What Market Should You Start With?

[MadMarketScientist 11]

A question I'm asked a lot, and I'm sure others is what market should a trader start with. After you learn whatever system and are ready to dip your toes in the trading water you have to start somewhere.

 

Realizing that it is sometimes system/strategy dependent, I have the following suggestions.

 

Futures:

Russell e-Mini Futures

 

Forex:

GBPUSD

 

Stocks:

QQQQ

 

All things being equal I think these would give someone the best chance of making it through the learning curves. You have typically good range and volatility, easy to execute, low execution costs and they tend to behave fairly well across a multitude of trading approaches.

 

Not to say that there are not quite a few choices in each category that could work but given most people have to start somewhere, to me these will beat quite a few others as a starting point.

 

If anyone else has their picks, feel free to contribute as well.

[TheDude 10]

I dont think big volatility that you sometimes see in R2K is such a great thing for learning to trade. Swings in volatility often lead to swings in emotion, especially for a starter. I'd go for something like bonds or 10yr that still have their moments, but generally tick a bit slower and less $ magnitude.

[StevenSJC 10]

Good point but I'd be on the side of the TF over something like ES. If margin is an issue with emini, the Dow e-Mini (YM) could be a good choice (prefer that over the Nasdaq e-mini)

 

A nice thing with the TF though is you almost always get filled at your limit price if the market touches it, and the slippage is usually minimal. But probably need $7500 to trade. Probably can get by with less on YM.

 

I used to really like the treasuries, felt they were great for beginner traders like the 30 Year (US) or Ten Year (TY) but I'll be honest and say I haven't looked at them recently - not sure there's enough range - but when there was they were super for beginners.

[ziebarf 10]

I am starting to think the ZF might be the most beginner friendly. From a price action perspective it is slow moving and reacts to support and resistance well. The tick size is pretty small too..

[Akuma99 10]

I'd lean more towards the EURUSD than the GBPUSD, the differences are subtle, but it is a little smoother, yet volatile enough for the average joe. For me anything with high liquidity is where I would want someone to start, so some eminis, fx or indices perhaps, something that isn't going to gap the arse out of your trade.

[MadMarketScientist 11]

Personally I have found that though the eurusd may be a bit smoother than gbpusd it doesn't stretch as far when it moves. Since most trade with technicals I find that the extra movement and range on the gbpusd helps.

 

Best bet is to do a manual walkthrough backrest and compare results.

[TheDude 10]

We shouldn't forget the ags either. Corn and soybeans are great for TA. You can read them like a book. $ per tick tends to be a bit smaller as well.

 

Consider this: why are all newbies drawn in to fx, NQ, YM, ES,... ? The underlyings are so much harder to decipher than the corn crop. Basic demand and supply.

 

If we work on the premise that all good trades are based on a time frame larger than that the trade is managed on, then the softs, metals, grains etc are ideal as the majority of participants are fundamentally longer term. ES, YM, GBP/USD are stuffed with funds, HFT's, etc.

 

Words like liquidity are meaningless to someone putting on a 1-2 lot trade. The reason why every newbie is suckered in to the ES etc is because the exchange give the lowest rates....commissions to the newbie/retail firms. They need new money to add liquidity for member firms HFT algo's to fleece day in day out.

 

If you're gunna trade ES, EUR/USD etc you better know your stuff because thats where the smartest and biggest money is. Same for Bonds 10, 5, 2 yr (although the FI contracts are a bit easier IMO for the reasons above).

 

Ags may not seem sexy or hot, but this is about money and learning. Sure you may get a limit up move. But thats a learning process. Also, you may get on the right side!!

[Justaguy 10]

Great call on the GU. The EU for me has so many fits and starts that it can get frustrating. If someone was looking to pop their heads out of the majors, the EURJPY is a good fit. I think both, from my own experience, are great for both swing and intraday positions.

[brownsfan019 17]

I think it's a function of what system is the new person trading, what is their risk tolerance and how many trades do they want per day.

 

Example: New person that is tedious and scared about losing.

