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You Can't Become Rich In Your Pocket Until You Become Rich In Your Mind | ||||
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Traders need a little less lhan $2,000 in iheir account to be able to trade one note contractGerman DAXI want to include a brief note on this index, because I've seen a lot of press on this contract in recent months. (I'm writing this on March 29, 2005.) This is the German equivalent of the Dow. This is a good market to trade, but it is not for beginners. I've seen many traders who normally trade 10YM or 10 ES lots, which are interchangeable, jump in the DAX and also trade 10 lots. They heard it was like the Dow. because it has a trading range similar to the Dow, and it's made up of 30 big stocks like the Dow, so they go ahead and use a 20-point stop, just like they would on the Dow. When their stop is hit, they think they should only have lost $1,000 but it ends up being $6,500. The bottom line is that the DAX is a large contract. It trades in a similar range as the YM, but instead of $5 a point, it's worth 25 euros a point. Today (March 29, 2005) the exchange rate is 1.2937, which makes each point worth $32.34. This is like trading a little over 6 YM or ES contracts. In the 10-lot example, it would be the equivalent of trading 65 lots on the YM or ES. This is obviously important to know. The DAX trades from 2:00 a.m. until 1:00 p.m. EST in the winter. With daylight savings that changes from 3:00 a.m. to 2:00 p.m. EST. To get quotes on this contract, you have to sign up for Eurex with your data feed, which runs about $9 a month. The contract trades March, June, September, and December. Currently quotes are not available through TradeStation. The symbol for the June 2005 contract in eSignal is entered in as follows: AX M5-DT. The CBOT is considering launching a $25 per point electronic Dow product, which would make a nice replacement to the DAX. Full-sized 100-oz. electronic gold (ZG) and pit-traded gold (GCI've talked a lot about the stock indexes futures, so let me talk briefly about gold. By trading gold, you will be in good company. No other market in the world has the universal appeal of the gold market. For centuries, gold has been coveted for its unique blend of rarity, beauty, and near indestructibility. Nations have embraced gold as a store of wealth and a medium of international exchange, and individuals have sought to possess gold as insurance against the daily fluctuations of paper money. Gold is also a vital industrial metal, as it is an excellent conductor of electricity, is extremely resistant to corrosion, and is one of the most chemically stable of the elements, making it critically important in electronics and other high-tech applications. That's all well and good, right? But as a trader, all I really care about is if the market in question provides good trading opportunities. Over the last several years gold has become a great market to trade with plenty of volatility and trending price action. The electronic contract trades on the CBOT and the pit-traded contract trades on the COMEX {Commodity Exchange Center Inc) division of the New York Mercantile Exchange (NYMEX). 1 personally switched over to the electronic contract when it opened for trading in late 2004, but it is important to know when the pit session is going strong. The pit starts trading at 8; 20 a,m. and ends at 2:00 p.m. The CBOT electronic version, on the other hand, trades from 8:16 p.m. to 5:00 p.m., Sunday through Friday. The contract months for gold can get complicated. The official months are the current month, the next two months, and any February, April, August, and October falling within a 23-month period and any June and December falling within a 60-month period. For the setups I'm using, I'm looking at the front month or the next month out, which means that every month is in play. The rest of the available trading months are for people looking at hedging many years into the future. 1 like to establish trades in this contract during pit session hours. Gold moves in increments of 10 cents, and each 10 cents is worth $10 per contract. A full $1 move in the price of gold is worth $100 per contract. Traders need around $2,000 in their account to be able to trade one contract. Quotes on TradeStation for 2005 continuous contracts are: @ZG and @GC.C. Continuous quotes on eSignal for 2005 contracts are ZG #F and GC #F. Note that to get quotes on the pit-traded contract, traders have to be signed up for COMEX data through their quote vendor. Mini-sized gold (YG)-this is the same as regular gold, except that there isn't a pit-traded contract YG trades on the CBOT and is one-third the size of the regular contract, A 0.10 move is worth $3,32 per contract. A full $1 move is worth $33.20 per contract. Full-sized 30-year bond (USpit, ZBelectronic)interest rate futures were pioneered by the CBOT in 1975 in response to a growing market need for tools that could protect against sharp and frequent swings in the cost of money, U.S. Treasury bond futures were introduced first, followed by futures on 10-yeart 5-year, and 2-year U.S, Treasury notes. Over the past two decades, contract volume has exploded, reflecting the growth of the underlying instruments and profound changes in the marketplace. If you focus primarily on the stock market, it is critical that you become familiar with bonds. The bond market dwarfs the equity markets. Therefore, it is important to