Building a trading systemPart 2

Part 2

As mentioned in the past numerous times any and all details that can be managed anticipated, need to be addressed.

Trading is not a sport where you want to have a 'learn as we go" approach since discovering the unknown can be very costly.

looking again at the beginning of an excel sheet taming the various aspects of a minimalistic low risk trading system we started with a minimum set of aspects that need to be considered.

be aware that the values of the maintenance margin under column W are the ones of the exchange but that each clearing house and brokerage alters these numbers as they see fit to reduce their risk

consequently check their daily posting to not find yourself on a FED announcement day being fully prepped for a ABC FED play setup but getting a rejected order warning for possibly being underfunded or otherwise

Limitations do go as far as not allowing trading for a certain period of time

limiting size (contracts allowed to be traded)

raising Initial margin and/or maintenance margin

these imposed limitations can be random, announced news based, based on changes of the exchange imposed margin figures, liquidity, volatility and your personal trading patterns

So as much as Futures markets are typically very fair compared to stock markets with imposed breakers, day trading pattern rules, uptick rules and other nonsense there are still limitations that can be stacked against the self directed individual trader.

One thing that is a bump in the road trading futures contracts is their expiration.

While the general rule is transparent:

Trading terminates at 9:30 a.m. ET on the 3rd Friday of the contract month.

I find it from experience absolute useless in actual trading

while expiry is on that day, the Thursday eight days prior is when the contracts roll, meaning from that day on you need to make the decision which contract to trade

a decision that should be based on liquidity-always trade the most liquid contract

none of these dates should be ballparked at the time fo trading but these dates should be figured out ahead of time and i note them and the contracts on my trading view charting overview:

you see in this picture our 4 categories of trading, BTC, Gold, Silver and ES

and within each category first the chart of which you trade off:

BTC=trade of chart of the exchange/s you trade with

PMs(gold silver)= main futures contracts=continuous contract, to avoid gaps and alike-a turning point is a turning point-it isn't numbers we trade-this allows for system accuracy not monthly contract abnormalities and often you trade of a time node, an exchange opening or close or a silver exit from a gold chart and alike

ES=continuous contract or SPX depending on which instrument you built your trading system with

and each category is followed by a place maker where you need to fill in the next applicable Thursday when your roll over starts-

THIS STEP IS VERY IMPORTANT (trust me)

and further contracts out

be a stickler-learn your execution software inside and out-professional firms do this for month before they let interns start on the simulator and there is a good reason for that

be aware of order execution terminology-you don't want to be in the perfect trade where you have the ideal runner position still open and realize you just executed a day order

or measured a perfect limit order entry for tomorrow and wonder why you are not filled since you chose a day order over "until canceled" choice

each of these little mistakes can cost you and in volatile times or a six sigma event might even wipe you out

in short:

whatever you can control-you must control

more in part 3