The E-mini Trading Professor

Archive for the ‘E-mini Day Trading’ Category

ter> 

Related Blogs

Related Blogs

Forex trading has gained a large following in recent years as a popular day trading vehicle.  It’s not unusual to observe a barrage of Forex firms touting their services on just about any financial news publication.  As a longtime institutional stock trader and commodities trader I am often shocked at some of the outrageous claims and advertising techniques this industry utilizes.  This type of advertising and verbiage is simply not allowed by the SEC or the CFTC.  The Forex industry, on the other hand, is lightly regulated and offers no centralized exchanges like the securities industry in the United States and has virtually no regulation on advertising technique and claims.

From the onset I want to point out that the United States stock and futures exchanges have their share of hucksters and fraudulent activity.  You need only peruse the current SEC and CFTC enforcement actions to get an idea of the amount of illegal activities that occur in our highly regulated exchange based trading structure.

On the other hand, the lightly regulated Forex industry has been in recent years the target of both the SEC and the CFTC, with good reason.  Exchange traded securities provide potential traders with a high level of transparency and information in regards to the equity product or series they intend to trade.  Variables like a leverage, registration of broker-dealers, and capital adequacy requirements are just a few necessary requirements that would go a long way toward establishing much-needed transparency in the Forex industry.  Further, and from a personal standpoint, I believe a centralized exchange for Forex trading would be optimal for the industry.

By means of comparison, the futures industry and stock trading exchanges have rigid leverage, registration and capital adequacy requirements.  In addition, e-mini trading is all conducted through well-regulated and orderly exchanges that feature reliable data feeds that provide real-time information on volume, trading entities, and pricing to all participants.  This transparency in the futures industry is a sharp contrast to the murky Forex industry which is dominated by individual banking interests.  Quite simply, there is a shocking lack of transparency in the Forex industry.  In an orderly market, all participants ought to have access to accurate real-time information and standardized trading contracts.

Another concern of the SEC and CFTC is the leverage requirements in the Forex industry.  The current United States industry standard for leverage and a Forex industry is 100:1.  The most recent regulation proposes lowering the leverage standard to 10:1, which is a departure from the current leverage standard that is a quantum leap in scope.  For a variety of reasons, Forex traders have been, by and large, fiercely critical of these regulations.  Since the CFTC can only regulate firms in the United States, offshore firms would still be able to offer the absurdly high leverage requirements the Forex industry has enjoyed.  The obvious result of this new regulation would be a mass migration of Forex traders from United States based firms to offshore firms that would not fall under the proposed US Forex reforms.  There is, however, regulation under consideration that is very similar to offshore betting operations; in short, it is unlawful for US citizens to patronize offshore betting firms in order to circumvent current US law regarding betting.  The proposed regulation for patronizing offshore Forex trading operations is very similar to the limitations of US citizens circumventing United States Forex regulation.  In short, Forex traders based in the United States would be required to trade through domestic Forex trading operations.

In short, I don’t trade Forex because of the lack of transparency and a centralized exchange.  In my opinion, there is simply too much potential for manipulation of bid/ask quotes, front running, and outright fraud.  Currently the Forex industry leads security related scams by a wide margin, even though it is a small portion of the total day trading aggregate.

To summarize, the Forex industry has great potential to become a legitimate and profitable day trading option.  In my opinion, the industry must institute strict regulation before its legitimacy can be truly realized.  I think that in time all of the above addressed the problems will be rectified, but until there is true transparency in the Forex industry I believe I will abstain from participating.  We have identified problems like over leverage, lack of registration, and the absence of a centralized exchange as problem areas in the Forex industry.  Until these problems are addressed, I don’t think the Forex industry will reach its full potential.

Real Live Trading Doesn’t Lie. Spend several days in my trading room and see if you can benefit from a fresh and unique view on trading e-mini contracts. Sign up for your free trading experience by <a target=”_new” href=”http://www.learn-to-trade-and-invest.com”>clicking here</a>.

Related Blogs

My favorite e-mini trades (and my most profitable e-mini trades) are breakouts and breakdowns. These trades tend to perform reliably and are prone to run for very nice gains. Unfortunately, there are days when the market is consolidated into a 20 or 30 point range and every breakout/breakdown fails. After the first few attempts at trading the breakout and breakdown patterns and watching them fail, you quickly realize that a change in strategy is necessary.

