Are You An Emini Addict? Market Update 07/10/14
July 13, 2014 at 1:51 AM (QQQ)(DIA)(SPY)(CRMB)(NEWL)
Emini Addiction -
Is There Hope Or Do We Really Have A Problem?
It's no shameful secret that the S&P 500 Emini Futures Contract is the most widely traded Emini in both the domestic and global markets as well. In fact, the E-mini Contract since its inception on September 9, 1997, has become the single most popular trading instrument of all time. Even though volume participation and volatility have waned greatly since the "almost" Great Depression, it remains the go to goal of practically every "put me in coach" fresh new starry eyed trader.
If baseball's your sport it's akin to making the move from a farm team to the majors. It's like being called up to "the show". I think I just heard a bat crack and a cricket chirp. When I first cast my shadow in the world of Futures circa 2005, on any given day ending in Y (except the two starting with S), it was a given that we would trade between 2-3 million contracts. As I recall the number was typically closer to to 3 than 2 and back in '05, the overnight Globex part of that equation was a mere shadow of what it has become today.
Doesn't matter. Every trader who throws in the towel on equities, or is guided by an old soul straight to futures, wants to trade the S&P. If you ask them why, the first answer is almost always - liquidity. Fair enough. Liquidity is absolutely a good thing. Then out of curiosity I ask "how many contracts do you trade?". The answer more often than not is 1 (one). Here's my point, once you spend your time in the trenches and actually earn your way up to large positions, perhaps 50-100 contracts... you should be concerned about liquidity. For the sake of this conversation, you really do need to be concerned about it even at smaller numbers based on the instrument you've chosen to trade.
1st Step -Admitting You Have A Problem
The Dow, Russell, Nasdaq, even Nat Gas and many others can run into issues once you go over 10 contracts and ccertainly once you get above 20. However, until that happens, you have a lot more to be concerned about than liquidity. There are other markets to be traded that are perhaps somewhat more friendly to a novice than the S&P. Don't get me wrong, it's my favorite too. My point is this, if you're just getting started you should only be trading 1 contract. As you earn money in the market, you should never increase your position size by more than 1 contract at a time. Just because you earn enough to add another, is not a good enough reason. When you go from 1 to 2, you only need to earn $500 to add a 3rd for daytrading purposes. 2 contracts = $100 per point. If you're simply on the right side of one 5 point move you could be adding that 3rd contract before lunch.
Increasing your position size intelligently takes more than money. It takes maturity, increased patience, less emotion, greater focus and twice as much discipline. Our students are taught to increase their opening account balance by $2k before they consider increasing their size from 1 contract to 2. It's that important. It's about building your Emini Trading Business on a solid foundation. How many hot shot ball players have you seen get that first fat check and before you can blink, they're strung out on either drugs, booze, women, their own ego, or all of the above. It's a nasty business when it gets out of hand.
Recovery Is An Option But You Can't Trade It
Enough preaching, back to my point. You don't have to trade the S&P. Just because the "big boys" do, and writers love to pen articles about it, doesn't mean that's where you should start. If you're trading it and doing well, do not allow my words to get in your way. If you're new and struggling, take a look around, see what else is available. Have a look at the Dow, the Nasdaq, even Soybeans can be a fantastic alternative. Spend some time in the simulator and see what really fits. I will suggest you stay away from the Russell if you're new. When it comes to being an Emini Addict, we're talking the crack cocaine of futures trading. Just say NO!
I know... it's so very tempting with those $500 intra-day margins and the $100 per point pay-out.
Just say NO!
S&P 500 Chart for Thursday 07/10/14
S&P 500 Emini Futures 07/10/14 - Hourly Chart
A somewhat simple day in hindsight. We spent 5 hours consolidating inside the Weekly Trading Zone at 1965/1966. The Bears won the coin toss and in 3 hours took price all the way down to the WTZ below at 1950/1951 (and then some). A 14 point Zone to Zone move with enough momentum to push price just below the Zone. It's like putting on the brakes in your car. If you're traveling "too fast for conditions" you might skid to a stop in the middle of the intersection, not the stop light you were shooting for.
After 4 hours of consolidation, the market reverses and we witness a 13 point return trip rally with a hint of weakness in its inability of to reach the Zone, missing it by just 4 ticks. Zones are an area and 4 ticks are certainly not a big issue after the day we just had, however, it's a hint... a clue if you will, of things to come.
CFRN Emini Google+ Community
We were honored and humled to announce earlier this year that Futures Truth Magazine had added us to their very short list of approved Live Trading Rooms. I admitted at the time, having Dr. Dean Handley on the digital premises for a month, monitoring our every move did take some getting used to. As he was investigsting us I also investigated him. This is a man who pulls no punches and calls it exactly as he sees it. Many disagree with his findings, but he is entitled to his opinion as we all are, and in the sometimes shadowy word of Trade Rooms, he shines an extremely bright light.
I made peace with myself and the issue by deciding that no matter what he found (prior to his recent article only 10 Trading Rooms out of 514 made the cut) I could use his opinion to make CFRN the best Live Trading Room on the Internet. That has been our goal since our first day of broadcast in April 2005, so whatever he found, I would use it as my punch list. Wherever he found fault, if Michael and I agreed their was a problem, we would immediately move to fix it. Instead of seeing it as a pain in the rear, we chose to see it as hiring an efficiency expert except their would be no bill at the end of the iinspection.
We both knew we had worked very hard from day one to do all the right things, even when it hurt. When our competitors made outlandish claims, or fudged on results, we lost no sleep. We knew that in the end, honesty, integrity and a strong work ethic would pay off and eventually it did. We were handed a clean bill of health from the Doc which encouraged us to work even harder and continue to be that safe place where traders could come to learn and also enjoy a sense of community.
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