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Traders Interview: Crude Oil Futures (CL,$CL_F), Full Time Trader. Lance from Florida

Lance from Florida. Full Time CL (crude oil futures) $CL_F

How did you get started in trading?

A friend of mine convinced me to go to a Forex trading seminar that was sponsored by a Trading software company . It was one of those “red light green light” systems that make trading look rather simple. The presenter was good at his job because I ended up shelling out a few thousand that day to start my trading career. My goal was to learn to be a great trader, so I could earn enough money to live on..and get out of the whole 9 to 5 work schedule like most people have. Of course I soon found out it was way more difficult than I could have imagined. There may be some people out there that pick it up pretty fast, but in my case it took close to four years before I began to get the results I wanted.

Do you trade differently from your early days? What has changed?

Yes. First of all, I trade futures now instead of Forex. And although I know there are some great Forex brokers out there, I have found that in many cases it’s a market that can often be manipulated . Trading is hard enough without having to worry about such things.
Another change from my early days is that I used to be a trader that would react to the market in a spontaneous, impulsive manner . In other words, if I saw the market suddenly moving in a way that convinced me it was taking off, I would just jump in. If the trade lost and the market suddenly reversed, I would jump right back in again going the opposite way. I had no real plan.
What I learned is that at any given moment, the market offers numerous temptations and it’s incredibly easy to think that you’re seeing a move. If you are taking unplanned trades, you’re “flying by the seat of your pants.” So now, before the beginning of each trading session, I make a very detailed written plan . It includes several what if scenarios at various price levels. I know what I’m going to do when setups occur at my designated levels. Also, my plan takes into account if the day is going to have lots of momentum and volume..or if it’s going to be slow and ranging. Then about a half hour after the market opens, I will analyze the opening range and market conditions and then modify my plan as necessary. So absolutely no spontaneous, unplanned trades are taken. If the market is acting in a way that is not familiar to me, I simply stay out. I know my proven setups will show up enough during a trading week to insure my profitability.
Another change has been in my risk/reward ratio. I prefer to mostly take trades that make twice the profit than the stop loss. So if I risk 10 ticks, I want to target at least 20 ticks. This means you can make money as long as your win rate is over 45% and mine is a lot higher than that. In the old days, my stops were often a bit larger than my targets . Unless you have a very high win rate, you’re going to fail. Never discount the power of mathematics.

What instruments do you trade?

Currently, I am mostly focused on Cl. It’s tricky but if you can master it, it makes some really strong moves on almost a daily basis. I don’t recommend it for beginners though. They should probably start with instruments like 6E or ES . I used to like TF quite a bit, but it doesn’t seem to move like it used to.

Did algorithmic trading changed the way you trade?

Yes, definitely. Although I have always liked to time my trades in the lower time frames, it is very easy to get chewed up in the Algorithmic noise. I see this a lot on ES. The HFT (High Frequency Trading) programs used by institutional traders are often designed to exploit tiny moves and trade them literally thousands of times a day. Obviously this adds up to big money for HFT traders but can spell disaster for the retail trader trying to scalp a few ticks on the ES.
I used to be pretty good at taking 5 tick scalps on indexes like the Dow and ES, but now with the algos out there, I believe it is a fool’s game.

Can you elaborate about significance of risk management in your trading?

To me, risk management is probably one of the most important aspects of trading and one I wished I had focused on more in my early days. This also an area that can get negatively affected by emotions. For example, a person may have an initial plan to have a 10 or 20 tick stop loss . Then after losing a series of trades, that person may become very upset and see that the next trade is on the verge of stopping them out yet again. The temptation can become overwhelming to move that stop further out. That’s when a person can really get in trouble by throwing all their risk management rules out the window. Also, as I said earlier, you stack the mathematical odds in your favor by having your targets at least twice the amount of your stops.
Whenever I take a trade now, I always think of where my stop needs to go first. You want to ideally put it behind the last swing high or low on a price move ..or in a place it’s not likely to get hit. But that area has to be in my numerical parameter of 10 ticks if my target is going to be 20. Then you have to mentally fully accept the risk before you put on the trade. If you can’t accept the risk for whatever reason at that moment, you aren’t mentally ready to take that trade . I always ask myself, “Am I okay with the possibilty this trade may lose?” That mental acceptance of risk reduces a lot of the stress and fear because I’ve already accepted the outcome if it loses. Plus I know that ultimately my system will come out ahead in the long run because it’s proven to be mathematically sound.

