How Do DayTraders Make Money in the Futures Market?

Being the nice guy that I am, I ask this question and attempt to answer it. :cheesy: Your comments are welcome!

DayTraders need to find a point in the market where two things need to occur at the same time:

* > the market will likely reverse direction
* > the risk of a losing trade will be very small in relation to the likely profit from trading the future reversal

Thus, when looking at a futures chart, at any moment there are at least 3 outcomes:

1. the market is not likely to reverse in the next few moments
2. the market is likely to reverse in the next few moments, but only go a few points in the opposite direction
3. the market is likely to reverse in the next few moments, and will go a substantial number of points in the opposite direction

* When #1 occurs, we are not trading, or already in a current trade.
* When #2 occurs, we do not want to enter the market because the risk of a losing trade outweighs the benefit of a winning trade (a minor move in your trade direction will reverse and probably stop you out for a loss).
* When number #3 occurs, it will be caused by one of the 3 Reversal Principles that are common to futures markets.

SECOND QUESTION: How do you accomplish this without losing your mind?

Well, the alternatives are:
> don't bother, it's too hard
> have a computer program that gives you low risk trade entries without too many false signals & and trade a futures market that moves according to technical rules 100% of the time (note: you need to know the technical rules, and they gotta be simple!)
> use very large stop losses, you'll win most of the time, because you were born lucky

Obviously, the choice is the second one. Now, here are the 5 adavantages to doing it this way.

> #1
You want computer software that disciplines the DayTrader to only look at the market in a logical, analytical way - avoiding high risk and low profit trades, and only trading key reversals and when a trend occurs, to stay in it! Ideally, you want to trade a futures market that is not moved by "news" during the middle of the trading day...you want each reversal or trend during the trading day to occur because of technical reasons 100% of the time. When the market is likely to reverse because of "news", you want to be out of the market or for the market to always follow technical patterns so you can objectively stay in the market with a small stop loss before the news breaks.

> #2
Using this software and some basic futures training, this will change the attitude of the DayTrader from "guessing" the market and likely having inconsistent trading results (and probably large losses), to systematically trading the market all day long, with small, infrequent losses and frequent moderate to large profits. Ya gotta make 6 figures or more each quarter of the year, working no more than 4 days a week, 3 weeks a month. Doing this for a living, you need time to play!

> #3
The software should work on only one market, work every day, and give 12 to 15 profitable trading opportunities every 6 1/2 hour trading day. The DayTrader should have multiple trades every day and have a positive account every day. FOCUS, FOCUS, FOCUS!

> #4
Also, there should be a second chart that "confirms" the likely reversal that refers to the "cash" index that correlates to the "futures" index you are trading. The DayTrader only has to look regularly at no more than two charts during the entire trading day.

> #5 (optional)
There should be a overall "methodology" that can be simply taught, easily followed by logical computer literate folks and the methodology should be guaranteed to produce profitable trades - if a few trading rules are followed. Keep It Simple, Stupid (KISS method) should be used throughout the methodology and trading rules.

Yes it can be done....

These are my recommendations for how newbies or for experienced know-it-alls on how to Make Money in the Futures Market.

Regards,

MechanicalDayTrader

as both a momentum trader and a reversal trader, principally using pivot points to either fade or jump on momentum, I'd have to partially disagree with your post. It's very short-sighted only to focus on reversals, and I humbly submit it is one of the key factors in newbies failure rates. There's something, after all, to be said for buying strength and selling weakness

In the futures market (I've got about 9 years experience in index futures), all profitable trades come from reversals. Even trading a Trend -- there are reversals within the Trend. DayTraders consistently add more Long contracts during an Uptrend...they only do so at a likely "reversal" cycle - when there is a temporary 'oversold' window in the Uptrend.

Trending markets slide in and out of "overbought" or "oversold" conditions....DayTraders short during Downtrends when the market is "overbought" [when one of the 3 reversal principles occur] and close out short positions when the "oversold" market is likely to reverse upward substantially.
I do use Momentum to classify cycles, but that is a minor [but useful] critieria that agrees with all the other technical indicators when a trade is likely.

