What is Your Biggest Trading Challenge?

Hi,

I’d say I’m a beginner/novice trader with the fortunate position of not having to work for a living and having sufficient capital to make an attempt at learning how to trade for a living.

My goal is to trade either the ZN or the CGB for a living (I’m in Calgary, Canada).

I am set up with Ninjatrader + Jigsaw DOM, and Kinetick for Level 2 data for the ZN.

I am a little familiar with order book scalping but I haven’t found my tempo yet. In the ZN I look for absorption (+3000 contract icebergs) and back ticking. When I see this I participate and exit when I see absorption going against me.

I sometime use charts and if I see price trade 4-5 ticks from where it was a minute ago I look to fade that fast move.

CH, Canada
Answer:

Re the ZN versus the CGB, I think that is a fantastic idea. I have a lot of experience in the Aussie bond versus the Tnote. It involves looking for little divergences in an effort to grab a tick here and two ticks there.

For some time now I have had the idea that the same thing can be done with the Canadian bond. There are some similarities between it and the Aussie bond:

Shorter trading hours compared with the ZN (meaning cap trades).
Different quotation – meaning prices can get out of whack in DV01 terms.
What I call ‘one way correlation‘ (CGB follow ZN, but not no much ZN following CGB) – that means potential lag trades.

I spoke with the Canadian exchange about this and a broker mate of mine in Chicago. Neither knew what the heck I was on about – and that to me says we might be onto something interesting. I prefer the path less travelled.

The Depth Traders Boot Camp on this site is a good place to start. Then I have the ‘Speed Trader’ course which is a set of exercises designed to build your speed.

Hi Guy

My current trading challenge is basically one thing – profitability. I have been using retail trader’s indicators and patterns hence my inability to profit. I want to learn more about order flow namely DOM and hoping your course helps.
Answer:

Good stuff!

Have a good read of the [Bullseye: Top Trader Thinking] book I will start sending tomorrow. 12 chapters. It’s a good book.

If you are registered for ‘free site access’, there is a starter course on DOM there. With a paid subscription, comes a few more courses designed to build skill, speed and insight on the DOM.

The free course covers definitions and a few suggested set ups.

As well as my site, NoBSdaytrading.com has some great material. Highly recommended.

Guy

Hi,

Here my question:

“It is context which matter, there is no right or wrong in trading.”, this is what my mentor say when I still in prop trade firm(be honest I am a drop out from prop firm as my level still not as expected even there is progress). During my time at prop firm, I can come to some situation where one trader go long while another trader go short yet both of them make a profit from their trade(actually one going for pull back while another looking for continuation). What scares me actually context is nothing more than how you look at the price and info blipping in front of the trading screen, as those flashing order and price are meaningless without context put on.

Now the thing is how I can build up my context (I mean my own way looking at the market), as I feel that trading is rather subjective than objective.

From

KZ
Answer:

Hi KZ,

I wish I had a quick thing for you to do, but the answer will come from spending more time in front of the screen.

That said, it’s not just sitting there starting at a screen. You need to make the time useful and productive. The Depth Boot Camp is a good place to start, and even repeat the drills if you wish. Practise those drills in different markets too.

What are you currently trading or looking at?

GB
Follow up:

Hi GB,

I am currently looking at 10 year and 30 year treasury bond. Platform: Ninja trader with jigsaw market depth add on. Currently trying the depth boot camp on it. Attached here is a picture how it look like (need opinion whether this is an appropriate platform for boot camp).

From

KZ
Answer:

That’s great!

I’d include the 5yr note also. Keep a short term chart of them up there too, say a 5 or 15 minute chart. Watch levels in all three. Sometimes a breach of a level in one market happens before the others and can trigger a move across all three.

Also keep an eye on the emini (inverse correlation)

Understand your DV01 too. There is a course called ‘Fixed Interest Spreading Analysis’ on the site. It talks about DV01s. These are also called Basis Point Value (BVP). It’s need to know stuff if you plan to go anywhere near a Treasury bill, note or bond.

GB

Hello Guy,

My current challenge in trading is that i’m not able to get positive risk/reward ratio, my losers are equal or sometimes a bit bigger than winners, plus commissions add up and I’m burning my account every day by little pieces…

I recently trade 5 year treasury note futures, my stops usualy are 1 – 2 ticks, winners for the most part are 1 ticks…

Thanks!

JV
Answer:

Hi there,

I totally understand where you are coming from. Risk:reward becomes more of an issue when you are scalping.

I like the 5yrs as it’s easier to scratch a trade (buy and sell at same price). Don’t be afraid to do this often if the market doesn’t do your thing straight away. It might stop you from taking that 1-2 tick loss as often.

As for commissions, that’s less of an issue when you move to the Tnote and Tbond, but those are harder to scratch. There is a bit of a trade-off there.

Make sure you register for the ‘free courses access’. It starts with a short course on DOM and various setups. A paid subscription has more on DOM, but I would try the free course first and see how you go.

Regards,

Guy

Hi GB

Nice to have the opportunity to speak with you.

Here’s my challenge “Should I join a prop firm?” That is, should I trade for myself at home or join a firm? I realise desk costs and commissions are something to think about.

I took John Grady’s course quite sometime back. I am a U.S Treasuries order flow scalper currently trading 3 lots at a clip.

Hope to get your point of view on this. Thank You.

