How Do DayTraders Make Money in the Futures Market?

This is a discussion on How Do DayTraders Make Money in the Futures Market? within the First Steps forums, part of the Reception category; Originally Posted by Dinos How do day traders make money.....very simply, by buying low and selling higher, and selling high ...

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Old Jul 9, 2009, 5:17pm   #136
Joined Aug 2008
mechanicaldaytrader started this thread
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Originally Posted by Dinos View Post
How do day traders make money.....very simply, by buying low and selling higher, and selling high and buying lower, not difficult really, just the trader, armed with a mulititude of everybody's else opinions making it difficult really, I suppose. Do it yourself, sod everybody elses view is all I can say, what works for one, doesn't for another etc.
...morning appt is running late, so I have some time...

The Dow Jones is controlled by mechanical trading systems, imo. The reversal points of the Dow are inviolate, as set by the Dow Cash (not the futures, except in the overnight session). I teach to always trade WITH the Mechanicals, anything else is a 'counter trend' trade..which is ok, just don't enter and walk away from the market, you're profit objective is likely to be swiftly hit then a reversal against your original trade entry will be in the cards and you shall be stopped out.

The Dow moves at TWO definite time/price speeds - students are taught how to read that - based on the 'speed' the market will only move 'x' points in 'x' minutes, so when you see a mechanical overbought or oversold scenario you take the opposite direction (trading the likely reversal) with a risk of about 6 to 12 ticks max (rarely that large).

The e-mini's were created with new technology (imo) and set up as a profit center for the Mechanical Trading Systems and the brokers as cash cows. No matter what the size of the market at any given time, the emini Mechanicals will automatically and instantly adjust their trading size to handle it -- this is the major difference between the emini index futures and the open outcry for the S&P, etc -- liquidity is rigid in the outcry biz model. As long as you trade a recognized mechanical trading system Institutional Stop, you can enter a 50 or 100 lot via limit and get a great fill. If you are entering at a "non-Institutional Stop" then you're likely to get a bunch of slippage. [you can verify this easily within Tradestation by adjusting your time & sales window lot size and watch when the big stops are hit...excellent fills with sizes > 30 lots all day long, every day]

This type of trading runs counter to many 'myths', 'conventional wisdom', and Linus security blankets that have been worshiped for years, so it is unpopular and rattles some cages. I don't freaking care. Somebody with a disciplined, objective trading style (like Lee) can nail many likely low risk reversal points almost every day.

The Methodology breaks down a little when the market is in a 40 point trading range for hours..in that case you move your timeframe out to 'x' minutes/hours based on the time of day and look for the "codes" be to be hit or ignored or violated..that DOES take some experience..however, futures traders DON'T make money in small trading range markets, so this does not happen frequently..usually a mid-day announcement is imminent and the Mechanicals are locked in place waiting for their move once the announcement comes out....so when this happens, you just take each overbought and each oversold and get out at the first or second profit objective...otherwise the Dow is a speedy PT Boat and "trends" 200 to 300 points every single day (intraday, counting the overnight session after 6 am ET).

The DayRaider Upgrade nails a lot of the trading ranges at DR 2.2 did not, matter of fact I'd say EVERY trading range reversal that DR 2.2 did not. You'll see the proof of the pudding via daily statements in the near future.

To each his own, that's fine, no problem there.

The Mechanical Day Trader
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Old Jul 9, 2009, 10:30pm   #137
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Originally Posted by rathcoole_exile View Post
as both a momentum trader and a reversal trader, principally using pivot points to either fade or jump on momentum, I'd have to partially disagree with your post. It's very short-sighted only to focus on reversals, and I humbly submit it is one of the key factors in newbies failure rates. There's something, after all, to be said for buying strength and selling weakness
that said, reversals are still a great way to profit, although since many people use pivot points-they work best!
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Old Jul 10, 2009, 2:33am   #138
Joined Aug 2008
mechanicaldaytrader started this thread Originally Posted by rathcoole_exile View Post
as both a momentum trader and a reversal trader, principally using pivot points to either fade or jump on momentum, I'd have to partially disagree with your post. It's very short-sighted only to focus on reversals, and I humbly submit it is one of the key factors in newbies failure rates. There's something, after all, to be said for buying strength and selling weakness



...please quantify this with an actual example, particularly mention how the trade entry and exit are "objective" and not emotionally based and what the risk/reward is also. I guess a "momentum trader" is going with the trend? Ok, well I quantify that as LTE#2 (LTE#1 occurs near the lowest low, before the uptrend starts, for example) or STE2 (long entry #2, short entry #2)...as the trend continues you can #3, #4, etc...each additional entry during the trend must be individually profitable and have a low risk for instance.

