This article on Trading Consistency and Futures Trading Approach is the opinion of Optimus Futures.
As with every successful endeavor, consistency in effort, practice, and continual improvement counts. But it goes without saying that success through consistency depends a great deal on whether you’re consistent with the right things.
Consistent bad habits or flawed methods can only cause you to unwittingly dig a ditch out of which you may not be able to get yourself out so easily.
When trading futures, where financial leverage is high and the risks can reach far beyond your pockets, proverbially speaking, developing the right kind of consistency in your futures trading approach is critical from the get-go.
So, that’s what we’re going to talk about here. Hopefully, we’ll cover a few things that might not have immediately come to mind.
Why Trading Futures the Same Time EVERY Day Can Matter
The hour that you typically trade and the timing of a market opportunity may not always coincide. One tends to be fixed while the other can happen at any time; especially in a futures market that trades 24/5.
Still, you have to become so familiar with both that you can switch between the two distinct “times” without getting tripped up by one or the other.
So, what does this look like in application?
Suppose you’re new to futures trading and that you trade the three major US indexes (ES, YM, or NQ). If you trade from 8:00 am ET to 12:00 pm ET (lunch time), there’s a lot there that you need to become familiar with.
Market opportunities may or may not occur around that time, as the major trend of the day may have occurred overnight or will take place later in the day. But still, there’s a lot to be learned in that time frame.
Between 8:00 am and 12:00 pm, financial institutions are often placing pre-market trades in stocks.
Market-moving economic reports like the weekly Jobless Claims or the monthly Consumer Price Index or Producer Price Index are typically released at 8:30 am.
And then you have the volatile market action that occurs in the first 30 minutes of trading starting at 9:30 am.
Again, not all market opportunities take place between 8 and 12.
But there’s enough market and economic news activity taking place at the time that can disrupt your trading if you’re not familiar with the hustle and bustle of the morning session.
The lunch period (12:00 pm – 1:00 pm), afternoon session (from 1:00 pm to 4:00 pm), and “overnight” session (the Asian and European sessions) also have their own characteristics.
And these characteristics vary according to the market you’re trading, whether they’re stock indexes or any other type of commodity class.
THE TAKEAWAY
Each segment of the trading day has its own unique dynamics. Sometimes these dynamics are shaped by scheduled events, other times it’s just the fluid ebb and flow of market reactions to fundamental developments or near-term supply and demand.
It helps to become familiar with your trading time of choice so as to get a better feel for a given market and its period-specific volatility.
Why Trading only ONE Futures Method At a Time Can Be Critical
Experienced traders can often deploy multiple systems or methods at a time. But getting to that point required a lot of singular focus, experience in trading multiple systems, and (we’ll assume) costly mistakes.
Problem 1 – Tweaking a Method Too Early
Let’s begin with a single trading method. You’ve analyzed its stats, compiled over (at least) a year’s period. Let’s assume that its profits and losses are not evenly distributed, meaning it’s had months-long drawdowns bundled together along with profitable months.
You’re convinced the method is promising, though it may take some time to fully know how it operates in a live market.
But then you tweak it. Maybe you’re looking to reduce the effects of a drawdown or you’re looking to enhance its profit potential.
Once you tweak your method, all of the stats that convinced you to adopt it in the first place goes out the window.
You have created an entirely NEW system, for which you have no reliable stats. And now all is uncertain.
And if you have no experience altering methodologies, possibly because you’ve never “learned” how to use other methods in your playbook, then you’ve just amplified the uncertainty.
Moreover, you’ve potentially robbed yourself of the experience of mastering ONE trading method.
Problem 2 – Deploying Multiple Systems Prematurely
Deploying two different methods as a way to “diversify” might seem like a no brainer. Your hope would be to experience a profitable run while the other is seeing a drawdown.
The big problem here is the likelihood that both may be experiencing a drawdown at the same time. Did you take that into consideration?
And what if one system is flawed to begin with? You didn’t take enough time to assess its performance in a live market by focusing only on that one system. What if both are flawed? Then you’re in real trouble.
Problem 3 – System Jumping
Here’s a real “newby” thing to do: abandon one method when it undergoes a drawdown only to adopt another one. This is particularly harmful when it comes to using automated trading systems, because it’s too easy to make the switch from one to another.
Here’s what typically happens: a trader decides to shut off an automated trading system when it’s undergoing a drawdown that’s well within the range of statistical expectation (if it isn’t, then shutting it down may be justified).
But then, the trader jumps into another automated system, only to catch its drawdown before jumping out again and into yet another automated system.
In the end, the trader will have caught every single drawdown of multiple systems without having experienced the benefits of a positive return.
THE TAKEAWAY
If you’re going to learn how to use a particular futures trading method, then consider trading only that method until you can comprehensively assess whether it’s a worthwhile system or not. Of course, it takes a reasonable amount of capital resources to do this (but so does futures trading, in general).
ALSO READ | Ten Steps to a Coherent, Organized and Methodical Trading Strategy
Why You Should Review Your Futures Trades at Night
Take a look at everything you can do really well; your high level skills, in other words. Sure, the adeptness you achieved has something to do with what you’ve been taught or what you learned on your own.
But they also had a lot to do with the mistakes you’ve made and the manner you’ve tweaked and customized your skills to better serve a given task.
Trading isn’t all that different. Except for the likelihood that mistakes in futures trading can be much more costly.
If you want to learn how to trade well, you should probably consider reviewing your futures trades each night.
This will help you a) learn more about the method you are trading (whether it’s working or not), and b) learn more about your own performance as a trader (whether you have the discipline, time, or capital resources to follow them).
THE TAKEAWAY
If you don’t conscientiously look for your errors, bad habits, or deficiencies—in knowledge, time, capital, or discipline—then you may be “programming” a kind of active ignorance into your own trading. And that always ends badly no matter how lucky you at times may be.
LEARN MORE | How a Trading Journal Can Make You a Better Trader
The Bottom Line
Consistency is key, but only if you do it right from the get-go. Hopefully, these tips will help you develop consistency from a sound foundation; one that will help you develop good habits while avoiding the bad habits that can eventually do damage to your trading prospects.
Disclaimer: There is a substantial risk of loss in futures trading. Past performance is not indicative of future results.