E, Singapore

Answer:
Hi there,
Prop firm commissions are not too different from a discount online broker, so they are not really an issue. Yes the desk cost is a thing to cover, particularly when you are starting out. However, the advantage is you are not using your own money to trade.

I started building this site after my experience with Singaporean traders. The material I have here is for the prop trader. The idea is you can get prop trader training without going to a prop firm OR train here first and then be a stronger candidate when you knock on their door.

Also, the idea with this site is you won’t have to google ‘how to be a trader’ then sift through all the garbage online. There is more training on my site any other prop firm I know has to offer. If other words, I have tried to make it a better place to start.

Trade on!
GB

Excellent question!

My current challenge is to be able consistently trade options with a rate of return that exceeds simple stock investing or mutual fund investing while providing good downside protection.

I’m hoping that good information regarding trading concepts will enhance my chances. There’s way too much information out there and many pundits repeating cliches’ and even contradicting themselves at times. Straightforward information shouldn’t be at a premium but it seems to be. I’m willing to put this service to the 7 week test.

Thank you for the offer.
Answer:

Hi there,

My background is in options, although I’ve shifted more towards futures spreads in the last 10 years.

I still get excited when people ask me options questions though (“get a life” my other half says). I haven’t put much options material on the site yet, but have a ‘home study’ style course ready to go. I just need a few people to hound me about it I suppose.

Without writing an essay, I would have a few tips on options trading:

1. Don’t ignore your Greeks. Most people stop at delta, but if you are spreading or selling time, then if you don’t have a good feel for gamma, it’s only a matter of time until you lose your money.

2. Don’t get greedy. Greed happens when things go well and you leverage up or ignore those black swan risks (e.g. gamma). Don’t bet your retirement money on a trading strategy.

3. Following on from the above, don’t forget to take money out when things go well. I have a mate who trades in a little FX, options and futures spreads. He has been through some dreadful periods, but had kept upbeat as he’s always taken money out of the market when things do well. I like that approach.

4. Find a good source of market analysis. For commodities, I like Hightower and I used to subscribe to the ElliottWave.com newsletter. It’s very well researched, even if you don’t follow waves (I don’t).

5. Software – have good analysis software. I like OptionVue and CQG Integrated Client. eSignal’s new option module looks awesome, but I have not used it. Good software is not cheap unfortunately, but you need it. You need to know where you are with volatility and you only get that with a good database and data feed.

I’m happy to help you with any of that if you have other questions.

Regards,

GB

Trading scared is common. Everyone goes through that at some stage. In some ways it can keep you on your toes, which is a good thing.

However it can also be a bad thing if my means you hold back from trading or not able to take the right trades.

Trading scared and not having a proven method are very much linked. It can mean one is not confident in the approach, or perhaps you need more time applying it.

Without knowing you, it’s hard to recommend one approach over another. That’s something you will discover over time. Below is a list of a few books to read. These will introduce you to a few different styles of trading and get you thinking. Have a look and see what takes your fancy. If you have other questions, just ask.

GB

  • ‘Bullseye: Top Trader Thinking’ by Matt and Sari Kirk
  • ‘Market Wizards’ and ‘New Market Wizards’ by Jack Schwager
  • Also, check out www.nobsdaytrading.com
“The biggest challenge would be psychological and how to overcome it.”

I wish I had a single answer for that one, but I don’t. Problem is there is not single answer to it.

For some, it’s more education. That’s easy. For others, it’s more about getting your own mindset in order. That’s a more complex thing. It could be making the effort to read something new each month or daily meditation or doing a bit of goal setting and weekly planning.

I take the approach of trying new things regularly. I read new things and try new ideas. When it comes to market education, I think I have read most things. That is , there aren’t too many things that haven’t been written about before. So I don’t get inspired by the latest book on trading. I do however like to read motivational or psychology books. I love podcasts too.

I’ve recently finished an interesting book called The Morning Miracle. I’ve now written a course that adapts the lessons in the book to trading. I think it’s very interesting.

GB

Hi,

Thank you for the “7 weeks of Trading” course.

I have just one question:

Does technical analysis have any merit?

Kind regards,

SG

Answer:

Great question. Yes I think it does, but I certainly don’t get too fussy over it. I first worked as a technical analysis about 17yrs ago. The job required me to be able to comment on all styles. After a few years, I realised you have to keep it really simple. If you can eyeball a chart and get a feel for where the market is, that is as good or better than following some obscure method. It also helps when more people follow the same idea as it become self-fulfilling. That means the simpler the approach, the more useful it is.

Now, that is just my view. Others have different views. Good on them. Different views are what makes a market.

GB

Challenge: “To be able to recognize the trend, pull backs, reversals, trend continuations on the DOM.”

Answer:

Hi there,

I suppose that’s everyone else’s challenge too.

If you sign up for ‘free course access’, you will have access to one of my DOM courses. It’s an entry level one with a few set-ups. There are a few others DOM course on the site too.

Reading trends though is hard. I would say the approach would change from market to market. For example how you do it in GC would differ from NG or the mini. Overall, I think you need to watch charts at the same time. What plays out as for example an iceberg resistance level on the DOM would more likely be clearer to see as a on a chart as a level.

One drill I used to run with the in-house trainees was to force them to wait for pullbacks before entries. If for example, you saw a buy entry at a certain level, you could only place an order three ticks below it. It sounds simple, but it taught patience and helped the guys get better entries (at the expense of missing a few trades of course).