Since we're daytrading, we want to leverage our money to the max and use brokers that feature low daytrading margin. What is the "return on daytraders margin" on a "momentum" trade? For example, a typical crappy trading range trade in the One Minute Methodology should net about 25 ticks.

here's a hypothetical example with a broker that offers $500 daytrading margin:


($500 daytraders margin, risk $40). So 25 x $5 = $125
That equals to a profit of 25% of daytraders margin.
Assume you have 3 of these trades, 2 winners, 1 loser
Gross Profit $250 - $40 (loss) = $210 / $500 margin = 42% return on daytraders margin for 3 crummy trading range trades (there are about 12 to 18 reversal trades every day in the MIni Dow).

Conventional math, require a 2:1 margin (still $500 daytraders margin at the broker) . $210 / $1,000 = 21% profit before commissions, slippage.

Now, let's add 2 trending trades, one 45 points profit, another 90 points profit and a loss of 12 points (used a big stop on a short).

45 x $5 = $225 (over 50% return on daytraders margin)
90 x $5 = $450 (90% return on daytraders margin)
12 x $5 loss = <$60>
3 prev trades = $210
----------------------------
Daily P&L $825 / 165% return on daytraders margin of $500
Daily P&L $825 / 80%+ return on 'double' of daytraders margin

Counting the Globex trade that goes into the Dow Open, there's about 18 trades; if you catch 6 or 12 of them (just staying in for the other side of the trading range or an obvious trending trade) using a reversal methodology with objective rules + using the Dow Behaviors [slightly subjective] a daily P & L for a full time trader is do-able every single day. If somebody only hits 50% of that a day, along with maybe a 100% hit once a week, they still are eating steak instead of hot dogs.

Let's see them momentum trades please, the real numbers and risk/reward and how many times these occur (average) per 5 trading days (a week).

I'm all Ross Perot Ears...

The Mechanical Day Trader
===========================
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Old Jul 10, 2009, 3:17am   #139
 
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Quote:
Originally Posted by mechanicaldaytrader View Post
Originally Posted by rathcoole_exile View Post
as both a momentum trader and a reversal trader, principally using pivot points to either fade or jump on momentum, I'd have to partially disagree with your post. It's very short-sighted only to focus on reversals, and I humbly submit it is one of the key factors in newbies failure rates. There's something, after all, to be said for buying strength and selling weakness



...please quantify this with an actual example, particularly mention how the trade entry and exit are "objective" and not emotionally based and what the risk/reward is also. I guess a "momentum trader" is going with the trend? Ok, well I quantify that as LTE#2 (LTE#1 occurs near the lowest low, before the uptrend starts, for example) or STE2 (long entry #2, short entry #2)...as the trend continues you can #3, #4, etc...each additional entry during the trend must be individually profitable and have a low risk for instance.

Since we're daytrading, we want to leverage our money to the max and use brokers that feature low daytrading margin. What is the "return on daytraders margin" on a "momentum" trade? For example, a typical crappy trading range trade in the One Minute Methodology should net about 25 ticks.

here's a hypothetical example with a broker that offers $500 daytrading margin:


($500 daytraders margin, risk $40). So 25 x $5 = $125
That equals to a profit of 25% of daytraders margin.
Assume you have 3 of these trades, 2 winners, 1 loser
Gross Profit $250 - $40 (loss) = $210 / $500 margin = 42% return on daytraders margin for 3 crummy trading range trades (there are about 12 to 18 reversal trades every day in the MIni Dow).

Conventional math, require a 2:1 margin (still $500 daytraders margin at the broker) . $210 / $1,000 = 21% profit before commissions, slippage.

Now, let's add 2 trending trades, one 45 points profit, another 90 points profit and a loss of 12 points (used a big stop on a short).

