It doesn’t have to be that way, though. Far too many traders charge into the markets and improperly prepared for the challenges they will face. It’s easy to understand why. A casual examination of a future chart shows a serpentine pattern, up and down, that ought to be fairly simple to trade. There is also a tendency to assume that the serpentine patterns follow some sort of organized pattern. Figure out the pattern, and you ought to make money.

Wrong!

Study after study has shown there is a high component of randomness to futures trading charts. I do think there are some identifiable patterns buried in the random patterns, but they are not as obvious as one might think. No, learning to trade is far more than a perfunctory glance at a chart and placing trades when you think the market is moving one way or the other.

The very essence of trading is containment of risk. There are many components traders utilize to minimize risk, and most center on the concept of probability. The idea is to take high probability trades, and pass on low probability trades. Through training and experience traders learn the characteristics of high probability trades as well as the characteristics of low probability trades. Further, careful management of your futures trading account is essential. In order to minimize risk, a trader should never trade more than 8 to 10% of his account on any given trade.

But there is even more. I get ample opportunities to watch traders practicing and am amazed at how many traders enter trades without stops. It is essential to determine your level of risk on a given trade and set an appropriate stop loss order to assure you do not lose an excessive amount of money on a trade gone badly. In my opinion, this is the most frequently violated risk management tool. Frankly, it baffles me.

Day trading is far from living on the edge. The goal of the day trader is to both profit and minimize risk. Obviously more risk increases the likelihood of losing trades, and losing trades are not what traders want. For that reason we employ a variety of risk reduction procedures to increase our likelihood of success.

The more adept a trader adapts risk management techniques, the more prosperous he will be in the long run. Risk containment should be the primary goal of every trader, and lack of proper risk containment is the number one cause of trader failure. While it is very romantic to think of day trading in the same light as being a gunslinger, just the opposite is true. A good trader avoids confrontation with excessive risk and cowers against low probability trades.

Trading futures?

I have been trading most of my life and have found that trading futures from my home is a comparatively easy and profitable way to support myself. Further, with the correct methodology and mentoring I have schooled hundreds of other people to trade successfully. Since I am retired, I have found this to be a most enjoyable interest.

But isn’t trading futures really complicated?

The truth is it can be very complicated, if you make it complicated. My trading techniques are elementary and very practiced. Complexity does not equate to success. I started trading on the floor the NYSE long before we had fancy computers and elaborate algorithms. I learned a trade using simple indicators and was very properous. I still use simple indicators and am highly successful. You don’t need fancy computers or even elaborate computer programs to trade successfully on your computer. It’s actually a very simple exercise, and there are even practice accounts where you can hone you trading skills until you become proficient. Demo accounts are like real accounts except you are not trading real money, you are just trading hypothetical money.

I believe that, the most profitable Internet business is not signing up recruits in trying to get them to peddle programs for you. I need only rely upon myself to earn money and have been doing it for nearly 25 years. The point is, you could do it too. Learning to trade is a simple as taking an inexpensive e mini trading course and practicing until you become competant and at ease with the futures market The nice thing is there is no hurry, you can practice at your own rate and begin your trading career when you feel you are ready.

Many opportunity seeks avoid this line of work because they feel it is either too difficult or it is out of their comfort zone. You would be surprised at the individuals I have trained successfully. They include housewives, retired blue-collar workers, and a host of other unbelievable candidates. The point is; it can be done, and you can do it.

Won’t this take an a tremendous amount of effort?

There is some study and work involved in learning to trade. Of course, I am always there to answer questions via an 800 number and question you on?your path. You might even visualise a personal mentoring program if you want to get off to a promptly start.

So what’s so great about this trading?Who wants to sit in front of a computer all day?

It sure beats working all day in an office, or dig ditches, to say the least. And best of all, with a little practice you can become very successful and earn more money then you have probably ever made. The course I offer is easy to visualise and even easier to implement. There are no complicated equations or sophisticated math. You simply read what’s on the chart and compare it to what you have learned in the course. Everything you need to trade is in the trading course.

in the final analysis, I trade when I feel like it. It’s a wonderful life way to live and it gives me lots of time with my children and leisure time, especially golf. I would note that I am a better trader than a golfer.

So guess about it, perhaps you’re the next great trader.

I am a long time retail and institutional trader who now only trades part time, usually in the morning.  I enjoy composition informational articles about my style of trading so others may benefit.