The next drill was to continually place orders to buy or sell at any 3 tick pullback, not just the ones you want to trade. In other words, ignore your view on the market and just buy on dips and sell on up ticks. If you could get over the urge to break the rules, it would work out quite well. It then dawned on the new guys that most or all of the senior traders, particularly the curve guys, do exactly that day in and day out.

So those drills were an approach to trading pullbacks. It can work for shorter/smaller movement, but how you do it should take into account the details of the specific market and time of day (i.e. near the open, close or data).

One other tip is to also keep an eye on related markets. A break of a level in the Bund for example can see the Tnote follow along or a failure in one to continue will see the same in the other.

GB

My current challenges in trading are figuring out whether I should have a fixed stop and profit target or if I should let everything be intuitive. By intuitive I am referring to the process of watching everything on the fly and making a call based on the volume printing at price. I have found that on the emini it is constant fake outs and that this does not bode well. I also cannot decide if I should go all in and all out, or if I should go all in and scale out.

For example, right now I trade the Emini SP from 9:30AM EST (opening bell) until about 10:30 or 11:00. I find that the momentum is there in its most active fashion during that short block of time. Even during this time however, I only usually find 1 to 4 good trades max. Some days I end the day up but typically what happens is I end up cutting a trade at 4 or 5 ticks that would have yield 10 or 12 ticks. Then when I lose, I end up losing a full stop which might be anywhere from 4 to 8 ticks. I seem to have trouble finding a favorable risk to reward. Consistency is maybe at the core.

Kind Regards,

EF
Answer:

You are right regarding the constant fake. I used to scalp gold quite a bit and found the same. Those fakes seem well designed to weed out the weak intuition, and can be very frustrating.

Personally, I like to keep stops fixed and let upside be more intuitive. I know that is not always the best way, but you can only tell that after the fact.

I also think scalping those markets requires you to rely on more than just the dom, because the dom draws you into acting faster. I found for example in gold, halving size and doubling stops to work better.

Perhaps try using short term charts like a 3 or 5 minute chart for your stop and/or targets.

Guy

Hey Guy,

Biggest challenges for me are understanding spreading, trading economic data, identifying intra-day levels and risk management

Thanks,
Lewis
Answer:

Hi Lewis,
Thanks for sending your thoughts. Some ideas:

Understanding spreading – The ‘free course access’ level on this site includes a spread course. With a paid subscription comes more on Yield curve and Eurodollar spreading. Also, I’m in the middle of writing more on this.

Aside from this, there is not much else out there. If you are trading STIRs, then Trading STIR Futures by Aiken is pretty detailed. The other books on spreads are now a bit dated.

Trading economic data – Totally agree with you there. The site also has a free course on analysing the Payrolls data and trading the Treasuries. It’s (mostly) applicable to other data and markets.

Identifying intra-day levels and risk management – I think there are two approaches here: Technicals and reading DOM. For DOM, again my site has some material on this. One course is free plus there are four other courses for paid users. You can also check out John Grady’s site: www.nobsdaytrading.com. He’s a good guy and has written some great material.

As for technicals, the funny thing is so far I have little on technicals on the site. It’s on the to-do list. I can say however whatever I end up writing and putting up there will be pretty simple because I think that is all that is needed. Basic S&R and chart reading is enough to get you started – and there have been a millions books written on this.

I hope this helps, at least a little.

GB

Current challenges and persistent challenges have been my inability to be patient so I over trade, which in reflection I would define as a lack of discipline in my trading.
Answer:

There are two issues there: overtrading and lack of discipline. For overtrading, sometimes a little trick can fix things. Try changing your chart time frame, focusing less on the very short term. If you’re trading with 3 minutes, change the chart to 5 minutes. If 5, then change to 10. Trading only with DOM can also make you trade more often, but if that is not working, then you need to change it.

Lack of discipline is a bigger issue – but you’re not alone. It’s something we all go through. Good planning can really help here. The Organized Trader and My Morning Rituals courses are designed to help with exactly this.

There is also a great book called The Power of Focus by Jack Canfield et al. It’s a very good read.

Then of course there is Matt and Sari Kirk’s Bullseye: Top Trader Thinking available free from this site.

Hello Guy,

I wanted to pick your brain about Crude Oil (CL) and DAX.

I know these are two of the most volatile markets around (DAX for sure) and that a 1 or 2 lot can go a very long way in either of these markets.

I am considering trading CL because if I get funded with [a prop firm] they make no distinction in buying power between different markets. They start you with 1 or 2 lots whether it is Crude or 10yr Notes.

We both know that 2 lots in Crude is way more than 2 lots in the notes.

What is the prop trading world view on these two markets? I am sure they have a presence but I wanted to get a seasoned veteran’s take on these two markets.

Any thoughts or comments about them are greatly appreciated.

Thanks,

E

Hi E,

My prop experience, as I expect would be others, would suggest you should go for the Tnote.

CL is more volatile which means more risk, which means it would be more hit and miss trading when trying out for a prop firm. Many good short term traders I know make their living from the ranges and quiet times, some call it ‘noise’.

The Depth Boot Camp course, if you haven’t done it already, will show you how and why.

That said, I have seen a lot of people try a market like crude or a currency, fail, then do well in fixed interest. So you could argue it’s a good learning place.