It is important to understand that consolidating patterns (or channels) are the most difficult patterns to trade and should be only traded with great care. The quality setups in consolidating patterns are less frequent and many enticing set up patterns form. However, the majority of those enticing setups in a channel can be disastrous. So a trader is left with two choices; one is to simply not trade and make an early exit to the golf course; the other is to carefully weed out all false setups and take advantage of the few good setups that will arise. As any experienced trader will tell you, trading consolidated patterns is tedious. There are many days when I feel trading in these patterns is not worth the trouble.

However, I consider trading breakouts and breakdowns to be trading “outside” the channel and trading in a consolidating market to be trading “inside” the channel. Generally speaking, I refuse to take a trade as the price action ping-pongs between support and resistance in a channel. This type of price action is very unpredictable and you can find yourself sitting in a trade for an extended period of time with negligible results. Even worse, you can find yourself sitting in one of these trades and the market unexpectedly takes off in the opposite direction. Quite simply, the risk is not worth the reward, at least to my way of thinking.

On the other hand, a false breakout or breakdown can present a very intriguing trading possibility. Usually when a breakout or breakdown fails, there is considerable selling or buying in the opposite direction and the momentum from the selling or buying will drive the price back through the original support or resistance and carry the price another 10 points or so. So, in essence, when I see a breakout/breakdown fail, it presents a chance to trade outside the initial support/resistance back into the channel for quite some distance. Believe it or not, this is a fairly reliable trade, though I have seen very little written about it. In executing this trade, you are essentially trading from the outside of the channel back into the inside of the channel.

There are times when the price will pause for a period of time on the support/resistance line just pierced, my experience is that the price action will continue and return to the middle of the channel. I suppose this trading is very similar to a technique called reversion to the mean, though I learned the trade without reversion to the mean in mind. When I see this trade developing now, I will slap some Bollinger bands on my chart and can get a good feel for the length the might travel back inside the channel by gauging where the middle line, or mean, sits relative to the two standard deviations most Bollinger bands utilize.

In summary, we have described a trade that is the exact opposite and a breakout/breakdown and done just the opposite by trading toward the channel instead of trading away from the channel. We have noted that this trade does not occur with the frequency of some trades, but it is fairly reliable. Finally, I cautioned against trading inside the channel as trades in this area are very unpredictable and random.

Related Blogs

• Jet Chips Throttle Body Spacer for 2006 – 2006 Dodge Charger …
• Street and Performance Electronics 23005 Helix Power Tower Plus …
• Elizabeth Warren: Assault on Middle Class Families | The Big Picture
• What Happened to the Middle Class?
• Even Tea Party Members Do Not Support Cutting Social Security …
• JP Dellacamera Leaves ESPN for Fox Soccer Channel, Say Reports …
• Riots breakout in Mazabuka | LusakaTimes.com
• Billboard Breakdown – March 2 | KarenCivil.com
• Browser Support for CSS3: What's the Current Status?
• Insomniac Delivers Resistance 3 Single, Multiplayer Details – News …
• Forex Trading: USDCHF Keeps Bearish Bias
• Trading Psychology -vs- Trading Methodology | TRIP to
• What Is An Automated Trading System? | TRIP to
• Resistance 3 multiplayer unveiled — Scrawl
• Seesmic Updated for Android with Full Facebook Support, New …
• Cameron Diaz Won't Channel Shirley MacLaine For 'Gambit' Remake …
• SXSW EXCLUSIVE: Rachael Harris Puts A Price On Family In New …
• Clear Channel Radio Acquires Thumbplay's Cloud-Based Music Business
• Civil Resistance Tactics Used in Egypt's Revolution #Jan25 …
• Non-Violent Resistance In Islam – Inside Islam

