Opened Futures Trading Account
Blogged By: Low Hang Wei @ November 26th, 2007 - 2:00 amLast Friday, I attended a futures trading seminar and opened my Futures trading account. Actually, I think the seminar is quite boring and not really in-depth, but the purpose of me going to the seminar is just to open the account. Well… I was initially torn between choosing a local vs foreign brokerage for my trading activities, but I decided on a local one, which happened to be Phillips Securities. The main reason is the ease of getting support in case the system screws up.
However, there is a major drawback, which is the lack of a paper trading platform. Basically, it means that even my first trade will be based on real dollars and cents. To a certain extent though, it seems to be a pretty good way to get me to try out the markets. I vividly still remember paper trading on OptionsXpress and I was not as commited to studying the markets, because real money was not involved. My paper trades using the system I developed were quite encouraging, but I did not test it out for long enough, since my focus got drawn away after 2 months, mainly due to personal reasons.
I am planning to set aside $10k to test out the markets, but due to the small budget, I can only deal with Mini-Forex. After commissions and the bid-ask spread, each trade will approximately put me around 6 to 10 pips behind, which means the movement has to be quite a bit before I even break even. Granted that my small portfolio will not allow me to hold my trades to the close, since a gap in an unfavorable position will put me out of the game, I have to aim for large intraday movements.
This seems to be quite a challenge, since I have backtested for stocks, but not for Forex. Regardless, I am still quite prepared to face the market and test my psychology when facing decisions tagged to real money. However, I need to tread carefully and manage risks, since futures is a very high leverage game and making stupid decisions can empty my bank account fast. On the other hand, I can gather a lot of experience through trading small and trading can ultimately become a major source of my revenue in future.
Let’s see how it goes with my trading. Before I end this post, I would just like to post my market outlook for STI for next week. Disclaimer: I do not hold any responsibilities for decisions made after reading this post. Without going too in-depth, I would just like to say that I believe that the STI is slightly more likely to be up for next week, despite negative news lurking around and bearish investor sentiments. The reason behind my belief is that the support of around 3310 seems to be have been tested 5 times and each time, the trading range is narrowing. If the price goes beyond that support, it should lead to a sharp downtrend, but I believe that the market is not ready to undergo a sharp downtrend yet.
Anyway, I may be starting an online trading diary to keep track of my trades, so that other traders can pinpoint my mistakes. For now, I need to settle my account opening first, since they still need some documents. 
Blogged Under: Personal Finance
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November 26th, 2007 at 7:10 pm
Futures trading is just gambling.
I believe out of 1000 people only one person can earn money consistently and it is not clear if that person is just lucky or has any skills.
November 30th, 2007 at 1:21 pm
My intent is not to insult anyone but to point out the realities of the situation.
Since you said you are here to learn than you should learn from all sides.
Turtles? I spent 6 months simulating their trend following method and doing a mathematical analysis. I did it very early when one of the turtles Russell Sands first unveiled the method. There are alot of assumptions build into this system of trading while it works based on historical data one dangerous oneself financially if he did not fully understand the possible downside. It is just a method based on the fact that market moves follow a fat tail distribution. Why do market moves occur bigger than expected from efficient markets?
The interest thing about the turtle method is the win-lose ratio is (25-75) which means you lose more often than you win but your wins are bigger. My simulation expanded from 15-40 uncorrelated markets and show the importance of diversification on the success of the method. Next I readjusted to rules based on the volatility of each market and got far better results than the original turtle method. The amount of money to executed this strategy is about US$1M.
Over the years I’ve met numerous traders and seen many things. One of my friends traded short term using 5 & 10 minutes moving averages…he made money for 12 months straight closing every month with a profit. Then the next year he got wiped out.
I strong believe what I said on 1 in 1000 who try make it - just like selling insurance out of 20 only 1 make it . Even the turtle method has been working, you can also say that it is due to luck because the market continue to behave has it did for so long. I have also shown for the turtle method to fail all it takes is for more money to be traded using this methods - success of a method is the birth of its failure.