I know TST let you try and try again, so perhaps start in a more volatile one, then come back to a safer market. Remember plenty of sim time is a good thing, as long as there is a planned approach of course.

If you go down the crude oil path and stick with it, contact me again we can talk about progression from one market to a few.

Regards,

Guy

Good Afternoon Guy,

My Current Challenges are:

  • Unsure of what times of the day to be trading
  • Desire to trade the smaller time frames really having difficulty adapting
  • Getting into a trade to early and having to wait for a move.
  • Knowing when I should be taking profit when markets conditions change.
  • Getting on the wrong side of trades when trying to enter trades by watching DOM and order flow. (Almost feel that I should do the exact opposite of what I think)
  • Had a simple technical trend following swing trade system that I created and tested live that was profitable for about 5 months and has since failed. I am currently trying to work out if I should go back and look at ways of improving that system or try something new. As it seemed my previous system gave a lot back to the markets. ( I believe the problem was risk management)
  • Working a full time job and having difficulty for when I have the time to be using that time to effectively trade or conduct meaningful trading study.
  • Strong desire to apply for a job at [a prop firm] through their trainee program but still feel I’m not confident enough to give it a shot.

Regards,

B

Hi B

I think there are enough question there for me to write a book, so one email may not do it justice, but I’ll give it a shot.

Challenge: Unsure of what times of the day to be trading.

Response: That’s a hard one to answer with not knowing what type of trader you want to become. If I can assume you are looking at intraday trading and scalping, you need to be there for the after hours session as much as the day. In fact, I’ve seen countless more people take to trading after hours than day time hours for many market including fixed interest and indices

Challenge: Desire to trade the smaller time frames really having difficulty adapting.

Response: I wrote the Depth Traders Boot Camp course for this exact reason. It requires the correct practice

Challenge: Getting into a trade too early and having to wait for a move.

Response: Sometimes it feels like picking direction is easy and it’s the timing part that is difficult. In fact, it’s more than ‘sometimes’. It’s pretty much all of the time. That’s trading. Practice doesn’t make perfect, but it makes you better. Screen time is important, and again the Boot Camp course gives you the things to look for and do while in front of the screen. The DOM Starter Course is also a good one. It looks as some specific DOM patterns, but the point of it is to give you the mindset for finding your own.

Details are here: Course Dashboard

Challenge: Knowing when I should be taking profit when markets conditions change.

Response: My old options mentor used to say over and over: “plan the trade, trade the plan”. Part of that involves having an idea of where you will exit before you enter. Sure you might have a time based exit (e.g. take a small profit if the trade doesn’t make the move you want fast enough), but you can still have that idea in your head before you enter. If you get in the habit of doing that, it’s takes a lot of stress away.

Challenge: Getting on the wrong side of trades when trying to enter trades by watching DOM and order flow. (Almost feel that I should do the exact opposite of what I think)

Response: Then do the opposite. Do the scary thing and I bet it’s no longer scary. Years ago, I was doing the California Superbike School courses. In one particular session I was given an exercise where I had to take the wrong line though corners. Go narrow in, wide out and just be in the wrong place in a corner. It was a fantastic exercise for two reasons: 1) I had to face fears about what it means to be on the dirty part of the track and I learnt it was not that bad. I survived! 2) It showed there was more than one way to do things and when I raced, with people around me, I had to be able to approach a corner in several ways and still keep the speed up. It’s a fantastic lesson and a good metaphor for trading.

So, apply the same thing in your trading. Of course it’s easier to do this on a sim, but even if you’re trading with real money and getting it wrong, then doing it on a live account might turn out to be massively awesome.

Challenge: Had a simple technical trend following swing trade system that I created and tested live that was profitable for about 5 months and has since failed. I am currently trying to work out if I should go back and look at ways of improving that system or try something new. As it seemed my previous system gave a lot back to the markets. ( I believe the problem was risk management)

Response: If you want to share the details, I can offer my opinion.

Challenge: Working a full time job and having difficulty for when I have the time to be using that time to effectively trade or conduct meaningful trading study.

Response: You need to put the hours in. If you cannot give up work, then it’s a matter of giving up other things, like that glass of wine at night and Friday night out. Think of it like training for a race. The guy that trains twice as long and smart as the next one will do better. Simple.

Sure, you need to do the ‘right training’ not just any old training, but it still takes time.

Try reading a book called The Power of Focus:

http://www.amazon.com/Power-Focus-Tenth-Anniversary-Edition/dp/0757316026

Also try ‘The Organized Trader’ course on the site. I wrote that to help people get their priorities and goals in order. I’m pleased to say the feedback has been really good. The Morning Rituals’ course follows the line, but do it after the above suggestions.

Challenge: Strong desire to apply for a job at [a prop firm] through their trainee program but still feel I’m not confident enough to give it a shot.

Response: Their approach can be very hit and miss. Trade their exact way or you’re out. I left last September and the two other key people involved in training left just after. That means they may have changed things, but I’m not sure.

My TradingCourses site has a wider variety of prop trading material that I could apply there. Additionally, I’m about to release a new training package in conjunction with another prop firm that will combine the training, simulation and funding in one. Just keep in touch and I’ll let you know details.

Regards,

Guy

Hi Guy,

One of my current challengers is finding the right market to scalp futures with. I only trade the SPI which limits my opportunities when it comes to trading. I would be interested to know what Future contracts prop traders like to scalp. At the moment I’m looking into adding HSI or MHI and I would also like to add a financial like XT or YT but I don’t know if these are good choices. What are you thoughts?

