TimRacette

The way I read the graph is that you learn and learn and learn about the markets, but really don't see much results in terms of profits. It's not until you learn about yourself and can detach yourself from the money and can objectively manage your trades the same way each and every time that the profits begin to roll in. This is that last bit of learning that comes on the spectrum.

Can you elaborate? The gist of it is it's not a game of knowledge it's a game of execution.

If you have $10,000 to put towards your trading account, don’t waste your time. As a matter of fact if you have $15,000 or even $25,000 in your trading account, don’t waste your time. That is, don’t waste your time with careless mistakes because every trade counts. The Learning Curve is Flat The learning curve for learning how to trade futures for a living can be extremely flat, that is you may spend countless hours learning all there is to know about the trading the markets, but you aren’t seeing a return in profits. Your time spent learning increases, but your account stays the same, or in many cases shrinks. If you want to win at this game and become consistently profitable over time then you absolutely, positively, must be disciplined 100% of the time, all of the time. Don't Waste Your Money on Tuition Many people like to credit their trading losses in the early years towards “tuition” or “paying their dues” and while there is something to be said for learning by doing, there is no reason for justifying a trading mistake. Every error you make in trading is costing you money. That First Step When starting out as a trader, you probably traded a practice account for a couple of months and began to learn the ropes, testing your strategy (my broker of choice is Infinity Futures for both practice accounts and live trading). After becoming anxious you make the switch to live trading and realize that most of what you learned goes out the window when you’re in a live trade. Your emotions come into play and your methodology becomes foggy. And the Light Bulb Goes Off There are many “light bulb moments” along the way, but limiting the mistakes when you’re trading a small account is crucial if you want to prevent blowing up your account. Along with reading the material on the EminiMind Blog I recommend reading and learning from the mistakes of other top traders in the Market Wizards series. 3 trading mistakes that will lead to disaster: Impulse trades – If you find yourself clicking sporadically on the trading ladder you need to stop immediately and reevaluate your trading plan. Revenge trading – Just because you had a loss doesn’t mean your next trade needs to be a home run, try for consistent singles and doubles with a few strikeouts in the mix. Trading too big for your account size – If you’re trading an account size of $10,000 then the max number of contracts you should be trading on the ES or 6E is 2, enough said. The Only Guarantee While no one can guarantee your success trading the markets (if you come across such claims be leery) I can guarantee you that if you make any of these 3 trading mistakes you will lose money. Treat your trading capital like you would your children, or if you don’t have children, like a one of a kind Porsche, you wouldn’t throw your kids in front of a bus so don’t piss away your trading account with avoidable mistakes. Patience pays in trading the markets so don’t waste your time trading a small account. Every trade is a valuable step towards generating consistent income trading futures for a living.

The following list of books are some of the most highly recognized among all great traders and should be read and reread. My top 3: * Reminiscences of A Stock Operator by Edwin Lefevre * Pit Bull by Marty "Buzzy" Schwartz * Market Wizards by Jack D. Schwager

The following are some of the best Podcasts in the industry on the subjects of Economics, Hayekian theory, Libertarianism, and Entrepreneurship. My favorite Podcasts: • EconTalk • Brain Science • Bloomberg on the Economy • The Real Estate Guys • Entrepreneurial Thought Leaders

Spot on Norman, I've found that becoming a consistently profitable trader is so much more about your ability to detach yourself from the money and the emotions to trade 100% objectively, as apposed to focusing on the system. Great post.

Hey Maelstrom, one way I use the NYSE Tick is to confirm a long target with a LOW tick and a short target with a high tick. These low and high ticks are relative, i.e. if the highest ticks for the day are +800 and we have a short setting up with a confirming +700 tick that is a very high probability setup. Does that make some sense?

In addition, becoming consistently profitable comes down to your ability to detach yourself from the emotions of winning and losing money. Once way to do this is to develop confidence in your system by reviewing your trade setups each night. This is a great way to build trust in your system which leads back to your confidence in pulling the trigger.

Great thread of comments, I'll keep mine brief. I incorporate the NYSE tick into my entry methodology and it really helps limit the number of stopouts because you are entering as the freight train is slowing to a hault and starting in the other direction (so to speak). A 15-minute & 512 tick chart on the ES + a NYSE tick chart is what I use for the ES. I use the same for the 6E minus the NYSE tick.