The secret is "cycles" -- when a DayTrader understands that certain cycle patterns substantially reverse the market almost 100% of the time, then the DayTrader can understand how long to stay in trades or when markets are likely to reverse. My chart features a Bottom line that moves up -- Traders buy, or close your short; Top line moves down, Traders short, or close out your long...keep it simple.

There are inherent truths within the index futures market that reveal the need for 'reversals', imo. I teach how, why and what they look like. Without understanding this concept, large losses or frequent losing trades will likely be the norm. If someone is trading a market that is NOT an index futures market, this may not apply.

This works every hour, every day on e-mini Dow market. Some people use Fibs, GANN, retracements, chart patterns...the e-mini index futures market uses known reversals that have consistent mathematical patterns [of time and price] that DayTraders can enter at low risk and likely nail decent profits.

Other markets are probably different, but the e-mini Dow can be nailed consistently, imo.

Regards,

The Mechanical Day Trader

show me how.

send me an email at my profile email address to discuss further

This forum seems to not allow posting of jpgs or graphic images, (which I find very odd). The Forum server could simply scan the image for viruses and then post it to the thread if it was ok. When I post a link to my blog, it's considered advertising....sooooooooooo....just email me.

Regards,

The Mechanical Day Trader

Click Go Advanced and you can add attachments there.

mechanicaldaytrader said:

In the futures market (I've got about 9 years experience in e-mini index futures), all profitable trades come from reversals.

This is very obviously not true! Plenty of winning trades have been made by people going with direction the market is currently moving in


the e-mini index futures market uses known reversals that have consistent mathematical patterns [of time and price] that DayTraders can enter at low risk and likely nail decent profits.

And this is not true either if someone wants to sell 10,000 contracts it will go down. The markets are moved by people and people don't conform to mathmatical patterns of price and time.

Click to expand...

Call me cynical, but I don't like seeing peole who can't make money in the markets try instead to make money selling systems and expertise to people that don't yet know any better...

Your website appears to have a page load error.


Paul

Myth Rebuttal 101

Shadowninja -- trading with stops and only risking a fraction of your net worth and only a fraction of your trading account, it would be impossible to be wiped out on one trade. That can never happen using a disciplined, systematic trading approach.

There is not a icon for adding jpgs that I can find -- all I find is adding web links. Am I missing something????


quoting Aspire -----

This is very obviously not true! Plenty of winning trades have been made by people going with direction the market is currently moving in..

Are you telling me there are not reversals at S2, S3, and S4? Ya gotta be kidding. If the reversal occurred at S1, you entered long at S2 and added contracts at S3 or S4, those are ALL REVERSALS my friend! You do not have a S2, S3, S4 or S5 unless there is a reversal at that support level....

----------the e-mini index futures market uses known reversals that have consistent mathematical patterns [of time and price] that DayTraders can enter at low risk and likely nail decent profits.

quoting Aspire -------- And this is not true either if someone wants to sell 10,000 contracts it will go down. The markets are moved by people and people don't conform to mathmatical patterns of price and time...

I have firsthand information on all this...including liquidity issues, going back to 2003 on the E-min S & P.

Currently, the E-Mini Dow handles 400 to 800 contracts (which is the largest I've seen at any one time through Rosenthal Collins with -- minimal slippage -- thru Rosenthal Collins. Limit and stop orders are transparent, that is the market makers can see how many exist at what price. When the Dow dropped about 500 points in a few minutes a few years ago (remember?) I was trading the e-mini Russell and the trading charts stayed perfect, which means the bid was constant and mathematically correct (I use tick charts).

When the FOMC announcement hits, put the Mini-Dow in a tick chart - you will see perfect technicals -- they may occur close together, but they are perfect technicals.

When I traded the e-mini S & P years ago, I had zero slippage regardless of price and size; on the e-mini Dow I may have a 'hesitation of execution by one or two seconds longer on a market order in a fast market, but otherwise, limit and stops are filled nearly as good as the S & P. The S & P has WAY more breadth and depth than the Mini-Dow.

10,000 at one instant doesn't happen in the e-mini market or the open outcry in the S & P, I know, I've been on the floor in Chicago....Warren Buffet sized orders are done 'x contracts per minute' at a set limit price -- ..that's how it is done Aspire.