Related Blogs

• Stop Running for Emini Trading, Forex Day Trading, Stock Market …
• Crude Congestion is Resistance Up to 88.11 | News of the World
• The Indicator Series: Dr. Widner's Support and Resistance …
• Dukascopy-Support-Resistance-21/12/2009 |
• Surfin' Safari – Blog Archive » WebKit nightlies support HTML5 …
• Emini Futures S&P 500 And NASDAQ 100 : Basic Trading Info …
• Fibonacci Support, Resistance and the Power of Confluence | Pro …
• Forex Resistance, Pivot Points and Support February 16, 2011
• EUR backs off after test of trendline resistance | ForexLive
• dailywireless.org » Intel: We' Support MeeGo
• Portal 2 For PS3 Has 'Complete' Move Support, Includes Free PC Copy
• PlayOn Support Comes to Android 2.2 Devices › AndroidGuys
• Here's Why You Should Trade the S&P 500 E-Mini Future- Trade …
• Nifty Futures Support Resistance Trading Level For 14 February 2011
• Google, ITA Software Deal Faces Resistance | Travel and Car Hire …
• Outerbanks Pride Celebration Plans Meet with Resistance …
• Emini Day Trading Weekly Range | Emini Trading School
• Emini Trading Update – Monday 14 Feb 2011

This list is for traders but also applies to investors.

1. Recognize mental blocks. If you believe that the financial markets are rigged, stay away. Bias is blinding. If your ego requires constant feeding and vindication, do not trade. If being right is more important than making money, steer clear of the stock market. If you must be dogmatic, direct your energy into following these rules.

2. There is no needle in the haystack. There’s no reliable way of picking a single winner from the thousands of stocks listed on the exchanges.

3. Resist betting it all on the longshot because the outcome is based purely on luck. Dr. Ziemba explains the mathematics of horse racing. The point is that the bettor is better off with horses that finish the race “in the money”. They don’t have to come in first.

4. Diversify. Spread your bets around. It’s the only way to be on board the winner.

5. Trade small. Bet only a small fraction of your equity on each position. You must take risk to get reward, but ruin is certain if you take insane risk. It’s defined in Fortune’s Formula. Think Adventures in Conditional Probability.

6. Press the winners. You must compound a winning streak.

7. Never throw in good money after bad. Never double down. Ever.

8. Do not rationalize. Down is NOT up. Red is NOT the new black. If the account equity is shrinking, your bets are in the wrong direction.

9. Establish a stop loss. Place it in the appropriate location (except just above the swing high or under the swing low where everyone else put theirs), a place where you can be statistically confident that the move in the present direction is over. Don’t use a tight stop for lack of equity. The market doesn’t care about how much is in your account, so trade a smaller position size and put the stop in the proper place.

10. Use the stop loss. Just do it. Immediately. No excuses. Having a “mental” stop loss is the same as lying. There’s no point, because the longer you let it slide, the deeper the doo-doo.

*Observe Rule Nine. Always. Don’t go to the bathroom without it.

Related Blogs

I’ve been getting quite a few phone calls lately from individuals asking me about my style of e-mini day trading….

For some, anyway, the way I trade (and many others like me) seems too intuitive, though nothing could be farther from the truth. I do run a number of oscillators on my screens to cross check my fractal formations, and try to filter simple market noise out of the equation. There are some days, and parts of some days, where the e-mini market just wanders aimlessly and there few opportunities to trade. But I would hate to trade a “mechanical” oscillator system where my entries and exits are predefined because there too many anomalies for an oscillator to differentiate. Which is not to say that oscillators are of no use in day trading, only that relying on any mechanical or mathematical system to trade is a less than profitable situation.

Fractals, or price action, gives a very clear picture of what the e-mini market is doing. Add support and resistance, pivot points and some filtering oscillators and you have a remarkable system to trade, all it takes is some practice and it can be easily mastered.

Related Blogs

It is fitting that chaos theory got its start in the humble, but frustrating, field of meteorology. Why does it seem impossible for all our hot-shot meteorologists, armed as they are with ever more efficient computers and ever greater masses of data, to predict the weather?

Two decades ago, Edward Lorenz, a meteorologist at MIT stumbled onto chaos theory by making the discovery that ever so tiny changes in climate could bring about enormous and volatile changes in weather. Calling it the Butterfly Effect, he pointed out that if a butterfly flapped its wings in Brazil, it could well produce a tornado in Texas.

