How Do I Start to Day Trade E-Mini Contracts?

By trader7757, 16 August, 2010, No Comment

Learning to day trade e-mini contracts has become one of the hottest professions on the Internet. Unfortunately, many people enter the e-mini day trading arena with little or no experience and are disappointed in the resulting lack of success. I need to point out that e-mini day trading is a learned skill and not an innate ability. So it is important to engage in some preparation before attempting to day trade e-mini contracts.

First and foremost, a new e-mini day trader should research and choose a quality day trading system. This is not necessarily an easy job, because there are a wide range of trading systems and some are priced exorbitantly high. Spending time on some of the trading chat boards and asking questions about the quality of various trading systems is a great way to get some feedback on which course is considered successful. Even then, you may need to examine each recommended course and interview the owner of the course. Some great questions to ask might be:

1. What are the owners credentials and trading experience that qualify him or her to advise others on trading methodology?

2. What is the overall success rate for past students of his or her of course?

3. What is the cost of the course and are there ongoing charges to remain an active member?

4. Does the course require the student to purchase proprietary software to trade with the particular system being sold?

5. How long does it take from the start of the course until a trader can safely trade e-mini contracts?

While some trading educators debate the use of demo accounts, I highly recommend them. The problem most people have with e-mini day trading demo accounts is that they tend to not follow the trading system they have learned. They tend to over trade or experiment with ideas they have that are not based upon sound methodology. This can lead to bad habits which may carry over to trading with real money. The answer to this problem is a simple one; you must trade your demo account exactly as you trade your live account, that is, the account you plan to trade with real money.

Sound methodology and a good deal of successful practice time on a demo account is an excellent way to prepare a potential e-mini day trader to trade successfully and profitably. It is important to have a plan before you begin to trade. As I said at the beginning of this article, day trading e-mini contracts without any preparation will generally lead to failure and loss of your capital.

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The Fed Speaks: Didn’t He Say the Same Thing Last Month?

By trader7757, 9 August, 2010, No Comment

Day trading today was like watching a nail rust. I find that amazing, too. The Fed has been saying the same thing for the last three months and there have been no substantive changes in the economy. They can’t lower rates, as the Fed Funds rate is already zero. So that rules out any earthshaking rate changes, and they can’t raise rates because the economy continues to, at best, stagger like a drunken sailor.

Just the same, the market waited with eager anticipation to hear what Mr. Bernanke would say. Imagine my astonishment when he said, well, he said the same things he has been saying for the last three months. The fed is going to continue quantitative easing (which is the latest phrase in a long list of Fed Speak anachronisms) and they may or may not buy some bonds to accomplish this goal. The Fed chairman did not see any immediate relief from the recession-like conditions we are experiencing. I am certainly glad we are out of the recession, and now just experiencing recession-like conditions. I would appreciate it if somebody would clarify the difference between a recession and recession-like conditions.

But the most interesting consequence of all this Federal Reserve nonsense is in the pall that falls over the stock market as it waits in eager anticipation for the utterances of the Fed chairman. Did they think he was going to say something new? To be sure, the Fed is nearly out of options for managing our monetary system. They can’t move interest rates because they have run out of room: they have a big gun, but no bullets.

And that’s what has me scratching my head. Why all this trepidation every time the Fed meets? They are, essentially, out of options to manage the economy and it’s not like you can count on them to spell out, in real terms, how damaged our economy has become. No, that would have people running to the bank’s like lemmings in a desperate attempt to withdraw whatever money they could get their hands on. So we listen to our Fed chairman spew nearly indecipherable musings of on the esoteric economic theories and machinations the Fed is currently employing to make everything “all better.”

So the market went sideways for a good portion of the day as we waited for the Fed chairman’s proclamations: and when the earthshaking proclamations were issued the market resumed its normal activity. And you know what is really crazy? We will do the same thing next time the Fed meets. Even worse, nothing will be changed and we will ask ourselves, “didn’t he say that last month?”

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Some Random Thoughts for Week Starting August 9, 2010

By trader7757, 8 August, 2010, No Comment

We ought to have an interesting week as the market continues to worry about the economy, despite robust earnings from a number of major corporations. Walt Disney, Cisco, and J. C. Penney will all be reporting earnings this week.

Of course, the real center of attention will be on the Fed meeting this week. Investors will be paying close attention to what the Fed has to say, which is amusing to me because they have been saying the exact same thing for quite some time now and are not expected to change the tenor of their ongoing advice. Just the same, countless investors will be glued to their television sets as the usual suspects spew nearly identical blather of Fed Speak for the masses to decipher for some hidden meaning.