Regards,

CA

Hi CA,

I think the best advice right now is you should not be drawn to volatile markets. A scalper likes a quiet ranging market (a general statement of course).

This analogy comes to mind: You have to hunt for your own dinner and see two chickens, one is fast and the other is slow. They will both taste(yield) the same. Which one do you go after?

The point is: forget the Hang Seng for a start.

As for SPI, that one has been frustrating traders for as long as I can remember. I was speaking with a manager at a prop firm recently and he said something like ‘if a new guy insists on trading the SPI, we let him. He will tend to fail. However, then we show him fixed interest markets and he pick up the advantages straight away.’ I’m paraphrasing, but I hope you get the point.

There is no perfect answer to where someone should start, but here are some suggestions:

Learn about the Aussie 3yrs.
Learn about the US Tnote (ZN).
Learn about the US 5s and bonds (ZF and ZB).
Read up on basic spreads (bull and spear spreads).
Read up on yield curve trades.
Learn a bit about STIRs (Au bank bills and the US Eurodollars).

You could do all of that briefly or put in a lot of time. Unfortunately, you’ll get out what you put in…

You’ll then need to start with something, perhaps the bank bills or Eurodollar spreads. You’ll need patience, not adrenalin to trade these.

Also, and I’m guessing I don’t need to tell you this, but just ignore the glitzy crap you see online that tells you trading is all about their secret indicator or working “just 15 minutes per day”. I’m sure we could all perform open heart surgery by looking at a few pics for 15 minutes, but we’d be terrible at it.

Finally, stay tuned to my emails as I’ll be launching new training within a few weeks.

Regards,

Guy

Q: I’m told I should be trading 5 lots, not 1, to start with. 5 lots are not going to cut it as I feel trading that way is high risk and is only asking for trouble. I don’t want large size, I only want 1 at a clip and access so size if you are following me. Is this going to be a problem starting at prop and finishing there because they will only allow 5 max or whatever they will offer? They say you need to crawl before you walk but come on, this is the reason so many fail. It looks as if it’s designed for failure.

[GB] Five lots is not huge and it was probably meant as a maximum size as opposed to default trade size. While five lot trades can be a lot when you start out, you do need some size so you can actively queue for position and stack.
You do need to consider costs. There are fixed costs such as desk, data and platform. Budget on as much as $2k/month. Without a bit of size, that can be a hard one to get past.

Q: Please give me more information on how position sizing works and how they expect one to build up to size, if its how I think it is, they are making it very hard almost impossible to make big dollars and this is something that can be done with a small account therefore no point going prop. A shop I have spoken to says size will be unlimited and just changed the subject.

[GB] Then change the subject back again. If they are expecting you to go full time with them, you have every right (and the responsibility to yourself) to get clear answers.

As for my opinion, I think you can do what needs to be done on 3-5 lots. You need to be able to stack and double up if needed. Do well with 3-5 lots, cover costs and make a little, then ask for more.

Dear Mr Bower,

My current challenge in trading is to become a full-time trader. I have been trading for about 5 years in stocks and FX.

I have recently started looking at futures as an alternative. I am interested in learning more about DOM and order flow in combination with technical analysis. But I hear that DOM doesn’t work today, because of “high frequency trading” – there are lot of “fake” orders which make the DOM illegible. Is that true?

Best regards,

O.G

Hello O.G,

Fake orders – well there but probably fewer than what would first appear.

I should first point out, it’s actually illegal to place fake orders or ‘orders without the intent to trade’. They still exist, but that law is policed by the exchanges/regulators, as it should be.

There are a lot of orders that look fake but are not. They may be ‘autospreaders’ placing orders to trade or make market in a spread between two markets. When ‘market A’ moves, it will automatically move an order in ‘market B’. It can look like a fake order, but isn’t. It’s just an order being adjusted.

I would not say DOM does not work because of this at all. I would say you need to know how it works to take advantage of it. It’s about knowing the markets you are trading. For example, the DOM for Gold looks very different from the DOM for Natural Gas. Also, the way a DOM looks at one time in the day can be different from another time.

It’s about ‘knowing your market’. When you know the differences, you adjust your approach to trading it.

Before you start trading any market, you’ll need to spend some time with a demo account. Ninja is good, CQG also. The Depth Boot Camp course is something I have written for newcomers to learn how to trade on the demo account. It gives you a path to learning rather than opening up the demo account and hoping for the best.

Regards,

Guy

Hi Guy,

Ok you said hit “reply” so here goes…I am very interested in trading, but I have blown 2 accounts, blew out 2 demo months with a prop firm …I think my big challenges is how do I break through to profitability?

I have tried courses, trading rooms, different software, etc…all the usual stuff. I seem to have decent market knowledge, but unable to put something together that constitutes a profitable strategy. A big part of the challenge is mental. I seem to shoot myself in the foot more often than not.

Perhaps I have just enough knowledge to hurt myself. I am considering another shot at demo trading. I STILL feel like I could make it as a trader! Anyhow if you have any comments on this, I would appreciate hearing from you.

Thanks,

D

Hi D,

OK, the two account blow outs – that happens to everyone. The mental challenge – everyone also. No big deal on either of those (although I hope you didn’t lose too much). It happens. You learn.

