If you’re a discretionary futures trader do not do this…

Trader's Mindset

Jun 21

Before, I warned against attempting to trade with a single contract. The active futures trader should only attempt to make a small amount of profits per day from $50 to $100 per day on 1 lot. If you are a great world class trader, this is very feasible. Once a trader becomes adapt at trading for just $50 to $100 per day with 1 lot then the trader scale up to trading multiple lots and that $50 to $100 per day can turn into $200, $300, $500 or more which can be sizable or so the story goes.

However, there is a risk when adding one learns they can make more money by simply adding contracts. Once a trader learns that they can make good money by adding size on their best trades, it is easy to become reckless with it. As a trader becomes more confident, it becomes easy to add too much size without thinking about the consequences. It is also easy to fool oneself by adding contracts to feel more confident: if the size is loaded at the wrong time, either too late or too early, then the results will not be good.

This is why it is critical to establish a position size limit before your trading day. Define your max lots before your trading day. Reserve your max size for positions when you are most confident and for trades that can produce a runner. Start day slow with 1 or 2 lots only and build up when you have profits. Stop trading when reach profit target and then move to simulator, research, or market replay.

For system traders, if you can find a variable that correlates with either (1) profit factor, (2) win ratio, or (3) win size then that variable could be used to as a determinate for trading an additional contract.


About the Author

The author is passionate about markets. He has developed top ranked futures strategies. His core focus is (1) applying machine learning and developing systematic strategies, and (2) solving the toughest problems of discretionary trading by applying quantitative tools, machine learning, and performance discipline. You can contact the author at curtis@beyondbacktesting.com.