Saturday, July 30, 2011

Math Humor



I borrowed it from Lubos Motl's blog that I visit quite a bit. Lubos is another theoretical physicist, although I don't think he is into emini day trading.

Tuesday, July 05, 2011

How many charts do you use for trading?

Some 9 years ago, when I was starting my emini day trading career, I got myself 3 monitors and hooked them up to my computer, a Compaq, that back then was running Windows 98. I was really proud of these monitors, the biggest of which was a real monster, a 21-inch piece of hardware that I got relatively cheap online.

These days I trade using just one monitor and doing better than ever. So much about the hardware supremacy. The best hardware (and software) a trader can use still resides between his eyes. Yes, I scaled down, and while two monitors may be the optimal solution even for someone who trades basically one market (mostly YM, but sometimes ES), I am getting by with one monitor just fine. Maybe on my next computer upgrade, I will add one more monitor, or maybe not.

In the past I would always use at least 2-3 charts: a smaller time frame 1-minute chart and a bigger time frame chart of 5 minutes. That makes sense, as the higher time frame can give you a better idea of what the overall trend is and can help you to stay on the right side of the market during the day.

Over the years I have added 2 more charts that I use for trading YM, the Dow Jones e-mini futures, my favorite emini futures market. One of those is a 5-minute ES chart and the other is a 1-minute chart with only basic indicators. The latter chart is meant to give a better picture of the price action. The purpose of the former is to alert you to a weakness in the market that can be spotted if there is some divergence in the price moves: since the markets are pretty correlated, if one of them lags the other, this may indicate that the leading market is running out of steam. Both charts are useful.

You may think that watching all those 4 charts is challenging, but it's not so at all for there is no need to watch the two 5 minute charts all the time, but only from time to time, and a cursory look at them is good enough to extract all the information you need. What you are focused on are the other two charts, the 1-minute charts for YM, but primarily just one of them, the main chart, with all the key indicators. And since the other 1-minute chart does not contain many indicators monitoring it is not particularly attention-consuming.

Hence, what this basically boils down to is watching one chart (the main 1-minute chart of YM) and monitoring the other three from time to time and only briefly. They can give you some extra information that may help you with your trading decisions that are primarily inspired by the main chart.

However, I have recently traded using one chart only, the main one, and have done so well that this got me thinking if I really need all the other ones. I have come to conclusion that given my experience, all those years of practice, I probably don't have to rely on the other charts as much as I thought it was necessary. While using them can be advantageous, using them all does give rise to a bit of distraction when watching the main chart.

Or, in other words, if you don't need to monitor the auxiliary charts, you can focus better on the main chart, and that may be even more advantageous than watching all the 4 charts. I think that there is something to it, but I don't think I can recommend a 1 chart solution to someone who is just starting his trading career. It's more appropriate for those with a good feel for a market they have traded for a while. But even they may actually be better off with at least 2 charts.

The moral of this story is twofold:

1. it's likely that you can handle your trading just fine with fewer things than you thought you could, although this may require some time and practice and hence starting with fewer things may not always be the best idea as opposed to reducing their number over time, but perhaps I am wrong,
2. it pays off experimenting with things, but I would not advocate jumping from flower to flower as this may be rather counter-productive; instead I suggest experimenting within the same framework such provided by KING, an emini trading course that I have been offering for a few years on my website.