What indicators have helped you most in your trading?

The only indicators that I find useful for my style of trading are generally ones that show me what the market is doing in real time. Most conventional indicators tend to lag price. I want to use something that gives me an idea of what is happening right now. So, indicators that can show immediate changes in volume and orderflow are the most helpful to me. You can watch volume on a 1 minute chart and see a big spike of volume show up. But keep in mind, it has to wait a full minute to print that volume figure. The time and sales is good, but you can’t really process the cumulative effect of the orders coming in, especially since many huge orders are shown split up into numerous small orders. There are some tools out there now that give you an immediate snapshot of orderflow and volume. In other words, you don’t have to wait a minute to see the volume. You see it unfolding before your eyes. This can give you a heads up if that breakout you’re seeing on your chart is real or not. Fake breakouts are the enemy of your average retail trader. Also, if you’re trying to hold onto a trade for a runner, it’s good to know if the orderflow suddenly reverses. Then you can exit a trade before it pulls back and takes all your profit back as well.

What indicators have you abandoned?

I don’t really use any of the conventional indicators like MACD or Stochastics , etc.. anymore. How are you going to compete with Algos that trade at light speed if you are using outdated lagging indicators ?

What platform do you trade on and why?

I use Ninja Trader. I am very familiar with it and I like trading off the Chart trader, Just visually, it works well for me. Another plus is that the tools I use are designed for Ninja trader. I find it to be pretty reliable at this point in time plus their support staff has always resolved any issues I have very promptly.

Any final words for up and coming traders?

First off, they need to be realistic. There is a learning curve and it doesn’t happen overnight. It also takes time to learn the discipline and emotional control required for successful trading. And although SIM trading is a great way to test strategies and learn the platform, it is not the same as live trading. You need to have some “skin in the game” so you know how it feels to have real money on the line. Also, be careful when navigating through internet trading forums. You may find some threads that are extremely popular. There may be an alleged master trader or Guru that has numerous followers. Many of these guys turn out to be paper traders that just happen to love the attention they get on the forums .
There’s no substitute for screen time and watching price action for several hours a day. Pretty soon you will find patterns that occur repeatedly on a daily basis . Also,remember to always trade with a plan and avoid spontaneous impulsive trades in order to reduce random entries.

Don’t underestimate how strong emotions can get when money is on the line. Losing money creates an extreme urge to suddenly want to make it back immediately. This is when traders make huge mistakes . Every good trader has had to deal with these emotions. Have a maximum loss amount for the day and walk away when you hit it. Fight the urge to revenge trade and get back at the market.

Stick with what works for you. Many traders find themselves on a quest for the Holy grail. They are always experimenting and testing some system. The system may work initially, but then fail. The confused trader then moves on to another system and the process repeats itself. What they fail to realize is that their “System” may only work in a strongly trending market. Until they learn to stay out of chaotic, choppy market conditions..they will continue their endless quest for the Grail. If you can make 40 to 50 ticks a week consistently, don’t always be looking for a system that makes 300 . All you need now is to build up your account and add leverage. I’ve seen guys that have found systems that make 50 to 100 ticks a week but they abandon them to try to find better ones and they end up wasting many years .
And finally, I wish all up and coming traders the best on their journey through a very challenging but fulfilling endeavor called trading.

Lance, thank you for your time and contribution to futures portal.