Emini Trading Blog

As we have seen, there are numerous skills needed to day trade for a living. Proficiency in such areas as entries, position management, exits and self-discipline will profoundly affect our level of success. While advancement in these areas impacts our profitability, without a deposit of real money in a brokerage account, no trades will take place since access to any market will not be granted.

Part III: Money needed

1) For emini futures trading, many brokerages require $5,000 to open an account. Regardless of the minimum to open, margin must be met. The lowest e-mini S&P margin claim for day traders I have seen is $500.

2) To be a day trader with a stock equities firm, a minimum deposit of $25,000 is typical.

3) Access is by far easiest in the retail foreign exchange (FOREX) markets since deposits of as little as $250 will enable entry. However, the extreme leverage used to facilitate these accounts means that even a small move, relative to the market’s volatility, can blow-out your account. While greater regulatory oversight seems to be imminent, at this time aspects of these markets are significantly less standardized than futures and equities.

One way to be sure your account is preserved is to set a limit for the maximum dollar amount you will risk on any one trade. Professional fund managers rarely risk greater than 2% and routinely put 0.5-1% of the money they are in charge of at risk. Perhaps you will allow a greater percentage. If so, consider using the following formula. It has been designed to allow you to earn the most amount of money possible while keeping an empty account at “arm’s length”.

In terms of dollars, add up the difference between entry and exit and multiply that number by 20. Next, add to that the commission costs. If the final product is less than your account’s value, the risk amount is acceptable. However, if the total is greater than what is in your account, the risk is too much. In such a case, reduce your risk by modifying your entry or stop. If neither seems advisable, implement the ultimate risk-reducer: Pass on the trade!

Well, it is now time for you to present your closing arguments. Pull together your answers from your review of time, skills and money needed to day-trade for a living. If you are deficient in any area, determine what it will take to make up the difference. Remember, becoming a master trader is a process that requires many consistent small steps.

If you meet or exceed these recommended minimums, congratulations! Your positive answers show that your current level of trading time, skill, and money available makes success in trading a real possibility for you. If you decide to proceed, remember to be positive and realistic. Obey the rules of sound trading and obtain expert guidance when needed. Since the judge in this case is impartial, know that the market will not single you out. In trading, unlike any judicial system, whether the result is outstanding or dismal, it is always because of you. May all your trades be successful!

Many would-be day traders of e-mini S&P futures or any other market yearn for a “magic formula”, an epiphany that in a short time would bring handsome profits with minimal effort. Perhaps you wonder if such a thing exists. At first glance the answer appears to be yes. If you have watched or read a play-by-play account of an expert trader executing a trade, you have seen uncommonly difficult choices carried out with reflex speed and apparent ease.

Since the entire trade is handled in a seamless fashion with a winning result, it appears that such a formula may be what this winnig trader possesses. However, the truth is here is no such thing. Instead, this ability, like all abilities, is developed over time through trial and error. It is practiced and enhanced through deliberate effort, and administered by self-coaching and mentoring.  Only after consistently focusing on acquiring skills essential to profitable trading can the expertise needed to day trade for a living and subsequent financial success be found.
 
Part II: SKILLS NEEDED

Our review of the skills needed to succeed as day traders is divided into two parts:

1. Recognizing trade opportunities
2. Profiting from opportunities.

RECOGNIZING TRADE OPPORTUNITIES

Recognizing viable trade opportunities starts with the essential skill of knowing the trend of the market within the time-frame from which we base our trade decisions. Trading with the trend is highly advisable – especially for beginners. You must be trained to know which highs and which lows are most significant. Without this skill it is likely you will initiate trades with a higher probability of losing than winning!

On a scale of 1-10, what is your present understanding of trading concepts such as support/resistance, Fibonacci ratios, price action and the impact these have on price behavior? Write down your answers. 

Little else aids profitability like not losing. Unforeseen, sudden and drastic changes in price can happen at any time. Therefore, you must set a limit for the risk you will bear. First determine the most advisable stop-loss price for the trade you are considering. Now base your entry-price off that price. Doing so will likely lessen the frequency with which your stops are hit, and perhaps minimize the distance between your entry and stop-loss prices.

