Which instrument?
Do you ever feel like you really know an instrument? Like you’ve seen this behavior before? You have tons of confidence in your strategy.
Me for the last couple of years trading Crude Oil —>
<— Me after the Russian/Ukrainian conflict started
What I am trying to say is that the volatility was beyond most of my experiences trading Crude Oil, thus far. I needed to adapt fast or my P/L was eventually going to suffer. Imagine being used to a Daily Average True Range in CL of about $2.00 - $4.00 and now we are trading around $8.00. So, naturally, for my setups to work in this environment, I’d have to adjust for the volatility and give more room with my stop loss placement — about 3-4x as wide. This is not something I was interested in.
My Futures trading experience has been primarily with Crude Oil and Natural Gas. I decided to give the commodity realm a break and venture off to the equity markets. Enter: E-mini Dow Futures (YM). Learning a new instrument reminds me of the nuances that matter and are different, depending on what you decide to trade. I spent my first week trying to trade YM, the way I trade CL, which was a fail. Why? Because every instrument has its own behavior - fibs that it might be attracted to, the way it respects or retests zones, the way it trends, etc. I was on a mission to learn YM behavior. This takes research, back-testing, and also lots of real-time chart exposure. Here are a few steps/questions I used to tune myself to trading this new instrument:
what are the contract specs of this instrument?
Checked CME Group
what is the average true range of this instrument?
Find this using the ATR indicator on your daily chart. I used the 14 period, standard settings.
what news items affect this instrument?
i.e. use www.dailyfx.com for the high impact economic release calendar
Hours/Days of back-testing
I used my general technical analysis skills and tweaked them to see what combination would potentially work best with this instrument. For example, I enjoy trading tick charts. But, which tick charts give me an appropriate visual representation for me to analyze the market environment and then execute, given my style?
Measure swings - Part of my trading style is using Fibonacci retracements and extensions. Price action moves in waves and I like to see what levels tend to be respected (given other analysis) for the given instrument. For example, 88.6% fib retracement seems to be a key one for the YM.
Forward testing using Micro E-mini Dow Futures (MYM).
What better way to have skin in the game, but very little skin while practicing the strategy created for your new instrument.
Scale up when consistently profitable
Give myself time to show profitability (count ticks/points instead of dollars) before scaling up to either more micros or full-size contracts
