“It's only when the tide goes out that you learn who's been swimming naked.” -Warren Buffett
I love this quote by Warren Buffett, because it's so true. That's one reason I like to trade futures. With futures, the only way you're going to get caught is if you swim against the tide. So, the most salient phrase of advice for trading futures is: the trend is your friend. In this way, it does not matter if the tide is out or in, just that you know which way it's going. If you can figure out a way to follow the trend, you will do very well in the futures market.
The focus of this post is on the futures market. It's a market that most people are taught to stay away from, and rightly so. However, due to the volatility in today's market, it's also very lucrative, which warrants attention.
So, let me be clear, futures, the investment product I'm about to introduce, cannot be tamed. It is a beast. Think of it as the perfect wave for the experienced surfer.
Due to the unprecedented amount of liquidity being pumped into the market, these are incredibly volatile times. The waves are HUGE -- they are the kind of waves that people spend their entire lives trying to find, and they're happening every day. They are also the kind of waves that wipe people out, especially inexperienced surfers.
So what are the advantages of trading in the futures market? The futures market is like the stock market on steroids. Market movements are more frequent, which makes technical trading easier.
Technical trading is the art of using historical trends and patterns to guide your trades. This is different from fundamental trading, which uses information about the market to guide trades. Most investors use fundamental analysis to determine what to buy and technical analysis to determine when to buy it. The futures market is largely driven by short-term, technical trades. Traders note certain price points and bid or sell at those price points.
It's important to remember that trading takes place as an auction. It is an electronic auction with hundreds of buyers and sellers. When more buyers enter the room, the volume of bids goes up, which usually increases the price. Likewise, when buyers leave the room, the volume of bids decreases, which decreases the price.
Like anything else, trading is a sport. It is said that you must dedicate 10,000 hours to anything to master it and the same can be said for trading. It takes stamina and like large waves, must be respected.
I started my own journey with trading almost 20 years ago as a trading assistant on the FX sales and trading floor of a large investment bank. I didn't start trading on my own until 13 years later. Then, it took another 3 years for me to start taking it seriously.
I often ask myself if the journey was worth it and the answer is a pensive yes. The answer is fragile in the beginning, but then over time grows more certain until I gradually realize that it's one of the best things I've ever learned how to do.
Honestly, I struggled with discussing my life as a futures trader because you will have bad days and I didn't want to be responsible for those bad days. If you do this right, you will come to hate me, but then, as you improve, you'll thank me for it. I'll take a bottle of your favorite red wine as a thank you.
What's the first thing you should do? Take one year to learn through simulation. Try out at least 5 different platforms, including Ninjatrader and Tradovate. Figure out how you like to see the market. Do you like charts or POC data? Do you like a white or black background? What are your favorite indicators? I'll share some of my favorite indicators with you in a follow up post. This is called, "Developing your workspace" and it is uniquely yours. It takes time to develop.
In year two, you're ready to pick your trading instruments. Do you want to trade the futures equity markets or the futures commodity market? There are dozens of futures markets to trade. The one you select depends on your trading style and personal interests. I'll discuss why I prefer the equity markets in a later post.
In year three, you're ready to test the waters with a live test on a virtual $50K account. Repeat this every 6 months, and no sooner. Over the next 3 years you will develop a few strategies that work for you. You'll go from losing money, to breaking even, to making money.
If you're just starting out, I recommend two trading houses where you can watch live trading and discuss trading with others. Learning the lingo is just as important as developing your trading plan.
The first house is TopStepTrader. These guys have been around a long time. They are a reputable online shop and they have free classes and webinars that you can attend and listen to on a daily basis. To be clear, these classes and webinars are free, YOU DON'T HAVE TO PAY FOR ANYTHING TO LISTEN & WATCH.
I also recommend Collective2. This is for people that want to follow the trades of another person. I just started a virtual hedge fund on Colletctive2.
I trade between 1 and 5 contracts on a daily basis and you can sign up to follow my trades on a real time basis. You can even auto-trade my trades for $150. I made $4,165 for each of my followers just today and future posts will discuss the nature of these trades.
These are just two of my favorite ways to monetize your trading knowledge without having to invest your own money. I will continue to share others with you in future posts.
The most important thing to remember is that you can learn a lot without spending any money. Max out on the free-trial offers and when you run out, contact the company and ask for an extension.