It is never the stops fault for taking you out of a position, the problem lies within the entry. If you find your positions are constantly stopping you out try cutting your position in half and doubling your stop size. It's all relative.

Wykcoff, you should be able to sit down with your broker and go over all the specifics. It's extremely important to fully understand all the terms and limits because a broker will close out your position if you don't meet the requirements. It's also incredibly important that you don't trade more than 2 contracts with an account less than 10k. I say 2 because the difference between 1 and 2 contracts and the ability to scale out can dramatically transform your trading, so getting to 2 contracts is important. That being said, if you risk 1% per trade on a 20k account that's $200, which would be an 8 tick stop on two contracts on the ES. Focus on risk first, then reward.

From a longer time frame perspective spot is definitely the way to go as you don't have any sort of rollover to deal with as you do with currency futures. From an intraday and shorter time frame perspective trading the currency futures such as the Euro 6E is much more lucrative due to the single pip spread and extremely fast fills.

I was always a fan of Jeff's Option Addict blog back in the day. I learned a lot about price action and options trading from there. Great guys Jeff and Eric, I picked up so much chatting with them over the years.

The Tax Guide for Traders by Robert Green is the best book out there I've found.

I’m sure you’ve heard the saying “treat trading like a business.” Setting up a trading entity correctly is an important step if you are (or plan to be) a full-time trader. After reading this article you will have a grasp of: How a trading business functions What the components of a trading business are What kind of expenses can you write off It’s really quite simple, Hobby’s cost money, businesses make money. The purpose of a trading business is to capture profits just like an ordinary business. The difference is you are not selling a product or providing a service, therefore the real benefits of creating an entity around your trading business is for tax purposes. Forming Your Trading Entity The most common way to setup a trading entity is as a Limited Liability Company (LLC) in the state which you live. While tax laws vary from state to state, they don’t provide a significant advantage when setting up your trading entity. The name does not need to be extravagant, as the purpose of your LLC is to separate your trading capital from your personal investments, thus limiting your liability as the name states. No matter what state you file your entity in, you will need to draft your Articles of Organization, a document which includes your: Entity Name Purpose Known Place of Business Address Members and Percent of Ownership Member Signatures In most cases you will be the sole managing member of your trading entity. I recommend reviewing the information at IRS.gov on setting up an LLC. It is also effective to file your LLC taxed as an S-Corp. This is strictly for tax purposes as it makes the itemization process easier. Once you create your entity you can then file for an Employee Identification Number (EIN). This number will be used on all tax forms and trading accounts as this is how the IRS will identify your trading entity separate from your personal social security number. Your licensed tax professional will be able to walk you through this process and answer any questions you have along the way. I would check to see if they have experience with trading tax accounting as there is a lot of grey area in the current laws. Do you qualify for trader tax status? This is the first question you need to ask. I will reference Robert Green’s book, Tax Guide for Traders as this has become the industry standard for trader tax accounting. What is Trader Tax Status? There is no objective test to establish trader tax status qualification. The IRS developed the following criteria to determine if you’re eligible for trader tax status. 1. The taxpayer’s trading must be substantial, regular, frequent and continuous. Sporadic trading won’t be a trade or business. 2. The taxpayer seeks to catch the swings in the daily market movements and profit from these short-term changes rather than profiting from long-term holding of investments. As you can see the criteria is quite ambiguous, however if you are day trading the futures markets for example and are a full-time trader and have no other major sources of income to pay your living you qualify without question. If you are a part-time trader because you have another business activity, the IRS may scrutinize your qualification for trader tax status. What is Mark to Market Accounting? Mark-to-market (MTM) refers to the procedure you follow at year-end when you mark all your open positions to market prices. MTM only applies to trading gains and losses it does not apply to a trader’s business expenses. You must elect MTM accounting; it does not default when you file trader tax status. Commodities and futures use a different tax method than securities, the 60/40 rule. This means 60% is taxed at the long-term capital gains rate, and 40% at the short-term. MTM accounting is not a preferred method for profitable commodities and futures business traders because this blended 60/40 rate is significantly less than having your entire profits taxed at the short-term rate. What if You Have a Losing Year? Business taxpayers are allowed the benefit of net operating loss tax laws. These laws provide the opportunity to carry back and/or forward business losses. Make a fortune in one ear and pay your taxes then lose a fortune in the following years and carry back your net operating losses to get big refunds. What Expenses Can a Trading Business Write Off? Other benefits of setting up a trading entity are the ability to create retirement plans, deduct medical and health insurance premiums, and write off additional expenses such as computer equipment, travel to trade shows, and education materials. Since your trading gains and losses are considered ordinary gains and losses when electing MTM accounting you may deduct in full against any type of tax return income. The ability to deduct home office and education expenses and depreciation on computers and office equipment is a benefit not allotted to the typical investor. The business trader may use schedule C for these business expenses. Whether you decide to setup a trading entity and file for trader tax status or continue as a non-business trader, you must develop a detailed plan for the future if you want to succeed. Consult Your Tax Professional Make sure to consult with a licensed tax professional that is well versed in trader tax law. I am not a licensed tax professional nor am I affiliated with Robert Green’s Accounting Firm, Green Trader Tax. I just find their resources extremely helpful. Resources from this article: Tax Guide for Traders by Robert Green IRS.gov For more detailed information on Trading Futures visit the EminiMind blog.