Since then, the discovery that small, unpredictable causes could have dramatic and turbulent effects has been expanded into other, seemingly unconnected, realms of science.

The conclusion, for the weather and for many other aspects of the world, is that the weather, in principle, cannot be predicted successfully, no matter how much data is accumulated for our computers. This is not really “chaos” since the Butterfly Effect does have its own causal patterns, albeit very complex. (Many of these causal patterns follow what is known as “Feigenbaum’s Number.”)

But even if these patterns become known, who in the world can predict the arrival of a flapping butterfly?

The e-mini stock markets are said to be nonlinear, dynamic systems. Chaos theory is the mathematics of studying such nonlinear, dynamic systems. Does this mean that chaoticians can predict when e-mini stocks will rise and fall? Not quite; however, chaoticians have determined that the market prices are highly random, but with a trend. The stock market is accepted as a self-similar system in the sense that the individual parts are related to the whole. Another self-similar system in the area of mathematics are fractals. Could the e-mini stock market be associated with a fractal? Why not? In the market price action, if one looks at the market monthly, weekly, daily, and intra day bar charts, the structure has a similar appearance. However, just like a fractal, the stock market has sensitive dependence on initial conditions. This factor is what makes dynamic market systems so difficult to predict. Because we cannot accurately describe the current situation with the detail necessary, we cannot accurately predict the state of the system at a future time. Stock market success can be predicted by chaoticians.

Manus J. Donahue III
An Introduction to Chaos Theory and Fractal Geometry

The upshot of chaos theory is not that the real world is chaotic or in principle unpredictable or undetermined, but that in practice much of it is unpredictable. And in particular that mathematical tools such as the calculus, which assumes smooth surfaces and infinitesimally small steps, is deeply flawed in dealing with much of the real world. (Thus, Benoit Mandelbroit’s “fractals” indicate that smooth curves are inappropriate and misleading for modeling coastlines or geographic surfaces.)

Chaos theory is even more challenging when applied to human events such as the workings of the stock market. Here the chaos theorists have directly challenged orthodox neoclassical theory of the stock market, which assumes that the expectations of the market are “rational,” that is, are omniscient about the future. If all stock or commodity market prices perfectly discount and incorporate perfect knowledge of the future, then the patterns of stock market prices must be purely accidental, meaningless, and random (“random walk”), since all the underlying basic knowledge is already known and incorporated into the price.

The absurdity of believing that the market is omniscient about the future, or that it has perfect knowledge of all “probability distributions” of the future, is matched by the equal folly of assuming that all happenings on the real stock market are “random,” that is, that no one stock price is related to any other price, past or future. And yet a crucial fact of human history is that all historical events are interconnected, that cause and effect patterns permeate human events, that very little is homogeneous, and that nothing is random.

With their enormous prestige, the chaos theorists have done important work in denouncing these assumptions, and in rebuking any attempt to abstract statistically from the actual concrete events of the real world. Thus, the chaos theorists are opposed to the common statistical technique of “smoothing out” the data by taking twelve-month moving averages of monthly data-whether of prices, production, or employment. In attempting to eliminate jagged “random elements” and separate them out from alleged underlying patterns, orthodox statisticians have been unwittingly getting rid of the very real-world data that need to be examined.

Related Blogs

As you continue to learn the e-mini day trading system I am outlining you will begin to realize that making money, at least in the pure sense, is not so terribly difficult. I have a few basic rules to follow, a little common sense, some chart reading and before long you should be able to make money e-mini day trading from home.

But there is a little problem:

AFTER SEVERAL MONTHS OF MAKING MONEY CONSISTENTLY,
MOST PEOPLE END UP REVERSING COURSE AND LOSE ALL OF THEIR MONEY.

The fact of the matter is that there is nothing more intoxicating than cold hard cash. Time and time again I have watched successful e-mini day traders earn money and then fall flat on their faces because they could not manage the psychological aspects of making money and managing risk. Martin Pring has written an excellent book about investment psychology, and goes to great length to explain that most investors are very able to trade effectively. However, the problem with most e-mini day traders lies in the intoxicating effects of earning money trading.