In short, you can count on the interest rates remaining the same, with the chairman explaining he expects rates to stay the same until the end of the year. The Fed will be also engaging in quantitative easing, which has become the Fed Speak term for the past year. Translated, it means they want more money in the economy so people will buy stuff and banks will make loans. Unfortunately, banks have been reluctant to participate in the quantitative easing program as they are more concerned with profit margins than ever.

The futures markets have been interesting of late, and there has been interesting moves nearly every day of the past week. I have to admit that predicting the market moves as become a nearly impossible task as traders seem skittish and prone to react to the smallest of reports or rumors. All in all, it makes for some very interesting trading, though you need to be careful not to over commit to any position.

Hewlett-Packard ought to dominate the news tomorrow as their recently departed CEO resigned over several allegations, including a little hanky-panky he is one should not have been involved in. There have been a number of articles on the business pages outlining which direction Hewlett-Packard will take in the coming years regarding its business model. Most of this blather is just that, blather.

Of course, there has been plenty of talk about the employment reports, or more aptly, the unemployment reports. Corporations have been unwilling to add personnel as they fret over the future of the US economy and consumer spending. Most economists don’t expect the employment picture to improve in the near term. This leaves the Fed in a bit of quandary, as it is necessary for employment to improve in the economy move out of near recession levels.

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Day Trading the ES E-mini and Defining the Trend

By trader7757, 15 July, 2010, No Comment

The term “trend” is bandied about with fierce regularity among traders of all types. Long-term traders look at trends in a far different perspective than short-term e-mini day trading. Which leaves most traders, especially novice day traders, in a quandary. In general, a market trend is the tendency of the market to move in one direction for a period of time. I think that’s where most e-mini day trading become confused, as the “period of time” is a variable of many dimensions.

ltra-long term market trends can be measured in periods of 5 to 20 years. On the other hand, a day trader may look at a trend in terms of hours. With all this diversity in the period of time it takes to establish a trend it is often difficult to specifically define what qualifies as a trend.

Before we go much further, I think it is important to understand that in the academic world there is no trend. The current theory being taught, Efficient Market Theory, claims that equity pricing always discounts all known factors into the current price of the equity in question. That being said, there is no room for the term trend in efficient market theory because each price properly equates the value of an equity any given time. To take this to the point of ridiculousness, Efficient Market Theory would have to accept the notion that a given equity increases in price and value, at least intrinsic value, from minute to minute. Of course, recent financial calamities in the markets have led to no small amount of skepticism among traders and Efficient Market Theory. I would also note that traders, as a whole, have never embraced Efficient Market Theory.

For intraday trading, which is really no more than trading during a daily trading session, we need to devise a workable definition to define the term trend. Depending on which book you care to read, most economists and financial authors claim that the market trends between 30 and 40% of the time. The remainder of the time the market is involved in normal backing and filling operations. I define these backing and filling operations as market noise and tend to avoid trading during these periods. Another more workable definition for non-trending markets, at least in the system I trade, is time the market spends wandering between the +100 and -100 lines on the Commodity Channel Index. While this definition may seem a little technical, it is fairly accurate. Hence, I seldom initiate trades when the market price action is in the area between +100 and -100.

Another handy definition can be found using the NYSE tick indicator. I use a similar methodology with the NYSE tick indicator, and consider any market movement between +400 and -400 market noise. Just like that Commodity Channel Index, I see to avoid making any trades during these periods of market noise, or normal backing and filling operation of the market.

There is some misconception about what a trend looks like on a chart. Many new traders expect a trend to be a straight line up for down (depending on whether he you are considering long or short trades). But any trend will go through periods of retracement in the course of a normal trend. Often times, Fibonacci analysis is used to calculate the strength of the retracement, though it is not necessarily imperative. My point here is a simple one; the market will advance for a period of time, and then retrace its advancement for while, sometimes up to 50% or more of the initial advance, then resume trading in the direction of the original trend. The resulting price action line on the chart resembles a serpentine pattern in definite direction. Trends seldom move in an absolute straight line, though euphoric buying and panic selling can create a spike that moves straight up or down. In my opinion, spikes in the market cannot be defined as trends as they are usually the result of some unusual market activity, world catastrophe or political unrest.

So we have come up with some finite definitions to define market noise and trend. A trend will move in one direction in a serpentine pattern, while backing and filling operations usually indicate a consolidating pattern in the market where the price action tends to stay in a narrowly defined channel. We also have noted that trends can mean a variety of things to different traders or investors, and the term “time period” is essential to understand as it relates to trends. Trends can be as long as 25 years and as short as an hour. The term trend is closely related in definition to the style of trading each trader employs.