PROFITING FROM TRADE OPPORTUNITIES

Don’t rationalize. Don’t hold a trade that began as a day-trade for an extended period. Rather,  protect profits via stop-loss adjustments and stick to your exit target rules.  Don’t let winning trades turn into losers!

Next time we’ll look at the money needed to day trade successfully.

Perhaps due to curiosity, ambition, or even necessity you are considering day trading as a means to produce monthly cash flow. While the potential earnings, lifestyle and personal satisfaction are what appeal to most, the following three-part series focuses instead on what it really takes to start out on the right foot.
 
Part I: TIME NEEDED

This consideration of the amount of time needed to successfully day trade for a living has been divided into three areas:

1. Education
2. Daily routine
3. Business management, preceded by a word of caution.

Ironically, in a business as technical, highly leveraged and ever-changing as trading is, those pursuing it need to be reminded that there is no substitute for sound education! A string of previous trading successes, your ability to memorize stock symbols and see macro-economic scenarios will ultimately fail to sustain you in the long run.

It takes time to find, consume and absorb quality day trading education. You must learn how to gauge a market’s strength or weakness, how to ascertain entry areas with favorable probabilities, how to manage wisely your open positions and advisable. Since learning rates are subjective, how much time you need to spend each week studying the markets is up to you. Two hours, eight hours, thirteen hours? Write your answer down on a piece of paper, and do it!

“A good trader is a lifetime student of the markets.”

A day trader’s daily routine revolves around market hours. Thanks to streamlined exchanges and access to currency trading, the number of available markets is now unprecedented. Therefore, active trading occurs practically around the clock! Follow a consistent routine to build good habits. Write down your trade routine, step-by-step, so you don’t miss anything.

Managing your day trading business starts with comparing your goals for the day with your performance. If the trade-platform you use records your trades (like TIVO does for TV), you can re-play your good and bad trades and learn from them. Repeating our good moves and not repeating our mistakes is a must, so take the time to note these in a trade diary. Before closing out your trade review, be sure pertinent trade-metrics have been logged. To give this effort it’s proper due, figure one to two hours.

Join us next time for part two of the series, as we examine the skills needed to day trade for a living.

Part Two – Key Daily Trade Metrics

Each pilot knew the weather conditions were the same from deck to ceiling. Yet, their choice in routes differed. Due to an acute knowledge of the planes conditional fuel consumption characteristics, the first chose to muscle through the bumpy air atop safe flat terrain. The second, having been expertly trained in avionics, sought to fly over unfamiliar peaks. Although their routes varied, each arrived safely and in good time. As we trade the e-mini S&P, each of us face the same conditions, yet the routes by which we seek to capture profits vary greatly, don’t they? Regarding the route we’ve chosen or more specifically, trades we’ve placed in the last week, month, and year, are there unknown strengths and weaknesses that have until now prevented our “arrival” as expert traders? 

Emini Trading Chart - February 17, 2010

In consideration of Key Daily Trade-Metrics, we will use three metrics to uncover personalized strong and weak points and the impact these can have on our success. By tabulating them daily and tracking them over time we can clearly see where our success occurs, our current level of awareness toward opportune conditions, and our propensity to adapt to shifts in market behavior. These three metrics reveal the impact our habits have on our trading and show us viable solutions!

KNOW WHERE YOUR PROFIT OCCURS
The metric inputs are: Compare profitable trades and their quantity to their direction. Most likely, the answer is not 50/50. Thus, knowing profits occur, i.e. predominantly when entering long, we could correct our course by doing two things. First, when trading in a confirmed uptrend, increasing quantity could produce greater gains. Secondly, we could pursue improving our ability to recognize and profit from market weakness.

HOW TO SPOT YOUR OPPORTUNE TRADE CONDITIONS
Each day, compare the total number of entries and each entries quantity to the number of valid trade opportunities per your strategy. Does your frequency and size match the ever changing frequency of opportunities present? If you find that your trade frequency is static, likely you are both missing quality entries when these are more present and forcing trades despite diminished opportunity.

