One of the nice characteristics of trading treasury futures is a concept that Chick Goslin mentions in his book, Trading Day By Day. He expounds that the larger and more liquid a market is, the more gradually it changes direction. I think he compares it in his book to changing the direction of a large ocean liner versus changing the direction of a speed boat. A speed boat can change direction on a dime, but its movements are therefore more erratic and difficult to anticipate. An ocean liner, on the other hand, can't change direction or stop on a dime. It may take a half mile or more to bring itself to a complete halt. Its volume or mass simply can't be halted quickly. Therefore, its movements can be more easily charted and anticipated. Likewise, the larger the volume and open interest of a particular futures contract, the higher the volume of contracts in the opposing direction are required for that futures vehicle to stop and/or change direction, and the less erratic are its movements.
Stock futures -- at times -- seem to buck this rule for some inexplicable reason. Perhaps this is because they are the first choice of inexperienced traders, thus creating far more market noise and erratic price action. This is just a guess, however. I suppose I should be grateful that they stay in the stock mini's, where their influence is contained, if this is the case. More inexperienced traders in the other futures markets might bring with them this phenomenon of erratic movements and market noise. Who knows? That's just my opinion, and I could be completely wrong about it.
Stock futures -- at times -- seem to buck this rule for some inexplicable reason. Perhaps this is because they are the first choice of inexperienced traders, thus creating far more market noise and erratic price action. This is just a guess, however. I suppose I should be grateful that they stay in the stock mini's, where their influence is contained, if this is the case. More inexperienced traders in the other futures markets might bring with them this phenomenon of erratic movements and market noise. Who knows? That's just my opinion, and I could be completely wrong about it.
This size-of-market phenomenon can be an advantage to a trader. A small trader can therefore maneuver in these very liquid futures markets, entering and exiting trades several times with small profits or small losses in repeated attempts to accurately position himself/herself in the market to maximum advantage. Imagine a small speed boat (a small trader) racing around an ocean liner, making circles rapidly while the ocean liner slowly attempts to slow down and change direction. This is one of the reasons why tight spreads are so critical to traders. (Take heed of that point, Forex traders!)
Treasury futures are so liquid that even very large individual traders will have minimal impact on the market. I could easily place a position of 300 contracts without affecting prices in the slightest. Now that's liquidity! Using our speed boat analogy, imagine our little speed boat (us, the trader) on the vast Pacific Ocean of the most liquid financial futures. While the Pacific Ocean has the capacity to easily destroy a careless small speed boat, the little boat also has the advantage of adept handling and maneuverability. One must understand both the power of the ocean and the advantages we have as small traders in order to remain safe on that ocean and properly take advantage of it.
Another advantage that this size phenomenon afford to traders is that since the market moves somewhat slower, it makes a good training ground for beginning traders. Beginners can practice and learn how to achieve good and accurate executions, and critical skill to develop.
Treasury futures are so liquid that even very large individual traders will have minimal impact on the market. I could easily place a position of 300 contracts without affecting prices in the slightest. Now that's liquidity! Using our speed boat analogy, imagine our little speed boat (us, the trader) on the vast Pacific Ocean of the most liquid financial futures. While the Pacific Ocean has the capacity to easily destroy a careless small speed boat, the little boat also has the advantage of adept handling and maneuverability. One must understand both the power of the ocean and the advantages we have as small traders in order to remain safe on that ocean and properly take advantage of it.
Another advantage that this size phenomenon afford to traders is that since the market moves somewhat slower, it makes a good training ground for beginning traders. Beginners can practice and learn how to achieve good and accurate executions, and critical skill to develop.
On the other hand, I could take a position of about 25-30 contracts in soybeans (about 50 in corn) without affecting the market much. When the day arrives that I am trading positions of that size, I will may switch permanently to trading treasuries. At that point, the Law of Large Numbers kicks in. I'm not there yet! I have a long way to go before that occurs. Once I am trading positions of that size, I may remain in the grains markets and just limit myself to trading positions that keep me from the reaching the limitations of the Law of Large Numbers. Even at that level, I can be very satisfied with the income level it will provide to me.