I’m interested in the demo trading though. How did you trade? what did you trade? Why do you think it didn’t work? FYI, two months of crappy P&L does not tell you anything. In fact, I think it’s better to not to have stellar results at first and take time to figure a few things out.

Guy

Hi Guy
Hi Guy, I traded mainly the ES on the demo platform. The first one I actually did pretty well, I think I ended up about 5K on the 150K account, but managed to hit my trailing max drawdown partway through. The second one I just blew up…I need to understand risk a lot better. I think what got me was having several trades lose in a row…I must have been trading too large of size.

I did trade some CL and did pretty well. Holding trades for runners, seems to work for me. But then I hold and hope, and then I start having winners that are a point or so…and losers that are 3 handles. The 2 edged sword (as so many things in the market seem to be). Thanks for your time, I will be working my way through the trading plan course.

Thanks for that.

D

Hi D,

If I may make a couple of suggestions:

  • Delete CL from your consciousness for now. It’s a tricky market to scalp/day trade. There are one million algos just waiting to take your money.
  • Add the Tnote and even the 5yrs. Keep watching the emini. Watch how the ZN and mini correlate (negative correlation) around open, close, quiet times, busy time, data etc. Watch levels on charts and levels on DOM. One will affect the other.
  • Start looking for smaller trades. In something like the Tnote, you can have 1-4 tick targets and stops.
  • Trade small. That’s a 1 lot default. Don’t be afraid to double up when offside a little.
  • Don’t trade with the idea that you have some magic ability to predict the market. No one does. You can however learn how it behaves at certain times of the day and place orders accordingly. You can learn what is normal and what is out of place and trade accordingly.

Fixed interest is a good market to learn. It tends to be behaved relative to things like CL, GC and especially FX. The above suggests you learn to scalp, but I’m not suggesting you do that forever. It’s just an approach to learn markets. Some people stick with it. Some evolve. Either way, you’re learning a skill.

FYI scalping skills and styles are covered in the Depth Boot Camp course.

Regards,

GB

Hi Guy,

Its been awhile since we spoke.

I just want to let u know that I have just gotten my first pay cheque from prop trading.

Thank you so much for the guidance during these period, was almost on the verge of giving up.

I would like to hear from you on your thoughts of what’s next for me from this moment going forward.

Regards,

W

Hi W,

That’s great! It’s really good to hear and I’m glad I could be of some influence. Congratulations.

The next challenge, in my opinion, is to make sure you keep learning things. This approach needs to be an ongoing discipline. A lot of guys don’t do this. I think it’s a major factor in the failure rate, but all it takes is a little discipline and curiosity.

So, keep reading. Get a subscription to Futures magazine or Stocks and Commodities magazine. S&C mag is awesome because they have an archive going back to 1982. The idea is something there will give you things to do. It might be a new idea to research or market to learn about. It might just be the way to think about something. (Futures mag is industry stuff and S&C is technical analysis – both are good.)

Constant study can be pretty boring, but you need to keep at it. Make is a silent competition if you like. Think while other traders finish the day with a beer, you are reading something new, going to a seminar or testing an idea in excel. When others people are on the train or bus tweeting about the cornflakes they just ate, you are learning something.

The overall idea is to come up with your own ideas. Taking on the approach of regular learning will shape the way you move forward.

I hope this helps and I’m happy to answer more questions from you

Guy

Hello Guy,

I have been involved in the markets a long time. I got serious around 2000….There is one constant that arises after all my trials and tribulations is everyone that is successful in trading has had a mentor. You can only take yourself so far.

So for the past couple of years I have not traded because I am trying to find someone who will bridge the gap.

Yes, I have tried a few people but you know how this industry is, who is real who is not. Try this platform for this type of trading or this method? All you end up with is a lot less money in your wallet. Please, don’t think that I am being cynical but you ask what is my challenge, it is finding someone that knows and wants to teach you! Be it spreads, scalping or whatever method.

Best,

R

Hi R,

Well sometimes (often) I have to stop myself from being cynical too. It’s hard not to be.

Just yesterday, I had a guy come by house to cut back a few trees in the yard. We got to talking and he told me about an online FX options broker with whom he has opened an account. It was one of those $10 minimum places that make their own prices (OTC).

While I love options as an exchange traded product, I don’t think much of the firms that make their own prices and allow buy side only. The very flashy trading platforms seem designed to lure you in and do not resemble anything the industry would really use.

Even as someone working for a prop trading firm, that garbage end of the industry is still competition. The problem is people are lured by the simple answer, get ripped off, then never approach a prop firm or find the better training out there.

Outside of a prop firm, you will not find anyone that doesn’t want to sell you something, but that doesn’t mean everything for sale is crap. I really like the material from Jigsaw Trading and No BS Day Trading. I think between the three of us, we are all on a similar track.

As for prop firms, some charge for training, some do not. The ones that don’t tend to be ones that either have extremely strict acceptance criteria. Some firms will not take anyone over 30. They also look for things like: not married, no kids and living with parents. Fair or unfair, it is part of the industry.

Those that charge for training, by default, are able to take on more people and not just because it’s an earner. The money training earns can mean more features or a broader reach.

I used to work for a firm that would not charge for training. However, when I recruited for them I had to stick to their strict criteria and that made me uncomfortable. I didn’t like to discriminate. My argument was charging for training allows for a broader range of applicants – and surely that means a better probability of finding good traders.