I like training better than trading (trading is boring, ya have to do it for dinero) - so marrying the two during non-trading hours is ideal for some of us.

Regards,

The Mechanical Day Trader.

Trader333 said:

Your website appears to have a page load error.


Paul

Click to expand...

Cool avatar photo Paul -- the link from my profile works...my domains from my previous web host are not pointing to my new address yetPlease use the link provided in my profile, por favor -- the domains ( if you enter www--duh.com or www---duh duh.com. which are not pointing correctly yet) they are ranked #3 and #4 in google --- not bad...

Good Luck and Good Trading,

The Mechanical Day Trader

I read this somewhere... "Better to let people suspect you're a fool than open your mouth and prove it." Not sure why I thought of it just now.

jj

Scroll down when you're on the advanced page...

thx Shadowninja ---- you truely are LEGENDARY !! I added a PDF with some quick highlights of reversals; suggest 300% magnification -- a daily chart is on the left, intraday chart on the right...hint...there is a LOT more dinero to be made in trading range markets than waiting for trending markets...the Dow trends about 25% of the time, 75% trading range.....

DayTraders should be controlled by FACTS, - that means break out the spreadsheet and start doing your due diligence with numbers, percentages and reasoned analysis.

A question to the doubters -- what is the average intraday range of the Dow Cash in the last 90 days?

2nd question for the doubters -- how many times is the morning low or the morning high retraced/violated by the afternoon low or high -- express this as a percentage.

--- Multiply that range by $5 (per point)
--- Now divide that dollar figure by 500 (the minimum margin requirement for daytrading at some brokerages
---- now divide that number by 2 (thereby making your margin requirement per contract $1000 instead of the minimum $500)

3rd question for the doubters
Compute the morning range between the high and low, multiply to $5
Compute the afternoon range between the high and low, multiply by $5
Average the AM number by the number of days of the sample, do the same for the PM number.
Add the two average numbers together, multiply by $5 and multiply by the number of days.

That staggering dollar figure is the possible gross profit from R1 to S1 twice a day for ONE CONTRACT. Now, devise a trading methodology that enters at R2/R3 or S2/S3 on just trading the AM range and the PM range.

You now have computed your MBO (Management by Objective) Ideal Daily Profit. Your trading methodology will attempt to reach that goal or surpass it; since you will be trading more than four reversals per day (one buy and one sell in the AM, repeat in the PM).

Please post the answers in this thread - attach the excel spreadsheet also.

GO FOR IT!

The Mechanical Day Trader

mechanicaldaytrader said:

all profitable trades come from reversals.

Click to expand...

maybe ALL YOURS do, but don't try and make it sound like Gospel that that's the only way to make money, you might fool newbiews and suckers, but a strategy of only trying to pick reversals is a mug's game

mechanicaldaytrader said:

DayTraders consistently add more Long contracts during an Uptrend...they only do so at a likely "reversal" cycle -

Click to expand...

another stunning gross generalisation. I add to my positions all the time once a trade is steaming in the right direction - I don't wait for reversals, I set Buy Stops (or Sell Stops) on the price matrix knowing that the higherst chance of getting triggered is 'cos Momentum (and thus volume etc ) is with me

mechanicaldaytrader said:

Trending markets slide in and out of "overbought" or "oversold" conditions....DayTraders short during Downtrends when the market is "overbought" [when one of the 3 reversal principles occur] and close out short positions when the "oversold" market is likely to reverse upward substantially.

Click to expand...

you never heard of "Stochastic POP" or RSI Bounces ? Which is what many professionals who make serious money will take while the Newbies are busy shorting "overbought" conditions



Well, I had intended to have a rationale debate with you, but your response to my first message clearly shows that you are in no mood to compromise your bigoted opinion. So we'll agree to disagree. Good luck flogging your wares to mugs and suckers.

being a thin-skinned trader is good for your blood pressure...

NOT!.......and a nice day to you rathcoole.....

A theoretical question -- How do Uptrends go up in the index futures market? One of two ways in my book --

> They retrace a support level (or more than one support level) then ultimately create a higher high [yo, Adrian, that's a REVERSAL]
OR
> they don't retrace a support level but take out a resistance level (where there are lots of stops) after staying in a trading range... which either creates short covering and/or mechanical systems continue buying expecting higher highs. [yo, Adrian, there WAS a retracement to support before the trading range happened!!!]

