Archive for ‘e-mini’

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.

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Types of Futures Orders and How to Place Them

By trader7757, 12 March, 2010, No Comment

Is there is one area that is ignored more than placing orders I don’t know what it would be. The average trader spots a trade and innocently places a marker order. I have placed very few market orders in my entire career.

Why?

When I see a set up that I feel will result in a profitable trade I set a buy or sell order several ticks above or below ( depending on whether I am going long or short) above or below my target entry price and let the market come to me. Granted, I may miss a trader to using this strategy. But I generally add several ticks to my profit by not diving into the market and buying wherever the broker to get me in. I want to buy at a certain price to ensure that my trade is profitable. If you think about this carefully, over the course of five or six trades this will lead three or four points to your bottom line. That fact alone makes this strategy important to implement. On the other hand, many traders are not aware of the range of orders that can be utilized. Here are some of the common orders:

Market Order

This is the most common type of the commodity futures orders used on the exchanges. When you place a marker order you instruct your broker to enter a trade at the best price he can get. One advantage of a market order is that it has priority over some of the orders we will discuss below. In any event, a marker order is always filled at the bid or ask price. Of course, I feel there are some disadvantages to market orders which make them less than advantageous to use. For example, in a fast-moving market you have little control over the price at which you will be filled. I do not like to guess at the price at which I am going to be buying. Just the same, market orders are far and away the most popular order use on the futures exchanges.

Limit Order

If you’re planning to buy or sell a commodity futures contract at a better price than is available in the market at the time you would use a limit order. There is always the possibility that the price may not reach your limit order and you will not be filled, which is a risk you run with limit orders.

Let’s say for example, you want to go long the ES contract and the price is 1000, you may place a limit order at 990 and wait for the price to be filled at your limit order price. As a matter of course, a limit order can be either a day order or an open order.

Day Order

This type of order is a commodity futures contract order and will only be entered if it is filled by the close of business on that specific trading day unless a traders specifically asks for in order to be open, it will be treated as a day order

Open Order

This order will remain active until such time as it is filled or cancel the contract expires. Another term used to describe this contract is ‘good till canceled’ or GTC.

As a trader remember to keep track of your entering open orders, as they can accumulate and then you can receive a shock when suddenly a member of orders have been filled and you have gone beyond your margin position.

Bearing in mind the following points about a limit order; limit orders work well for you as a commodities trader if your strategy sets out what you will trade, where you trade, when you plan to enter and we’re going to exit for a profit.

There is no guarantee that orders can be executed and placed because the price may never touch the selected limited price.

Even if the market touches that price, there may be a large number of orders to be filled before your order.

When your order is eventually fill the price may be different to the point you have chosen as an entry point.

Stop Order

Commodity trading markets can be very volatile and one way to limit potential losses is to place a stop order or a stop loss.

While some commodity traders believe in using a mental stop loss trading strategy, most traders will use a real stop order as part of their trading protection mechanism. My personal belief is to always have stop orders in place when I enter a trade. Mental stop orders are illusory and a very poor trading strategy.

For the sake of clarity I have included several market orders that I do not use in this explanation orders. Stop orders and limit orders are the bread-and-butter of my trading style. I have no use for open orders, good till canceled orders, or day orders. As a scalper and active trader I am interested in entering trades at the best possible prices and protecting myself against adverse moves that are unanticipated. As a trader, it is virtually impossible to anticipate unusual events involving politics or natural disasters which can move the market at an accelerated rate. Stop orders are the only way to protect yourself against these types of unusual events.

As I have said earlier in this chapter, I generally avoid entering the market via a market order. Once I spot a potential trade set up I generally set a buy or sell two or three takes above or below ( depending whether I am considering going long or short) my potential entry point. I repeat, I want the market to move to me when I enter a trade, I do not want to chase the market price in order to get into a trade.

So we’ve had a chance to look at several different market orders and excluded several others as useless for our trading style. We have agreed that stop orders and limit orders are essential for our trading and I have explained I seldom enter a trade without a stop order in place. Further, I have discouraged traders from entering trades via market order and would encourage you to place limit orders and let the market come to you. I know these are small points in trading, but overall long period of time, they can add up to a significant number of points.

