Thursday, September 18, 2008

Admission

I dogged a bullet yesterday. Yes, had I followed my impulse, I would be down this morning nearly  13.000 USD.

Yesterday I traded HHI.HK, which are the Chinese H-Shares futures traded on the HKFE. This contract has better volume and is normally not as volatile and fast as the HSI futures.

That's what I did:

Globetrader_01

I first had a winning HHI.HK trade, followed by a loser. I then switched to the HSI, where I had another loser, as I really did underestimate the selling pressure in these contracts. Even with a 5% down move before I took my longs the selling pressure remained.

I took a long HHI.HK 15min prior to the close and added to that one at the close of the equity market. (Futures continue to trade for another 30minurtes after the close of the equities exchange.) (marked red)

I was down 2 trades in a row and somehow thought, the market really was near a bottom. So I was more than willing to hold the position overnight, if it would not show me a profit within the next 30 minutes. It was revenge trading, it was dumb and I knew it. I was talking to myself not to do it. That the account always comes first, but that voice inside me was still very insistent, that that bottom in the HSI and HHI.HK made earlier would hold overnight. 21 minutes later I was taken out on a short covering spike for something like 18 ticks. The average entry was at 8731 and I had placed an exit order at 8749, in case of such a spike. HHI.HK was trading around 8680-8700 for some time and I just thought, if I get out great, if not I will hold it. To tell the truth, I still might have closed the trade at a loss prior to the close, but I'm not sure about that and that's the reason I'm writing this article.

Here is what happened this morning:

Globetrader_70

I marked the close. We opened with a 300 point gap down and dropped nearly another 700 points. HHI.HK was down around 10% after the morning session. 2 contracts down 1000 points, that's 100.000 HKD or 12.840 USD down. With the increased margin rates at IB for index futures, I would have gotten a margin call near the bottom.

And that huge recovery rally, which started in the afternoon session, after the market gapped up 600 points in the HSI and 400 points in the HHI.HK would have seen me without a contract long.

I'm a daytrader and the day offers enough opportunities to make good money. There is no need at all to hold a position overnight.

5 comments:

Zlatko said...

Good to see you survived and didn't end up like this guy: http://www.break.com/usercontent/2008/1/Stock-Futures-Trader-losses-it-all-and-flips-out-438981.html

markus said...

Chris,

your are seriously challenged by risk management.
Have you read the book "Trading Risk" by Grant?

Cheers,
Markus

Globetrader said...

Markus,

aren't we all in these volatile markets? My solution was that for the time being I'm no longer trading HSI, which has become too volatile for my account size. I am now trading FTSE and CAC40, which both are showing clearer ranges to me. Still I know, that trading involves risks. You have to take certain risks, to make a profit. I follow rules, I know, when I'm likely to disregard these rules and flags go up. I use wide stops, because I know, that this works for me. If a stop is hit it hurts, but I can and will make it back.
I may elect to take higher risks at times, when my signals tell me to go forward. But it is not the norm. I'm using a 10.5k$/contract traded internal margin, unless IB set's that margin requirement even higher, so I'm trading max 3 contracts.
Yes my stops can cost me 2% to 3% of my account size, but it was a lot worse at times, as I use an average 30 tick stoploss/ contract traded. The "only" problem arises, when I add at a profit, as then the risks in the trade become a lot higher, as the average entry price goes nearer to the current market price.
Best regards,

Chris

markus said...

Hi Chris,

if you like too we could discuss this on the phone. I am a German trader who trades for a living (only source of income now for about 2 years). And I think risk mgmt. is a key factor for doing this. I could call you over the weekend or next week in the evenig.

Cheers,
Markus

Globetrader said...

Hi markus,

send me an email (to: croc@globe-trader.de) with your phonenumber or contact me on IRC: othernet Nick: croc usually in #tradingspace and #newsroom

Best regards,

Chris