Wednesday, December 11, 2013

Trend Trading Gold Futures...Reality


Gold futures rallied yesterday. It moved from 1240 to 1265. With tick size of 0.1 and tick value of $10, this 25 dollar move is equivalent to $25 x (10 /0.1) = $2500 per lot. Wow, that is a lot especially if you convert USD to MYR, somewhere RM 8000. Many friends like to say it is so "easy" to make money from trading. If you trade only 2 lots, that easily more than monthly income of many professionals in Malaysia. What do you think, fellow traders?

If that is so easy, nobody wants to work anymore. You can be rich overnight by becoming a futures trader. In this post I am going to show the results of a short term system on how it tackles and captures this $25 upward movement. This serves as a warning for those aspiring traders the reality of trading. It is definitely not that easy, as promoted by many trading system sellers, consultants, gurus etc...

Below are the trades taken for the past 3 days in Gold Futures (GCG14):-

System took 7 trades, with 5 losses and 2 winners, yielding a win rate of 28.57%. Yes, it lost more than it won. Ignoring position sizing factor, it made $11.40 or $1140 per lot, which is significant lesser than $2500 as previously mentioned. Another thing I want to highlight is it took 4 consecutive losses in a row and faced a draw down of $830 per lot ($8.30). After the numbers, do you still think trading is easy?

This is a typical short term trend trading system. System displays some of the trend trading concepts like Cut losses short, Let profits run and Buy high-Sell Higher. Trend trading is difficult because it will show more losses than wins in terms of frequency. Therefore average profit per trade must bigger than average loss per trade. Only then you will be able to come out alive and winning. Please take note also system doesn't set any price target. This is inline with Let the profits run. System followed the market moves beyond unreasonable level (overbought in this case), without any intention to pre-take profits. Finally when market reversed, long positions was stopped out automatically by trailing stop orders. If you cannot take losses, maybe trading is not for you.

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