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How much reserves per contract?


I recently started trading the ES e-minis. How much reserves should I have to daytrade each contract (margin is $1,000 for daytrading)???

Also, what is a typical goal per day .5, .75, 1??

Thanks
The reserves you need should allow you to draw your account down to the longest losing streak that your strategy might endure. So, if your broker requires that you have a margin of $1,000 per contract then you should add that to the worst case scenario of a losing streak when starting out.

As an example: Say in back testing you discovered that the worst your strategy did was to lose 15 times in a row and each of those losses were for 2 points. That means that you could immediately lose 30 points before you see your first winning trade IF your trading starts off at the same unfortunate time of a losing streak. 30 x $50 = $1500 + (say) $75 commission = $1575. So in this case you would need to allocate $2,575 per contract that you're about to trade.

This is a very simplified example because you may have a streak like: 5L 1W 8L 2W 12L 15W etc. (where W=win and L=lose) and also your winners and losers may be different sizes.

It also depends on your strategy. If, for example, your win/loss ratio is 1/9 then you anticipate long periods of losing (small losses) BUT your winners are enormous.

On the other hand if your win/loss ratio is 9/1 then you probably have lots of small winners and a few large losses.

So your MINIMUM capital base depends on your strategy. Many people say that you should work out your minimum and then multiply that by 2, 5, or even 10.

The percentage of your capital that you are risking also has an impact on your mental health when trading. If you are risking 0.5% of your capital on any one trade then you can focus on the trading, strategy and money management and not worry too much about the profits. If you're risking 50% of your capital on 1 trade then you're going to be a nervous wreck because if it fails then you've lost half your capital.

Does that help?
I forgot to answer your question about goal per day:

If you execute 10 trades a day and your commission is $5/contract then you need to make 1 ES point per day just to cover your commissions and breakeven.

If you execute 1 trade per day then your commissions are 1/10 of an ES point and the daily goal will not be impacted as hard as by commissions.

You should also look at your average net points per day (after commissions) over a reasonable period like 2 to 4 rolling weeks. You can plot your simple average profit using a spreadsheet and have a number of lines showing the 5, 10, 20, 30 day simple moving averages of your profits which will show you over the short and long term how you are doing on an average day. IMO always plot the net points so that you don't deceive yourself with commissions. i.e. convert your commissions to points and factor those in.

Having said all that you should be trying to break even for your first 6 months as a day trader in the ES. Once competent, 2 points a day will make you a good living.

2 net points a day = 40 net points per month = $2,000/month per contract = $24,000/year per contract.
Thanks for the advice, it definitely helps.

Since I've been at this about 3 weeks, I've been averaging about 1 point per day. I'm a little beside myself because this was a lot more then I expected.

Is there a recommended reading list or other trading systems for ES that are worth investigating without dropping too much cash?
gray -

though you can approach goals in any number of ways, i think some of it should inevitably depend on:

1. expectancy per setup
2. setups per day
3. R:R ratio per trade
4. position sizing
5. time in market
6. setups taken

for example, say i have five different setups i trade. the win probability of each setup will vary, as will frequency of occurance. once i have these figures, i will have a better idea how many viable trading opportunities i might see in an average day. now i have a pretty good idea how many winning trades i might see in an average day. based on this information, i can now calculate average wins and losses, and therefore calculate a reasonable expectation for the day. next, i look at how big i will trade. if i have capital to justify it, i would rather trade a 5-lot on a 1pt setup, than try to look for five 1pt setups for a 1-lot. now i need to look at how long i am going to be in the market. all day or will i bail once i reach a certain profit level? time in market will then have an impact on how many setups you might take in a given session. some setups might also be time based (opening range trades, gap plays, etc).

Example Scenario:
1. number of setups: 2
2. setups per day: #1 = 3 per day and #2 = 1 per 2 days
3. expectancy per setup: #1 = 67% winners and #2 = 50% winner
4. R:R ratio per trade: #1 = 4pts reward:1.5pts risk and #2 = 6pts reward:2pts risk
5. position sizing: 1-lot each setup
6. time in market: RTH
7. setups taken: all

so for setup #1, we expect 4pts 67% of the time and to lose 1.5pts 33% of the time. so, each day i have a realistic expectation to have two 4pt winners and a single 1.5pt loser, totalling 6.5pts for setup #1. for setup #2, we expect 6pts 50% of the time and a 2pt loss 50% of the time. since we see this trade about once every other session, we can look for an average of about 1pt per day for this setup. between the two setups, we are looking to average about 7.5pts per day.

i hope all that makes sense. it might sound a bit complicated, but it really isn't. it simply gives you a better idea how much you can realistically expect to see in a given day. other wise you open yourself up to using arbitrary, unrealistic, and possibly limiting profit levels for daily goals.

as DT pointed out, this has to be viewed over time, not do or die based on a single session. daily goals help keep you on track for weekly, monthly, and yearly goals. daily goals can also help you keep your setups in check; if you are systematically taking your setups only to see consistent losses it may be a sign to look into your methodology. stops may be too close/too wide, profit targets too close/too far, entries too early/too late, or maybe the landscape has changed and the signal/setup(s) is just not as reliable. what did work may not work, or at least as well.

hth

take care :)

omni

quote:
Originally posted by graysqwrl

Thanks for the advice, it definitely helps.

