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E-mini Trading

Why the E-mini Is the Best Market to Trade

The E-mini S&P is the most popular futures contract within the Chicago Mercantile Exchange (CME). Compared to the S&P 500, the E-mini is one-fifth the size. Other electronically traded contracts and markets cannot match the E-mini in terms of liquidity and inexpensiveness to trade. Additionally, E-mini is a short-term investment. Traders can enter and exit the market within seconds, trade around-the-clock and experience minimal broker fees.

On occasion, the term "E-minis" is used to described the collective futures contracts traded on the CME's Globex electronic trading platform. Since 1997, E-mini has grown to include 44 separate contracts. Ten of these 44 contracts have volumes in excess of 1,000 contracts.

An advantage E-mini has over stock trading is accessibility and volatility. To trade stocks, most brokers require a trader to have $25,000 available to trade with. On the contrary, E-mini brokers usually recommend a minimum of $3,000 to $5,000 to begin trading. This relatively low cost indirectly affects E-mini by creating volatility. As a more accessible market, the E-mini allows for more traders, especially those with diverse financial capabilities, which push and pull the market far more than a stock.

A minor downside to E-mini is how quickly losses can occur of a trader is not careful. Software platforms, such as NinjaTrader, provide simulated trading modes (some with real, live data). These simulated sessions are excellent for practicing strategies, becoming familiar with how trading software operates and observing market behavior. A word of caution – if the trading software does not offer live data and provides internal (random) price action, a false sense of understanding is sometimes acquired. When trading the E-minis for the first time with a real account, successful simulation traders are often surprised to find the same strategies do not work.

Another common reason for E-mini loss is mental unpreparedness. Inexperienced traders often fall into one or multiple mindsets:

Emotional – by riding a rollercoaster of feelings, these traders are more likely to "spend more" when trades work favorably. Alternatively, these traders may become too hesitant to capitalize on profitable trade setups when possessing negative feelings. Sometimes these traders may give up altogether if profits aren't made within a short period of time.

Instinctual – assuming that his or her gut is the key to unlocking unlimited income potential, these traders do not mentally acknowledge losses. By listening to an inner voice that has the authority of Warren Buffet, trades are placed that quickly end up in negative territory.

Impulsive – closely resembling instinctual traders, this group is best known for on-the-fly, irrational decision making. Perhaps a broadcast, a friend or relative presents news that may affect the E-mini market. Impulsive traders immediately act, increasing risk by not waiting until the market has reached a balanced level of volatility.

Fortunately, successful E-mini can be accomplished by defeating all three conditions through objectivism. Observing the market from a logical perspective and applying clearly defined trading rules removes the mental game. Again there are several approaches to rule-based (objective) day trading:

Trading based on indicators – for electronic day traders, indicators are software programs or functions usually meant for provide a single strategy. Indicators, in the form of plugins, can either be provided from by the software itself or from a third party. Two major downsides to using indicators is a lack of understanding of how they work and the inherent "lag effect." Traders may receive advice to enter the E-mini market at a specific price or time based on old, irrelevant data. Since there is no understanding of what is being calculated or how it is being calculated, traders are left in the dark when an indicator does not work. Due to the limitations of technology, indicators are rarely designed to be "forward thinking." An exception to this rule is the Atlas Line software by Day Trade to Win, where order signals are provided along with a line that can be used to estimate the direction of price in the future.

Trading based on price – using only the information (or price data) displayed on a given chart, traders are able to interpret price to predict where it is headed in the future. Most price action day trading systems are based on identifying unique formations of candlesticks, bars or any other graphical price representations. Once a setup is identified, any number of objective rules can be applied. Since price action strategies are observed and traded in real-time, there is no lagging effect. Successful price action traders typically employ multiple strategies throughout the day, dependent upon the E-mini's price action at a given point in time. Price action traders usually learn from courses, in the form of books, live instruction or other schooling / educational sources. Day Trade To Win sets itself apart from other day trading vendors by offering nothing but price action trading courses for E-mini.

Trading based on news events, the I Ching, astrology, or other "non-market" sources – news events ranging from natural disasters to military clashes can send the market soaring or plummeting to places unknown. Combined with press releases from large corporations and the potential for insider trading, it is best to wait until the E-mini market has leveled out in its volatility. Like trading astrology or any ancient, current or new-age trend, information itself has no intrinsic value. Only when people process the information and apply to the market, do traders see the effect. A trader never knows if a news event will be received positively or negatively, nor how it will increase or decrease price.

Clearly, price action trading (option #2 above) is far more reliable than using indicators or other unpredictable sources for E-mini.

If you are new to trading or would simply like to see what it's like, you can download a free copy of NinjaTrader to experiment with. After you feel confident, we recommend contacting us to find out how to set up an account, general broker advice and finding a day trading course that works for you.