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Nero78

New Trader with a Question

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Hi, I've been paper trading the e-mini s and p for a few months now, and I was going to start trading live at the beginning of 2012, but I noticed that volatility has decreased tremendously since the start of the year.

 

I was going to start off by trading 1 contract, however, there is not enough volatility for any type of profit.

 

So, my question is, do some of you traders adjust the amount of contracts you trade to reflect the conditions of the mini s and p, or do you wait for conditions to improve to start trading?

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Hi, I've been paper trading the e-mini s and p for a few months now, and I was going to start trading live at the beginning of 2012, but I noticed that volatility has decreased tremendously since the start of the year.

 

I was going to start off by trading 1 contract, however, there is not enough volatility for any type of profit.

 

Maybe if you've been only paper trading for a few months, then starting off with 1 contract is a good idea. Volatility can be good but with you new to trading or trading a new contract at least, you should be thankful for the calmness of the market right now. The volatility can make you money, but it can bite your ass in a hurry when real money is on the line. I have been trading 1 contract this year and have made money so far; it certainly is possible. It is boring, yes, but patience can pay off.

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So, my question is, do some of you traders adjust the amount of contracts you trade to reflect the conditions of the mini s and p, or do you wait for conditions to improve to start trading?

 

The number of contracts that you trade should be adjusted mechanically according to you account equity, in line with whatever money management formula you employ.

 

If your system is volatility-dependent, which it sounds as though it may be, then you should only be in the market when volatility is high. You should have some objective criteria for the level of volatility that must be met before you begin trading, although this could be adaptive (for example, only entering when the volatility measure you use is above a moving average of that volatility measure).

 

All in all though, as others have asked, has your strategy been thoroughly backtested across a wide range of market conditions and over a significant period? Without wishing to sound patronising, something that would have been incredibly profitable in the last months of 2011 may lose these profits (and then some) in the first months of 2012. You need to endure your trading method is profitable over a substantial period of (historical) time before you commit to it.

 

Hope that's helpful!

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Thanks for the replies. Yes, I have a method I have finally stuck with. I've tried several variations, and finally settled on a combination of renko chart, slow stochastic, bollinger bands, and candlestick patterns.

 

I did backtest the strategy using last years data, and it does seem to work.

 

I have a set target of 3 points on every transaction. That is my goal; and my stop loss is equal to my target price. I am not sure if this a dumb move, again I am a new at this, and I am aware that my risk to reward ratio is even. But my strategy involves getting in and out of trades pretty quickly.

 

So, yes, my first priority is to have winnning trades and a successful strategy.

 

I was just caught a little off guard by the little amount of activity this month has had, for some reason I thought it would be blazing. That is what has given me some pause. Well, that and the nerve to actually place a trade. :)

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In the beginning one contract is more than enough even during low periods of volatility. These are the times when you will really test your patience and discipline. What do your trading rules and strategies say you should do during low vol. periods?

 

I coach others to only increase contracts when they are tracking their rules compliancy to >than 90%. If you can't follow your rules with one contract, you have nothing but pain waiting for you with multiple contracts.

 

Lastly you have to take what the markets are giving you and the fact that you are looking at ways to trade differently (with more contracts) is dead on. However, most of our peers on this board will tell you not to increase size until you have more time and experience.

 

Good luck my friend.

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In the beginning one contract is more than enough even during low periods of volatility. These are the times when you will really test your patience and discipline. What do your trading rules and strategies say you should do during low vol. periods?

 

I coach others to only increase contracts when they are tracking their rules compliancy to >than 90%. If you can't follow your rules with one contract, you have nothing but pain waiting for you with multiple contracts.

 

Lastly you have to take what the markets are giving you and the fact that you are looking at ways to trade differently (with more contracts) is dead on. However, most of our peers on this board will tell you not to increase size until you have more time and experience.

 

Good luck my friend.

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A Trading Plan is a key piece of the trading puzzle, if you have rules surrounding volatility then they should be in your trading plan, be easy to follow and systematic. For example when 5 min ATR is below "X" in the ES I will change my contract size by "Y".

 

Some traders will reduce their stops and targets and trade more contracts, but this can also create "death by a thousand cuts" as you constantly get wiggled out of the market.... so be careful.

 

Another option is to trade an index like the Russell2000 (TF), it moves more than the ES and is fairly correlated with the ES.

 

I guess my parting thought is that volatility is two sided, you can make more in a volatile market, but your losses can also be much larger....sometimes when starting out trading a slow market is nice because it allows you better define your risk.

 

--------------------------------

Tristan Jeanneault

T2C Trading

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