that ES tends to develop in the morning session, that is the easiest trade of the day in ES everything else is usually not worth it. Just keep an open mind that it could come in the form of a complete V like move aka an opening fake.

The afternoon is for giving whatever profit you made in the morning back or managing your morning entry. The meat of ES in in the first 90 minutes.

You cannot assume that trend days are rare and always trade it like chop because then when a strong move develops you won't be able to exploit it, in fact, it will exploit you. You need to do your homework and determine if the gap up/down can be faded, or if serious technical damaged occured, this can only be answered after a lot of hard work and years of study.

You must become one with ES before it opens and notice how and where its opening so you can determine what are the potential outcomes based on the opening price action.

It is not for newbies and it's definitely not for those lacking capital.
 
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