Intricacies of trading currency futures

General discussions about futures.
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Gaudeamus
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Intricacies of trading currency futures

Post by Gaudeamus » Sun May 13, 2007 2:55 am

In his latest book "Entries & Exits" Alexander Elder makes the following comments on currency futures:
A fact that kills many amateurs in currencies, besides poor money management, is the fact that currencies trade almost 24 hours a day. They can move violently against you while you sleep. If you trade currency futures, you need to set up your account in such a way that a stop from futures is automatically executed in the cash markets if currencies move while futures are closed. A trader who gets into currency futures without this setup is like a man who decides to protect his property bu putting up a fence on only one side.
(Emphasis mine)

I am interested in learning how the system traders on this forum whose trading instruments include currency futures view this topic. Are you employing the account setup Alexander Elder is recommending? Is he correct? My first thought was that in commodities futures too there is the risk of adverse events while the markets are closed, causing the market to run over your stops after opening. What do you think? What are your experiences?

Kiwi
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Post by Kiwi » Sun May 13, 2007 3:19 am

If he really said:

"A fact that kills many amateurs in currencies, besides poor money management, is the fact that currencies trade almost 24 hours a day. They can move violently against you while you sleep. If you trade currency futures, you need to set up your account in such a way that a stop from futures is automatically executed in the cash markets if currencies move while futures are closed. A trader who gets into currency futures without this setup is like a man who decides to protect his property bu putting up a fence on only one side."

then he was a little off. There is rarely much movement in currencies while the futures markets are closed (basically they're open from Sunday afternoon till Friday with only the (short) globex closes in between). So I'd say rubbish. Also, never forget that if you test your system on RTH bars then you should trade it on RTH - trading out of hours invites stops triggered on pesky little low volume spikes.

Placing your stops in globex for non-RTH hours is tricky as many of the markets are very thin during those hours. If you want out of hours stops consider a reasonably tight stop limit or you'll be the sucker who gets picked up on a spike by the day (your night) traders out there.

Gaudeamus
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Post by Gaudeamus » Sun May 13, 2007 3:49 am

Hi Kiwi

yes, he really wrote it as I quoted - I have the book at hand. As Alexander Elder is an accomplished discretionary trader, trading coach and book author, I would be rather astonished if his comments are totally off-mark. Probably his own very cautious approach?

Thanks a lot for your instructive comments, though.

Chuck B
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Post by Chuck B » Tue May 15, 2007 11:54 am

It sounds like a comment written more than 10 years ago imo. However, during non-US hours, the CME currency futures will be VERY thin if a big move, news shock, etc, takes place, and a stop order might need a very wide limit (i.e. stop limit order) or it might not get filled. Wide limits on stop-limit orders might save your bacon on a huge move by allowing you to get out or in as the case may be, but at the same time during "spike" moves, they will provide a lot more slippage than you would like.

Depending on your broker, you should be able to place orders in the cash Forex market on an "EFP" basis -- exchange for physical. The broker will do the conversion for you based on the futures price in many cases. You can just tell them to "buy 20 contracts June Euro FX at 1.3652 stop bid EFP" -- in the cash/EFP market you will have to specify stop bid or stop ask. Running EFP orders overnight will provide a much more liquid market for stops to be executed in, and the position is 100% transferred into a CME futures contract.

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Post by sluggo » Tue May 15, 2007 12:54 pm

Elder may not have imagined that (A) people would trade very long term systems with very wide stops. Further he may not have imagined that (B) people would trade systems with no stops at all (such as the Blox builtin systems "Bollinger Breakout" and "ATR Channel Breakout"). Check out the Blox manual; these systems trade using market orders ONLY. No stop orders at all. Perhaps Elder finds this unthinkable.

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