By Waldemar Puszkarz
Emini futures, often referred to as just eminis, are very popular trading instruments, particularly among day traders. They are simply smaller-sized contracts of "full-grown" futures contracts that have been around for much longer. The "mini" part of their name has to do with their size, which is several times smaller than the size of their older brethren. Unlike the latter that have been traded on physical exchanges, eminis have always been traded electronically, allowing retail traders with access to the Internet to compete against institutional traders from the comfort of their homes literally anywhere in the world. That's what the "e" in their name stands for, namely "electronic."
There are two distinct styles to trade emini futures. One is purely mechanical, the other is purely discretionary. It's possible to use a hybrid approach, but in reality, this is often not that advisable as you simply end up with what is just more complex mechanical emini trading. Some people prefer a mechanical style, others feel better with the discretionary approach to emini trading. Both are fine, but one is clearly better than the other, especially for retail traders. It is the discretionary trading style.
Yes, the discretionary trading style is definitely better than the other one, yet many people, most perhaps, tend to go after mechanical trading. Which is a very good confirmation of what I just said, namely that discretionary trading is better. How so? Well, simply because the majority of people tend to be wrong.
It is easy to understand though why so many people prefer mechanical trading. For once, it is so much easier to master it. It may take just a few days even in the case of the most complex mechanical emini trading systems out there. Plus, some of the mechanical systems can easily be automated and so you can get your computer do all the work for you, while you simply collect the profits.
It is this allure of simplicity, limited effort, and relatively easy implementation that makes mechanical trading so widely followed. But unfortunately, this also means that many people never master the art of trading, but merely the art of operating trading systems. Their trading careers start and end at reading system manuals, which is certainly not enough to become a consummate trader.
To master the art of trading at its finest, you need to learn how to read the market well. That's the basis of discretionary trading. Once you have done so, and this may take months if not years, although a good mentor or a trading course can shorten your learning curve to only a few weeks, you will never consider mechanical trading a serious option. The reasons for this are quite simple.
Mechanical trading systems, and emini trading systems in particular, tend to go through relatively deep drawdowns and flat periods during which the system loses money or makes no new profits. "Relatively" here means compared to the discretionary approach where this problem is not as severe because of the discretionary trading style much greater efficiency. To ensure steady profits that could amount to a decent living when you rely on mechanical trading systems, you often need to trade more than one system and diversify across a few markets. Plus, you also need a bigger size when trading in a discretionary way.
For many small retail traders, the purely mechanical approach is out of the question if they want to make a steady living. They can however do quite well, trading in a discretionary fashion, trading with just a few contracts and only one market.
Is discretionary trading approach right for everyone? Yes, definitely so, although some people may at first be less likely to succeed with it than others. The more flexible you are and the better your market reading skills are, the more likely you are to enjoy a good start. Sometimes a very good start.
But I believe that everyone can master the art of discretionary trading. The main reason why some people may be convinced this is not the right thing for them has to do with the fact they have not spent enough time to master this approach being lured by the much easier mechanical trading style. If you are not willing to spend enough time on something more challenging, yet also much more rewarding, you are not likely to appreciate it.
Dedicate more time to it and you may as well see that this is indeed the totally right thing for you. Don't dismiss it too soon and don't fall into the trap of thinking that you are not predisposed to discretionary trading. There so no such thing as being predisposed to a given occupation. No one is born a fireman, a pilot, or a teacher. You simply get trained to become one, just like you get trained to become a discretionary trader. And, what's more, you can even train yourself.
Tuesday, August 25, 2009
Monday, August 10, 2009
Emini Trading - Do You Have Investing Style?
By David S. Adams
I think before anyone embarks upon the serious study of trading, or trying to make a living at trading, he/she ought to consider the style of trading that best fits their personality. Unfortunately, the term "trader" means a lot of things and encompasses a wide range of trading styles and methodologies. My personal style of trading reflects my personality, I like immediate gratification and results, so I am a scalper.
So what is a scalper?
Most scalpers, especially the scalpers who trade the eminis, seek to exploit the natural rhythm of the market and carve out small gains on each trade. My goal is often 12 ticks, though that can change depending upon the mood of the market and an indicator I used (and have written a post about) called the Average True Range. My trades seldom last more than 10 or 15 minutes and I exit. I never carry positions overnight. My account is trade free at the end of the trading session, or at least, the period of time I am trading.