Typically, investors begin to take on too much risk, or make e-mini trades that fall outside the parameters of our discussion here, or tackle markets that our principles do not apply to. What I am trying to say is quite simple, really….the psychological aspect and the control of your own greed is, by far, the most challenging aspect of trading. Over trading, taking on too much risk by trading to many contracts, entering marginal trades, developing emotional attachments to trades…these are all the sign of impending disaster and I cannot stress enough that the psychological aspect in managing your e-mini day trading life is far more challenging than the technical aspect of trading.

I know, I know…I can hear you all muttering….”that may be true of the other guy, but I am a very disciplined individual and this will never happen to me……”

It will happen to you, but how you learn to deal with the intoxicating effects of your cash earnings from e-mini trading will determine how well you succeed in the business. I can teach anyone to make the right day trades, but I can’t get most people to make the right trades at the right times. There are no patterns in the markets, there are only spurts of momentum, or directional movement….and no matter how sure you are that something MUST happen, it probably won’t. I think it’s a Murphy’s law thing..or at least it seems to be.

Your ability to act in a completely rational manner and consistenly execute trades day in and day out will determine how successful you will be. I cannot harp on this topic enough…and I do, believe me. Investment psychology is the demise of 7 out of 10 e-mini day traders. Don’t be one of the seven that fail, be one of the three that succeed.

Related Blogs

I use a portion of the stochastic formula to exit my e-mini day trades and, for the time being, I thought I would introduce you to the concepts and premises of stochastic measurement.

Stochastic is an oscillator that is very popular and has been around for several decades. It is a price oscillator tracking overbought and oversold conditions. It is often used in the red/green light trading systems which can cause problems for e-mini day traders unless they understand how stochastic works, why it was created, and what it was designed specifically to track.

Stochastic was written by George Lane and is a true oscillator which means it was primarily designed to track either overbought or oversold price conditions in a range.

In the e-mini stock market, the term “overbought” means that it can be assumed everyone who wanted to buy the stock is now fully vested and there are no more buyers or insufficient buyers to move the stock up.

Oversold is just the opposite, there are insufficient sellers to move the stock down.

The reason oversold and overbought is critical in sideways markets is that the shift from buying to selling can happen rather quickly.

George Lane wrote the indicator Stochastic formula based upon the presumption that as a run moves up (or down) a stock will close nearer to its high as buyers keep rushing in to buy the stock. But as momentum tapers off or buyers become scarce, then a stock will close lower from the high price for the day.

This is a presumptive statement that works in trading range markets. The theory fails during strong rallies and velocity markets because stochastic will move into the overbought area or oversold area signaling an exit just as the stock begins a huge run.

Therefore, Stochastic should not be used during momentum or velocity markets, platform markets, or bottoming markets as it will create a premature exit signal just as the stock is about to run up strongly.

During a velocity market you should use a different indicator than stochastic. Instead switch to an accumulation indicator and quality indicators as these will help you get into the stock early before the big moves up.

The Stochastic Formula and what it is intended to reveal:

There are 2 lines for the George Lane stochastic formula: %K and %D usually represented in red and black lines on charting software. First, the K line must be calculated.

K=100((C-L)/(H-L))

Where K+ the location of price relative to the current price range

C= the last close price

L=the n-period low price

H=the n-period high price

n=any time period specified

K is smoothed twice with a 3-period SMA which creates the %K line, usually black on charts.

Then %K is smoothed again with a 3-period SMA to create %D line which is usually red on charts. Only the %K and %D lines are used in the chart analysis. So you will only see 2 lines to represent the 3 lines in the formula. Because it uses a fixed time period to period calculation, the lines can jump and move erratically if price fluctuates significantly.

Most stochastic indicators have predefined 80% overbought line and 20% oversold line on the chart. A few charting software programs allow you to move the lines to whatever percentage you wish.

If you are a beginner, simply use the settings of 80% and 20% for a trading range market.

Related Blogs

Pivot points in e-mini day trading are, to some, the holy grail of investing. Generally speaking pivots are calculated in the following manner:

R2 = P + (H – L) = P + (R1 – S1)
R1 = (P x 2) – L
P = (H + L + C) / 3
S1 = (P x 2) – H
S2 = P – (H – L) = P – (R1 – S1)

Where….”S” represents the support levels, “R” the resistance levels and “P” the pivot point. High, low and close are represented by the “H”, “L” and “C” respectively. Note that the high, low and close in 24-hour markets (such as forex) are often calculated using New York closing time (4pm EST) on a 24-hour cycle. Limited markets (such as the NYSE) simply use the high, low and close from the day’s standard trading hours.

