E-mini trading questions & answers

[Ken]

Here's a thread where you can ask questions and get answers from other traders about emini trading.

[Ken]

(Emailed-in question from a trader)
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Hi Ken,

thanks for the opportunity to ask a question. preliminary question: for the purpose of trading the emini q futures, would i still use the q futures themselves as a guide for what they might do after open - similar to using them as a guide for trading stocks (the guide being if the q futures open outside of the previous day's range then trade stocks agressively but if it opens inside then less agressively or not at all)?

but my main question is this: if so, do you know of any indicator, method, anything that could predict (and i hate to use the word predict but for lack of a better word) with more than 50% probability (more than random) whether a q emini that opens outside of the previous day's range will continue in the previous day's close direction or break back opposite of the previous day's close direction? it seems to do one or the other alot of the time.

the reason for my question is that i'm trying to trade the emini q's off of the open. i have a job and can't trade all day but i can make a trade before work and somewhat keep an eye on it during the day. it seems that if i could somehow predict with 50% accuracy whether the overnight trend continues or totally reverses that would be quite beneficial (?). what do you think?

thanks, Steve
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Hi Steve, good questions - (this is not trading/investment advice, but an educational note). I understand what you're talking about. Unfortunately there's no single indicator that I've found that can forecast whether an opening breakout will a) continue in-trend b) chop around or c) go against the trend once the market opens. One approach that some traders use is to scale into positions that continue in-trend (in the direction of the trade) using buy-stop orders, starting off new positions very small, to help manage risk.

That's a challenge of intraday swing trading, or swing trading in general, that the chop and churn of the market makes it exceptionally difficult to trade during weeks/months where there is not an established clear trend (as is the case here, June 15 2010, where the broad markets have sold off after a long bull run, then are currently in a minor choppy uptrend)

Regarding using premarket futures, yes it's helpful to use the $QMI (NASDAQ premarket futures) in addition to following the underlying market indice etfs (QQQQ/SPY/DIA) premarket to get a reading on directional bias.

- Ken

[Vitez]

Hi Ken,

What is the difference between CME and CBOT emini and which one should I choose?

When will you launch your emini site?

Do you already have a book that you could recommend to a beginner?

[Cash]

As most know over the years I've learnt a lot from Ken and have been at this site for many years. I've switch from stock trading to trading the ES and TF (Russell 2000). I've taken Ken's core beliefs and adapted them to my personal style of trading the E-minis, plus some stuff I've developed along the way.

One advantage of the trading future contracts (E-mini) is at the end of the year you get one piece of paper to give your accountant. That comes from your broker.

Secondly under the IRS tax code section 1256, rule 1056 (I believe this is right) you are able to have your gains taxed are a 60/40 split. Just means 60% is taxed at long term (lower 15%) and the remainder 40% as stocks at earned income level. (for this example lets say 25%). We are each in a different tax bracket.

So for someone trading stocks you pay 25%. Futures you pay 15% on 60k = 9k and 25% on 40k = 10k so a total of 19k and a savings of 6k on each 100k you make.

[Vitez]

[quote=Cash;1131]As most know over the years I've learnt a lot from Ken and have been at this site for many years. I've switch from stock trading to trading the ES and TF (Russell 2000). I've taken Ken's core beliefs and adapted them to my personal style of trading the E-minis, plus some stuff I've developed along the way.



Hi Cash,

So you trade only these 2 futures?

May I ask do you trade futures like stocks using T&S to enter or do you use predefined buy stops and stop-loss orders?

[Cash]

I find that time and sales doesn't apply or work as well when trading a basket of stocks (E-mimi's). Individually yes. You might and I have before used the 1 min NYSE tick as a guide (symbol $tick) for areas of over bought or over sold. I use OHLC bars instead of candle sticks and looking for the bar to pierce either +1,000 or -1,000 and will actually put lines there as a visual. Now to use that alone as an entry would be crazy. But if you had other confirmation signals saying to enter this would be a nice bonus.

Remember any indictor that reaches an over bought or over sold does not mean that price is going to reverse. In trends indicators will stay in an over bought or over sold state, which can be used as a confirmation your trend is still intact.

I trade the Russell mainly but wouldn't suggest that you start w/ that it's like trading Apple. NQ is a good one to start w/. Learn it well apply your methodology to it, and back test it. Stay consistent and know that losses are part of the game, but keep them small.

Remember the 3M's, Methodology, management and mindset. As a newbie methology is so important. As you grow taking profits when handed to is key (management). When this is done it allow you to let your winners run. So I recommend scaling out. Mind set or psychology is by far the most important. And so over looked. to conquer my emotions I journal my feelings as I entered, once in and as I exit. nice to review on good trades I exist to soon or bad ones I stayed to long. It's all about improving ourselves as traders.

[Cash]

Stops are important being mental or physical. I use a dome (ladder or matrix) when trading. so placing buy and sell orders is easy, either as stop or a place to take partial profits as I'm scaling out. To ensure profits before moving my stop up to break even (b/e) on the remainder of the contracts.

As I trade 4 contracts my trading goes something like this. I usually take 2 contract on 2 points. Raise my remanding 2 contracts up to b/e. The third contract is tricky cause I'm trying to capture as many pts as possible w/o giving to much back. The forth contract is my running contract and left at b/e till I'm up over 5 points, at that time I'm trailing by a 1-1/2 to 2 points. On the Russell (TF) each pt =$100 per contract. a lot of the time my 4th contract comes back to b/e to stop me out w/ nothing on the 4th one and that is a chance I'm willing to take.

I believe you should have a good target in mind as well as a predefined stop loss and a ratio of 3:1 should be the minimum. Or it's not worth my efforts. So if my stop loss is 1 pt my first target is 3 pts.

Keep it simple and remember what you are trading. "Supply and demand" and we are looking for opportunity when this is most out of balance, as defined on a chart. So as a traders we want to buy as demand is being called for on break outs (b/o) and sell as supply is being met, at resistance.

Once you have develop a strategy (methology) like Ken's it should transcend most markets just w/ a few tweaks. Again w/ all markets we are just buying demand and selling supply and it is that simple. but as traders we make it a lot harder, myself included............Ed

[Vitez]

Cash,

Thanks so much for sharing.

I'm actually using Ken's principles on futures as well. Using paper money and thinkorswim. It works great so far...

I have an eye on TF but I perfer NQ and ES as they are quite active in premarket.

[Ken]

April 18th 2011

History in the making: I'm launching http://www.EminiUniversity.com --- stop by and watch the videos and sign up for the newsletter... you'll be glad you did! Lots of good trading strategies will be taught there to active traders.

[Cash]

Steve ...what I think you are asking are a few things.......First depending on what broker you have and which market you intend to trade, data fees varies...But to me it's just part of the overhead of doing business...just like commissions. brokers have different charges...some are free w/ a certain amount of round trips.

Talking about opening price compared to previous close "GAP" There is a ton of historical data to support the Probabilities of it closing. I could write pages on this subject but in a few lines. You need to consider where price is opening compared to the previous candle to increase the probability to the gap closing. A candle stick has 5 zones to it, the body, the upper and lower wicks and then outside of the wicks. Gaps historically close about 70% of the time that day, near the body. Then one would have to consider two other things the size of the gap. Gaps w/i a few point close more often the larger 10 point gaps. Then I would be more likely to fade a gap in the opposite direction of a trend as it came into some previous support or resistance. So to enter a gap you would have to ask where is the best point to enter and how much risk can I take on.

As traders it's all a calculated risk as where to enter..... we need to have an edge of greater probabilities and how to limit our risk at the same time. The things that Ken are trying to teach you here is just that!