Possible markets: Slow moving stocks, bonds

 

Example: New person that wants to jump in and wants movements

Possible markets: Most futures, forex

[MadMarketScientist 11]

Yep, solid point and even I forget about those alternatives at times. But I'm with you, I know some who trade Soybeans and do quite well, plus usually end their plan for the day fairly quickly. Wheat and Corn as well can be good -- in particular if someone is interested in swing trading over day trading.

 

I think the bottom-line is virtually everyone rushes into the few major, high volume, must well known markets but many times the real opportunities are somewhere else. Which probably explains at least in some part, why failure rate can be high for new traders. The put themselves right in the middle of some of the best traders in the world and have to compete on the majors.

 

 

 

We shouldn't forget the ags either. Corn and soybeans are great for TA. You can read them like a book. $ per tick tends to be a bit smaller as well.

 

Consider this: why are all newbies drawn in to fx, NQ, YM, ES,... ? The underlyings are so much harder to decipher than the corn crop. Basic demand and supply.

 

If we work on the premise that all good trades are based on a time frame larger than that the trade is managed on, then the softs, metals, grains etc are ideal as the majority of participants are fundamentally longer term. ES, YM, GBP/USD are stuffed with funds, HFT's, etc.

 

Words like liquidity are meaningless to someone putting on a 1-2 lot trade. The reason why every newbie is suckered in to the ES etc is because the exchange give the lowest rates....commissions to the newbie/retail firms. They need new money to add liquidity for member firms HFT algo's to fleece day in day out.

 

If you're gunna trade ES, EUR/USD etc you better know your stuff because thats where the smartest and biggest money is. Same for Bonds 10, 5, 2 yr (although the FI contracts are a bit easier IMO for the reasons above).

 

Ags may not seem sexy or hot, but this is about money and learning. Sure you may get a limit up move. But thats a learning process. Also, you may get on the right side!!

[Kiwi 16]

The Dude's call is a good one and don't even forget the thinner markets if you're willing to take a multiday swing. Rough rice is one of the most readable things out there. And look at live cattle for a mean reversion trade (contract by contract) although I recall the pain of being long LC when the US finally had a Mad Cow scare.

 

The other thing is newbies should trade slow. Basic TA actually works. But few traders win with it and I think its much more to do with the fear/greed issues that Mark Douglas described in the disciplined trader and TITZ. The faster the trade the more gut and emotion get to have a place to play. It takes the brain 15-30 minutes for the chemicals to disperse after an emotionally charged event!

 

So daily or hourly or H4 are great timescales for a beginning trader. And even an experienced trader ... less stress, more time to think, slippage and commission matter less, and the TA is clearer as the market noise to signal ratio declines.

[MadMarketScientist 11]

Great points. Swing trading can be a great style for the beginning trader in particular since without a doubt there will be many mistakes made when you're just getting going. They even happen when you have tons of experience - I know firsthand

 

I would also suggest reading the Mark Douglas books you mention. Both very good reads and many of the successful traders I know have read at least one of those, and usually multiple times.

 

 

The Dude's call is a good one and don't even forget the thinner markets if you're willing to take a multiday swing. Rough rice is one of the most readable things out there. And look at live cattle for a mean reversion trade (contract by contract) although I recall the pain of being long LC when the US finally had a Mad Cow scare.

 

The other thing is newbies should trade slow. Basic TA actually works. But few traders win with it and I think its much more to do with the fear/greed issues that Mark Douglas described in the disciplined trader and TITZ. The faster the trade the more gut and emotion get to have a place to play. It takes the brain 15-30 minutes for the chemicals to disperse after an emotionally charged event!

 

So daily or hourly or H4 are great timescales for a beginning trader. And even an experienced trader ... less stress, more time to think, slippage and commission matter less, and the TA is clearer as the market noise to signal ratio declines.

[tinyboy 10]

I dont think big volatility that you sometimes see in R2K is such a great thing for learning to trade. Swings in volatility often lead to swings in emotion, especially for a starter. I'd go for something like bonds or 10yr that still have their moments, but generally tick a bit slower and less $ magnitude.

