It's true that someone making 2 points every day can become an incredibly profitable trader.  Nobody is doubting that on its initial face value.  If you can make 2 points per day with one contract you're doing fine but if you can make 2 points per day every day with 10 contracts you're making a very substantial income and there's no reason you can't ramp up the position size from there.  In the Emini S&P 500 a trader can regularly trade 20, 50 or even more contracts with ease.

The issue is that when our focus narrows to the outcome of a single day or even the outcome of a single trade it can actually make long-term profitability that much more difficult to achieve.  Let's take a look at why that can be the case.

Not Every Trading Day is the Same

Making just a couple points while day trading Emini S&P 500 futures isn't actually all that difficult.  Often you can pull that kind of profit out in a half hour or less.   The difficulty is in actually keeping it and, more importantly, regularly exceeding it to balance out those days with less than stellar results.

The reality of trading is that every day is different and some days are certainly better than others.  There's plenty of days where you can make a couple of points quickly but there are some that start slow with limited action where it takes a bit more time to find the trades that fit your trading plan or other days where the market enters into a whipsaw period that can cause a loss or two.

While veteran traders who are able to trade the full morning can realistically make profit nearly every day in spite of these conditions there are those who have a more limited trading window or market novices that will have break-even or losing days (though such losses should be kept small thanks to firm limits on overall risk).

Due to this it's important to realize two things.  First, that a trader should generally have a longer term outlook on their trading.  If you focus on "making just 2 points per day" it tends to put a lot of emotional weight into the outcome of every trade.  Suddenly every trade carries more importance and the emotional burden on a trader can significantly increase thanks to just a single trade possibly meaning daily success or failure.  This extra emotion added to the trading process rarely leads to more profitable outcomes.

As traders we must understand that our trading edge needs some time to play out even if our overall trading expectancy is very strong.  The outcome of a single trade or even a single day doesn't determine much.  What matters is following our plan, taking good trades that fit our rules, and letting our edge play out over a larger sample of trades.  This is why I have the day traders in the STA Training Program focus on weekly and monthly results while considering their edge over samples of at least 20 trades.

Second, outlier trading days that offer far more profit potential than the average are essentially the "keys to the castle" when it comes to extreme profitability.  You can still be profitable without them but taking advantage of the one or two days with high potential during the week often means the difference between decent weekly results and exceptional ones.

You can do all right by setting an artificial 2 point limit on your daily profit but some days offer far, far more.  Take Thursday for example, a day that had numerous high quality market swings and plenty of profit potential as you can see in my charts.  If you only came out of a day like that with a tiny 2 point profit you're severely limiting your overall profitability and potential!

Keep Playing When The Deck is Stacked in Your Favor

This is why I will always continue to trade for longer than my normal 2 hours or so on a given day if the market is moving exceedingly well and trading outcomes are highly predictable.  It's not about being greedy or trying to hit some specific dollar figure for the day - it's about taking one good trade after another and continuing to do so if the market is offering the opportunity.

There's plenty of days where I might just trade for an hour to pick up some points and call it a day if the market isn't moving particularly well.  There are times when other activities call me away after only a short period of trading.  However, when the market is moving well, the setups are excellent, and the trading outcomes are consistently in your favor then it's usually best to trade until those conditions change.

Sure, I could have had my 2 points after the first three trades on Thursday and called it a day in about 15 minutes but look at all the potential opportunities I would have missed on a day of exceptional price movement.  Considering it turned out to be the most profitable day of the year so far for myself and many STA traders it's a good thing we didn't pack things in!

If the market is doing its part to put the numbers firmly in your favor then don't let the opportunity pass without taking advantage - strike while the iron is hot!

The post Strike While The Iron is Hot appeared first on Samurai Trading Academy.