Would it be convenient to recieve worthful trading tips every night in your email?  You can sign up for our free video series by clicking here. These videos contain advanced trading strategies and will heighten your trading noesis immeasurably.  Best of all, they are free!  So  get your free videos and start trading like the pros

I think one of the most important issues, especially of late, is the issue of transparency in financial reporting. Both the stock market and futures markets are highly transparent exchanges with well-documented recordkeeping and long-standing procedures in trading. There are well-established trading and clearing procedures in these two types of exchanges that have evolved over decades of trading and now function in nearly seamless fashion, despite the number of fiduciaries involved with each individual transaction. To be sure, the procedural methodology in stock trading and futures trading are well-established and well documented through legal precedent and published in a manner that each investor should have a firm understanding of the risks and procedures involved in these two investment classes.

But the question is a bit more complicated than simple standardized procedures, as some investments lend themselves to specific types of trading while other classes of investments are better suited for different types of investing. For example, the pure speculator will probably lean towards futures contracts in his investment portfolio because of the high level of leverage and volatility futures contracts inherently possess. On the other hand, a conservative investor with a longer-term investment horizon might favor a blue-chip stocks as his favorite investment class. While there are instances where stock investing can be quite volatile, by and large stock investing is a more stable investment than their volatile cousin, the futures contract. The important point here is for the average investor to match his investment goals with a class of investments that will meet his needs and expectations. For example, an investor who prefers very volatile investments in hopes of making a tidy profit in a relatively short period of time probably shouldn’t invest in blue chip stocks. While some erratic movement in blue-chip stocks is possible, they are generally fairly stodgy and methodical in price movement. On the other hand, another investor may truly enjoy the volatile price movement involved in trading oil futures, for example. Oil futures are often very volatile and it takes a steady and skilled hand to manage these investments profitably. Just the same, the potential for extraordinary profits over a short period of time is far more likely in oil futures than blue-chip stocks. I must add one caveat, though: the fact that volatility exists in a given investment class does not assure profit, it only assures movement and it is up to the individual investor to translate that movement into profit, as opposed to loss.

In recent years another investment class has appeared and it is called Forex. Opinions on the Forex market range from a wholehearted acceptance of the investment to some investors who are, to say the least, very wary of the Forex market. I trade the Forex market from time to time and have not encountered any of the alleged horror stories some investors claim occur. But I think it is important to note that the Forex market, as opposed to the stock and futures markets, has very little transparency. There is no exchange on which Forex pairs are essentially traded. The Forex market is a loose conglomeration of participating banks that clear Forex trades more or less independently. To date, the system has worked reasonably well and been free from any widespread accusations of fraud or wrongdoing. To my way of thinking though, the lack of transparency in the Forex market is something that needs to be rectified before I can wholeheartedly embrace the Forex trading system. Without standardized contracts, exchange oversight, and a centralized location the possibility for widespread problems simply outweighs the possible benefits the Forex system offers. I think at some point this need will be realized and the Forex system will develop a centralized exchange with standardized contracts as the public clamors for the uniformity common to all investment classes. But to date, the system is still a loose association of banks and financial institutions clearing the Forex trades.

To my way of thinking, I will stick with stocks and futures contracts and my trading until the Forex system advances to the point of uniformity. Of course, there are uniform currency futures available on the Chicago Mercantile exchange for those who are interested in trading currencies. On positive note, I have no doubt that the Forex markets will evolve into a more structured trading format in the near future.

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.

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.

I began my trading career day trading stocks, mostly the blue chip variety. And there is nothing wrong with day trading stocks, though generally speaking individual stocks do not have the volatility that many day traders crave. To be sure, stock trading is a longer term proposition and are less prone to to dramatic movement. For my money, I generally buy stocks to either swing trade, or hold onto for longer term growth. On the other hand, you can often find individual stocks that oscillate widely on a daily basis and are perfect for day trading, but these instances are rare. I can recall years ago that Jupiter Systems was a great day trading stock, as I haven’t traded it in years, I do not know the current status of this issue.

On the other hand, the financial requirement for trading index futures contracts lends itself favorably to the day trader. The key element is margin, in this case. When trading stocks, Regulation T becomes a prime issue, and Regulation T requires you to put up 50% of the contract value in order to trade the stock. If you are trading GOOGLE in round lots, say a hundred shares, (google is trading in the low 500‘s) you will be forced to pony up a significant amount of cash in order to trade this stock.

Futures contracts are another matter all together. Most futures contracts, specifically the emini variety, were specifically designed for day traders. You can usually find brokerages that offer margin requirements in the range of $500 per contract. Each point on, lets use the ES emini contract, is worth $50 dollars, and lets assume the ES index is trading in the 1000 dollar range. Simple math tells us that you are controlling nearly $50,000 dollars with a paltry 500 margin requirement. In trading, leverage is kind, when used properly.

