Archive for the ‘Emini Trading’ Category

More E-Mini Trading Setups with Support and Resistance

It’s not unusual to see traders using support and resistance to set up potential trades. The most common trade I see among novice investors is a set up that envisions the price action “bouncing” off an existing support or resistance lines. There are many versions of this particular trade, and it is not unusual to see small investors implement this trade over and over. To be sure, using support and resistance lines as potential setups is very common.

Unlike the trade I described above, where the small traders are looking for a bounce off a support or resistance line, I am looking for a continuation through a support/resistance line. This makes sense at several levels. First and foremost, I’m a trend oriented trader and dislike trading against the trend. By definition, any bounce off a support or resistance line would entail a move against an existing trend, which is something I avoid, especially in a strong trend. Secondly, in order for the price action to move through a support or resistance line it takes a medium, at the least, and usually a strong push to pierce the line. Inevitably, this strong push creates excess momentum which is carried through for 10 or 15 additional ticks, and those additional ticks are the prize I am seeking to capture. This set up usually results in a very violent and short trade, as the momentum pushes the price upward or downward at a high rate of speed. It is an exciting trade to watch and even more exciting to initiate.

When setting this particular trade up, I generally look for a strong support/resistance line that will intersect an established trend line. As an aside, I tend to prefer to take this trade to the short side as the market tends to move faster when heading downward. This can be attributed to panic selling, or long traders bailing out of short positions as the price action moves against them. In any event, I position my entry three or four points below the support/resistance line and wait for the price to come to me. Needless to say, it is never a good idea to chase the price action and it is rare for me to initiate a market order. I want to enter a trade at a point of my own choosing where I think I have the best chance of profiting.

Once you become accustomed to spotting the set up, you’ll find it occurs two to three times daily. The trade is relatively reliable if it occurs in a trending market, and the trend does not necessarily have to be a strong one. On the other hand, I would avoid taking this trade when the market is in a well defined channel. Breakouts or breakdowns out of channel formations are generally unreliable and typically fail. False breakouts from a channel formation look very enticing from the onset, but after moving three or four ticks in your favor they tend to retreat back into the channel. Once in the channel, it is anyone’s guess where the price action may go as movement inside the channel is random, at best.

In summary, we have looked at a trade using support/resistance lines. Instead of looking for a bounce off these lines, we have outlined a straight that entails a continuation of a trend through known support/resistance. We have noted that this trade is reliable when used in conjunction with a trending market, further we have cautioned against taking a straight out of very well-established channel.

Related Blogs

Support and Resistance: The Key to E-mini Trading

There are certainly no shortage of oscillators, proprietary indicators, and specialized trading systems on the market today. While I have not looked at every single trading system on the market, it is my impression that most are a rehash of old principles and the same tired indicators. Even the newest quantitative computer trading systems have done little to enhance the overall return in e-mini trading. Just the same, many skilled traders continue to crank out profitable returns year in and year out, and they do it without fancy new techniques or proprietary algorithms.

How do they do it? They simply know how to trade.

Knowing how to trade involves utilizing a variety of time-tested techniques and applying your intellect in utilizing those techniques. In my trading, one of the most important techniques I employ is the charting of support and resistance. By the end of the day, my charts generally have a variety of lines arcing across most of the daily price action. Once I draw a particular line in place, I leave it there for the entire day. Often times, lines drawn early in the day become extremely important later on. For that reason, it is important to leave all drawn lines in place.

Let’s review one very important fact, yes I said fact, regarding price movement: The market tends to start and stop in the same places. Further, the market often pauses and reverses on at the same places. There is, of course, many raging arguments about why this is true. Some see these starting and stopping lines as natural lines that form through the course of price action. Others believe that these lines are cause by technical trading and are, in a sense, a self-fulfilling prophecy because of the large number of technical traders. As a trader, I do not worry about the “why” of the situation, I simply understand that the market tends to pause and stop along the same lines.

These lines are referred to as support and resistance. A line that is higher than the current market price represents potential resistance, and a line that is lower than the current market price represents potential support. It is imperative in your trading to be aware of the exact location of support and resistance when initiating a trade. For example, if you are looking at a 12 point profit target and there is a line of resistance six points above your potential entry point, it would be unwise to expect the market to move 12 points. That is not to say that the price action could not move through the line of resistance, because some resistance lines are easily broken. Unfortunately, it is impossible to determine which support/resistance lines will hold firm and which support/resistance lines will be compromised.