know when money is flowing out of bonds or into bonds. The bond markets and the stock markets also have an interesting relationship. Sometimes they move directly opposite each other, during periods of portfolio real location. This happens when huge funds have to sell stocks and buy bonds to readjust the percentage of capital invested in each. During these times, new highs in the bond market lead to new lows in the stock market, and thus bonds become a great leading indicator. The pit contract trades from 8:20 a.m. to 3;00 p.m., Monday through Friday. The electronic version trades until 5:00 p.m. and reopens 3 hours later at 8:00 p.m., Sunday through Thursday. I always trade the electronic version. The contract months are March (H), June (M)t September (U), and December (Z). The bonds move in increments of 1/32, which is called a tick, and are worth $31.25 per contract. 32/32 equals one full point, which is $1,000 per contract. Traders need around $2,000 in their account to be able to trade one bond contract. Quotes on TradeStation for 2005 contracts: USH05, USM05, USU05. USZ05. @US is the continuous symbol. Quotes on eSignal for 2005 contracts: ZB H5, ZB M5, ZB U5 ZB Z5. ZB #F is the continuous symbol. Ten-year notes (TYpit, ZNelectronic)10-year notes trade on the CBOT and are the same as the 30-year bonds in terms of trading hours and trading months. The notes move in increments of 1/64, which are called a tick, and are worth $15,625 per contract. Traders need a little less lhan $2,000 in iheir account to be able to trade one note contract. Quotes on TradeStation for 2005 contracts: TYH05, TYM05, TYU05, TYZ05. @TY is the continuous symbol. Quotes on eSignal for 2005 contracts: ZN H5, ZN M5, ZN U5 ZN Z5. ZN #F is the continuous symbol. Soybeans (S)my appreciation of the grain markets came about as an accident. I own a 1,000 acre farm in Palisade, Nebraska, and because of that I started watching the grain futures prices. 1 liked how they traded, and, once I learned about the contract specifications, I realized they trade very similarly to the E-mini S&Ps and mini-sized Dow. Soybeans trade in the pit from 10:30 a.m. to 2:15 p.m., Monday through Friday. There is also an electronic session that runs from 8:31 p.m. to 7:00 a.m. The symbol for this is ZS, but I don't watch this session or trade it. This is one of the few contracts 1 trade in the pit. Soybeans move in increments of % cent, and each % cent is worth $12.50. A full cent is worth $50. This is just like the E-mini S&Ps where they move in quarter-point increments worth $12.50, and a full point is worth $50. An 8-cent move in soybeans is just like an 8-point move in the ES or an 80-point move in the YM and is worth $400. To buy one contract, a trader needs a little more than $2,000, Quotes on TradeStation and eSignal are just like the E-mini S&Ps, except they use S instead of ES. Soybeans trade in September (U), November (X), January (F), March (H), May (K), July (N), and August (Q). There are also mini-soybeans (YK), but I don't trade them as they are very small and illiquid. Soybeans are the mosl volatile of these three grains. They generally trade in a range equal to 1 Vi times the ES and YM. Corn (C)-everything with corn is the same as with soybeans except the contract months are December, March, May, July, and September. This is the quietest of the three grains. A one-cent move is worth $50, just like soybeans. To buy one contract, a trader usually needs less than $1,000. Quotes on TradeStation and eSignal are just like the E-mini S&Ps, except they use C instead of ES. Il's generally a very steady market that trends well, and its daily range is generally half that of the ES and YM. There is a saying in trading circles that goes, If you can't make money trading, then trade corn Wheat (W)everything with wheat is the same as with corn, and a one-cent move in this market is also worth $50, One contract usually costs under $1,000. Quotes on TradeStation and eSignal are just like the E-mini S&Psv except they use W instead of ES. The volatility in this market is right in between soybeans and com. There are other, smaller U.S. exchanges that also trade wheal, but I just trade the CBOT contract. Note that all quarter-cent moves in grains are recorded as eights. So a price of 3414 actually means 3.41!^ (3.41 and 4/8) and 3416 means 3.4 VA (3.41 and 6/), Euro FX (EC)this contract is traded on the CME, as are futures in the British pound, Japanese yen, Swiss franc, and other currencies. I just focus on the euro, This is not the same as trading the euro in the forex markets, which I talk about in a moment. Also, I discuss the euro and compare euro futures to forex in later chapters. For now, all a trader needs to know is that there is a pit-traded session from 8:20 a.m. to 3:00 p.m. and an electronic session that is 24 hours, shutting down from 5:00 p.m. to 6:00 p.m. The euro FX moves in increments of 1/100 of a cent which are called ticks, and each tick is worth $12.50. The euro FX trades in March, June. September, and December. Quotes on TradeStation for 2005 contracts: ECH05, ECM05, ECU05. ECZ05. @EC i& the continuous symbol. Quotes on eSigna] for 2005 contracts; 6E H5,6E M5,6E U5,6E Z5. 