The Many Advantages of Day Trading Eminis

There's a huge number of markets out there, so why is Emini day trading so compelling to so many traders?  These traders have usually been involved in equities, bonds, forex, and any number of other markets over their trading careers but many call the futures market home when it comes to their day trading.  In this article, we'll provide a number of reasons why trading Eminis can be a huge advantage for the novice and veteran trader alike.  These advantages are a big part of why we prefer to focus on trading Emini S&P 500 futures here at Samurai Trading Academy.

Emini Trading Advantage 1:  A High Liquidity, Efficient, and Volatile Market

The Emini S&P 500 (ES) is the world's most actively traded stock index futures contract with millions of contracts traded every day.  When you consider that each contract is worth $50 times the current value of the S&P 500 index, you can see just how huge a market it is at well over $100 billion per day.

This size and continual activity makes for a high degree of liquidity.  During the normal trading hours the Emini S&P 500 (ES) futures contract maintains a very tight bid-ask spread of just a single tick (or $12.50 per contract).  Since the spread is considered a cost to enter the market, the very low spread of ES is a huge advantage for the active trader.  In the Emini S&P 500 futures market traders can be filled on orders of hundreds of contracts without slippage problems and even at that size large orders can be filled quickly and efficiently.

The ES market is also quite volatile throughout the trading day.  This volatility provides the opportunity for Emini day trading and allows us to find trading setups even in a limited amount of time.  An ES trader can trade as little as an hour or two every morning and still be consistently profitable most days due to the number of high quality trading opportunities.  Here at Samurai Trading Academy we aim for 10-15 points a week from trading the ES morning session alone.

Emini Trading Advantage 2:  The CME Group Is A Regulated Central Exchange

Any trading in Emini S&P 500 (ES) futures is done through the Chicago Mercantile Exchange Group where all trades are recorded in an official time and sales report.  These trades are public and are placed on a first come, first served basis and all trades must follow CME Clearing rules as well as the CFTC and NFA rules.   The ES is a fully electronic market without a trading pit which means no market makers, locals, or floor brokers.  This means that all traders have access to the same Level II market and bid-ask spread.  This provides an equal playing field and allows for extremely quick online order execution.

Compare this to Forex, where various firms control the market and the bid-ask spread.  Even though many Forex brokers advertise a fixed spread, they often reserve the right to widen it at any time.  Even worse, because Forex does not have a central exchange and many trades are done "over the counter" without a central time and sales report there is the risk that a broker may not get your trade filled with the best execution possible.  Some Forex brokers have been known to bet against a trader, front-run their orders, and other nefarious tactics.

Emini Trading Advantage 3:  Emini S&P 500 Futures Is A Very Technical Market

Due to the nature of the participants in the Emini S&P 500 futures market and the quantity of the trading being done, the ES is an excellent market for technical analysis.  There are very few parabolic moves, the depth of the market makes it virtually impossible to manipulate, and trends tend to be smooth and predictable with regular pullbacks.  The same can't be said for most stocks, commodities, and many Forex pairs.

The advantage of the technical nature of ES is that it allows us to focus on the price movement itself rather than indicators, expensive news feeds, or market rumors.  When viewing the price action we can easily identify trends and common patterns in the market and reliably act upon them.

Emini Trading Advantage 4:  A Single Chart and Minimal Prep Time Necessary

The highly technical nature of Emini S&P 500 futures also provides advantages in terms of the amount of market information we need to focus on each day.  With only a single chart on one screen we can trade ES effectively as day traders.  Compare this to the information overload that many stock traders have where they follow 20 or more different charts on multiple screens each day.  Being bombarded by a huge information flow is rarely an advantage - sometimes simple is better!  This setup also gives the ES trader a great deal of flexibility.  All an ES trader needs is a laptop's single screen and they can trade from anywhere in the world as long as they have a reliable internet connection.

