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Thomas,
You can make all those assumptions, and they may average out over time.
But I think there is something else you should evaluate first, and that
is the amount of leverage you are using.
The S&P 500 contract (at 1093) represents $273,250 worth of stock. The
overnight margin requirement is $12,563. So if you fully margin your
trade, you have leverage of 21.75 to one. If you daytrade, and figure
half the overnight margin requirement your leverage doubles to 43.5 to
one.
If you trade stocks on margin, you have to put up 50% of the equity even
if you day trade (unless they changed the rules recently) which is 2 to
1 leverage.
I challenge you to play with those leverage numbers and decide if you
really think you can beat those odds. Obviously, it is that tremendous
leverage which attracts new traders to the S&P 500, but I don't think
many new traders think enough about the downside. Think about it, if you
bet the farm each time, you will eventually lose the farm. You may
convince yourself to use close stops, but a close stop on a contract
this big is nothing but random noise if you look at the big picture.
It has been my experience that many S&P 500 traders will trade
successfully for awhile, and then you get a abnormal day and they give a
couple years of gains back.
I would encourage you to look at the other futures markets. Now I agree
that most physical markets are in the doldrums (strong dollar?) but
crude oil is a good recent example of bringing the leverage issue under
control. In the last week crude is down over $3.00 per barrel (closer to
$4.00 if you look at the extreme) and anyone with a paper chart and end
of day quotes could have generated a sell signal that would pick up
$2.00 to $2.50 of that move.
Using round numbers, with crude at $15.00 per bbl a $2.50 move is 16.67%
of contract value and 123.5% of the overnight margin requirement. I
believe there is more money to be made (or less risk of ruin) by looking
for these types of trades rather than banging your head against your
tradestation trying to scalp a point or two out of the S&P 500.
See Ya
KJL
> From:
> TomKochik@xxxxxxx
> Hello All,
>
> I am just trying to test and evaluate a method to take a position in S&P
> Futures on a Day Trading Basis ONLY based on comparing the chart of the S&P
> Future and its cash equivalent. I ve noticed besides they are very closely
> related also almost every turnover in trendline direction on the Future chart
> is being followed by the S&P 500 Index chart (and that's obvious) but I ve
> been paper trading for a while and even taking the worst scenarios like 1.5
> minute waiting time for the fill and always couple tens (0.1-0.3 of a point)
> worst then actual fill, and in these conditions, following the rule to either
> buy or sell short when the "probable major" reverse trend has started, then I
> am just waiting for the S&P Index to follow that turn of the Future Index and
> then I would trigger the order. By doing this for the last couple of weeks I
> ve benn getting extremely good results !!
>
> Please any comments ?? Ideas ??
>
> Thank You very much
>
> Thomas...
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