I agree Fulcrum, I look at the NYSE and NASDAQ Breadth, AD Line, Tick, and Trin throughout the day when I trade the ES. Acts as a great barometer for what's really going on 'under the hood' with the markets.

Hi Alan, aside from assessing your strategy and entry's, one option would be to double your stop and cut your position size in half. This leaves the same risk with a wider stop.

Thanks Uli, that wasn't intended, I'll make the correction and drop the "s"

For those serious about trading for a living, the following list of traits uncovers traits found in every highly successful trader. Realize that 1% of the people who play this game take 99% of the profits. That means 99% of people who call themselves “traders” are forking over all their money to the 1% of serious and consistently profitable traders. The list of typical success traits such as discipline, focus, passion, commitment, determination, and confidence can be found in almost every trading book and, if applied, right can act as a framework for achieving success in all aspects of life. These 12 traits of highly successful traders are a result of in depth comparison of hundreds of the world's top traders, many of which are talked about in the books Market Wizards and New Market Wizards by Jack D. Schwager. If you want to make it in this game then strive to acquire these traits of highly successful traders… Discipline: It’s all or nothing So you think you’re disciplined? If you’re not disciplined 100% of the time, you cannot call yourself disciplined. This is something you must exercise each and every time you place a trade. If you break your rules just once, you cannot call yourself disciplined. As an active participant in the markets there WILL be times when you feel that it’d be okay to act on your intuition, not following your plan that you so diligently laid out, because “this time is different” and “I will only do it once” well, unfortunately it doesn’t work that way. The notion of “Cut me a break and I’ll never do it again” causes traders to blow up their accounts. You MUST live to trade another day. The market pays you to be disciplined. Losing the right way Trading is a game of statistics, and as such nothing is 100%, you will have losses, every trader does, what separates the highly successful traders from the perennial losing trader is how they lose. The following 3 rules are indisputable to the success as a trader. 1. Always use stops A trader who doesn’t use stops is at the same risk as one attempting to cross the Atlantic Ocean…by row boat. You may have a target in mind, but once the storm comes, you’re almost sure to drown. 2. Never turn a winner into a loser Once your trade is going in your favor and crosses a predetermined target you must get your stop to break even. This allows you to limit the number of full stop outs, putting you in control of your risk. 3. Never take a big loss If you’ve followed rules one and two then rule #3 will result by default. The only type of loss that can hurt you is a big loss and can wipe out days, weeks, or even months of profits. As a starting point, never risk more than 1.5% of trading capital per trade. Follow these three rules to manage your losses and the profits will come. Don’t follow them and it will be like swimming with an open wound in shark infested waters; you will be torn to pieces. Commit to learning The markets are constantly changing and adapting, you must do the same. Before you begin trading a new market you must fully understand how it works. Some of the world’s greatest traders can be found trading the futures markets. These traders have tens of years or experience and have traded through the various cycles of the market, what makes you think you can beat them? Make the promise to yourself to never stop learning and you find yourself constantly exposed to new opportunities as the market evolves. However, it all begins with the fundamentals, so know your market. Discover your inner personality No better place will you uncover your true self than in trading. The markets have a way of exposing your flaws and dragging you out of your comfort zone. It is imperative that you match your trading approach to your personality or else you will be stuck in a battle which you cannot win. Highly successful traders know themselves better than any other industry professionals. In trading, your emotions are tested to their breaking point, your reactions to winning and losing are exposed, and your will power to persevere is challenged. Just like in golf, there is no hiding behind anyone else, you are held accountable for your actions as a trader. Be honest with yourself; build your trading plan to fit your personality. Think for yourself This is one of the hardest traits to acquire, but all highly successful traders think for themselves. Don’t let others influence you or change your mind about a position. Turn off the talking heads on CNBC, and come up with your own ideas. The fruits of your success will be in direct ratio to the honesty and sincerity of your effort in keeping your own records, doing your own thinking, and reaching your own conclusions. The average man doesn't wish to be told that it is a bull or a bear market. What he desires is to be told specifically which particular stock to buy or sell. He wants to get something for nothing. He does not wish to work. He doesn't even wish to have to think.” - Jesse Livermore No one can predict for certainty where the market is headed, do your own thinking. Clarity in your plan It is true that most plans fail, but you will be far more likely to succeed if you have a trading plan, than if you don’t. Ask yourself the following questions and refine them until you have a crystal clear framework for moving forward as a trader… What is my motivation to become a trader? How will my life suffer if I don’t give 110% in becoming a trader starting right now? What is my current net worth? How much money do I need to support myself, my family, and current lifestyle? Do I have a habit of making impulse purchases? A self analysis of yourself should be answered honestly and clearly to act as a framework for building a career as a trader or any other endeavor. The book, Think and Grow Rich by Napoleon Hill is one to be read over and over again, as the principals directly apply to trading and to