Once simple consideration should always be forefront in your mind, though. Leverage will maximize you returns and maximize you losses. A skillful trader will manage his money effectively, never overextending himself/herself in a given trade. In my trading, I never like to risk more than 10% of my futures account value on a given trade. Some traders even lower this amount to no more than 5% on given trade. This is, of course, a personal preference but the point is a simple one; because of the high degree of leverage in futures contracts, money management is of utmost importance.

For example: Lets say you have established a $5000 futures trading account. Generally speaking your futures broker will let you trade up to 5 contracts on this account. It should be noted that most futures brokerages will not let you trade up to your account limit, and most set trading restriction at about 50% of your account value. Anyway, there is no way that you should even consider trading your maximum level (5 contracts) on a given trade. On a $5000 account I would be hesitant to trade more than I contract, maybe 2 if I felt very comfortable with the trade. Overextending your trading account is a great way to end up broke. Be judicious in the number of contracts you trade, and always use stops to make sure you don’t get caught in a run away trade in the wrong direction.

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. There is a constant compulsion to overtrade your account, or trade an excessive number of contracts relative to your account size that has to managed with skill. Further, it is your responsibility to exercise proper money management when trading futures contracts.

In summary, we have taken a close look at day trading stocks and futures contracts. Stocks can be suitable investment vehicles to day trade, but because of the leverage requirements in futures contracts they are generally a better choice, but only if you are able to responsibly implement money management techniques that don’t expose you to excessive risk. Money management is one of the most challenging aspects of trading, and one of the most difficult to master. I suggested never risking more than 10% of your account on a given trade.

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.

Let’s take a moment and talk a little about a strategy for entering trades.  We will assume you have identified a potential trade to the short side and are ready to take that trade.  Instead of putting a straight market order in place and buy at whatever the market is trading at when your order is filled, why not set your short entry several ticks above the current market price and let the market come to you?  Granted, you run the risk of missing out on the trade if the price dive bombs straight down, but that is a rare occurrence.  Even in a trending market, the price tends to bounce around and you are likely to get filled at your buy order above the market price.  You just saved yourself a half point.  You can look at your Average True Range Indicator to see how the range of the market has been and base your entry, to a certain degree, in a manner within the range.  In dead flat markets, though, this may not be such a good strategy.  Then again, I am not very excited about day trading flat and choppy markets anyway.

Now let’s talk a bit about scaling out of a trade.  If you have read any of my articles you know that I usually have a specific profit target in mind and a specific stop loss point.  In this example I am going to trade 3 contracts and my profit target 15 ticks on the ES Emini contract.  On a day trade like this one I will generally scale out of the trade.  A good trading platform will allow you to set specific strategies for selling at different prices.  I use Ninja trader, and I can preset my exit strategy as follows:  I am going to sell 2 of the contracts at 10 ticks profit and 1 contract at the 15 tick profit target I had in mind.  You can use any variation of selling strategies you feel comfortable with and most good day trading platforms allow up to 3, sometimes 4, separate levels to scale out of your trade.  You can preset these strategies and name them in a manner which will allow you to choose which one you are going to use simply by clicking on the strategy you will employ.  For example, this strategy on my platform I named 3x10x15.  It’s my own nomenclature, but I know this means 3 contract with exits at 10 and 15 ticks.  I generally exit a larger portion of my contract on the first exit to lock in a nice profit and let the last contract run.  I can even move the stop on the single contract if I see a market start a sharp move in the direction I am trading.

One of the maxims I live by is to never let a winning day trade become a losing trade, and scaling out of a contract is an excellent way to assure you lock in a nice profit while allowing yourself the latitude to let a contract run.  Needless to say. there are an endless number of potential scaled exits you may employ.  In my trading, and I cannot fully explain why, I tend to trade an odd number of contracts and lock in the majority of my contracts at the first exit point, then manage the remainder of the contracts as the trade develops.

Entering a trade in the proper fashion and scaling out of the trade is an idea you may wish to employ in your trading, especially if you are trading out of fear.  (on the other hand, if you are trading overly fearful, it might be wise to take a break from trading and regroup)

On single contract trades I generally just bracket trade, as no scaling is possible with a single contract.  Try buying at the price you want with the method above and scaling out of a trade and see if it doesn’t prove to be a profitable strategy for you to employ.  It does give you a bit more control of the trade, and incrementally lowers the risk in the trade.