The technically-focused Emini S&P 500 day trader doesn't have to do a great deal of research on individual companies or study the fundamentals in exhaustive detail to be ready for the trading day.  Their preparation time outside the trading day can be kept to a minimum which frees the day trader up to focus on the price action and patterns as their guide.  With some practice an ES day trader can generally do their pre-market analysis in only 5-10 minutes and will be fully prepared for the trading day ahead.

Worst Trading Desk Ever

Emini Trading Advantage 5:  Freely Trade Short or Long

There are no restrictions or rules against going short in the Emini S&P 500 futures market.  A trader can sell short an ES contract at any time in hopes of simply buying it back later at a lower price with a profit.  You can do this from day one with your futures broker without any special requirements needed.

To go short in stocks you will require a special account with increased requirements.  Some stocks cannot be shorted or have limited shares available to short which greatly limits your options in some market conditions.

Emini Trading Advantage 6:  Excellent Leverage and Margin Requirements

A trader needs to be careful with using leverage as higher leverage means higher potential risk, but in the in the hands of a trader with proper risk controls it's an excellent tool.  By putting up as little as $500 of intraday margin with a broker an Emini S&P 500 futures day trader is able to buy or sell short a single ES contract (currently valued around $75,000).  The leverage in this scenario is 150:1 which allows fantastic flexibility to the ES trader that other markets don't provide.  We don't advocate this kind of extreme leverage scenario at Samurai Trading Academy but with good risk controls it does allow those who are new to futures trading to enter the market with a much lower financial barrier.

Most traders don't get to enjoy the leverage benefits of Emini S&P 500 futures and have to put up significantly more capital on margin to enter their positions.  Some stocks cannot be traded on margin and those that can require at least 50% margin to take a position.  In the US, Forex trading firms are only allowed to offer a maximum leverage of 50:1 on major currency pairs and 20:1 on minor pairs.  With these requirements it's no surprise that many traders prefer Emini futures.

Emini Trading Advantage 7:  No Pattern Day Trader Rule

A futures day trader can open an account with as little as $2,500.  They can then trade as often or as rarely as they want without further restrictions.  On the other hand, a stock trader who executes 4 or more day trades in 5 business days (provided the number of day trades is more than 6% of the customer's total trading activity over that same period) is considered by the SEC to be a Pattern Day Trader.

What this means is that you are now required to have a minimum or $25,000 of capital in your account at all times and may not fall below this amount.  The Pattern Day Trader Rule  of trading stocks creates a very high barrier to entry so being able to get started day trading futures with only 1/10th that amount is a huge advantage for many.

Emini Trading Advantage 8:  Low Commissions and The Reduced Cost of Doing Business

A new Emini S&P 500 futures trader can get round-trip commissions and fees as low as $4 per contract to start if trading a single contract.  Compared to stocks and Forex this is exceptionally low and unlike a Forex firm which might suddenly increase your spread, the commissions in futures can only get lower.  Once you are trading more contracts on a monthly basis the broker commissions become only a fraction of their initial level and very large traders can even get a seat on the exchange to reduce their fees even more.  The lower commission structure of futures allows a trader to enter and exit the market more often which means that a trader can day trade and scalp with very large size if they choose to.  In most markets this isn't an option for retail traders.

The cost of doing business in futures is also very low due to the leverage and small minimum account balance needed to get started.  For the well prepared novice trader these lower barriers to entry are a huge advantage as they don't have to worry about tying up a large quantity of funds in their new venture.  An experienced trader also finds the high leverage a very useful tool as they are able to manage their trading account risk and free up funds for other uses.

Conclusion - 8 Advantages of Trading Emini S&P 500 Futures

There are a number of other advantages out there to trading Emini futures like tax breaks, diversification benefits, and much more but many of the major ones have been covered here.  You should now have an improved understanding of the benefits that trading Emini S&P 500 futures can give you, especially if you intend to do so as a day trader.  If you are currently an active trader in stocks, Forex, or commodities I hope this article gave you good reasons to more seriously consider entering the arena of futures trading.