It is my experience that support lines are more often compromised than resistance lines. Why? In general, the market moves downward much faster (according to scientific study, about three times faster) than the market moves to the upside. This is fairly logical if you think about it, it is not unusual for traders to sell in a panic, yet they tend to buy in a more pragmatic fashion. In short, I give resistance lines more credence than support lines. That being said, it would be a terrible mistake to ignore support lines because they often hold firm.
Very experienced traders often times can see support and resistance without drawing physical lines on the chart, but I find it far more useful to draw my support/resistance lines, lest I forget they are there. The notion that the market tends to stop and start along the same lines, or points on a chart, is imperative to understand and utilize in your trading.

In summary, we have emphasized the idea that the market tends to stop and start along the same lines on a trading chart. Further, we have emphasized the importance of being aware of support/resistance lines when initiating the trade, especially when your potential profit targets may require crossing through support/resistance lines. Personally, I avoid taking trades directly into support and resistance because more often than not the price will stop short of your profit target. Be aware of support/resistance at all times, and remember to trade with the trend.

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 clicking here.

Related Blogs

FibGrid: It Even Converted this Hardened Skeptic

If you have read even a smattering of my articles about technical trading you will know that I am skeptical of just about every technical trading technique. I have been vocal in my criticism, often to the point of sarcasm. I have labeled chart formations pure bunk, poked fun at the Elliot Waves theorists, and howled at anything resembling Gann lines, Andrew’s Pitchfork and a host of other exotic sounding technical tools. In short, I have little use for most aspects of technical analysis. Then I became acquainted with FibGrid.

I have a friend with whom I often spend time trading, David Palmer, and he uses a wide range of technical analysis tools. Needless to say, I have a field day poking fun at the endless array of odd looking lines and random chicken scratching that adorn his chart. I am sure he must tire of my endless criticism, as my needling can sometimes border on being cruel. Just the same, we continue to trade together as I have a tremendous amount of respect for his integrity and work ethic. To make matters worse, he is always trying to cajole me into giving his technical tools a try, which I generally dismiss as something akin to practicing witchcraft. Now that I think about it, I have no idea why he puts up with me; but we continue to actively trade together and I genuinely enjoy his company.

One of his favorite topics is the use of a program called FibGrid. For months I dismissed this arcane sounding program as another over-hyped tool of dubious distinction. I refused to use the program on both ethical and philosophical grounds. As a testament to David’s tenaciousness, he finally got me to install the program on one of my minor charts “just to prove him wrong, once and for all.”

Note to readers: I hate it when I am wrong about any aspect of my trading style, which is constantly evolving, and the remaining portion of this article is a frank admission that FibGrid has made my view of technical trading a bit cloudy.

I had a chance to discuss the rationale behind the functioning of FibGrid with its designer David Starr. I have to admit I was impressed with the range of knowledge Mr. Starr possessed about trading, practical application for using the Fibonacci sequence, and his grasp of the history of trading. I have to admit that the guy actually made sense, which I consider unusual for traders purveying anything having to do with technical trading or technical trading indicators.

To make a long story short, I started using FibGrid and the darn thing opened my eyes wide. In the case of e-mini trading, the Fibonacci lines generated by the program date back nearly a decade and are color coded in a hierarchy of importance.

Still, I had not traded with the program and even though the theory sound plausible, I remained unconvinced that it would work in practice.

I decided to put the program to the test, and started using FibGrid in my well attended trading room…in front of some seasoned and knowledgeable e-mini traders. I expected the program to flop miserably and I could relegate the software to a pile of other worthless software have accumulated over the years.

Then something went horribly wrong, tragically amiss, shockingly awry.

The darn program worked. Not only did the program work, it worked with amazing accuracy; and the more I used and understood the program, the more accurate it became. In short, FibGrid started to consistently add cash to my bottom line. A technical program had proven itself worthy to grace my chart and my world had been turned upside down.