December 1st, 2007 at 3:41 pm
Dear Hangwei,
Please do not be angry with Lucky Tan as what he said is indeed based on actual observation, though the causality may not be obviously just ‘luck’ alone.
The market is a conglomeration of people attempting to make money for different reasons. The premise of technical analysis, which believes that market moves in trends, is built heavily upon the fact that as long as there is sufficient people believing that it will go on way, and they are willing to negotiate prices higher (creating a bull run) or lower (creating a bear run), trends will exists.
However, market sentiments are highly influenced by matters of political, social, economical and behavioral perceptions. At times, these conditions subtlely change the way investors in the market choose their financial decisions. The most disturbing aggregate behavaioral change is caused by the “bench sitters” - investors waiting on the fence and suddenly surge in when they see some profitable signals, be it technical or fundamental. In this case, market is likely to turn sideways, and destroys the winning formula of technical analysis since trends no longer exist and it is hard to differentiate the strongest causal reaons existing in the market. Augmenting this was the fact that since trading in a trendless market is time consuming and frustrating, most investment institutions have developed trading systems (especially in forex and managed futures) that makes catching breakout difficult for non-discretionary traders as it is very hard to catch them faster than computers. Also, due to the propagation of IT and the incentive to kill the rising number of amateur traders who joined “make it quick trading courses”, professionals are now encouraged to run stops and manipulate prices, creating false breakouts.
All the above information is hard to digest due to bounded rationality, which basically means the limited cognitive abilities of the average human mind. Due to that, it is likely that more than 70% of the time, traders have to grapple with non-measurable variables. Laymen call it “Luck”.
The failure of lucky tan’s friend is not uncommon. In my observation as a financial professional, I found out that:
a) If someone can use a system to make money for some time and lose it, it is not just attributed to the weakness of the system in adapting to the changing variables of the market. It is also equally attributed, if not, more attributed to a phenomenon known as “competency trap”, where someone found a system to be working and tend to want to replicate those “success formulas” to avoid failure, ending up as a specialist in that formula. Even when the formula stops working, they are baffled by it and continue using it since there is escalation of commitment and non-ergodic path dependency in their path to building the plan. Put it in simple terms - They have invested too much to give it up. They will likely hold on to it until concrete eveidence proves them wrong. In this case, a trader is likely to hold on to mechanical system until he is ruined.
b) The turtles system requires the trader to understand the weakness of the system in order to make full use of them. ATR, Donchians, position sizing etc are nothing new. It is the ability of the trader to adapt that defines a winner. Many years ago my Master forced me to plot bar charts and moving averages by hand on paper. I could not understand why until much later. Today, I passed on the tradtions to my apprentices and i am very glad that some of them are able to come up with something that amazes me - ability to differnetiate between a trending and trendless market as it happens and quickly adapt strategies. I observed that some of them are indeed slower than others. So Lucky Tan may have a point that it could be either skills or luck that makes a difference.
c) Opportunities only works for those who are prepared. Althought it is fair to say that some traders are luckier than othes in having the right market conditions available to him, I suggest that if the trader does not have the right complimentary skills to fit into the market conditions, he will miss the train as well. The skills required of a trader are therefore 3-fold: a) The ability to predict what others think (you can either join the market or fade the market, the latter which is the favourite of professionals), b) The ability to see what the market cannot see yet (for example, my associates developed a system which can predict governmental currency interest rates with relative high accuracy, giving them an informational edge on where the equilibrium will be), c) The ability to stop himself and leave the money on the table (just like businesses, not everyone can be King all the time. For the religious, its called God’s way of balancing. For the scienfitic, its called evolution. For the business man, just called business cycles and opportunity distributions).
That being said, I hope i provided some alternative views here which is more objective.
December 11th, 2007 at 2:59 pm
Welcome to the World of Futures Trading! You might want to consider an Online Futures Discount Broker after trying out our local brokers. Commissions are much much lower, especially if your trading volume is high. Cheers!
August 16th, 2008 at 7:39 am
Your blog is interesting!
Keep up the good work!