Why Do People Lose Money Day Trading- You don’t have to!

By trader7757, 10 March, 2010, 1 Comment

I was watching a newscast today and the reporter claimed that 90% of all people who embark on a career of futures trading lose all their money within three months. The story went on to sensationalize these traders plights by claiming that the hapless trader spent the families savings and mortgagedThat the house in pursuit of his dream of being a day trader.

And believe it or not, these stories are true. I wish they weren’t, but I see it on a fairly regular basis. Yet, I don’t understand it.

Many traders purchase a book or two on day trading and establish a demo account and trade for a few weeks and decide they’re ready to trade a live account. The results of this type of trading preparation are fairly predictable. These traders never had a chance because they were poorly prepared to trade and hadn’t spent the time and effort to understand how markets function and how trades are set up.

You would think common sense would be a great asset in trading, but nothing could be farther from the truth. Common sense will serve you very poorly in trading futures contracts. For reasons not fully understood, market sense is far different than common sense. I can’t tell you how many times I’ve seen government issued a report that ought to send the market skyrocketing. Yet, the market reacts very poorly to this good news and ends up tanking. The point is a simple one; there are many variables that go into stock market and futures contract pricing, and to focus on one piece of news is to miss the point.

Even more disappointing is the fact that had this trader taken the time to learn how to trade in a proper fashion he or she would probably still be trading profitably. I have a very good friend who is a very intelligent fellow. He has an MBA from an Ivy League school in business management. Like many people, he decided that he was sick of the corporate rat race and decided to become a full-time futures trader. But his education betrayed him. He’d been trained to look at past trends and historical data and make decisions based upon this information. Unfortunately, the market doesn’t look backwards; it looks forward. And that’s the hardest thing to teach people, that the market is constantly trying to price equities six months to a year in the future.

To make things worse, it’s not unusual for traders to become desperate as they begin to deeply their trading accounts and abandon the limited trading technique they learn; and problems compound and beget more problems until they no longer have a problem, they’re broke and out of the business.

It’s not necessary, and proper training will keep you in the market as long as you maintain proper trading technique and exceptional self-discipline. But the question is this:

Why do rational traders sometimes act irrationally?

One of the toughest facts to accept as a trader is that you are going to lose on some of your trades. Probability makes it infinitely clear that there is no trader who can trade with 100% accuracy. Quite simply, you’re going to lose a certain percent of trades and there is nothing you can do about it. No trading system can assure you of 100% accuracy, I don’t even know of a trading system that consistently trades with 70% accuracy. Now let me qualify that, you will see ads in the trade journals that trumpet the fact that they are trading at an 80% profit rate. Don’t believe it.If a trader that assist them performing at 80% efficiency he most certainly would not be advertising it for sale.

The point is a simple one, and has been my focus for the last couple weeks. I want to trained novice traders in a system that will help them succeed in the early parts of their trading career. I have worked diligently to set up a system that will accomplish just this goal. I will be posting links to the system in the coming weeks and I encourage you to take advantage of the system, as there is no better lifestyle than trading for a living, especially when you are trading profitably.

Sorry for the Absence

By trader7757, 9 March, 2010, No Comment

I must apologize for being gone for the last couple weeks, as I have decided to compile an easy to use and effective e mini trading course. I have put a tremendous amount of time and work into making this book both usable and profitable for anyone who uses it. I have included all of my basic techniques for trading, and will have a daily video and advanced trading section posted every evening. I felt that is important for readers to have a comprehensive set of tools to trade e mini indexes. I still have a few days left to complete the course, but it should be ready by next week.

This course will encompass the core principles I use; the CCI, the Stochastic, the Average True Range, and the NYSE tick. I show my subscribers how to integrate these indicators in a coherent trading style. I will have more information available as I approached completion. Of course, I will continue to blog on pertinent topics related to e mini trading.