In our upcoming articles in the Emini Day Trading Series from Samurai Trading Academy we will look at how money is actually made as an Emini day trader and we will also look at some of the considerations you need to build a successful trading plan that will allow you to reach your trading goals.

Emini Day Trading Series

Part 1:  What Are Emini S&P 500 Futures?

Part 2:  8 Advantages of Trading Emini S&P 500 Futures

Part 3:  How Money is Made as an Emini Day Trader

Part 4:  What You Need to Start Day Trading

The post Emini Day Trading Series: 8 Advantages of Trading Emini S&P 500 Futures appeared first on Samurai Trading Academy.

The futures market provides the basis for the Emini day trading we do here at Samurai Trading Academy.  With that in mind, it's probably best to start with a quick summary of what futures are.  While many people are familiar with stocks, bonds or forex, there are quite a few who don't have much direct experience in futures.  This is somewhat surprising considering they are among the most actively traded markets in the world.

Plainly stated, a futures contract is an agreement between the seller to deliver and for the buyer to take delivery of a commodity at a specified future date.  In some cases this is an actual physical commodity but much of the futures trading that occurs is based on stock price indexes like the S&P 500.   This means we are buying virtual rights to a certain value in the index that we can then sell to someone later at a different price (hopefully at a profit).  In this case the delivery is simply a cash settlement on the difference between the original transaction price and the final price of the index at the termination of the contract.

The price of a futures contract responds to changes in the overall underlying index and the value is recalculated as the stocks that compose the index change in value.  So while a futures contract may be priced slightly higher or lower than the index it is based on, it generally does follow it very closely.

The Introduction of the S&P 500 Futures Contract

In 1982 the Chicago Mercantile Exchange (CME) introduced the S&P 500 futures contract and it quickly became the most actively traded market of its time.  While the Dow Jones Industrial Average only tracks 30 blue chip stocks, the new S&P 500 Index is based on the market capitalization of 500 companies in the U.S. stock market over a variety of market sectors.

In 2012 the S&P sectors that composed the 500 company index included Technology (19.27%), Financials (15.14%), Health Care (12.21%), Energy (11.31%), Consumer Discretionary (11.05%), Consumer Staples (10.85%), Industrials (9.85%), Utilities (3.60%), Materials (3.55%) and Telecom (3.17%).

This diversity made the S&P 500 index much more representative of the overall market's health and increased its popularity as a premier trading market.  By trading S&P 500 Futures you are essentially buying and selling an extremely well diversified portfolio of stocks in a single index futures contract.

Advantages of Trading S&P 500 Futures Vs Individual Stocks

1. Only one chart is needed to trade S&P 500 futures.  Some people may look at multiple time frames but these can easily be scrolled through on a single chart.  Compare this to trading individual stocks where you may be looking at 10, 50 or even hundreds of different charts throughout the trading day.
2. Liquidity is much higher, which minimizes slippage on trades.  Many individual stocks are lightly traded which increases your risk if you can't get filled where you placed your original stop loss order.
3. There are no restrictions on going short (selling).  You can go long (buy) or short (sell) with the S&P 500 Futures contract at any time.  There is also no Alternative Uptick Rule.
4. The brokerage commissions for round-trip trading are usually much lower for the S&P 500 Futures contract.
5. As the S&P 500 Index is very diversified it reduces the risk of sudden adverse moves that are not uncommon in trading individual stocks.  This combined with the slippage problem mentioned above can make trading individual stocks much riskier.
6. You can trade the S&P 500 with very minimal market research, unlike individual stocks which usually require considerable study time for dozens of companies.

The Creation of the Emini S&P 500 (ES) Futures Contract

As the stock market continued to strengthen through the 90's it became increasingly more difficult to trade S&P 500 Futures contracts.  With a value of $500 multiplied by the index it was worth over $500,000 per contract at the time.  That price per contract had simply become too high for many smaller traders to participate.

