Why Trading Stocks Is Easier Than Futures
By Dave Mabe
Here's a reader question that comes up a lot, most recently from Karl J. (name used with permission, question lightly edited for brevity).
Karl J.
I have been using Tradestation for a long time. Focused mainly on futures, I can consistently achieve around a 65% success rate. My biggest problems are getting out early by moving stops, being too chicken to take a good trade, and other stuff that I think automation could help with.
I would love to hear your opinion about why you think I can do better with stocks instead of futures.
Dave:
One thing I've learned to identify in traders is when they have more potential for success than they realize.
Perhaps the strongest indicator for this is when you're trading a futures contract systematically and have had results even remotely resembling mild success.
My consistent message to traders who reach out to me in this situation is: you'll have more success trading stocks.
This often surprises traders when I tell them this, so I've written this post to explain why.
The first reason is pure math: if you can find edge in a single instrument, imagine what you could find if you applied the same process to the thousands of stocks in the US equities market.
The strategies you'll find for trading will yield more trades, stronger profitability, and greater staying power with stocks, just based on the numbers alone.
Second, your pool of competitors is smaller. Almost every trader on the planet has a chart of the SPY on their screens.
It's easy to create a rudimentary program to backtest a single instrument. (I'm looking at you, TradingView.)
Anyone can do that with almost no effort.
Add the fact that there's so much liquidity in the ES, and you're now competing with institutions as well.
It's much harder to create a backtest that works across thousands of stocks, so your competition is significantly smaller.
So if you've had any level of fleeting success trading a system in the ES or another futures contract, you're already shown that you can accomplish the hardest part: creating a profitable strategy.
You've already developed execution experience as well, which will crossover to stocks.
Once you get the basics of trading stocks, there's no reason you shouldn't be able to create a much stronger edge that trades a lot more frequently.
This became super clear to me when I abandoned 4 profitable futures strategies several years ago - there was just more profit potential in the edges I find in stocks.
Great question, Karl, and thanks for sharing with the list.
-Dave
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