leading a successful and fulfilling life. Be Decisive Hesitation is the most dangerous quality of an inexperienced trader. Hesitation can come from… Not having conviction in your trading plan Trading a size to large for your account and comfort zone Most commonly, lack of experience The ability to react decisively comes from one thing, experience. The more screen time that a trader has in actively trading the markets and analyzing charts the more conviction they will have when it comes time to pull the trigger. When you hesitate you are letting the market build up steam, without a defined entry, defined stop, and defined profit target, you will find yourself in the lost world of chasing trade after trade, inherently watching great setups pass you by, only to finally enter as the professionals (the highly successful 1%) are taking profits. In the book Outliers, Malcolm Gladwell talks about the power of 10,000 to mastery. You can use the time when the markets are closed or not highly participated on to review trade setups and fine tune your edge, inching you closer to those 10,000 hours. Commit to doing whatever it takes No one said trading is easy. The most rewarding things in life come from the result of hard work. This trait in particular applies to all aspects success, but as it relates to highly successful traders most started with little or nothing in terms of trading capital, do not have an Ivy League education, and built their success in the face of people telling them they it couldn’t be done. To become a highly successful trader you must have a level of passion that drives you to do whatever it takes to reach your goal. Without this passion the journey is useless. Build confidence over time Find something positive about every situation, empower positive self talk Congratulate yourself for following your rules, regardless if the trade is a winner or loser Stick with one methodology; don’t jump ship looking for a new system every time you have a losing trade Trade to trade well and the money will follow Commit to doing whatever it takes to achieve success and the opportunities will present themselves. Patience Pays Be quick to take losses, slow to take profits. Highly successful traders remain patient throughout their trade. When a trade is going against us, we have stops to cut the loss, but when a trade is going in your favor it is also important to have profit targets. Predetermining your exit point is a two way street, you must know your stop loss AND your profit target before entering the trade. Predetermining these levels will eliminate impulse trades, trades that are placed based off feel as the market is coming into your price. Impulse trades WILL cause you to fail. One strategy to capitalize on winning trades is to scale out of your winners. A loss should always be exited in full at your predetermined stop point, however when a trade is going in your favor, having multiple targets allows for the trade continue working in your favor. Exiting half the position at your first target, half of your remaining position at a second target, and the last portion (1/4 of the original) at a third and final target can be an effective way to capitalize on your winning trades. Trail stops can also be used for extracting the most out of a winning trade. Remain Humble There is no better place to become humbled than the market. In living your life with a level of humility and respect, you will be rewarded. The emotional drive of fear and greed will be the life and death to most traders. The highly successful traders understand that the market is always right no matter what they may think. Karma will come back around, so give before you receive. Honestly, keep accurate and detailed records The importance of a sound trade reporting system is often one area overlooked. Once your trade data has been logged you are then able to go back and analyze commonalities among different setups. Recording market data is another good way to go back and spot common occurrences that you can then develop strategies to profit from. There are a few good tools out there to help with analyzing your trade data, including Microsoft Excel. Some of the things you might want to record and analyze are… Profit/Loss of each trade Time you placed the trade How you felt as you entered, during, and exiting the trade Total number of trades taken Average Risk/Reward per trade Winning Percentage Having too much information is never a problem, so when in doubt, jot it down. Get a trading journal and record your thoughts, emotions, market information, and experiences as go, these are great tools to be able to look back on and extract profitable information from in the future. Balance: Why do this? The bottom line in being a trader is to make money, of course. However, ask yourself is what you’re giving up to achieve your goals worth it? Many traders get enveloped in a downward spiral of losing trades and in worst case scenarios, watch their life savings, marriage, and health suffer. Balance is so important if you want to reach your goals with any chance of savoring some level of happiness and fulfillment. The stress of managing your own business can be immense. The emotional and monetary pressures to provide for yourself and your family can begin to eat away at the fundamental things that we enjoy in life. Simple things to help you live a balanced life are... Put your family first, above all else Eat healthy meals Exercise at least 60-minutes a day Get adequate sleep Taking frequent walks outdoors Organize your tasks for the day into specific action steps Dream big, but set realistic and attainable goals attached to a definitive date We trade for the freedom to run our lives how we choose, not having to answer to a boss or punch in on the clock. Trade to live, don’t live to trade. If you’re serious about trading for a living, working to incorporate these traits is a step closer towards your goal. Beginning from a holistic approach and outlining why you want to become a trader in the first place will help drive you through the tough times as they are inevitable. Just like Karma and the law of reciprocity, what comes around goes around. There are no shortcuts to becoming a highly successful trader. Take control of your future today and make the commitment to do whatever it takes to succeed.

