Sunday, June 5, 2011

SP500 Emini traders: 1 point a day is all you need

Most of the futures traders I know just want to make a decent living out of trading, they want to make enough for their expenses with dinners in nice restaurants, good wine, weekend and holiday travels, keeping their hobbies and keeping their wives (husbands) happy. :-)

The good news is you don't need much to achieve that, all you need to make is 1 or 2 ES points a day, usually, provided you have a good edge, you will make that in one or two trades, and for that you only need to work from 9 to 11:30 AM EST (around NY Open), no doubt the most relevant time for trading the ES during the day.

The system I use allows me to choose how I want to trade, I can either choose to trade on longer time frames (but then I have to work the whole day), risking a bit more for bigger rewards, or shorter time frames, as in the example below, I use a scalping setup that allows me to make an average of 1.50 points per trade with a win ratio above 70%, this is how the typical breakdown of my trades using a specific setup looks like:

As the risk is only 2.25 points per trade this is what I get out of every 10 trades:

7 winners X 1.50 points = +10.50 points
1 scratch at b/e = 0 points
2 losers = -4.50 points

Total = +6 points

With this kind of setup I quickly scale out half at +1 point, by doing that I'm already protected from a bigger loss, thus risking only 3 ticks on full size. Then when I get +2 points I take another 1/4 off the table and move STOP to break even, already guaranteeing +1 point and leaving the last 1/4 part running with a trailing stop.

By taking small little bites every single day you can go really far by increasing the size of your bets as your account grows, you just need to set monthly targets and add more cars when those targets are met, now you will be risking only your profits. In order to illustrate that trade idea, let's suppose you have US$ 20,000 in your trading account, you could trade like this:

You can start by trading 4 cars until you reach your target at say US$ 24,000, after reaching that target you may double the size of your bets to 8 cars, because now you would have to lose at least 4 times in a row to give all your profits back, and that does not happen if you have a good edge.

Now your next target will be for instance US$ 30,000, when you get there you may increase the size of your bets to say 12 cars, and so on until you're trading 100 cars and more, trading exactly the same way you were when you started with only 4 cars. That is very doable, it only takes a good system and discipline to execute it.

Trade well, best of luck!