6E #F is the continuous symbol. Note that you can gel a quote on eSignal using EC, but this will be the pit-traded contract only, while using @EC on Trade Station does capture the electronic volume. Crude oil (CL)oil has become a big focus for stock prices ever since it shot above $40 a barrel and kept on going. This is not a market for beginning traders, but it is helpful to understand how it works from a trader's perspective. This contract trades on the NYMEX (New York Mercantile Exchange). Oil moves in increments of 1 cent. A I-cent move equals $10 per contract, so a full $1 move in the price of oil equates to $1,000 per contract. The pit opens at 10:00 a.m. and closes at 2:30 p.m. After hours trading starts at 3:15 p.m. and goes through until 9:30 a.m. There are contracts for each month for many years out. Mini-crude oil (QM)the contract for mini-crude oil is the same as for the big contract, except a 1-ceni move is worth $5 per contract, and a full $1 move is worth $500 per contract. For oil, be aware that contracts expire earlya September contract will expire in August. Various single stock futuresthese are discussed in detail in the chapter on propulsion plays. One contract represents 100 shares of stock, so a 1 -point move with one contract represents $ 100 to a trader's P&L. That is the basic information for the trader on these futures contracts. One important thing to keep in mind is how all these contracts translate in terms of price movement with respect to the risk management techniques traders choose to utilize in their own trading plan. Let's take a look at an example stop loss taken in the NQ. This shows a 12- point loss that was taken in the NQ, which equates to a loss of $240 per contract. If a trader wants to use a monetary stop of approximately $240 for every trade in every market, then it is helpful to create a reference sheet of how this translates into other markets. This way a trader will be less prone to making a pricing error when it comes to figuring out appropriate stop losses in various futures markets. In this chart, we can see that a 12-point stop in the Nasdaq is equal to a 4.75-point stop in the S&Pfc, which is equal to a 48-point stop in the YM, which is equal to a 2.40-point stop on the Russell, which is equal to an 8-tick stop on the 30-year bonds, which is equal to a 19-tick stop on the euro. This also equals a 24-cent stop on crude oil, a 48-cent stop in mini-crude oil, a 2.40 stop on gold, a 7.20 stop on mini-gold, and a 4%-cent stop on the grains. Easy enough? Let's take a quick peek at the forex markets. Forex for IMewbies Again, this section is geared toward traders who are not familiar with the forex markets, so experienced forex traders should feel free to skip ahead, though the part on How to Hedge Your Own Life in the Forex Markets might be of interest. This section started off very, very longas any section that starts with the phrase, In the beginning will inevitably be. A fellow forex trader, Todd Gordon, helped me to go through this several times and cut it down to the bare essentials. The Foreign Exchange market, also referred to as forex or FX is the largest financial market in the world, with a daily average turnover of well over I trillion dollars30 times larger than the combined volume of all U.S. equity markets. Foreign exchange is literally the simultaneous buying of one currency and the selling of another Currencies are traded in pairs; for example, euro/U.S. dollar (EUR/USD) or U-S. dollar/Japanese yen (USD/JPY), The most liquid of these currencies are called the majors, and make up more than 85 percent of all daily transactions in this market. The majors are made up of the following: USD = U.S. dollar JPY = Japanese yen EUR = euro GBP = British pound CHF = Swiss franc CAD = Canadian dollar AUD = Australian dollar Forex trading begins each day in Sydney, and moves around the globe as the business day begins in each financial center, first to Tokyo, then lo London, and finally to New York. This is truly a 24-hour market, and investors can respond to currency fluctuations caused by economic, social* and political events at the time they occurday or night. One thing i like about the forex markets is that the 24-hour trading day includes four major market opens that offer the same volatility and liquidity found in the one-time-per-day 9:30 a.m. EST stock market opening. First is the Japanese open at 8:00 p.m. EST, then the Eurozone opens at 12:00 a.m. EST, third is London at 3:00 a.m. EST, and bringing up the rear is the New York open at 8:30 a.m. EST. Although I generally stick to the New York open and sometimes the Japanese open, there ate many traders I know who trade all the opens or whose schedules are dictated by their work, which tor some people can include odd hours. With the availability of these four opens, a trader can fit at least one of these times into any schedule. The FX markets are also the deepest, most participated-in markets in the world. Daily turnover equates to over $1.2 trillion, 16 times the volume of the Nasdaq and NYSE combined. (See Fig. 4.7.) The forex markets are one of the most technical markets in the world, meaning they respond well to most technical analysis studies. It is not uncommon to see a 300-pip breakout move stop and change trend at a technical level to within 5 pips. A pip is to forex as a point is to the stock index futures. A trader also doesn't have to worry about contract rollovers in the forex market. It is possible to buy a few lots of the EURAJSD, GBP/USD, and AUDAJSD, place a stop, and forget aboul it for months at a Ume. FX dealers automatically roll your position from one day to the next for you as to prevent the event of delivery. |
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