Gradually, I began to integrate the FibGrid lines into my well established methodology and have significantly increased my bottom line profit. To be sure, the program has made a significant dent in my profit margin and it only gets better as I learn the nuances of the program.

Who would have thought that this curmudgeon price action trader could learn something from technical analysis? From the onset, let me say that it wasn’t me…I started using the program only to prove it was a sham, like all of the other technical analysis programs I have sampled.

Want proof?

Sign up for a free week in my trading room and watch me integrate FibGrid into my existing methodology. I will begrudgingly admit….it works like a charm and you are leaving good trades and a significant amount of money on the table if you aren’t using FibGrid.

Related Blogs

My E-mini Trading Stops Strategy

Many traders have their own theory on how to place stops on their e-mini market orders, or whatever kind of order they place. Frankly, I insist that e-mini day traders place their stops in a manner that gives them adequate protection. My stop ranges are anywhere from 12 to 20 ticks, depending upon the nature of the market that day.

But I want to address those who day trade without stops and indicate what a terrible risk they are taking because a sudden spike could signal the end of your e-mini day trading career. Stops are an important and essential part of any e-mini trading strategy to keep from encountering catastrophic losses.

I also move my stops when a trade is in progross….let’s assume that I have made a good trade and am in the money and I have initially positioned my stop at 12 ticks…once I am 1.5 points into the money, I manually move my stop up to 4 ticks…once I have reached two points, my stops are at my market entry points, and if I let the trade run I continue moving my stops upward to protect my gain. Remember this…..NEVER LET A WINNING TRADE BECOME A LOSING TRADE…and stops are a great way to do this.

You may choose to use a trailing stop strategy, where once you reach a certain point in profit the stop moves automatically according to a preset you put in before the trade gooes in. I prefer moving my stops manually, which may be the remnant of the “old school” way of doing things, but I feel much more comfortable placing my stops this way.

Related Blogs

    Linear vs. Non-linear Charting Systems and Pivot Points

    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

    How Much Money Can You Make Trading E-Mini’s?

    People are always curious, especially non-traders, about how much money you can actually make day trading e-mini contracts. This is not an easy question to answer. Every potential e-mini day trader has a given skill set, with strengths and deficiencies that will contribute to his or her success. So I will compose this article directed at an average individual who is considering learning to trade the e-mini contracts.

    An extraordinarily large number of potential traders try to trade without sound training and mentorship programs and find themselves in trouble from the onset. Even seasoned traders have deplorable days trading the market, but a lack of experience and training is the recipe for financial catastrophe. Anyone who is pondering learning to trade the e-mini contracts should either find a great mentor or enroll in a quality training course and practice extensively on a demo account. I would point out that trading the e-mini contracts is no simple task and entails a considerable amount of learning and time.

    But the rewards can be very lucrative…

    In order to prosper in the day trading business, every trader needs to learn a quality money management practices in addition to trading. There is a tendency for new traders to over trade or trade more contracts than is advisable for their account size. E-mini money management is the key to sustaining a career in trading. I suggest that a trader never risk more than 7% of his account balance on a given trade, and even less if possible. If the novice trader is taking more than 10 trades in a given day, he or she is probably over trading their futures trading account. There simply are not that many good trades on a daily basis. I generally make 3 to 5 trades on an average day, although those numbers could be higher or lower depending upon the market action during the course of a given trading session.

    Since I try not to trade a large number of contracts, my daily earnings may be lower than others who trade large numbers of contracts. First of all, let me say that any day I am profitable I am happy. On an average day, a good trader should be able to make between $300 and $700, and on a bad day should be able to limit his losses to significantly less than those target profit numbers. If you are not trading well during a trading session, the best idea is to simply stop and wait for a day that is better suited to your trading style or a day when your emotional state is in better shape to trade. There are days when everything goes perfectly, and there are days when nothing goes right. I can’t explain these phenomena, but have certainly experienced it.

    In summary, with practice and mentorship you can earn a great living trading the e-mini contracts on the Chicago Mercantile exchange. It’s something I think many people would enjoy and profit greatly from learning. We think you can learn all of these techniques right here at the E-mini Professor Trading System.

