This week I thought I would try posting something a little different with the STA blog that will hopefully illustrate a few important things traders should be aware of. Here's the plan - to make a daily post of my trading results while trading 5 contracts and then to do a summary at the end of the week with the overall results.
My Trading Routine
First off, it's important to set up my typical trading week. Most of the time I only trade four days in a week, meaning I take Mondays off and work Tuesday through Friday. I don't do this for any major reason other than enjoying having regular "long weekends" so it's a lifestyle consideration for me. I also generally trade for only 2 to 3 hours per day starting in the morning at 9:30 EST which is the NYSE open time (shown on my charts by the vertical blue line at 6:30 PST). Some days I might go a bit longer if I'm in a good trade that needs time to come to completion (like you will see in today's recap) or if conducting an STA Live Training class in the morning with students but usually I just wrap things up at some point within that window.
How long I trade usually depends on my level of focus, profit gained for the day up to that point, and how well the market is moving overall.
I chose to do this little experiment with just 5 contracts because I consider it a very realistic number for a trader of intermediate skill to be able to regularly trade. New traders should usually start with only a contract or two but with consistency can build their position size to 5 contracts relatively quickly. Veteran traders can continue to build their size as risk tolerance and emotional control allows and over time those traders can utilize the massive liquidity of the Emini S&P 500 futures (ES) market to trade 10 contracts, 20 contracts, 50 contracts, or even more on a regular basis. As you will see these position sizes allow for extreme levels of profit in the hands of a capable and consistent trader.
Tuesday's Trading Result and Seeing the Big Picture
Probably the most important takeaway lesson from the chart above is that even though it a solid start to the week with 7.25 points gained and very profitable overall with $1812.50 profit gained on 5 contracts traded, it doesn't actually mean all that much in the big picture.
The outcome of a single trade isn't very important, nor is the outcome of a single trading day.
What matters is having a large enough sample of trades that your trading edge can fully play out and knowing that you have the positive expectancy needed to trade with consistent profitability over time. My Tuesday result is a good one but it's just one day and it's been achieved with only four trades which is far too small a sample to draw major conclusions from.
If you spend enough time reading things online in the trading world you will constantly hear people talking about how "all you need to do is make 2 points per day" or something similar and while it's true, it's also not really realistic. Some days will be good, some will be poor, and some will be absolutely fantastic. But which day you get depends on many factors and sometimes trader skill alone can't find opportunity in the markets if there isn't much there.
A good trader realizes that the outcome of single trades or single days doesn't really account for much and this knowledge allows them to keep emotional control and follow their trading plan. I wasn't worried when I lost my first trade of the week as it fit my plan and the loss was defined. There was no reason to panic just because I was starting in the red a little bit. Similarly, there isn't much reason for euphoria after a couple good winners later on in the morning and a decently profitable day overall. I simply followed my plan, took quality setup after quality setup, and didn't allow myself to get too emotionally high or low along the way. By continuing that through the week I should end up with a good overall result.