Mastering Short-Term Trading

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A Journey into Futures Trading

Wang Weimiao’s relationship with futures trading blossomed during his university days. It was during a booming stock market that his curiosity about financial markets piqued. Determined to become a stock trader, he envisioned carving out a space for himself amidst the vast opportunities presented by this sector. However, fate had a different trajectory in mind. A serendipitous encounter led Wang to shift gears, diving into index futures trading, formally stepping into a domain that was more intricate yet laden with potential.

Transitioning from equities to the futures market was no small feat. The futures arena, known for its higher volatility and risk than the stock market, posed new challenges. Wang reminisced, “Unlike many, I was introduced to this industry before I began to delve deeper into its mechanisms.” He recognized that to survive and thrive in this market, continuous learning and hands-on practice were imperative.

Upon entering the futures market, Wang was met with an array of challenges. He had to quickly grasp fundamental knowledge about futures as well as the techniques of technical analysis. Additionally, mastering emotional control to avoid making impulsive decisions due to market fluctuations became essential. Most critically, he needed to develop a trading style that resonated with him. After extensive exploration and real-world practice, he ultimately settled into a strategy focused on intra-day scalping.

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No Certainties in Futures Trading

Although youthful and relatively new to the realm of futures trading, Wang possesses a profound understanding that surpasses many seasoned traders. He describes the futures market as a space that provokes existential reflections, urging him to contemplate the meticulousness required to navigate it effectively. “Risk management is the bedrock of futures trading,” Wang explains. This principle manifests in diverse ways. For instance, as a professional trader, one must consider how long they can endure in the market, and plan for potential downturns, thus necessitating personal planning to mitigate losses. Moreover, traders need to contemplate how much loss they can absorb rather than merely focusing on potential gains, emphasizing the importance of personal asset protection.

Wang’s unique trading style is characterized by quick scalping, where stop-loss measures are prioritized. “When assessing my trading experience, I believe making money often results from multiple intertwined factors, whereas losses can often stem from a single misstep. This reminds me of the saying, 'A thousand-mile dike collapses from an ant's burrow.' In trading, every detail matters.” He affirms that acknowledging one’s shortcomings during trading becomes pivotal at those critical junctures. “For instance, early on, I was overly fixated on potential profits. This mindset led to missed opportunities when I hesitated to open positions, ultimately resulting in uneven performance.” Wang emphasizes the importance of adapting one’s mindset for significant improvements in trading efficacy.

Wang recognizes futures trading as a realm rife with uncertainties, noting that each investor’s actions influence market trends. Some traders profit by understanding underlying market dynamics, whereas others rely purely on luck amidst uncertainty. “When significant market movements occur, fortunes can shift dramatically—some gain wealth, while others face catastrophic losses. I have observed many succeed, yet I have seen even more meet a disastrous fate.” Hence, he stresses that the terminology 'certainty', 'guaranteed', or '100%' does not exist in this market, appealing for traders to remain cautious and prioritize risk management over chasing profits.

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Short-term Trading Methods and Strategies

Wang Weimiao primarily focuses on short-term or ultra-short-term trading strategies. His approach incorporates a mix of candlestick patterns, MACD, moving averages, and KDJ indicators, in addition to leveraging multi-timeframe analysis, inter-commodity correlations, and market depth. By utilizing these tools, he creates a comprehensive evaluation system to make informed predictions about market upswings and downturns, enhancing his accuracy rates. “When examining individual indicators, one risks being misled by isolated signals,” he remarks. In market scenarios, it’s common to encounter conflicting signals from various indicators. For example, even if moving averages suggest a bullish trend, the MACD may signal bearish intentions due to flattening momentum or crossing downward. This discordance necessitates additional indicators to enhance predictive accuracy.

Thus, if prices begin to follow the MACD’s downward trajectory, moving averages will inevitably adjust in response. Wang explains, “To address these inconsistencies, it’s beneficial to apply multi-timeframe analysis. For example, when a 1-minute MACD indicates divergence from the moving average, viewing a 15-minute chart can reveal wider contexts, leading to three potential scenarios.”

The first scenario is if the higher timeframe confirms a strong bullish outlook, indicating that the bullish signals on the 1-minute chart are likely valid, making any bearish indicators weak or possibly false. This understanding allows one to predict future price movements within smaller timeframes.

The second scenario arises when neither timeframe provides a clear direction, suggesting the market may be consolidating or oscillating. In such instances, it’s prudent to abstain from trading.

The third scenario contradicts the previous two: when the higher timeframe points toward a strong bearish signal while the shorter timeframe yields mixed indicators. In this case, the bullish signal may be filtered out as weak or false, rendering the bearish signal valid in the 1-minute timeframe.

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Advice for Short-term Traders

Wang offers two key operational tips for short-term traders:

Firstly, speed is paramount in short-term trading. Employing slow mouse actions on trading software like Wenhua can be detrimental. Utilizing faster systems such as Kuaiqi or Yishun while setting up operational tricks can drastically reduce trade execution time, facilitating swift entries when market direction aligns favorably. If execution lags due to price adjustments, missed opportunities for profits will arise, and incorrect direction entries often result in losses.

Secondly, beginners must start cautiously, focusing on practice over reckless actions, while dispelling the mindset that short-term trading guarantees quick profits. Growing frustrated with the pace may lead to excessive trading in suboptimal conditions, negatively impacting profits.

Short-term trading comes with its inherent challenges. Regardless of the timeframe—whether with larger or smaller cycles—the emotional stakes can become overwhelming. Even with larger price movements, smaller fluctuations present significant difficulties that can impede profitability, necessitating restraint in trading activity.

For novice traders, it’s often best to begin with short-term strategies. While there are instances of immediate successes in long-term trading, a foundation in short-term trading solidifies a trader’s skills. Many experienced fund managers have likewise started as short-term traders, evolving their strategies as their funds grow. Gaining substantial expertise allows for shifting focus to longer-term strategies like trend trading, eventually transitioning into equities, then fundamentals.

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Choosing the Right Markets

For traders, the selection of trading instruments is critical in their performances. Wang Weimiao employs a systematic approach to market selection, starting with volatility assessments. He prioritizes instruments that exhibit significant fluctuations. “Take rebar for example. If it fluctuates just 1-3 points per minute, I steer clear. However, if it exceeds 10 points within that timeframe, I take an interest,” he shares. While he may trade different instruments throughout the day, he concentrates on one at a time, awaiting shifts into consolidation or oscillation before exploring new opportunities.

Once he’s selected an instrument, determining entry and exit points is founded on trading philosophies enhanced with indicators and price action. Establishing a directional judgment through his self-constructed indicator system allows for timely entries aligned with price movements, and exits are dictated by price stagnation or indicator reversals. In his scalping strategy, Wang typically maintains open positions for less than three minutes, although he may hold momentum longer in more relaxed market conditions. During fast-moving periods, he can execute hundreds of trades in one day, while slower days might yield only a handful, or none at all. Currently, Wang is exploring strategies that extend trade durations to 15 minutes or more, with profit positions lasting longer than a day, while stop-loss orders remain flexible.

Regarding risk management, Wang regards risk in the futures market as a precarious undertaking, advocating for a three-tiered protection approach:

The first layer involves predefined stop-loss limits set before trades commence, ensuring immediate disengagement at specified thresholds.

The second layer constitutes daily loss limits, implemented to prevent the accumulation of significant losses triggered by recurring breaches of the first tier.

The third layer entails a monthly loss cap that delineates the maximum permissible losses in futures trading, enabling effective fund rotations to avert impacts on essential living expenses due to financial mishaps.