RECOGNIZE CHANGES IN MARKET BEHAVIOR
How well we perform in this area can be gauged by tracking the length of time over which we maintain profitability or the lack thereof. For example, investigating a stretch of unprofitable trading will undoubtedly reveal numerous missed cues on our part. Clearly, identifying these missed cues is the first step in preventing a repeat.

 Use these key trade metrics daily and tracking their results over time wil help you improve your trading and to become a professional emini trader.

“Know thy self.”

As emini traders, it can feel as if there is simply too much to be aware of in order to live up to those words. We see the wisdom in doing so; however making beneficial application is complex. Some may reason that, “the money is in capturing big market moves, not applying some old adage”. Now, while quickly rebuffing with “the money is in the moves not some adage” may seem sound, would a more tangible type of confidence better foster expertise? A confidence borne from knowledge of our real-time, real-dollar choices and their outcomes, rather than the false confidence that can result from reflex answers? To come to know the value of trade-metrics, first we will consider their composition and preview their many uses.
 
Trade-Metric Composition: Like a math problem where inputs are needed in order to produce an answer, so it is with trade-metrics. Here, one or more input is measured against another. Some metrics call for measuring data vs. data, while others measure data vs. market condition. The answers to these varied inputs are usually averaged over time.

Examples of trade-data inputs are: Did I buy or sell? What was my trade frequency and contract quantity per trade? How long did I hold the trade? Was it profitable, flat, or a loss? While answering these questions can in a broad sense, heighten awareness of our trading selves, it is the measuring of this data against specific trade-condition inputs that can bring our strengths and weaknesses sharply into focus. An example of a trade-condition input is: Were my trades placed in an up or down-trending market?

Use of Trade-Metrics: For instance, by tabulating both our long and short entries, including their quantities, against the back-drop of up-trending sessions we can make use of a penetrating trade-metric. Will the answer give us something tangible upon which we can build lasting confidence and expertise? At a glance, it shows what our bias was within the period measured. It shows how well we adapted to what the market communicated. Additionally, by noting our quantities on both the buy and sell-side, we are able to see if we are maximizing our profitability per market conditions or if our preference for either the buy or sell-side is being placed ahead of trading in accordance with market conditions, which is inherently problematic.

Has the use of this tool helped us “know thy self”? Yes! By using just one trade-metric, our dominant tendencies, as well as, advisable times to trade bigger, smaller or sit out altogether became forcefully evident nearly simultaneously! “Which ones are most helpful?” and much more will be answered next time in Part Two entitled: Key Daily Trade Metrics.

E-Mini says “stop”? Active traders tend to be a dynamic group of individuals. They tend to hear the word “stop” as a negative. Stop (or slowdown) is not normally a part of their vocabulary. Nevertheless active traders would do well to become familiar with this mechanism. In our business stops are one of the most important tools we have. Stop-loss orders help us avoid the number one obstacle to consistent trading success: emotional trading. By planning our stops in advance we effectively eliminate the all-too-human instinct to “wing-it”. An overview of stop orders is a good first step in understanding and using them consistently in our day-to-day trading.

Stops are a form of insurance. Remember, all traders suffer losses – it’s the nature of the business. Our goal is to limit our financial exposure to acceptable levels and more importantly, to avoid emotional turmoil when we do experience losses. Trading emotionally is like letting an intoxicated friend drive your vehicle. As a refresher – some definitions and things to keep in mind.

A stop order is an order placed with a brokerage that specifies that when a predetermined price is reached, a market order to sell that security is issued. Thus, if you determine that you want to limit your loss exposure to 10% you would enter a stop-loss order at 10% below your entry price, effectively limiting the amount you may lose to 10% should the market turn against you. Depending on what type of order it is, you can specify sell price, buy price or both. Stop loss orders are also called protective stops for obvious reasons. It’s a little like putting a collar and chain on your dog so when he takes off after a passing bus he gets so far and the length of chain runs out and he suddenly…stops!

