Archive for ‘trading futures’

Should You Trade Futures Contracts Instead of Stocks?

By , 24 January, 2010, No Comment

Leverage in futures contracts can be a very useful tool to increase your account balance, and your potential to make money is far greater in a futures account than day trading a stock account. But managing a futures account takes a high degree of skill and self discipline.

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Day Trading the ES Emini: Contract Considerations

By , 16 January, 2010, No Comment

Contract Considerations for Day Trading the ES Emini

It garners more trading volume than any emini contract on the Chicago Mercantile Exchange, and has run away (in trading volume) from any other futures contract currently traded.  It the pint sized version of the S and P contract that traders have flocked to in recent years.  Better yet, it is specifically designed and priced for the individual trader.  What’s not to like?

I spend a decent amount of time in trade rooms, helping novice day traders develop their trading style.  One thing I have noticed, especially among the novice day traders, is their lack of awareness of exactly what they are trading.  So I thought I would write an article that gives the very basics of the ES contract.

What is the S and P 500?  You would be surprised at how many traders can’t definitively answer this question.  The S and P 500 is a capitalization-weighted index of the 500 largest, publicly traded, large-cap stocks in the United States.  The index has been around since 1957.  The index is calculated and published by Standard and Poor’s, hence the S and P in the title.  Incidentally, the index reached it’s highest point in March, 2000 at 1552.87.  In 2010, it was trading in the 1100 range, a far cry from it’s apex.

The ES emini contract was established on Sept. 9, 1997, and has grown steadily since that date.  Some specifics on the contract are:

1.  The contract months for the ES are
a.  March         =H
b.  June            =M
c.  September  = U
d.  December   = Z

Notice the contract months are designated by letters, and the contract designation is calculated by combining the letters with the ES designation, the month, and finally the last number of the year.  For example, ESM0= the ES contract for June in 2010.  Once you trade the ES for a period of time this nomenclature becomes second nature.

Many have been confused by the pricing model used for the ES contract.  It is fairly simple.  The ES emini is one fifth the value of the traditional S and P contract, so each point is worth $50 dollars, as oppose to $250 per point on the big contract.  Each point is divided into ticks or one fourth point, or $12.50 per tick.  So, 4 ticks at $12.50= $50.

The contract expires at 8:30 a.m. on the third Friday of contract month. (March, June, Sept. Dec.)  It is fairly normal for traders to have abandoned trading the contract about two weeks before the expiration.  Most futures brokerages  announce the date of switch over to their clients, so there is generally not the confusion that you might expect at contract expiration.  If you are a day trader, it is imperative that you switch to the new contract prior (preferably the above mentioned two weeks) and not trade the ES emini right up to expiration.  Most of the volume evaporates from the contract on the switch date, and you could run into having make good delivery of the full delivery requirement of the contract.

The clear advantage of the ES emini contract is the tremendous liquidity, and thus you should never see slippage as a result of the contract trading thin.  More than a million contracts are traded on an average day, which is astounding volume when taken against some of the thinner emini contracts offered.

The ES emini contract on the Chicago Mercantile Exchange, which has been a true innovator in the emini arena.  The CME Globex is the actual home of the contract, and it trades during regular trading hours, takes a short break, and then trades all night until the opening of the next days cycle.  The actual hours of trading are:

Monday-Thurs  5:00 p.m.-3:15 p.m. & 3:30 p.m.-4:30 p.m.
Sunday              5:00 p.m.-3:15 p.m.

Margins requirements vary by firm and whether you are trading intraday or holding contracts overnight.  For inraday traders, you can find margin requirements as low as $400/contract and as high as $3000/contract.  Of course, the lower contract margin requirement may tempt some traders into over trading their futures account, and this can be a real problem.  In any event, the contract margin requirements vary greatly.

As you can see, the ES emini contract is a versatile and popular equity trading instrument.  We have reviewed the monetary basis for the contract, as well as the calender specifics for trading.  We have pointed out the margin requirements and trading hours, now all that is left is for you to perfect your trading style and enjoy trading this flat-out-fun trading instrument.

Trading Concepts: Have you considered a serious trading education?

By , 4 December, 2009, No Comment

Many, but not all, traders approach their education in a haphazard method, piecing bits of knowledge together in hopes at arriving at a sound trading system that will serve them in a variety of trading situations.  Of course, I attribute this approach to the staggering 70-90% (depending upon which source you quote) failure rate experienced by novice traders.

Want to change that statistic for yourself?

