If you are trading anything less than $25k, (and even $50k really) we consider you the short stack at the table.
In order to be able to survive, but yet still make excellent returns, your place betting must be driven by Futures options. The reason for this is 3 fold.
1 - You guarantee your max loss prior to entry because it is the face value of the option you are buying.
2 - Futures by nature are explosive, and with a $20k account it will be very difficult to keep losses between 2-5% per bet. For example, if you want to trade Gold with a 2% per bet limit on a $20k account, you can only sustain a $4 adverse price move. Gold can move $4, five times within 2 seconds - Especially during illiquid hours when the algo bots are on stop hunting missions.
On the other hand if you wanted to express a long view in Gold using options, you could buy a out of the money call option for say $10 (or $1k outlay - This is 5% of your equity) The Delta on the option which is 3 months to maturity is .23 which means gold would have to drop $20 before you sustain a $400 loss. (or .23 * $20). We can tell you that over the past 10 years, Gold moves higher and lower by $20 from any random close 70% of the time. Said another way, out of the last 2,888 Trading Days, 2,022 of them would have seen Gold move adversely to both Long and Short holders by $20 over 20 day time intervals.
If this is the case, why would you be trying to play in the $4 range where you can get knocked out so easily? Options give you the ability to participate in a move that your equity capital wouldn't have permitted with the underlying future.
3 - You still follow all of the signals & indicators in Alchymist - The only difference is that you buy/sell the option instead of the future. So you are still working on your skills and mastering your playbook. Once you increase your chip stack via options trading, you will be ready to step in right away trading Futures.
We discussed this in detail previously, but will repeat again - You never outright sell insurance, especially when just starting trading with a short stack. This opens you to unlimited loss for minimal gain - Simply not worth it.
"Oh..I see $50 there...let me go & get that!"
The lowest risk way to Grow your chip stack is by trading long dated options which will have deltas less than .50. By doing so you will give yourself more wiggle room when your price bet or timing of said bet is wrong.
Focus on setups with a Risk/Reward of 2-1 and keep your bet size as a % of equity below 5%. You will be grinding and gaining invaluable experience in the marketplace while preserving your chip stack when the tables are choppy. When they go in your favor, the leverage will generate out-sized returns.
Options are a completely mis-understood betting vehicle, and the reason is that most gambler's don't know how to use them. You use options as a risk-mitigation tool, not as way to employ maximum leverage to capitalize on your brilliance and trading acumen.
In Conclusion follow these steps when trading Futures Options
1- Only buy options - Never, ever, be a seller.
2- Limit the cost of the option to 5% of total equity. This would be your max loss. So once you calculate this dollar value, you have to search for options you can play in that price range.
3 - Trade Long dated options - At least 45 days out. This will ensure there is minimal time decay if your timing is off, and your option will continue to hold some value.
4 - Just because you paid 5% of equity to buy an option, that doesn't mean you take it all the way to zero when wrong. You have an exit plan based on the price behavior of the underlying future, and you trade the option accordingly. You should aim to keep your losses to less than 3% of equity.
5 - To further reduce your costs at the beginning of, or during the life cycle of the trade, employ a "spread trade" by selling an option that is further out of the money. Creating a spread caps your maximum profit to the width of the spread, minus the net cost of buying it - however, you reduce the maximum loss if wrong.