I scalp because it suits my personality. I like the fast paced action and the lack of dependence on intermediate term prognostications on the direction of the market. Some scalpers, seek to exploit the big/ask disparities in the market, though that is never my goal. Scalpers need to implement strict money management guidelines in their trading, and never risk more than 5% of their capital on a given trade. There are a host of traits scalpers use, and those traits even vary from scalp trader to scalp trader. The important thing to remember in scalping is that I am looking for very short term moves in the market to exploit, and I do not attempt to predict any overall direction of the market as a whole. I am interested in certain moves in very specific contracts. The market as a whole does not interest me and, generally speaking, I don't pay much attention to overall market conditions. I trade the chart I am looking at, not the news, not the economy, just the chart before me.
Swing traders are a different matter, though.
Swing traders are really fundamental traders who hold their positions longer than a single day. Most fundamentalists are actually swing traders since changes in corporate fundamentals generally require several days or even weeks to produce a price movement sufficient enough for the trader to claim a reasonable profit. The important difference between a swing trader and a scalper are basic: A swing trader has a notion or idea which way the market is going to move, or which way an individual stock is going to move, and invests based upon his belief. Swing traders usually identify a specific characteristic or event in the market and trade based upon this theory. I should point out that though many swing traders are interested in market and stock fundamentals, there is also a field of swing trading that invest based solely on technical trading. Oscillators, Gann lines, Dow theory....there are scads of theories that swing trader may implement to ascertain the timing and direction of the trades they choose to execute.
Technical Traders, Fundamental Traders and Efficient Market Traders.
There is scant space in this post to cover the myriad of styles these three titles cover. I should also point out that there is often very little agreement upon methodology by the three trading camps. Each lays claim to correctness, though I incorporate parts of all three trading styles into my personal trading style. I will devote some posts in the future to contrasting the mindset of each of these trading theories.
The point here is a basic one, a trader ought to decide who and what he is and what style he will implement in his trading activities. This decision is usually gained through extensive reading and trading experience. There are some great books written on each of these trading styles, and all traders out to consider spending some time reading about the great theorists of trading and the style and rationale they employed to reach the conclusions they write about.
I think before anyone embarks upon the serious study of trading, or trying to make a living at trading, he/she ought to consider the style of trading that best fits their personality. Unfortunately, the term "trader" means a lot of things and encompasses a wide range of trading styles and methodologies. My personal style of trading reflects my personality, I like immediate gratification and results, so I am a scalper.
So what is a scalper?
Most scalpers, especially the scalpers who trade the eminis, seek to exploit the natural rhythm of the market and carve out small gains on each trade. My goal is often 12 ticks, though that can change depending upon the mood of the market and an indicator I used (and have written a post about) called the Average True Range. My trades seldom last more than 10 or 15 minutes and I exit. I never carry positions overnight. My account is trade free at the end of the trading session, or at least, the period of time I am trading.
I scalp because it suits my personality. I like the fast paced action and the lack of dependence on intermediate term prognostications on the direction of the market. Some scalpers, seek to exploit the big/ask disparities in the market, though that is never my goal. Scalpers need to implement strict money management guidelines in their trading, and never risk more than 5% of their capital on a given trade. There are a host of traits scalpers use, and those traits even vary from scalp trader to scalp trader. The important thing to remember in scalping is that I am looking for very short term moves in the market to exploit, and I do not attempt to predict any overall direction of the market as a whole. I am interested in certain moves in very specific contracts. The market as a whole does not interest me and, generally speaking, I don't pay much attention to overall market conditions. I trade the chart I am looking at, not the news, not the economy, just the chart before me.
Swing traders are a different matter, though.
Swing traders are really fundamental traders who hold their positions longer than a single day. Most fundamentalists are actually swing traders since changes in corporate fundamentals generally require several days or even weeks to produce a price movement sufficient enough for the trader to claim a reasonable profit. The important difference between a swing trader and a scalper are basic: A swing trader has a notion or idea which way the market is going to move, or which way an individual stock is going to move, and invests based upon his belief. Swing traders usually identify a specific characteristic or event in the market and trade based upon this theory. I should point out that though many swing traders are interested in market and stock fundamentals, there is also a field of swing trading that invest based solely on technical trading. Oscillators, Gann lines, Dow theory....there are scads of theories that swing trader may implement to ascertain the timing and direction of the trades they choose to execute.
