Reward Risk of Popular Index Futures

                **ER2**    **YM**      **ES**     **EMD**

10min ATR 2.7 32 4 2.6 Daily ATR 26 341 42 25 \$ / point \$100.00 \$5.00 \$50.00 \$100.00 Reward/Risk 9.63 10.66 10.5 9.62

I'm using the intra-day ATR as a risk factor because I'm assuming them as noise. I use 10 min. as the basis because that's about the time period I use. The reward is the max daily swing, which is the daily ATR.

As you can see, the reward/risk is about the same for all the liquid index futures. However, I'm leaning toward YM because of the smaller contract size and it seems more stable lately. I'll watch the markets closely from now on.

Day trading report Jan 25, 2008: -$140

[][]The keltner + stochastic strategy seems good. However, I still lost money today.

Two reasons really:

  1. my stops are too tight
  2. YM is too choppy

I have cut down on erraneous trades but the false positives on the long side today caught me many times. I don't think I'll be trading the Dow from now on. Furthermore, the more I day trade, the more I want to develop a trading system for mechanical trading. Day trading is giving me experience and ideas for new strategies. I will get back on programming soon.

I have enabled CME data and will try the ER2 next week. I decided to move to ER2 like I've always planned on. The only reason I haven't done so earlier is that the stake is a lot higher there. But if I can trade better there, then it'll be better than letting YM eat up a bit here and a bit there even though it's \$5/pt. On the same day, here's the graph for ER2. Notice that it's much nicer and fewer false signals, aka MM traps.

[][] And here's my performance report from today.


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Day trading report Jan 23, 2008: +$22

[][] Dow opened about 200 points lower today, the news were saying it'd be another down day. But most traders know better. We might be at a short term bottom at the moment because of the Fed intervention. By about noon, the market bottomed out to a new low and started to pick up. The rally went into full gear at almost exactly 3pm (ET) on a rally with little breathing room for short covering. This was quite expected and the signals were clear after the noon bottom.

However, this is where I was caught. My first 2 hours of trading were great. I was up over \$200. Then in the mid-day, even when I was right about the direction of the market, I ended up down about \$350 because of all the choppy actions. In addition, I should be more confident of my belief in a rally because of the obvious uptrend. Yet, the market acted as if it's going to plunge.

As you can see from the graph above, I got into many trades in the middle of the day. But not all of them were losing trades. I saw that the market was in a trading range and profitted from fading the breakouts. That made me a bit of money, but a few bad trades got me into the negative.

I wasn't too happy to see my account under \$15,000 in the afternoon. However, one thing I did well was regain my composure and got back into the game with a clear mind. I had put my lost behind and only strived to minimize risk in my later trades.

Fortunately, near the end of the day, a real rally broke out as expected. I didn't get excited and chased the price. Instead, I waited my opportunity on a retracement and got into a long. That one last trade made back all my loses. Even though my short term entry and exit were ok on this trade. I should have entered another long position on the 2nd retracement for the 2nd longer leg in the rally to double up on my long position. I could have made at least another \$1000 or so if I had done that.

So three lessons from today:

  1. Don't waste my time on low reward trade. Only enter trades if I expect the reward to be a few times (at least 3) more than my stop.
  2. Be careful in the mid-day when only the pros are swimming. Better yet, only trade in first 2 and last 1 hours.
  3. When I am right, raise the stake in the pot! i.e. average up!


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Day trading report Jan 22, 2008: +$1200

[][] The FED came out with an emergency rate cut of 3/4 pt today. The market was bound for a small rally. So the Dow moved from a negative 400 something point to almost breakeven and then closed down a 100 pts. There were many wild swings today. Many opportunities for a day trader.

Although I seem to have done well today, I think I could have done a lot better.

[][]Even though I knew the Dow is going to go up at least 200 pts from open, I only captured about 150 points of it. I was hesitating a lot after my winnings because I worried about losing my profits like I did before. I need to be objective in my rationale.

However, the later day action were a lot choppier and the ATR were a lot higher. Staying on the sideline may be a good decision. For my later trades in a volatile setting, I may want to increase my stop because I have missed a few good trades even though I was ultimately right.

On the other hand, my exits were a lot better today. I wasn't bagholding nor was I ragholding. I got out when I should rather I was winning or losing. In addition, my tight trailing stop method saved me a few times. Although it did got me out too early a few times too.

Lastly, I have adopted this new screen which I developed over the weekend. It's based on the triple screen strategy by Dr. Alexander Elder. The big window is for my main time frame. Then two more charts for a 5x higher and another for a 5x shorter time frames. I only enter a trade when all 3 (at least the lower 2's) are in sync. Then I exit when either the short or current time period shows weakness.


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