45 x $5 = $225 (over 50% return on daytraders margin)
90 x $5 = $450 (90% return on daytraders margin)
12 x $5 loss = <$60>
3 prev trades = $210
----------------------------
Daily P&L $825 / 165% return on daytraders margin of $500
Daily P&L $825 / 80%+ return on 'double' of daytraders margin

Counting the Globex trade that goes into the Dow Open, there's about 18 trades; if you catch 6 or 12 of them (just staying in for the other side of the trading range or an obvious trending trade) using a reversal methodology with objective rules + using the Dow Behaviors [slightly subjective] a daily P & L for a full time trader is do-able every single day. If somebody only hits 50% of that a day, along with maybe a 100% hit once a week, they still are eating steak instead of hot dogs.

Let's see them momentum trades please, the real numbers and risk/reward and how many times these occur (average) per 5 trading days (a week).

I'm all Ross Perot Ears...

The Mechanical Day Trader
===========================
Damn....I thought he was all gaseous and all that but he does make valid points, PitBull's chart does infact throw out patterns that are usually symmetrical, at least on that one.

But isn't this pattern recognition taken to new heights, bloody hell if you are saying these patterns are relentlessly symmetrical AND recurring with such clarity AND that your method has been able to convert them into strict mechanical signals then hats off to you....

Shouldn't you be able to add entry/exit paint bars when such conditions coincide as well for idiots like (well like me....for example) that can't recognize patterns half the time....?
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Old Jul 10, 2009, 4:07am   #140
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mechanicaldaytrader started this thread ummm...no....Reality trumps mechanical setups unfortunately. For instance, you can use a MACD and crossover of moving averages...in a bull market the buy entries will be honored, in a bear market the buy entries would frequently be stopped out.

My Methodology is predicated on basically 3 different mechanical systems control the daily highs and lows of the Mini Dow. Remember the Dow climbing steadily higher and higher a few weeks ago until one day at the open it has pivoted downward? The "x" day Mechanical System had run back to back buy programs until the very end. A new "x" day Mechanical System (same time period) was then short from the close of the previous day (the 'x' day highest high). There are two other Mechanical Systems of shorter time periods that set most reversals. YT takes the overnight position and carries it into the next morning (every single day this method works, right to within about ten points accuracy every single day of every week of every year).

Europe sets the Globex high and Globex low before the Dow opens at 9:30 ET. There's a reversal of the Europe position when New York wakes up, this trade lasts about 60 to 120 minutes to about the 9:30 open. There's a timed reversal - this occurs between 'x' and 'y' every single day. This reversal then ends either at 'a', 'b' or 'c' time periods give or take a few minutes. These two trades move about 'x' points then pause....if both of these trades are in the same direction (a trend), then you just double the length and predict when the mechanical reversal setup will occur....if it does not occur at time 'a', then you move your projection up to 'b' time period..if a legal setup occurs around that time, check the 3 main Dow Behaviors..

if you have all 3, then it is a 100% winning trade; if you have 2 Dow Behaviors, then you have a 80% chance the entire movement has occurred and this is the reversal...if you have only ONE Dow Behavior, scale out of your position either 33% or 50% and hang in there for some more action in the same direction.

If the market exhibits a trading range after the timed reversal has expired, patience is key ..and some experience...after about 6 or 8 weeks Lee was nailing most of the tougher trading range tricks. The key is to stick with the "4 mechanical trades" in Module I & II...this is your blueprint for daytrading low risk reversals the rest of your life...you will never have to go to another seminar, buy another book or ask someone how they daytrade..you can break down low risk trending and trading range positions over and over...

You should be able to figure out 5.5 hours of a 6.5 hour trading day after a month or so of real time analysis...in the meantime you can understand more than half of the intraday chart ...Newbies just take the Kindergarten Trades which are 100% mechanical and objective...yes you can get stopped out but if you stick to the KT + 2 Dow Behaviors you'll have lots of wins, and few losses.

Most people are not that patient..they want the "black box secret code book to one million dollars in 90 days" and don't want to sit there and use their brain for a week or two...after a couple weeks of paper trading the One Minute Methodology you should be able to consistently nail 50+ points every day and get a good 100-150 point trend once a week also. Just be patient.

I've had several people nail KT's the first day after they got their Module I chart up and running, patience, practice and having an open mind are key. Slam Dunk isntant daytrading exists somewhere else, not here.