Stop-loss orders are great forms of insurance – there is no cost to place a stop and it sits there waiting patiently until the target price is hit. The stop loss then becomes a market order and the desired transaction takes place. Some things to keep in mind regarding stop loss orders:

1 – Just because a target price is reached and your stop-loss becomes a market order, doesn’t mean you will get that price. In fast moving, volatile markets as the e-minis often are, a security may fall quickly below your target price. This is a potent argument for actively monitoring your trades.

2 – One of the essential times to use stop-loss orders is when you go on vacation or business trips and your ability to monitor your trades is limited. Swing traders and long-term investors would do well to become familiar with this mechanism in these instances.

3 – A “Good-’til-Cancelled” (GTC) order is an order that allows you to cancel the order at a future date (although most brokerages limit a GTC order to a maximum of 90 days.).

4 – A “Day” order is an order without an expiration date. If, at the end of the trading day, the target price is not reached, the day order expires. You will have to re-enter the order the next trading day.

5 – Be aware that market orders and limit orders serve different objectives. When you enter a market order you want to enter the market right away at the prevailing bid/ask price. A limit order specifies a price that you want to buy or sell at. Limit orders typically have higher transaction costs than market orders.

6 – Don’t use mental stops when you trade - they invariably move!

7 – When determining where your stops will be, consider your total equity capital. Any single stop calculation must take into account how much this potential loss will affect your total investment capital. Many experienced traders recommend that you set a percentage of total trading capital that you can afford to lose in a month (2 – 3% is a common figure). Avoid setting stop-loss orders at a percentage that would result in your total trading capital going below your goal.

8 – Be careful not to place your stop so that normal market movements trigger the stop prematurely. A good tool for determining placement of the stop is the security’s beta factor. A beta of one or two suggests less volatility and a tight, relatively close (to purchase price) stop is appropriate. A beta of up to three indicates increased volatility and the need for a “looser” stop.

9 – Leave your stop alone unless you have a paper profit. At that point you are ready to use “trailing stops” to protect and “lock-in” your profits. Note that many brokerages do not support trailing stops so check with your brokerage to be sure.

I’m sure every reader can remember the grade school game, “Simon Says”. Let’s update that to “E-Mini Says”. When E-Mini says “stop” that is our signal to trade the E-mini’s rationally in a disciplined, professional manner. The profits will flow to the extent that we consistently use the tools available – including stops. Now, E-Mini says “Go”…

Overview of Indicators

You would think that any activity based on just two groups of people – Buyers and Sellers – would be a simple affair. After all, just determine who is dominant in the current market, the sellers or the buyers, and them act accordingly. Just start up the charting software and observe the prices and volume. What are the charts saying besides buying and selling? How can we approach this numerical Babel in an organized, coherent manner? Our objective is to take this chart information and be able to read them like a book. Is this series of movements a trend? How far down should I allow this price go before I consider buying? How do I formulate my stops? These are the vital questions that indicators can answer. If I didn’t have the power of technical indicators I would be guessing, trading by whim, by instinct, by emotion. Technical indicators represent the “control panel” of my analysis engine. Let’s take a quick overview of what technical indicators are and how they should be used.

Types of Indicators

There are two broad categories: Technical and Market indicators. Technical indicators function at the “micro-level” of our charts. We use technical indicators to interpret current time data. They provide us with information at time specific intervals, i.e., three minute, one hour or one day charts. On the other hand Market indicators function at the “macro-level” of our analysis. Instead of focusing on a series of three minute price movements, market indicators interpret entire sectors, markets, economies. As such, market indicators follow a more comprehensive time frame of weeks, quarters, years. Examples of market indicators include the unemployment rate, consumer sentiment, housing starts and Consumer Price Index.

Technical Indicators

Technical indicators have a limited function: they Alert, they Validate and they Anticipate. If we accept this premise then we will avoid the unfortunate habit of basing our trading decisions solely on technical indicators. We will also avoid the habit of allowing technical indicators to become an end in themselves. There are hundreds of indicators and oscillators with new ones being written each week. Leave the indicator search to the Don Quixote’s who believe that the one, true method is only an equation away. If we confine our use of indicators to alerting, validating and anticipating, we are on our way to good trading set-u8ps based on solid analysis of the price/volume data.