..I take 2% drawdown on a loss, not a 10%. Put that in your pipe and smoke it dudes....In the event of a loss, my strategy leads to a 3% drawdown on your account (funded 2x daytraders margin). Conservative, consistent trading results is how you maintain your status as a full time daytrader.

*** if you DO NOT keep you trade positions near reversals, this commonly leads to very large stop losses!! Not good!!

Stay conservative, buy confirming support at the oversold level, almost always just after a overbought condition has occurred. In the Mini Dow there are some repetitive, common time/price behaviors that guide you to low risk trading - particularly if you don't take a trade unless the Dow Cash chart confirms it. This leads to much lower stress levels and small losses, much larger wins.

Continuing on my Uptrend theory...
Instead, I define an Uptrend as "consistent retracements to support that create higher highs within a certain period of time". This maxim only relates to e-mini index futures - that means not stocks, not commodities, not sports betting. If you have a problem with that, suggest you go to another thread, I am into conservative risk taking, taking positions with known profit objectives or don't trade.

Stochastic and RSI indicators are useful for trading; never said anything otherwise. Technical indicators are critical in measuring overbought and oversold conditions in the market, along with accurate reading of chart patterns and time and price principles --- in the e-mini index futures market this concept works. [caveat]

Good Trading Everyone! Keep the risk small by only entering near reversals (and go in the RIGHT direction!!)

The Mechanical Day Trader

...Trader333, the website runs fine....might be a "backbone" problem from my host servers to 'across the pond'....

A new subject relating to this topic is

memorization

IMO, of you want to trade anything with clear trading rules and have 70% winning ratio this requires memorization of the mechanical setups. You also have to know when the OVERBOUGHT or the OVERSOLD condition is likely to end in the case of trading range markets.

In the case of trends, you just mechanically enter when the trend briefly dips into OVERSOLD (for uptrends) or OVERBOUGHT (for downtrends) conditions. Mechanically, you are trading the odds..use limited risk and always have a 3x reward/risk ratio (or better).



Stuart

I have no thoughts on the merits or otherwise of the mechanical day trader system as I've not spent any time looking at it. However, I would have grave doubts about following any recommendation on any topic from a man who openly admits on his blog that his favourite music includes Enya and Celine Dion. Sorry Stuart, I'm afraid you're a lost cause!
Tim.

Originally Posted by timsk View Post
I have no thoughts

who da thunk????.

timsk said:

I have no thoughts on the merits or otherwise of the mechanical day trader system as I've not spent any time looking at it. However, I would have grave doubts about following any recommendation on any topic from a man who openly admits on his blog that his favourite music includes Enya and Celine Dion. Sorry Stuart, I'm afraid you're a lost cause!
Tim.

Click to expand...

..it's NOT a system, it's a methodology...

....my wife and I both like most of the 1000+ songs on my Napster account...you left out Thalia and Paulina Rubio AND contemporary Christian music as favorites....her opinion counts there, not yours....and my wife is right up there with Thalia as far as looks go, brother...

Hi Stuart,
I'm not clear about what your wife, her looks and her taste in music have to do with you liking Enya and Celine Dion. Anyway, be that as it may, there's no need to take offense, I assure you that none was intended. If it helps, I'm a huge fan of Amy Winehouse which, to some members - quite a few in fact - is a crime so great that they've put me on their 'ignore' list!

timsk said:

Hi Stuart,
I'm not clear about what your wife, her looks and her taste in music have to do with you liking Enya and Celine Dion. Anyway, be that as it may, there's no need to take offense, I assure you that none was intended. If it helps, I'm a huge fan of Amy Winehouse which, to some members - quite a few in fact - is a crime so great that they've put me on their 'ignore' list!

Click to expand...

No offense taken Timsk...just that there may be a minor cause/effect to what music I listen to...LOL.....if you listen to my type of musica the fringe benefits (my recently found wife) tend to be great, imo!

Could listening regularly to Amy W have the opposite effect?? [grin]

Good Trading!