The CME stepped in on September 9th, 1997 to alleviate this problem with the creation of the Emini S&P 500 (ticker symbol ES) futures contract.  Emini day trading was born and the ES quickly became the most popular equity index futures contract in the world.

As the Emini S&P 500 is only traded electronically (hence the E in Emini) on the CME Globex Exchange it gave an even playing field to many traders compared to the S&P 500 contract which was traded in an Open Outcry trading pit at the Chicago Board of Trade.

The success of the ES futures contract also led to an explosion of additional Emini day trading.  In the coming years numerous contract variations were introduced like the Emini NASDAQ 100 (NQ) and the Emini Russell 2000 (RTY).

Details of the Emini S&P 500 (ES) Futures Contract

Trading Times

The Emini S&P 500 contract trades 23 hours a day from 5:00 PM CST (the CME is based in the Central time zone) until 4:15 PM CST the next day.  Trading is halted for a maintenance period every day between 3:15 PM CST and 3:30 PM CST.  It trades five days a week and is on a quarterly expiration cycle.

While the contract does trade for most of the day, here at Samurai Trading Academy we prefer to focus our Emini day trading on what we consider the part of the trading day which offers the highest quality opportunities. Usually this is from approximately 9:30 EST (we use Eastern Standard Time as we start at the New York Stock Exchange open) until 12-1 EST (New York lunch).

While there can also be many opportunities during the New York afternoon our Emini day trading approach is to maximize the trading potential in the morning session every day and leave the afternoon session entirely optional.  After all, who wants to sit at the screens all day if you don't have to?

Contract Expiration

Futures contracts were originally designed as contractual agreements for the delivery of a commodity at a specified time in the future.  This means that Emini futures contracts expire as well.  Emini S&P 500 (ES) futures contracts expire quarterly on the third Friday of March, June, September and December.  For example, an ES contract due to expire in March, 2020 would be listed as ES 03-20.  A week before expiration the contract rolls over and we would then trade the new contract for June (ES 06-20) for the next three months.

As Emini day traders this rollover doesn't affect us much as we don't hold positions in the market overnight or during the expiration time but we need to know about this feature of the futures market so we remember to take a moment to change over our trading contract every few months.

The Value of an ES Contract

Emini day trading is quite different from trading the larger contracts due to the variations in price movement and tick pricing.  A full-sized S&P 500 Futures contract moves in minimum increments we call ticks where each has a size of 0.10.  There are 10 ticks in every one point of movement you see on the S&P 500 Index.  Each tick is worth $25, which means each full point of movement is equal to $250.

The Emini S&P 500 uses different tick and point values that are well suited for novice and veteran day traders alike.  Ticks in ES are each 0.25, meaning there are 4 ticks for every one point of movement.  Each tick is worth $12.50 in ES, so a full point of movement is equal to $50.  So as you can see the Emini S&P is one fifth the size of a full S&P futures contract.  For those of us involved in Emini day trading this is a huge advantage.

Conclusion - What Are Emini S&P 500 Futures

You should now have a good understanding of what Emini day trading is all about and how Emini futures came to be such active markets for traders.  Here at Samurai Trading Academy the ES is our preferred market due to the liquidity, volatility, and ease of access.  That said, our methods can often be applied to other futures markets and instruments as well.

In future articles in this series we plan on covering a number of topics related to Emini day trading.  We'll discuss the advantages of day trading Eminis compared to other markets, why ES is a great market for novice traders, and we'll also talk about what you need to be able to start day trading yourself.

Emini Day Trading Series Articles

Part 1:  What Are Emini S&P 500 Futures?

Part 2:  8 Advantages of Trading Emini S&P 500 Futures

Part 3:  How Money is Made as an Emini Day Trader

Part 4:  What You Need to Start Day Trading

The post Emini Day Trading Series: What Are Emini S&P 500 Futures? appeared first on Samurai Trading Academy.