Detaching yourself from the emotions of losing money and it just becomes a numbers game.

If you are profitable on SIM it doesn't necessarily mean you will be profitable on a live account, BUT if you aren't profitable on SIM and rush into live trading your hope of being profitable is close to 0%. I agree, master your system on SIM and then begin to understand the emotional battle on live trading small size. Undertrade, undertrade, undertrade as Brian Kovner says. Whatever you think your position size should be, but it in half. I enjoy your posts.

Perfect practice makes perfect. Paper trading can be super beneficial to work out the foundation of your trading system, however once making the switch to live trading and those new level of challenges come into play it becomes a whole new game. One thing I wish I did when I first started was take my time on SIM and get the system down to a T. Instead I rushed into live trading a learned form the school of hard knocks pretty quick. But on the flip side 5 years later I trade futures for a living. Thanks for the post

LT capital gains tax is currently 15%, short term income tax, for stock that are traded and held for under one year the income tax bracket in which you fall into is what those would be taxed at. Futures 25% $32,551 – $78,850 28% $78,851 – $164,550 33% $164,551 – $357,700 Futures are taxed 60% at the long term rate (currently 15%) and 40% at your income tax rate. This averages around 20-22% Tax Guide For Traders would be the book to reference on all of this material. There are also updates at Green Trader Tax (I'm not affiliated with GTT, just passing on a good source of information). Tim

I agree, the ES is better when volatility picks up. Last July with a VIX 30+ the ES was great, not so much right now for intra day.

mslk, checkout the Euro 6E. It adheres to technical setups just like the ES, but with wider ranges.