Learning how to trade futures on the Sim, Day 1.

Finally we are trading futures in Croatia…on the simulator. :-) If you have been reading these trainee diaries you would know how much we have been looking forward to this stage.

To get going on the sim, we finished all our initial training responsibilities, completed our research on our markets (one bond and one equity), set up our limits and risk with our Risk managers, Got the load down (trading plan, limits, etc) from our head trader Jason, and like that we began to sim. With the sim, you aren’t trading with real orders – everything is the same as live trading except there is no actual connection to the exchange. All the market movements, fills, etc but no live bullets.

My first trade was one my whole class won’t forget. We were asked to test our maximum order size for the Risk Managers. So I put in my max size far away from the market. The market suddenly moved quickly and my orders were all filled. Oops. I wasn’t even aware of it at first. No sound for fills set up at that point. My max size limit worked (I wasn’t allowed to put in more than 10 orders). So I clicked on “Pull all orders” and thought that was it. Something wasn’t right about how I cancelled the orders though…or how I thought I cancelled them. Remember, this was my first trade. It reminded me of Dee Dee from Dexter’s Laboratory and her famous line – “what does this button do?” The truth wasn’t too far from the reality. It’s hard to believe that traders went straight to the live market in the old days.

Seconds later it hit me that I had been filled on all 10 futures. So I started getting out of my position one by one.

As I was working out the market jumped. The result: an 82 tick winner. The harder I work the luckier I get? Better luck than good? I think just plain old dumb luck!

Even though there is no actual financial impact, I’m happy I took a lucky winner rather than an unlucky loser. But the lesson is the same either way: my first trade showed me just how fast the markets can move.

With the first trade out of the way I spend the rest of the day trading. It’s both exciting but tiring. I make a few misclicks, a few winners, some scratches but mostly losers. As we reflect on the day some of the lessons and quotes from Market Wizards come to mind. The most important lesson so far is to learn how to follow my trading plan and rules. Rules and guidelines are in almost every book about trading out there. I’m already fighting to do all the right things in my plan.

The most quoted rule ever in trading is “Cut your losers.”

When you find yourself in a losing trade, one voice says “get out, cut your losers”, while the other one is saying “wait, it will turn around.” I’m amazed at how my natural instinct is to hold it when it’s against me and get straight out when I have a tiny winner. Natural human tendency is to do the opposite of what is right, and that is why this career is so tough. We’re just not wired to do it naturally.

So off I go tomorrow to fight those emotions and tendencies, run those winners, cut those losers and stick to my trading plan.

I’ll write more again next week once I’ve got a full week’s worth of simulation. I expect some insight, humor, but probably mostly tragedy! See you next week.