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Weak

Find Your Sweet Spot - Emini Trading 101

You decided to become a trader. Put some money in an account, got a few indicators, read a couple of old wive's tales on a forum that sounded pretty solid, you're good to go right?

Well... let me ask, "How's that working for you?"

You don't need to answer, it was rhetorical. Besides, I  know the answer.

I interviewed Max Lucado back in the early days of CFRN. He had just published his umpteenth book -

Let me tell you, I was as excited as any cub reporter has ever been. This guy was my hero. I read his books as fast as he could write them and to actually meet him after all this time...... you would have thought he was Jesus.

Silly excited. Jimmy Olson-itis is what I had.

Turns out, guy couldn't even fly. Couldn't fly? He didn't even have a cape.

Shucks, this guy was offering the Cure For The Common Life and it was starting to sound like his life was more common than most.

Lesson #1 - Never meet your hero in person.

Lesson #2 - Find your sweet spot.

You see, aside from my personal misguided hero complex, Max had done it again. Here's a brief overview of the book if you haven't read it. 

Ever swung a baseball bat or paddled a Ping-Pong ball? If so, you know the oh-so-nice feel of the sweet spot. Life in the sweet spot rolls like the downhill side of a downwind bike ride. But you don't have to swing a bat or a club to know this. What engineers give sports equipment, God gave you. A zone, a region, a life precinct in which you were made to dwell. He tailored the curves of your life to fit an empty space in his jigsaw puzzle. And life makes sweet sense when you find your spot.

But if you're like seventy percent of working adults, you haven't fount it. You don't find meaning in your work, or you don't believe your talents are used. What can you do? You're suffering from the common life, and you desperately need a cure.

As surely as your life has a Sweet Spot, so does your trading. Trouble is, you gotta find it. Are you a Scalper? Swing Trader? Position Trader? Hybrid?

Huh?

Exactly. How are we supposed to know that? Better yet, how do we figure it out? Well, I suppose if you had enough time and money you could pretend to be all of the above and more. Eventually something should feel like it fits. Right?

Perhaps...

Train To Be A Champion

At some point in your life, you also probably decided you wanted to get fit. You bought a gym membership, but of course you were a little concerned about getting bulked up too quick. You certainly didn't want to get all muscle bound and end up looking like one of those WWF guys.

So you put off actually going to the gym for awhile, but every time you walked past those $75 kicks with the Swoosh, you felt a little twinge of guilt. Then it happened, your reflection snuck up on you in a store front window. Remember turning around to look at the poor slob head on and realizing you were the poor slob? The day of reckoning had arrived. Even at the risk of Hulking up like Hogan, you headed to the health club. Swish, swish, swish.

You walk in, your eyes adjust, you scan the room. Over in the corner are a couple of skinny guys curling 5 lb. dumbbells. Hey, I didn't buy $75 kicks and pants that go swish to curl something only slightly heavier than my favorite beverage. I came to WORK OUT! Suddenly I heard it, the siren song of steel plates being slapped together. Oh yeah... there's the cure for my common body. 3 Terminators in the middle of the next room "pumpin' iron".

"Load me up baby!" That was the last thing I remembered saying when I woke up. The paramedics left giggling and said to go home and drink some fluids. As I stumbled out the skinny guys were still over in the corner curling their 5 pounders. For all I know they still are. I haven't been back...

In hindsight I realize that the behemoths pumping iron were probably once the skinny guys in the corner. They worked their way up. They trained. They endured. They didn't give up, they showed up. Day, after day, after day. So what does this have to do with trading?  EVERYTHING!

Nobody wants to trade 1 contract or quit after 2 points. Everybody wants to be Marty Schwartz the Pit Bull. Guess what? You gotta start with the skinny guys in the corner. Guess what? You might be there a really long time. The good news? You don't have to wear swishy pants.

I want you to take a look at the results from the Live Trading Room for the month of January. You may have been in the Trading Room, you may have listened to the recap on the daily radio broadcast, but have you taken it to heart yet? I know you want to trade in size. I know, you want to knock it out of the park like the Babe. While you're pointing at the outfield let me tell you a thing or two you might not know about George "Babe" Ruth.