Further, paid training (at least the material I have written) is far more thorough than the free stuff. The free stuff is likely to box you into one style and if you don’t pick it up fast enough, you’re out. A paid program should be both broad and forgiving.

Enough of me soap boxing. Getting back to your question, bridging the gap and finding a mentor.

I do not think the best place to find a mentor is online. It’s within a prop firm. That is, you need to be around equals – other guys trying to make ticks. Your mentoring comes from peers when you are immersed in it.

As for my personal experience, my best mentor was someone with whom I was in business. I’ve had good business partners and terrible ones. What I learnt was to choose wisely and trust gut feel even more than logic.

Guy

General Questions about TC

A single resource that provides new and experienced traders with the product and technique education they need.
We are starting with dozens of short courses and adding new material now and then. That said, there site is not about flooding you with information either. It’s about delivering the right information to help traders on their journey. Education is important. The right education is paramount.
Trading Courses is a subscription site. One subscription gives you access to all course material.
Trading Courses was built by Guy Bower. Guy has more than 20 years’ experience in the markets with the most recent 6 years being the in-house and online recruiter and trainer for new traders at a proprietary trading firm. His background also includes that of an analyst, CTA, trader and author.

In-house material is written by Guy. External material is sourced from organisations such as the CME, The Options Industry Council and the Montreal Exchange.

About the Courses

No. It’s designed to be a good place for a new trader to start. We have entry level courses on technical analysis, fundamentals, DOM techniques, options and more.
A big thing we believe in is diversity of knowledge. Knowledge about other markets and trading styles is quite important and we try to deliver that on the site. We also have plenty of material on options, spreading, yield curve trading.

Trader Support

In futures, as far as I know, yes. At the least I can say most are. This has changed only in recent years as old school scalping has disappeared thanks a little overcrowding and algo activity. That said I bet you could find training from a futures prop firm that is not spreading, but I bet they charge a lot for it too.

For stocks, it’s different (there is some great material from the boys at SMB Capital on this).

This is part of a bigger conversation, but prop firms can be good as they accelerate your learning and immerse you in the environment, but private trading still has more flexibility.

A prop trading firm will have a certain risk management profile. They want a very short term approach and always looking to cover their backside, so that in part dictates what type of trading they allow. Some prop firms also earn money from exchange fee rebates and the comms they charge the trader, so it’s in their interest to have scalpers as opposed to position traders. Trading privately, you have far more freedom.

Question:
Guy,
Just a quick question on ‘Spreading’. Is this the concept of trading the same instrument with different expiries? So buy Dec Futures and sell Mar Futures for example? Would you still use the DOM for this type of trading? Would you say that this type of trading is for the more ‘risk averse’ type of trader?

Actually that was 4 questions….sorry about that ..lol No rush if you don’t have time. I understand that markets are due to open shortly.

Answer:
Spreading – what you describe is a calendar spread. That’s one type of spread. Yes you can still use DOM for this. Without going into a stack of detail, some exchanges will offer an ‘exchange traded spread’ for calendars whereby you have one DOM for the spread. It’s made up of spread orders plus the synthetic orders from the outrights. When you buy or sell a spread on the DOM, it’s one click, but your account still ends up with the two contracts. So the exchange traded spread is not a product, it’s just the facility – if that makes sense. (FYI, we have a ‘FastTrack’ course on exchange spreads.)

Some of these exchange spreads will have far more volume than just the outrights. Natural Gas is a good example.

If an exchange does not offer the spread market, some software platforms allow you to build it. TT and CQG-IC for example do this. Interactive Brokers do not. Well they do, but function is limited. To my knowledge you have to go professional level to get that type of function.

Another type of spread is an intermarket spread. That means trading 2+ related markets. That’s what we do in the DOM courses for example. We trade the US Treasuries: 5yr note, 10yr note and Tbond in the Boot Camp. You could also call these yield curve spreads.

There are also exchange spreads in common intermarket spreads, such as the US Treasuries.

For our DOM courses however, forget all of the above. We ‘leg’ trades in (trade each contract separately). It’s a better way to learn. It’s like learning to drive manual instead of auto.

As for risk of spreads, that’s a huge topic. It’s all about risk:reward. Some spreads will show lower risk, but they would most likely have lower reward. Interesting point though: EVERY single professional trader that I have met that is making money is a spread trader. That says something.

Hi Guy,
Hope this email finds you well. Firstly I would like to thank you again for the Trading Courses site, It has been teaching me loads about the D.O.M. And the gradual steps to learning how to spread is like gold dust. (there is so little about this method online, the big institutions and prop houses seem to use this approach as there bread and butter. Go figure)

The question is this if you would be so kind to answer. On your YouTube page you show a trade done over a rate decision with the Aus Dollar as a leading indicator. Would you say that you could use the dollar index for use with the US Treasuries to give you the same heads up?

Also is this viable with only the rate news or with other economic news as well?

Maybe I’m pulling at straws. Thanks again Guy.

Regards,
W

Answer:
That’s great feedback, thank you.

Question re DX as a lead indicator – I think you could use the Euro. Using the currency instead of watching a data headline is a really good and very simple idea. I love it. They have algos that read headlines now, so you’re never going to trade the immediate reaction like the old days. Back then the SFE used to break for lunch from 12.30 to 2.00. Then on RBA meeting days, the rates decision was released at 2.30. The SFE happened to be situated right next to a pub, so a lot of the floor traders would be well hydrated so to speak – and the 1 minute charts showed that extra bit of bravado. Funny stuff.