As for my own opinion, I find pivot points of great value on certain days, and of zero value on others. So, if you are going to be a pivot point man or woman, you will need to develop a methodology for determining the accuracy of your own pivot point system.

As for me, I generally chart the pivot points each day, and see what relevance they may have to my own trading techniques.

Closely related to pivots are support and resistance, and this is where the rubber meets the road for me. As many of you are aware, I base most of my trading on chaos theory, which is to say that there are patterns within patterns, but the frequency of these patterns within patterns is random. Ah, that certainly is a mouthful and I am sure that many of you are shaking your heads and wondering what I am actually saying. To put it quite simply, I believe trying to apply linear charting systems to a non-linear market is futile. There is nothing, absolutely nothing, static about the method in which the market trades.

I am sure the random walkers are standing and applauding at this point, but you can all sit down. Of course, the standard argument would sound something like this, at least from the Random Walk Cabal….”those equity bubbles are anomalies that occur from time to time…” But if they were aberrations, every member of the risk arbitrage community would have resolved those market inconsistencies within hours. No these bubbles, or masses of mispriced assets suggest that random walking in a fine theory, but nearly useless in actual practice. The creation of bubbles in the e-mini market has occurred in a variety of conditions and markets for more than 400 years. Whether it has been tulips, or gold, or Internet stocks, we tend to overbuy and oversell, usually against all logic.

However, support and resistance are of great importance to me…but it is important to remember that support is not static either, and is constantly morphing into new support and resistance levels as the days progresses. What? Yes, I know that most day traders strike a line here and a line there and establish there support and resistance based upon those initial highs and lows. Some then apply Fibbonacci retracements to further establish support and resistance. Ah…erm…well….Fibonacci analysis is certainly interesting at some level, but the actual levels of correlation, proven by hundreds of scientific studies, is sketchy at best especially when charting price reversals. Since many of the numbers in the Fibonacci sequence are quite close together, it isn’t hard to point out that the market turned just past a 50% retracement, or just short of a 61.8 retracement….but the fact of the matter remains that super accurate predictions with Fibbonacci numbers is not as accurate as some practitioners would have you believe.

At once point in my career I drew in dynamic support and resistance lines as I traded, but I have found that a program called Decision Bar does an excellent job of pin pointing the ever changing support and resistance lines and have learned to rely on it’s accuracy and save myself a wealth of time and effort.

So, for today….I have tried to point out the problems of charting non-linear systems with linear charting tools, and suggest that non linear charting systems can greatly enhance your e-mini day trading success.

Related Blogs

• Cost Effective Construction – Accuracy is the Key | Architecture …
• OptionsXpress Review: Application, Broker Commissions, Trading …
• Power and Dynamics of Civil Resistance, Slovenia | Mladiinfo
• Mobility Airmen support Pakistan flood relief | Army News at …
• What Is The Currency Trading?
• Forex Automoney – Learning Currency Trading From Free Practice …
• Improvement in Home Value Depreciation Stalls in July | Zillow …
• Pieces of Time's “peace” « Yourish.com
• Expanding the Market for Clean Energy in Rural India | Triple …
• Slacker Astronomy » Accuracy, Precision and Uncertainty in Data
• How to Use Website Contests to Market Your Brand Online
• Women And Resistance Training
• Forex Trading Foreign Currency
• HK: Hong Kong shares close up on Wall Street's cue | Live Stock …
• Greater Bay Area Geo-Attractions: Point Reyes National Seashore …
• me talking out loud » Blog Archive » Attending Day Camp for Developers
• Physician resistance to EMR and why CPT should be replaced …
• “It's time for GM to compete” – Hybrid Cars and Plug-in Vehicles …
• iOS 4.1 Jailbreak on the way, 1 day after the new OS launches
• Duensing Adding Value in Twins Rotation | FanGraphs Baseball