Stuart K.
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Old Jul 10, 2009, 4:12am   #141
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mechanicaldaytrader started this thread
Quote:
Originally Posted by Deucalion View Post
Damn....I thought he was all gaseous and all that but he does make valid points, PitBull's chart does infact throw out patterns that are usually symmetrical, at least on that one.

But isn't this pattern recognition taken to new heights, bloody hell if you are saying these patterns are relentlessly symmetrical AND recurring with such clarity AND that your method has been able to convert them into strict mechanical signals then hats off to you....

Shouldn't you be able to add entry/exit paint bars when such conditions coincide as well for idiots like (well like me....for example) that can't recognize patterns half the time....?
btw..it's not all patterns...the time/price/behavior rules (maxx of 6 of them) take precedence over any pattern....then DayRaider will measure if it is mechanically overbought (for sell reversals) or oversold (for buy reversals).

If you miss a reversal to a trend, the DayRaider Upgrade will always get you in on the easy second long entry or second short entry...they're 100% mechanical, just wait for the retracement to be analyzed by the custom indicator...if it's a go, enter a limit order with tight stop. You know you have a winner because the previous trading range has turned into a trend and the trend only has one rule for it to continue - it's all graphical and can be copiously backtested as far back as Tradestation has data.

Cheers!

Stuart K.
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Old Jul 12, 2009, 3:12pm   #142
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DayRaider Upgrade examples

mechanicaldaytrader started this thread
Quote:
Originally Posted by Deucalion View Post
Damn....I thought he was all gaseous and all that but he does make valid points, PitBull's chart does infact throw out patterns that are usually symmetrical, at least on that one.----------

Shouldn't you be able to add entry/exit paint bars when such conditions coincide as well for idiots like (well like me....for example) that can't recognize patterns half the time....?
sorry, my initial answer was a little on the theoretical side; below are two screen shots of DayRaider Upgrade that mechanically (objective, no emotion, just facts & figures & time rules) measures when
  • Downtrends should continue to be sold
  • Positions are covered when the Downtrend ends
  • Long Positions are taken after the Downtrend Ends
  • Uptrend continues via time rules and a second Long Entry is taken
  • Uptrend goes into a Negative Deviation HS, long entries exited & new short taken

Paintbar matrix:
Orange = market top (look for overbought conditions/ exit longs, initiate shorts if Negative Deviation, time rule/ price rule apply ; if these bars do NOT occur at the cycle high, ignore

Green = Uptrend (look for oversold condition ending / exit shorts, initiate longs if Positive Deviation, time rule/ price rule apply; if these bars do NOT occur at cycle low, ignore

Magenta = Downtrend (look for lower lows to occur, if these plot on cycle lows, aggressively short cycle highs at time, price rules at descending Green/dotted Red.

Horizontal lines matrix:
Dotted Red - This is one of the 3 causes of all reversals taught in Fundamentals of Futures Trading course - Uptrends will honor this support and must create higher highs; Downtrends will honor this or a previous higher level and must create lower lows;

Green This outlines the two chart patterns that cause reversals up as taught in Fundamentals course; simply put, when the line goes up or is coequal and you have time / price rules hit, close shorts, enter long. This indicator works with the big white circles that find the lowest low of the market, where shorts should be closed and possible longs initiated.

Powder Blue This outlines the two chart patterns that cause reversals down as taught in Fundamentals course; This indicator works with the big yellow cirles that find the highest high of the market, where longs should be closed and possible shorts initiated. HS, DT and price climaxes are clearly caught with this indicator using the time / price rules of the Dow.

Other Logic

Stop losses are never outside the yellow or white dots when initiating a position. As support indicators rise, additional long entries can be entered with tight stops below. If the market is not honoring Uptrend rules then no more long entries are entered.

As resistance indicators descend, additional short entries can be entered with tight stops above. If the market is not honoring Downtrend rules, then no more short entries are entered.

ummm..yeah...the Deviation indicator is NEVER wrong [red & green horizontal lines of this indicator]..the HISTOGRAM at the bottom is merely a guide to measure the buy or sell formation and to confirm low risk entries as trends continue. That's how you really pile up the points and limit risk - you can keep selling during long downtrends and keep buying during long uptrends...the indicators rule, it's their field of battle - they take no prisoners, just check the One Minute Methodology chart (not shown) then click the mouse.