I’ve been meaning to write something about what I call the 2nd and 3rd reactions to the data. That is trading the reversal and trading the reversal of the reversal. I’ll write it one day, but you can probably figure out what I mean from what I said just there.

Re other news, yes I think it’s 100% viable with other news, Payrolls for example. To really simplify it, all news is about inflation or perception thereof. Is inflation going up or down? Does the news imply any change to what was previously expected? How does that change affect the market you’re trading? Let’s say you have a strong Payrolls number. That implies higher growth, hence higher inflation. Treasuries will drop accordingly. It will happen pretty quickly, but if it was a significant number, watch for that retracement to give you a new opportunity to get short.

A related point – a few years ago, I mapped out several years of payrolls data next to the Tnote. I looked at the number as well as the number minus the expected result. Then aligned that with market reaction. The one pattern that stood out head and shoulders above any other was payrolls will often be a day or short term (swing) reversal day – irrespective of the number itself. Lesson: whatever direction you see the market moving in the days or week leading up to the data, trade only in the opposite direction right after the data.

Regards,
GB

Here is a question posted on our ‘New Trader Group’ on Facebook:

Does anyone here trade STIR futures? I have traded the long end of the US interest rate curve but not the short end. Looking to trade calendars. Does anyone have any experience or advice?

A:
In the past you’d find the good scalpers gravitate towards STIRS – Short sterling, Eurodollars and Euribor. I say ‘in the past’ as there has been a bit of a shift there. There are complaints that algos have taken away a lot of the scalping potential. I’ve seen a bunch of guys pack up from London and move to Au for that reason for example (to trade SFE bank bills).

Overall, I think there is still merit in it, but perhaps there aren’t so many easy ticks to find. Trading these markets will involve you learning a few more thing that the average trader. Most futures trading is one dimensional (long/short). Spreading (two legs) adds an extra dimension. STIR trading goes even further.

I look at STIRs like lego pieces. Each contract is a building block to a larger position. That position is tradable and spreadable. I get that lego analogy because that’s just how options work also. The same type of spreading strategies are applicable – butterflies, condors etc.

An option is just like a futures contract but with variable Greeks. Once you start combining options (in my view) it becomes more of a futures contract. Sure there is theta, vega and gamma – and they are super important, but building positions can smooth out a lot of those things. That doesn’t apply to all strategies of course, but it does to many.

STIR trading is the same in that respect. That’s why you see liquidity years and years out. It’s because they are used to build bigger positions, be that for a corporate finance purpose or speculative.

For you as a trader, that means there is more to it that picking direction.

You could get into trading STIRs only from a directional view point. You could also trade two legged spreads. People do this and in terms of your understanding, that’s probably where to start. However, it’s highly advised you look beyond here and learn more as soon as possible.
Unlike options, there is not too much written on the subject.

On this site there is some fantastic material by Joseph Choi. We call is the STIR Curvature Trading course. I think he has written some really exciting and interesting material and I’m very proud to have it here. You can also check out a book called Trading STIR Futures by Aiken. It’s very detailed and considered the reference guide for STIRs.

Q: When is it at a point as a trainee trader that i will say finally i got the hang of trading?

It will take a few years at a minimum. That assumes that you find your niche and focus on it. By niche, I mean you may be trading options, spreads, position trading, scalping etc. In time, that niche may well change too. Then, there is another learning curve to climb.

I think the trick is to realise it is ongoing work, as opposed to training hard for six or so months then expecting the money to flow in. I won’t go so far to say as there is ‘always’ something new to learn, but regularly enough there will be a new software platform, a book or a course worth learning about.

Q: What is the approach i should have regarding money management in spread trading? When is the point i should cut my losses?

A: It should not be any different from trading outrights. Being a spread doesn’t mean managing losses or position size should be any different. My favourite approach is to have a predetermined dollar amount to risk per trade with which I am comfortable.

Q: I’m trading Crude Oil and have started thinking about spreads. Can you explain the advantages?

A: Well you could look up the benefits of spreading and you’ll see things like less risk, lower margins etc. They are fine reasons at the basic level, but the real advantage in spreads (and as it should be in any style of trading) are the opportunities. There are different opportunities in spreads than say options, scalping or swing trading. Better – sometimes. Worse – sometimes also. Overall, just different trades.

I was attracted to options trading years ago because it was the path less travelled. To me that meant better risk:reward trades. It’s the same with spreads.

So is CL the best market in the world for spreading? Some might say no because there are no many people and algos already doing it. However it is a good market to watch and learn how bull and bear spreads play out intraday. Monthly expiries mean plenty of combinations. Quick tip is to pick just two spreads. Pick a near month: June, then watch the spread between it and July and December (so it’s June-July and June-Dec).

Some platforms do not offer spread charts or the DOM for the exchange spreads. At the very least you can watch the three charts and the three doms. The front month will always lead the way, but watch for when the back months follow tick for tick then stop following tick for tick. I think for intraday trading, that’s where the trades might be. Longer term CL spreads are very directional, so the June-July spread will simply act like a lower vol position in June. June-Dec, more volatile than Jun-Jul, but less than the outright.

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