Thursday, December 29, 2011

A pretty good day to end (almost) 2011

Today, I decided to use spread trades instead of straight forward unidirectional trades. Judging by the results I got, I might do that more often from now on. My first spread trade was placed yesterday evening before going to bed and involved being short gold and long crude oil (using 3 contracts on each side). It turned out to be a pretty good decision as I ended up bagging a little more than $5k on that one. The other one, a calendar spread on natgas (long Feb/short March) was a lot less shiny. My strategy was to wait for the release of the EIA numbers at 10:30 and then if the price went down, get out of the short leg and stay long for the rest of the day. That's exactly what happened except that after I closed the short leg of the trade the price of natural gas kept falling down and I had to close the long leg at a substantial loss. Thanks to my gold/crude trade I had a comfortable buffer to absorb that loss. Net result for today +$3402 trading 3 contracts on average (commissions included). Details below.


  1. You should have made like $9,000 on gold. Did you loose a lot on CL?

  2. I do not know on what you base your calculation on for gold. BTW, I did not lose on CL

  3. 1160 short to 1130 x 3 contracts = 9,000

  4. No, it was more like 1548 to 1531 x 3 contracts = 5100

  5. Let's all be clear here. Futures are mark to market. There is no such concept as "a loser is only a loser once you close the position". The fact is that the money is gone from your account on the daily clearing, continuing with the open position or not.

    I find this sudden behavior of high leverage risk for someone who professed to exclusively trade 1 contract, up until the point where I suggested using 2 per position in this blog. And then, made the observation that normal scalp targets were getting cut off prematurely in response to the added leverage, as *very* odd behavior coming from someone with an 11 year background.

    Suggestion. Go back to 1 contract per position for all futures with one caveat. On the CL, if you feel that you're getting in on the early part of an intraday run which has legs for a 60+ tick move (from your initial 1 contract entry), add 1 more after a 30 tick advance, move your stop immediately to b/e + 1 tick (i.e, +16 ticks from you initial entry) and manage that trade for as far as you can take it, either a target in the 80-120 tick range (from your initial position) or a consistent stop-loss approach, or combination of both.

    Right now, you're way out of your comfort zone. Take your current windfall as a sign of luck, not skill.

    There's only two ways you should ever consider adding contracts to increase your leverage: all-in / all-out basis or adding on to a winning trade, never allowing your cost average to go against you more than you would allow youself to lose on your smallest standard trade loser.

    The simple act of going to 2 contracts per your usual scalps should have had the effect of doubling your long-term avg performance. Instead, it has triggered more emotions within you, changed your trading behaviorisms, and now, you've altered your probability distribution of wins and losses (not to mention their size as well) to the point where your prior ability to produce consistent results is dubious. If you cannot trade with two exactly like you could with one, then GO BACK TO ONE. Get steady again and then take the baby step I mentioned above.

    Your forte is scalping day trades. The very fact that you're willing to take 3x leveraged bets overnight all of a sudden is a big red flag that your recent run of good fortune has gotten the better of your rational thinking.

    Good luck.


  6. Thanks for your comments dude! Really appreciated.