What Indicators and When?

Ironically, the most reliable technical indicators are those that have been around the longest. Indicators fgenerally fall into four categories and we will review each category with example indicators for each.

Trend Indicators

The primary tool for detecting and monitoring trends are Moving Averages. Moving averages come in a variety of flavors from the very simple (simple moving averages) to the more complex (exponential moving averages). They primarily follow price/volume data, helping to smooth out spikes in price behavior. They are excellent tools for identifying and confirming trends in the market, but since they are lagging indicators (follow prices) they are not good predictors of price activity unless they are used with another, complementing technical indicator.

Momentum Indicators

Momentum indicators allow us to measure the speed at which prices and volume are changing. Momentum indicators take the form of oscillators, that is, they represent values that range above and below a centerline, normally valued at zero. Commonly used momentum oscillators include “Rate of Change” (ROC), “Relative Strength Index” (RSI) and “Stochastic’s” developed by Dr. George Lane.

Volume Indicators

Volume indicators are used to confirm the robustness and strength of a trend. Examples of volume indicators are the “Volume Oscillator”, the “Price and Volume Oscillator”.

Volatility Indicators

Lastly, the volatility indicators are used to validate price behavior. Volatility indicators are often used with volume indicators to validate price behavior. “Bollinger Bands”, C”Chaiken Volatility” and “Keltner Channels”.

General Guidelines for Using Indicators

Given the enormous number and variety of technical indicators, a specific explanation of each is beyond the scope of this article. However, some general guidelines will assist the beginning trader as he or she builds their analytical muscle:

1) Select just two or three indicators and master their use and interpretations

2) Avoid using indicators that are so similar that their conclusions lead to false signals and inaccurate information on Price/Volume activity. Always use indicators that help analyze different components of price/volume behavior. For example, don’t use two momentum oscillators as a basis for your trade decision since they are focused on basically the same aspect of price/volume behavior.

3) Indicators that complement each other but are not based on the same data will often not correlate and will sometimes contradict. This makes a conclusion more reliable when they do agree.

4) Most of the most popular indicators and oscillators are built into charting software. Plan to spend some time learning how to setup and display these indicators to fit your trading style. Remember, each trader is different and developing your own way of analyzing the charts will help you as you solidify your trading style and experience.

The Big Picture

Using technical indicators give you a lorgnette into the continuing drama of the market (I’ve always wanted to use “lorgnette” in a sentence – word for the day). Use your indicators as a mechanic uses her Snap-On tools or as a stylist uses his shears and you will be part of that small 10% of all traders who actually makes money.

You’re a new emini trader. You’re excited. You’re enthusiastic. You’re driven by the possibilities. You also have no clue where to start! “Overwhelmed” is an understatement. The emini trading gurus and S&P futures market fakes circle overhead, squawking about holy grail courses and products and systems and sure things. What’s a newbie emini trader to do except withdraw into her/his shell and breathe a sigh of relief?

Then you remember – you saw it on www.haveitallwithoutriskingadime.net: Rule #1: Always start out by paper trading the eminis. Yes, a first step – a safe foray into the wild world of emini trading.

WHAT IS PAPER TRADING?

Paper trading is basically trading without real money. Ideally you want to find a broker who allows you to trade the real, live market – not on old data on some server stored in the janoritorial closet.

So what do you do? Where do you start? Well I’m here to help with no-nonsense, common-sense advice and guidance. Paper trade? Here’s how you do it. Google the phrase paper trade or paper trading, pick the site that feels right, click the link, fill out the online information fields and start trading! Don’t make this complicated – the services are all very similar. They vary only in the breadth of assistance they provide: Real time or delayed information; simple charts or the whole enchilada of indicators, oscillators and “personal” advice; fee or free.

Many emini futures brokers offer free, high-quality paper trading accounts using real-time data. Take a look at www.globalfutures.com or www.ampfutures.com.