 

Agree, the R2K can be too whippy for a starting contract

 

I like your choice of Bonds and notes, as they trade with less volatility (most of the time). You might also want to check out the Euro Bund

[eqsys 10]

If anyone wants to make money as a trader they have to:

 

1) have a system

2) backtest the system

3) know the max drawdown that has happened with that system

4) allocate 5-10x the max drawdown to trade one contract (if futures), or

5) allocate 5-10x required margin to trade one contract

 

Otherwise:

1) you will be trading on emotion, and will lose money

2) you will wake up one day and some event will cause your position to spike against you

3) you will panic and sell on the bottom, or cover your short at the top

 

You can't be overleveraged. Do you really want your total equity to be moving up and down 20-40% every day? Do you want to sleep at night?

 

Currently the TF has a daily true range of $1456 over the past three months. The exchange required margin is $3500 - so an average daily move is over 40% of margin. Do you REALLY want to subject yourself to volatility of that magnitude? The ES currently has an average daily true range of $845, and the YM $717. The ES margin is $5625 so it moves 15%, and the YM margin is $6500 so the daily move is 11%.

 

With your money moving up and down like this you really have to be able to take crazy moves against your position and still do the right thing, stick with your system, stay calm, and stick with your plan or system.

 

If I were a beginning trader I would just stick with something very simple - put the odds in my favor. Pick a stock that's going up - one that you know, and trade a small position from the long side. Unless you are wealthy you will be uncomfortable with hourly swings in your equity of more than a few hundred dollars. If you buy a few thousand dollars of NFLX and you have breakfast, and come back and it's down $400 this might make you sell the positiion, just as it's going up again.

 

All sorts of things can happen to you in the market that are out of your control - unconfirmed rumors, unusual events over the weekend, your power goes out and you can't see your positions or trade, your computer crashes just when the market is moving rapidly, you sleep 8 hours per day, you leave your computer to have breakfast, you get a bad headache and can't look at the trading screen, and on it goes. In other words, life happens while you're trying to trade.

 

If you're over leveraged or don't have a precise system, you'll lose money, and often, all of your money.

 

I pass this on after 31 years of trading.....

[BlowFish 10]

eqsys welcome to TL, Nice to see a post from someone that knows what they are talking about.

 

Of course its a function of volatility, $/tick, margin and the traders objectives, account size and risk tolerance.

[biko77 10]

We shouldn't forget the ags either. Corn and soybeans are great for TA. You can read them like a book. $ per tick tends to be a bit smaller as well.

 

Consider this: why are all newbies drawn in to fx, NQ, YM, ES,... ? The underlyings are so much harder to decipher than the corn crop. Basic demand and supply.

 

If we work on the premise that all good trades are based on a time frame larger than that the trade is managed on, then the softs, metals, grains etc are ideal as the majority of participants are fundamentally longer term. ES, YM, GBP/USD are stuffed with funds, HFT's, etc.

 

Words like liquidity are meaningless to someone putting on a 1-2 lot trade. The reason why every newbie is suckered in to the ES etc is because the exchange give the lowest rates....commissions to the newbie/retail firms. They need new money to add liquidity for member firms HFT algo's to fleece day in day out.

 

If you're gunna trade ES, EUR/USD etc you better know your stuff because thats where the smartest and biggest money is. Same for Bonds 10, 5, 2 yr (although the FI contracts are a bit easier IMO for the reasons above).

 

Ags may not seem sexy or hot, but this is about money and learning. Sure you may get a limit up move. But thats a learning process. Also, you may get on the right side!!

 

Good call. I've always thought the same

[TimRacette 11]

Starting with stocks is a must to fully understand the game. Then I think the E-mini Dow /YM is the easiest futures instrument to begin on due to the $5 per point increments. This allows for the most exit points as apposed to the E-mini S&P which is in 0.25 increments @ $12.50.

 

Biko- Ya the more "liquidity" the more efficiency, therefore harder to trade. The Ag markets are a great place to learn and take advantage of some great moves.