Technical Traders, Fundamental Traders and Efficient Market Traders.
There is scant space in this post to cover the myriad of styles these three titles cover. I should also point out that there is often very little agreement upon methodology by the three trading camps. Each lays claim to correctness, though I incorporate parts of all three trading styles into my personal trading style. I will devote some posts in the future to contrasting the mindset of each of these trading theories.
The point here is a basic one, a trader ought to decide who and what he is and what style he will implement in his trading activities. This decision is usually gained through extensive reading and trading experience. There are some great books written on each of these trading styles, and all traders out to consider spending some time reading about the great theorists of trading and the style and rationale they employed to reach the conclusions they write about.
Monday, August 3, 2009
Emini Trading Signals - 3 Simple Indicators Used by Successful Index Futures Traders
By Doug Fisher
Participants in the financial markets all have their favorite indicators used to alert them when the possibility exist for trade entry. In this article, three indicators will be outlined that are utilized by successful traders to provide emini trading signals for market entry and exit.
Pivot Points
Pivot points are a common tool used by many emini index traders. Some traders use pivot points exclusively relying on pivot points in conjunction with only a time and sales screen, forgoing the use of charting software. While others will employ pivot points incorporating them in with their trading platforms to alert them when conditions are favorable for trade exit and entry. Because pivot points show areas of both strong and weak support and resistance, they are a popular choice among successful emini traders.
Relative Strength Indicator
The Relative Strength Indicator or RSI is a graph which usually resides on the lower part of charting software. Used mostly to determine both oversold and overbought conditions, this widely used indicator displays a reading between zero and one hundred with a line moving between these two numbers. As the line moves up toward the 100 mark, the RSI indicates the market could be moving into overbought territory and the possibility exist that a pull back or market reversal could be at hand. When the line approaches the zero level, indications are favorable that oversold conditions exist and the market could be about to change to the upside as short sellers begin to take profits.
Stochastic
The Stochastic is another indicator similar to the RSI which is a popular choice among emini trading futures market players. It is also a graph that usually resides in the lower section of charting software. Like the Relative Strength Indicator, both lagging indicators, the Stochastic also has a range of between zero and one hundred. With this tool, conditions are generally believed to be approaching overbought conditions when the Stochastic line crosses 70. In contrast, oversold conditions are said to exist when the Stochastic breaks below 30 and sellers begin to cover short positions.
Participants in the financial markets all have their favorite indicators used to alert them when the possibility exist for trade entry. In this article, three indicators will be outlined that are utilized by successful traders to provide emini trading signals for market entry and exit.
Pivot Points
Pivot points are a common tool used by many emini index traders. Some traders use pivot points exclusively relying on pivot points in conjunction with only a time and sales screen, forgoing the use of charting software. While others will employ pivot points incorporating them in with their trading platforms to alert them when conditions are favorable for trade exit and entry. Because pivot points show areas of both strong and weak support and resistance, they are a popular choice among successful emini traders.
Relative Strength Indicator
The Relative Strength Indicator or RSI is a graph which usually resides on the lower part of charting software. Used mostly to determine both oversold and overbought conditions, this widely used indicator displays a reading between zero and one hundred with a line moving between these two numbers. As the line moves up toward the 100 mark, the RSI indicates the market could be moving into overbought territory and the possibility exist that a pull back or market reversal could be at hand. When the line approaches the zero level, indications are favorable that oversold conditions exist and the market could be about to change to the upside as short sellers begin to take profits.
Stochastic
The Stochastic is another indicator similar to the RSI which is a popular choice among emini trading futures market players. It is also a graph that usually resides in the lower section of charting software. Like the Relative Strength Indicator, both lagging indicators, the Stochastic also has a range of between zero and one hundred. With this tool, conditions are generally believed to be approaching overbought conditions when the Stochastic line crosses 70. In contrast, oversold conditions are said to exist when the Stochastic breaks below 30 and sellers begin to cover short positions.
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