Since I've been at this about 3 weeks, I've been averaging about 1 point per day. I'm a little beside myself because this was a lot more then I expected.

Is there a recommended reading list or other trading systems for ES that are worth investigating without dropping too much cash?

An average of 1 point per day (net I assume) is excellent for someone who has just started. Perhaps you are one of those rare talented day traders that just "get it" immediately.

What are you basing your entries and exits on? Is it a well thought out methodology or are you using intuition.

There is a top book list here: Top Ranked trading books
The only change that I would make to that book list is to drop the last one (Trade like a Hedge Fund) and add Nassim Nicholas Taleb's Fooled by Randomness

As far as other ES trading systems go the most important thing to do is to first analyze yourself and your style before looking for other systems. If you're the sort of person who can't handle a 5 point loss on 1 trade then you must rule out any system that requires you to hold a losing trade to more than a 5 point loss.

If you look at your resources, personality, style, risk tolerance etc. then you should have a good idea about what type of system you're looking for. First of all answer all these questions (and more) before looking for another system:

How much drawdown can I mentally handle on any 1 trade?
What is the longest I can hold a trade for?
How many trades will I be comfortable executing each day?
What is the longest losing streak I can sustain (mentally and money wise)?
Can I be in front of the screen 98% of the time?
Do I need hard fixed stops or can I trust myself to exit when my price stop is hit?
Can I trust myself to take profits at reasonable levels or do I need hard fixed rules for profit taking and stop loss trailing?

Pretend that you're going for a job interview at a Hedge Fund and think of all the questions that they may ask you about your trading style and come up with all the answers. Pretend that they are going to give you the job anyway and that you just have to define all of the rules that you will be implementing/following while trading their money. Write down all the questions that they could possibly ask you and write down the answers. At the end of this you should have a fairly good personal trading profile. I bet that you even discover some things about yourself that you didn't know before you began the self-interview.
I was a dumbass and hopped in on a 2 week free trial to Netpicks.com and decided to give it a spin

so far....so good
thanks for the advice Omni! I like the way Netpicks has given me very specific calculations for exit and entry points. I've been exiting by my own free will close to full profit and it has proved beneficial almost every time.

I just don't like the idea that I've only been trading a few weeks and I'm "guessing" at when the good time to take my profit is if I don't "feel" like it's going to go all the way up.

I like data, facts, and mechanics. I'm not in this to use the force!
quote:
Originally posted by graysqwrl

thanks for the advice Omni! I like the way Netpicks has given me very specific calculations for exit and entry points. I've been exiting by my own free will close to full profit and it has proved beneficial almost every time.

I just don't like the idea that I've only been trading a few weeks and I'm "guessing" at when the good time to take my profit is if I don't "feel" like it's going to go all the way up.

I like data, facts, and mechanics. I'm not in this to use the force!

doesn't sound like too much of a dumb-ass move to me, not with two weeks into a free trial and avg. 1pt daily on the ES
. but seriously, if you like the performance, style, risk, reward, etc., it may just be worth it to continue your service with them. another option is to really take a look at the setups. i know you may just get entry/exit/stop info, but you can always go back to each triggered setup (win or lose) and look at what was going on at the time to prompt a signal. kind of reverse engineering, i guess. since i don't use the service i have no idea what the circumstances might have been or will be.

another thing to remember is that nearly every system, indicator, strategy, oscilator, etc. CAN be profitable. a lot will end up relying on money/trade management. it can also rely on withstanding drawdowns. i have seen services that withstand 4 or 5 or 6 or higher points drawdown (intraday trades) and look for 1-2pts profit. for me, that doesn't work, but that's just me.

anyway, kudos on your entry into e-minis and i hope you see continued and expanded success.

take care :)

omni
Hi graysqwrl-

You have raised an excellent question, and one that is very common for new e-mini traders.

In terms of funding your e-mini trading, I recommend risking at most 2% of your trading account (working capital) on any given open position. I personally prefer 1% or less at risk.

As a newbie, your first goal must be survival. You must ensure that you stay alive (solvent) long enough to learn a bunch of lessons (usually by losing money), until your trading behavior adapts and takes you up to the breakeven level, and then work your way up to a consistently profitable level of trading.

By risking 1% of your working capital per trade, you can go through this learning curve and have most of your working capital still available to you once you reach the breakeven level.

In US dollar terms, I like to maintain between $10,000 and $15,000 per e-mini contract.
quote:
Originally posted by graysqwrl


I just don't like the idea that I've only been trading a few weeks and I'm "guessing" at when the good time to take my profit is if I don't "feel" like it's going to go all the way up.

I like data, facts, and mechanics. I'm not in this to use the force!


Exiting an open position based on how you feel a trade is or is not working will result in very inconsistent and unreliable trading results over time.

At a minimum before entering any trade you need to establish three things:
1. a clear reason to enter the trade,
2. a specific stop loss level,
3. a specific profit target.

Your trading goal then becomes to adhere to that specific plan. This will lead you to consistent results, which will eventually lead to consistent profitability. (Assuming you dont keep changing the reason your entering a trade, ie. switching strategies randomly).
What it boils down to in the end is how much you need to see you through the bad patches (which there will be some) and allow you to continue to trade back to the profitable times.