    How to Use Stops When Day Trading the ES E-mini Futures

    I think it is important for e-mini day traders to use specific targets that address their loss tolerance and profit targets. There is a temptation to ride losses too long in hopes that the market will come back to a break even. This can be a tragic strategy and result in unacceptable losses when trading the e-mini futures contracts.

    Why would people ride their losses?

    Emotional involvement in trades is generally the culprit in any kind of trading, and especially for e-mini scalpers, as the markets swings in intraday trading, sometimes violently. It’s is this emotional involvement in a trade that accounts for a tremendous number of trading losses. It’s more than difficult to accept a trade as a loser and move on. Say, for example, you get what you consider to be a perfect e-mini setup and take a trade, and most perfect e-mini setups (whatever they may be) have resulted in handsome profits. The assumption, then, is that every trade where that setup is utilized will result in a winner, sooner or later. Bad strategy. There is no foolproof trade, and every trade (no matter how nice the setup) results in a loss.

    It’s difficult for me, and most traders, to accept that a certain trade has resulted in a loss. After all, the 5 identical e-mini day trades before it produced sizable gains. Learning to cut your losses and move on to another trade is one of the most difficult exercises a trader must execute. Set your loss tolerance and if you blow out of a trade, move on.

    This is much easier said and done, and even with stops in place there is a temptation to drag a stop a couple of points lower to salvage a trade that is not working out. I’ve been there, I’ve done it, and I’ll probably do it again. It is always wrong to do, though. My experience has taught me that I enter bad trades when I try to pick a counter trend trade. These trades can be very tempting, but price exhaustion is one of the most difficult trades to execute successfully. For that reason, I like to strike an 89 point SMA and when the market is significantly below the 89 point SMA I stick with short trades, and visa versa for price action above the SMA. This should keep you nicely in the trend. It also weeds out those disasterous countertrend trades.

    In volatile markets I detest trailing stops, and I generally don’t use them. I am not against moving a stop loss up, but the normal market action often gets you out of a good trade before completion. Be careful using trailing stops, while they sound great in theory, they often have to be very wide to be of any real value. For myself, I prefer to bracket trade, using 3 point (12 tick) stops for my loss and profit targets. I have found this to be fairly flexible for trading in normal markets, and in volatile markets, which we saw early this year, I allow 4 point stops (16 ticks). These numbers are for trading the ES contract. For the YM contract, I like to use 25 points bracketing long and short positions.

    But remember, don’t attempt any trade without preset stop loss and profit targets established. Good luck trading and come back.

    Why Use the Scalping Style Trading

    My average trade doesn’t last more than 15 minutes, and by then I have usually exited, hopefully with a profit. This style trading is a version of scalping. I thought I’d talk a little today about why I utilize this style of trading. For the record, I don’t hold any trades overnight, and when I go to bed all my money is in cash.

    Predicting the market is a dicey business, at best. You need only look at the record of economists, mutual fund managers, and hedge fund managers to realize that long-term prediction of the market is not particularly accurate. There are many reasons for this, because of the large number of variables that effect the price of a given stock or index. Of course, some variables can be accounted for; like economic trends, cyclical developments, but there is a huge number of non-controllable variables that go into asset pricing. Uncontrollable variables like natural disasters, wars, and a host of unusual economic occurrences. My point is a simple one, long-term prediction of the market is not something you can readily rely upon.

    So I don’t.

    Short-term market prediction is a bit easier, especially when using some specialized oscillators, moving averages, and price action, and rate of change indicators. It is far easier to look ahead five minutes than it is five months. I also believe that there is a level of randomness in the market which makes long-term prediction even more difficult. The market is a fickle creature.

    So I’m a scalper.

    My goal is to carve out small gains in short-term trends and exit with a profit. Generally speaking, I do not try to trade against the trend, nor do I try to predict market tops or bottoms. Further, I use my indicators to ascertain when the market is engaged in normal backing and filling operations, commonly referred to as market noise. Some people trade market noise effectively, I don’t. I am primarily interested in market breakouts in breakdowns.

    I seek to minimize risk.

    By choosing to trade only in short-term trends, and is minimizing my losses through reasonably tight stop loss measures I am able to control drawdowns and any devastating trades. I am not averse to letting a trade run on the profit side, but refuse to move my stop loss down under any conditions. I never add contracts to a losing trade either. Once I’m in a winning trade and up two points (assuming I am trading the ES contract), I will move my stop loss up to a two tick gain and allow the trade to run. I never let a winning trade become a losing trade.

