Crude Oil – WTI – or WTF?
Initially staying away from Oil today – there was too much volatility for me on this instrument following the dovish FOMC announcements & comments last night. US dollar weakness generally triggers rallies in WTI since it is denominated in US dollars. Additionally I don’t understand why it gapped up 200 points given that the dollar had stabilised over the 90 minute period. (Crude Oil always has an approximate 1 hour market closure in the evenings, normally 10-11pm GMT, but 1hr earlier at present due to US daylight savings). One advantage that retail traders have is that they don’t have to trade every day – if I don’t understand something, then it’s much better for me to stay away from it.
Similar story with Cable – the range from the low to the high for yesterday’s session was 500 pips. From that high to the low of today was another 300 pips, and it has rallied 150 pips from that low to the current price. I think I will stay out of that one to begin with – thank you very much!
Which instruments to trade and which to stay away from? (with a special dedication to my Italian friend, Mr.A!)
This is something that came up in a recent conversation I had with a friend. I always think that retail traders don’t pay enough attention to this point.
Consider the typical spread (and commission, if any), the instrument’s ATR, typical stop and target sizes. For swing traders – i.e. traders holding positions for more than one day – also need to consider rollover costs. Note that the rollover costs can really add up over time. What proportion do the transaction costs represent in relation to your trade targets and stops, which in turn are likely to be influenced by the daily ATR?
Think about the following instruments – DAX, Oil, Cable, Gold, Nikkei, Dow, GBPNZD, EURGBP, AUDUSD – I have not considered rollover costs since I don’t tend to swing (trade). For each instrument – what is the daily ATR, what is the typical spread/commission, what is your typical target and stop size? Based on the relative costs, which instruments would you rather trade? As a context, consider that in the casino, the game of blackjack has a house edge of 0.5%, single-zero roulette has 2.7% and punto banco/baccarat around 1%. These might be useful comparison.
A couple of examples for anyone looking to start on this exercise.
- Spread = 1 point
- Daily ATR = 195 points
- Stop/Target Size = 50 points
- Spread/ATR = 0.5%
- Spread/ Stop/Target = 2%
- Spread = 5 points
- Daily ATR = 202 points
- Stop/Target Size = 50 points
- Spread/ATR = 2.5%
- Spread/ Stop/Target = 10% (so WTF do I bother trading WTI?)
Gold (wink! wink! Mr.A)
- Spread = $0.50
- Daily ATR = $15.60
- Stop/Target Size = $7
- Spread/ATR = 3.2%
- Spread/ Stop/Target = 7.1%
Progress of testing & strategy development
I am really disappointed with this. The testing is simply taking too long. I am progressing too slowly with it.
- What am I going to do about this?
- Why am I getting so few trades when I am using the 5M timeframe as the XTF?
- Why is the testing going so slowly? Is my setup parameter to complex/sophisticated?
- Should I try to find a strategy that I can test simply?
- Why can’t I knock out 300 test trades a week?
- What about building on the base of the ES and TY futures trading?
- What about pulling something else from my trading pipeline?
- What about stopping testing and just trading what I have already developed thus far?
- What about trying to use the strategy on more instruments? For example I could just not do ANY testing for the next two weeks and see how many live trades I can catch across all markets.
I cannot afford to spend as much time as I have the last few months, and then potentially conclude that a strategy is not viable after all. These are things to think about. Certainly from a pure business perspective I am not doing very well here. I am progressing far too slowly with this business operation. I will try to answer these questions on Friday morning when my mind is going to be fresher. Right now I am going to leave the office and chill out for the evening! I got some books to read, French that i want to learn and food I want to cook!
I ended up with a trade each on DAX and on Oil. Oil (with 0.5R risk) was a small winner. The DAX was scratch. I had also been watching Cable earlier and had a good setup but couldn’t take because of impending news. Thus I was very disciplined today. I was also quite strict with my position management on the two trades. So pretty good trading really.
Here are the charts for those two trades yesterday: