17 Apr The Case for Futures
The Case for Futures
Apr. 17, 2023
Since 2009, I’ve been addicted to Forex.
Back then, Forex was allowed to have a high amount of leverage. 50:1 was given. 200:1 was attainable with some brokers.
Fx, in the old days, allowed traders to take a little bit of money and turn it into a lot of money quickly. I’m rich!
Plus, I was told that Fx was more conducive to technical analysis. Break out the charts!
Plus, it trades 24 hours a day. Great! I can trade all night!
How has it turned out?
First, the leverage went away. In the United States, if you get 20 or 30:1, you’re lucky. That’s a 10x decrease in possibility.
As far as Fx being good for technical analysis, I’m still not sure what that means. Yes, Forex trades 24 hours a day, and that means more bars and more data. But does the GBPJPY respond better to an RSI move better than the ES or AAPL? That doesn’t really make sense. Fx is great for technical analysis/testing. I just don’t know if it’s “better”.
And then there’s the 24-hour “advantage”. You know what else stays open all day and all night? Casinos.
Are casinos good for our net worth?
Do you know what makes a disciplined, happy, creative person? Rigid routines.
Do you know what makes a successful trader? Only trading a certain thing at a certain part of the day with concrete rules–and not compromising.
Firing up the Fx account at 3 am to desperately try to make some money is a disaster waiting to happen.
Forex is still great. I still trade five accounts and a lot of my money in Forex.
But should we possibly consider other things, too?
And if so, what?
How about Futures?
When considering leverage, it’s hard to beat Futures. Futures contracts have huge leverage opportunities and this leverage isn’t going to be taken away by regulators trying to regulate something people don’t understand (Forex). Everyone understands Corn. Everyone understands Oil. Everyone understands the S&P 500.
Regulators don’t need to mess with those anymore.
As far as being open to technical analysis, I’ve been researching Futures now for several years, and it responds nicely to simple indicators and has tons of trends to follow.
And as far as data for testing, Futures data goes back to the 1990s in many cases. Forex goes back to late 2003, at best.
Further, Futures trades very clear, individual buckets. It’s much easier to make portfolios with Futures. We can put a little Sugar in there combined with the Japanese Yen and mix in the Nasdaq. Obviously, those are not correlated and could possibly be pieced together into a low-drawdown portfolio.
We could try to combine, say, the USDJPY with the GBPJPY, but they both have “JPY” in them. Is that good or bad? Will one go up when the other goes down? What are the U.S. policies compared to Great Britain? It’s tough to say. With Futures, it’s easy to say.
Most boringly, Futures are great for tax purposes. They get a nice taxable rate and it’s one form with one line on your tax return. No fuss.
Last, with Futures we can take a common sense idea (created without any testing), put it on an instrument we understand (like an index), and get an equity curve like this (which we talked about in a recent post HERE):
We’ll be talking about two more Futures systems in the upcoming Newsletters.
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