    Another nice benefit of scalping is lack of emotional involvement in my trading. I never try to predict what the market is going to do, I simply react to it is doing. So I am not in the game of predicting market moves, I simply seek to take what the market offers.

    As you can see, risk management is a goal of mine. I use strict money management techniques and then never risk more than 5-7% of my futures account balance on a single trade. I am into trading for the long run, which is nearly 25 years now,

    I am just finishing up an affordable course on my scalping style, and think that it is a quality product that would benefit many traders. I wrote the core specifically for beginning traders, and intermediate traders who are not having the kind of results they expected when they began trading. In the near future, I will announce the opening of this offering.

    Do You Trade Your E mini Account, or Does it Trade You?

    It is not uncommon to hear trading educators describe e mini trading as part art and part science.  In my opinion, nothing could be farther from the truth.  Trading is about probability and consistency in thought.  That’s a difficult pill for many to swallow; but it is, nonetheless, the essence of e mini trading.

    Great traders take high probability trades consistently and pass on low probability trades.  The Hollywood notion of the high-stakes trader taking big-time risks and consistently winning is a folly.  Traders who consistently risk too much usually end up broke.  For this reason, novice traders should not buy into the notion that trading is a get rich quick proposition.  It isn’t.  Yet late-night infomercials trumpet the million dollar a year potential that exists in day trading.

    The name of the game is low risk, high probability trading day in and day out.  This is only possible when a trader has complete control of his trading from a psychological point of view.  Quite simply, good traders trade only the chart in front of them.  They do not trade the economic news, the talking heads on the financial news networks, or rumors that are found daily on the Internet chat boards.

    How does a trader become consistent?

    It is not uncommon for inexperienced traders to have several losing trades in succession.  The natural result of this experience is to worry about the amount of money in their futures trading account, and this is precisely when the problems begin because the trader tends to lose sight of sound trading technique and risk management in order to get his account back to where he started the day.  No one likes to lose money.  But there are two ways to approach this problem:

    1. An experienced trader continues to trade with sound technique no matter what his trading results may be.  He or she knows that there are no 100% guaranteed trades out there and even though he or she has chosen high probability trades, he or she has come out on the wrong side of the probability equation.
    2. And inexperienced trader often times makes adjustments in his trading style in an attempt to get caught up to his opening balance.  These adjustments may include trading at a higher number of contracts or taking lower probability trades hoping they will “work out.”  This is, of course, the recipe for account meltdown.  Over trading and taking a higher risk trades is not the answer to the problem.  Yet it is precisely what I have observed over many years of watching novice traders who fall behind.

    The ability to maintain self-discipline under duress is a trait all good traders possess.  I suppose some people are born with this self-discipline, but I suspect that most good traders learn this trade through experience.  There is no need to panic after a sequence of unsuccessful trades.  If the trader took good trades, high probability trades, and losses he or she must understand that this is part of trading.  Even the best setups have a probability component that includes losing.

    What is the answer to this problem?

    As hard as it may seem to swallow, the answer to a sequence of losing trades is to continue doing what you’re doing; that is to say the trader must continue trading a reasonable number of contracts on high probability trades.  Changing your trading style to accommodate the balance in your futures trading account is not the answer.  Yet, even among experienced traders I see this phenomena.

    The exact opposite of the above situation can be true also.  Imagine a trader who puts together several very profitable trades.  In this situation, there are two possible outcomes:

    1. An experienced trader continues to trade with the same methodology as usual.  He or she realizes that stringing together a few good trades means nothing except he or she has taken high probability trades and the probability of the trades has been true.
    2. And inexperienced trader may suffer from the delusion that he or she is having a “hot” day and trade more contracts or take lower probability trades with the thought that he or she is on a winning streak.  There are no winning streaks and e mini trading.

    The point here is a simple one; you have to trade the chart in front of you consistently regardless of the outcome of your trades.  If you are taking high probability trades and losing, that is an integral part of the trading game.  Of course, losing several trades in succession can affect your trading account balance; we do not trade our account balance; we trade the chart in front of us.