Before You Start – Due Diligence

Before any trader starts to trade a contract he/se should learn as much as possible
about it. In order to construct a good watch-list you will need to know how your
market correlates with other markets; what connections it has with the world around
it. Some correlations work on many days while others just pop up as important from
time to time (e.g. oil for bonds).
You should think about who trades the market; are there many small retail traders for
example? Or are most of the traders larger or more professional? Take a moment for
example, to think about whether the eMini S+P has a higher or lower proportion of
retail traders than 10 year Bonds?
Don’t just consider the main session, we should also think about out of hours trading.
I have many clients for example, who trade ES in the European time. In out of hours
trading such as this correlations can be a greater help but we need to be more
watchful of liquidity and two-way flow (discussed later).
Find out how and when your contract rolls over around it’s expiry. As scalpers, as
soon as we see rollover activity we should stop trading until it has completed then
move onto the next contract. Cash settled contracts tend to rollover later than
physically settled ones but you need to learn when your market does this.
Understand what news events drive your market and when they come out. We usually
don’t want to trade over news and data announcements.
Learn when public holidays are that affect your market. For example, if you are in the
US and are trading Dax you may not be aware of German public holidays.
You should be seeking information about the futures market and the underlying
market. Remember, futures are a derivative – they derive their price from the
underlying market.
Basically, learn as much as you can about your market; become an expert in it. You’ll
be amazed at how many traders lose money on silly (and avoidable) things related to
a lack of knowledge.

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