The Mechanical Day Trader
Attached Thumbnails
dru-downtrend-ends-trading-range-follows.jpg   dru-downtrend-ends-buy-reversal.jpg  
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Old Jul 17, 2009, 3:52am   #143
Joined Aug 2008
Scam! Scam! Scam!

mechanicaldaytrader started this thread ...it's probably best to let "sleeping dogs lie"...but then I never do anything the easy way, right?

From the guy that never did any homework, he has thoughtfully posted (what he thinks) are fatal flaws of the One Minute Methodology. Well, at least NOW I get to check his homework!

Click here to see each of my comments following his attempt at replicating the Methodology. Noble attempts but flawed, nonetheless.

I'll have "time & sales" brokerage reports up on my daytrading efforts in the near future. Links will be posted on this thread.

The Mechanical Day Trader
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Old Jul 17, 2009, 7:09pm   #144
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DayRaider Upgrade - FINAL

mechanicaldaytrader started this thread DayRaider Upgrade development is now complete, I had to do about a week or so of live trades to test and refine each of the indicators. Screenshot of July 17 is here with explanatory text here.

For those that are familiar with the Fundamentals course I have taught, you will instantly recognize several textbook trades in the screenshot.

Concepts behind this trading methodology are:
> trade with the institutions
> have tight stop losses
> have known profit objectives, if they are surpassed hang on until the next mechanical reversal or profit objective is attained
> quantify your entry, exit of your trade by "time", since the Dow runs on a time schedule
> trade every day and expect to make 50 to 150 points, with no repetitive losses
> use the same methodology and trade style all the time, no re-thinking or 'back to the drawing board'
> backtest every type of trade (there are four) and paper trade before live trading

My conclusion? If you don't do most or all of the above, you will lose your shirt over the long haul. However you get there is fine, to each his own.

Good Trading!


The Mechanical Day Trader
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Old Jul 18, 2009, 3:41pm   #145
Joined Aug 2008
mechanicaldaytrader started this thread In answer to numerous emails wanting more info, I've published an online manual that subscribers can use to maximize their trading experience using the DayRaider Upgrade FINAL. It is written in such a way that newbies and non-subscribers can (hopefully) gain an understanding of how this low risk trading platform is constructed. My trading rules are identical for selling or buying, the math/logic is simply reversed.

When building this intraday charting platform, more emphasis is made at determining if SUPPORT is being honored by current prices. As long as recent support is being respected by the market, then the rest of the trading rules are pretty simple. When support is not being respected by the market, the market is then OVERBOUGHT and the mechanical trading systems (that control the Mini Dow) are short. Using a couple simple time and price behaviors, the daytrader exits long positions and looks for one of the 2 mechanical short positions to enter.

GOOD TRADING EVERYONE!

The Mechanical Day Trader
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Old Jul 19, 2009, 9:54pm   #146
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Trading Secrets Revealed When Using The DayRaider Upgrade

mechanicaldaytrader started this thread Trading Secrets Revealed When Using the DayRaider Upgrade...

positive deviation + coequal green + 2 Dow Behaviors = 100% buy

negative deviation + coequal red + 2 Dow Behaviors = 100% sell

The Mechanical Day Trader
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Old Jul 21, 2009, 10:28pm   #147
 
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are you still trading?

Just wandering if you are still trading



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send me an email at my profile email address to discuss further

This forum seems to not allow posting of jpgs or graphic images, (which I find very odd). The Forum server could simply scan the image for viruses and then post it to the thread if it was ok. When I post a link to my blog, it's considered advertising....sooooooooooo....just email me.

Regards,

The Mechanical Day Trader
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Old Jul 21, 2009, 11:45pm   #148
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mechanicaldaytrader started this thread ....my 'wandering' days are over....the answer is "yes"

The Mechanical Day Trader
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Old Jul 22, 2009, 3:03pm   #149
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DayRaider Upgrade Coequal Green Long Entry

mechanicaldaytrader started this thread Market Open today; you're long and up about 80+ points on 2nd profit objective (so far); up about 50 points on the first profit objective.

The Mechanical Day Trader
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Old Jul 22, 2009, 5:40pm   #150
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mechanicaldaytrader started this thread another long entry today, same trading rules....

here are the direct screen grabs for today's two simple long entries so far...

morning trade entry
noon trade entry

The Mechanical Day Trader
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