Small concerns really. Just get started! Come back here later and I will fill you in on some additional aspects of paper trading including why it may not be the best thing for the new trader. What? You want to read about that now? Okay. I’m going to give you some guidance on why paper trading is not always the best course of action for a beginner, contrarian advice to be sure but hear me out.

WHAT PAPER TRADING THE EMINIS CAN’T DO FOR YOU

First of all paper trading is a “risk-neutral” activity. Do not underestimate the profound influence of fear and greed over market behavior. All trading activity, regardless of which investment vehicle, is the result of human interaction – buyers and sellers. When precious and scarce resources are involved (i.e. cold hard cash) we humans are often prone to throwing rationality out the nearest window and taking the wild ride on the emotional roller coaster. Given this aspect of day-to-day trading activity, it is important to experience this in all its glory. And often that means staring at the emotional beast as it stares back at you from your computer screen.

Risk, reward, timing, insight are all distorted through the carnival lens of fear and greed. Paper trading fails to convey the emotional impact of trading with your own money.

The second point I want to make about paper trading is that it often fosters procrastination. When you trade without risking your own money, your trades have no compelling impact. Your trades resulted in a gain? Great, but so what?! Your actions resulted in a loss? Great, but so what?! There is always one more time period to test. There is always one more indicator you want to play with. When does it end? Trading in real-time with real money makes this a moot point. The lessons and consequences of your activity are burned into your mind. That kind of learning can never be accomplished by paper trading.

So, paper trade if you must, but be vigilant. Paper trading to learn the basics is a good use of your time. But you must be aware that you may be indulging your comfort zone. Emini trading is a serious business, and a clear, focused eye on the brutal reality of trading with real money will only help you and your career as a trader. Don’t avoid reality, use your own money – a modest amount to start, but learn the market the fastest and most mememorable way: by taking yoru lumps and surviving with insight, experience and knowledge. And then open a paper trading account for you daughter or son: an excellent way for a teenager to learn the rules of the game!

One of the most effective and reliable of the technical indicators for trading e-minis can be the Average Directional Indicator or ADX. Used correctly the ADX can be a stunningly accurate gauge of market trend strength or weakness and coupled with a complementary indicator, can be very effective in setting up trades using the e-minis.

The ADX was created by J. Welles Wilder and introduced in his 1978 book, New Concepts in Technical Trading Systems. Interestingly Wilder, an engineer, is also credited with creating two other well-known technical indicators, the Relative Strength Indicator (RSI) and the Parabolic SAR which are standard indicators in most charting software packages today.

The ADX is made up of three components, the ADX and +DI/-DI. +DI is the positive directional movement indicator while -DI is the negative directional movement indicator. These two indicators are often plotted separately from the ADX to minimize visual clutter. They are designed to indicate the upward or downward (strength/weakness) of trends.

The directional indicators are capable of generating buy and sell signals when they cross. Basically, a buy signal is present when the +DI moves above the -DI and a sell signal is present when the -DI moves above the +DI. However, in volatile market conditions or when issues are in trading ranges, these signals can reverse rapidly resulting in whipsaws. It’s generally accepted that the directional indicators alone are not reliable buy/sell indicators.

The third component of Wilder’s indicator is the ADX. The ADX is an oscillator plotted on a 0-100 scale. The ADX itself is the moving average of the difference between the +DI and the -DI. Readings above 60 are rare, while a reading above 30 indicates a strong trend. Readings below 20 indicate a weak trend or an issue in a trading range. Keep in mind that the ADX is “trend neutral”; its reading can apply to bull or bear trends – the ADX merely indicates the strength of the trend. Generally speaking, when the ADX begins to rise above 20, a trend may be in its early stages. Conversely, when the ADX begins to fall below 40, the current strong trend may be weakening.

Wilder himself in his book advises that the ADX is best used in more volatile market conditions. He also advocates use of what he calls the “extreme point rule” when implementing trades. For use in the E-Mini issues the ADX provides excellent results when used with a complementary indicator such as moving averages. The ADX is also a useful tool for setting up scans for issues in the beginning stages of trends and to avoid issues mired in trading ranges.