There has been one remarkable fellow who has been consistently churning out successful traders for more than fifteen years and has legions of past student to attest to his skill at both trading and teaching others to trade.

His name is Todd Mitchell and his company is TradingConcepts, Inc.  and his site is packed with testimonials of grateful students.  More importantly, though, is the thoroughly sound system for trading ES Emini contracts that Todd teaches.  It’s his specialty, and has been since 1994, and Todd offers a variety of products, along with a lifetime guarantee of ongoing support for all who sign on to his programs.

Want a  live trading room?  Yea, he has one!

Want a well thought ought curriculum, learning manual, and personal mentor?  You got it!

In talking with Todd last night one particular point stood out in my mind:  Todd doesn’t see himself as a teacher for a semester or two, this guy see’s himself as a a lifetime mentor for his students.   I have been following his career for several years and went through much of his material to research his technique, and found his system not just sound, but well grounded in trading principle and readily learned.

So I though I would give his firm a call.

Who do you think answered the phone?  Todd, and this guys is a trading dynamo.  I have been around traders for nearly 30 years, but Todd still has  unbridled enthusiasm and desire to teach students.  Heck, he got me excited about trading.

My point is a simple one…are you looking for bits and pieces of knowledge, or are you ready to step up and learn a unified system for trading that will serve you the rest of your trading career?  Only you can answer that question.

ES Emini Day Trading: When to Exit a Trade Using Average True Range Indicator

By , 15 November, 2009, 2 Comments

When do you exit a futures trade?  Day trading related literature is chocked full of trade setups, but the advice on trade exits is very general, almost non-specific.  Ironically, I find proper exits more challenging than entries when trading the ES emini.

When do you cut your losses?  When do you trade out of a winning position ES Emini position?

From the onset, let me say that I often trade a simple 12 tick bracket on my positions.  This strategy is a good one for general trading, and I don’t know that you can go wrong with it, if you understand that you don’t have to stop or limit out to exit a position.  That is to say, if you are clearly on the wrong side of a trade, and your indicators indicate the price action is in the opposite side of your position, why not exit?  Save yourself some money.

So we have established that you do not have to stop out or limit out in order to exit a position, is there a great way to know how much to let a trade run, both for a profit or a loss?

There is an indicator called the average true range that I have found most helpful.  This indicator has been used for a variety of purposes in trading over the years.  Some of the uses have included entry timing, exit timing, and the indicator wasn’t always effective.  So it has received a some bad press.

Average True Range is just one of the wonderful ideas in Wells Wilder’s “New Concepts in Technical Trading” The Average True Range is an exponential moving average, and gives a trader a good idea as to the volatility of the market.   I generally trade a preset multiple of fraction of the market.  The idea is simple, really.  I want to avoid getting stopped out by the market noise of the day, but still retain the chance of pocketing some great gains.

For example; lets say the Average True Indicator is 2 (using a 14 period time setting), and I was setting my stops at 2X the Average True Range,  my stop loss would be set at 4.   In very volatile markets I may decide to trade at .75 of true range, which is what I did last year during those volatile months mid-year.

Whether you bracket your trades or use the Average True Range Indicator, it is important to have a sound exit strategy.  A well-thought out strategy, not a strategy that the market dictates.  Your exit strategy is in your control.

Oh, and never let a winning trade become a losing trade.

ES Emini-Trend Analysis

By , 31 October, 2009, No Comment

I use an 89-period Simple Moving Average to get the overall trend of the market. If the daily price action is significantly above the SMA I concentrate on long trades, and conversely, if the price action is significantly below the SMA I concentrate on short trades.

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ES Emini Daily Trading for Monday

By , 15 September, 2009, 1 Comment

There was a good bit of news driving the market today, and, at times, the traders had a hard to trying to make out just what the news meant. But then Ben got on the blower and said not to worry, things are just fine, end of recession. I’m wondering if all of those people out of work were thinking the same thing. I doubt it.

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So You Want to Be a Great Trader? Try Reading!

By , 24 August, 2009, No Comment

You might notice that many of the titles I recommend are not necessarily trading methodologies I endorse or even think are terribly valid. But you cannot read too much, you cannot learn to much, and many traders don’t appear to have a solid fundamental background on this art we call futures trading

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ES Emini Trading: Why we err

By , 17 August, 2009, 1 Comment

Those who trade the emini swear by the enjoyment and excitement the very act of a successful trade brings. I relate emini trading to a war, which is won by many small battles. Of course, that may be a little melodramatic, okay, maybe I love trading enough to overdramatize the act, but it just resonates with me in a way few things can rival.

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