In 1923, Babe Ruth broke the record for most home runs in a season. That same year, he also broke the record for highest batting average.

There is a third record he broke that year that most people don't know about. In 1923, Babe Ruth struck out more times than any other player in Major League Baseball.

Babe Ruth was not afraid to strike out. And it was this fearlessness that contributed to his remarkable career. He had 1,330 career strike outs - a record he held for 29 years until it was broken by none other than the great Mickey Mantle.

Most people want to hit home runs, the problem is they are afraid to fail in order to get there. As Babe Ruth proved, you can't have one without the other. It's perfectly fine to be a good, solid player who doesn't go down swinging that often...but it also means you won't hit that many home runs. Those players are needed on a team - they are the consistent and reliable players.

However...

If you want to swing for the fences, you have to be willing to strikeout. Now this is an awesome, warm and fuzzy motivational pep talk, if you're a baseball player, and only then if you have the "right stuff" that actually allows you to knock it out of the park from time to time. So while Babe's numbers worked well as a hitter, how would those numbers look on a trader?

1,330 strike-outs + 714 home runs = 2,044

If we apply that to a trading strategy it means your methodology is "right" 35% of the time. In other words, every 10 trades you make, you're only going to be right 3 1/2 times. Now if those 3 1/2 times really are home runs, and the 6 1/2 times you're wrong the losses are very small, there is a chance you could be profitable. A small chance. What would your win to loss ratio need to look like just to break even if you're right 35% of the time?

Now, let's fuzzy up the math a bit. Babe didn't always strike out or hit a home run. He hit singles and doubles and got walked like any other player. As a trader, you'll have some singles and doubles too. Or will you? If you're always swinging for the fences will it be all or nothing? If you're always swinging for the fences will you really be able to limit your losses?

The truth is, perhaps. However, it's not going to happen unless you have an awful lot of training. An Olympic athlete will run thousands and thousands of miles in preparation to run 100 meters once. The other truth is, most traders refuse to work out with 5 pound bells. Day, after day, after day.

Let's be brutally honest. Most trader's will give up or blow up before they get there. Trading is risky and due to a lack of self-discipline your chance of success is slim. In other words, unless you heed my words, you will most probably lose all the money in your trading account. Don't get me wrong, some traders do listen, some traders have the discipline of Mr Miyagi and the endurance of Michael Phelps. Some traders do succeed quite splendidly.

Some traders work their way up to  25 contracts and average 2 points a day. Some work their way up to a hundred contracts and still average 2 points a day. Those annual earnings are $500,000 and $2m respectively. Some traders do better and some do less.

The one thing I can whole heartedly assure you of is this, the one's who make it, understand the value of the 5 pound bell and the 2 point daily goal. If there was a shortcut I would give it to you. The only reason we even charge you to become a Partner is because we have to show up everyday for 90 days to try and keep you from getting slaughtered. Yes we're teachers, but we're also heavily armed.

CFRN Is offering INO readers access to a special "Sweet Spot" Webinar

Friday January 18, 2013 @ 9:30AM EST

Join us for a 1 Week Free Trial!

Comments

  1. sunday says:

    How does one access the webinar? Is the webinar free? Are the eminis more complex to trade than the regular stock market? Can one use the trade triangles to trade the eminis? If so are the trade triangle rules applied the same way for eminis? Thank You

  2. Mike Guerra says:

    Dude,
    Connie just emailed me this post. Nice work.
    Keep giving it away, that's how Cuban got rich and famous.
    =)

    Just kidding, nice article.

    Pay attention people, this dude rocks the Emini.

    (brunch tomorrow D?)

    Call me Connie.

    Mike the G (whiz)

  3. Connie Lambertson says:

    DeWayne,
    When did you start writing for these guys? I thought you were writing for Motley Fool now. You have to keep me in the loop. Should I blog this site and article on the Times?

    Let me know.

    CL

  4. burt says:

    great article. Would like to see and hear more. makes sense

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