Many emini traders, believe it or not, aren’t aware of what we’re about to discuss here. Most absolute beginner emini traders try to catch tops and bottoms in the futures market, not even trying to trade the TRENDS. We, like many other traders first starting attempted to do the same thing. We know this from not only our own personal experiences, but by teaching and talking to tens of thousands of traders that they tend to do the same thing.

Many (if not most) emini traders feel that by trying to catch a market top or bottom is where the real money is. We on the other hand disagree completely. Catching just a little piece of a trend (and sometimes much larger than a little piece) adds up, not to mention easier (higher percentages) to do than trying to catch a top or bottom in the market. So, we thought by including this topic; Trend Trading vs. Counter-Trend Trading would be very helpful to you. We know this will give you more insight into both of these types of trades.

Let us first start out by saying that at least 80% of your trades should be those trading with the TREND (as taught in this Course – ‘Trend Determination’, etc.). The other remaining 20% or so can constitute COUNTER TREND (CT) trades. We would highly suggest concentrating more (at least in the beginning) on the TREND trades as opposed to trying to pick tops and bottoms (CT trades). By not only teaching, but by speaking with students, especially beginners, we find that most traders simply just try to pick tops and bottoms as opposed to trying to enter the market with the (overall) TREND.

We’ll go as far as to say you probably will not become a successful emini trader by trying to pick tops and bottoms when you first start off trading. Counter-Trend (CT) trading takes a lot more experience. Believe us when we say that you’ll not only find emini trading less stressful, but much more rewarding and profitable if you simply stick to trading with a markets (overall) TREND. Look to make consistent profits utilizing the profit objectives (PO’s) taught in this Course — and of course you’ll occasionally catch the bigger move (by utilizing the ‘Trailing Stop’ methods taught in this Course).

Of the 20% or so of trades that may become COUNTER TREND (CT) trades, 80% of those trades should be BUYS. Why Buys? Simply put, because we’ve found that BOTTOMS are much easier to pick than tops. If you think about it, the psychology of most traders are more biased to buying the market as opposed to selling the market as a whole. Traders in general seem to be more optimistic rather than pessimistic on the overall market. We’ve spoken to thousands of traders that have expressed to us that they feel more comfortable buying the market as opposed to selling it. We know that sounds ridiculous, and we agree, but many (if not most) traders, believe it or not, feel this way. That’s one of the reasons why bottoms seem to be easier to pick than tops – traders are more prone to Buy than they are to Sell.

Think about it, how many stock traders do you know that actually sell a stock short? Not many, most stock traders buy stocks in anticipation of higher prices. When the market gets extremely oversold and drops to levels where the big money comes in to Buy the market (oftentimes at a 5%, 10% & 15% overall market corrections), you’ll oftentimes see the market move higher (spike up) and continue the markets (stocks) overall UPTREND .

When the market is in a DOWNTREND, the market not only drops three times quicker than it rises (making it much more volatile), but bottoms are put in place much quicker. This is evident in any chart you look at. On the other hand, when the market is trending up, the market generally moves much slower and much more gradual in nature. Therefore, trying to find market tops are much more difficult to do, at least that’s been our personal experience.

So, when attempting to BUY on a Retest of a Low (important), the market is generally in a Downtrend, and when attempting to SELL on a Retest of a High (important), the market is generally in an Uptrend. By knowing these two simple rules will help make Counter-Trend trading much more predictable in nature, rather than trying to BUY when the market is in a free-fall, or trying to SELL when the market is going to the moon. At most, these rules will help prevent you from jumping in front of a freight train.

Therefore, I suggest waiting for a RETEST OF A HIGH before looking to go Sell Short. Conversely, wait for a RETEST OF A LOW before looking to go Long. Remember, Counter-Trend trades should only constitute roughly 20% or so of your trades. As mentioned before, CT trades are definitely more difficult than trading with the markets overall TREND.

A General Rule Of Thumb: When the emini market is Trending Up, the market tends to be a lot less volatile than when a market is Trending Down. Therefore, generally speaking a Down Trending market is much more volatile than when a market is trending up. A market falls roughly three times quicker than it rises.