Day Trade Futures
When you day trade futures, you enter and exit all positions on the same day, never holding a position overnight. Since overnight market movements are difficult to predict, many traders avoid risk by day trading. Ironically, the public believes that day trading is the riskiest way to trade.
THIS IS A MYTH!
Some day trading futures traders make 1-3 trades per day, trying to catch the major intraday moves. Others trade in and out very frequently, trying to make a small profit on each trade. (My style uses a unique combination of these two strategies.)
For those day trading futures, Emini Stock Index futures have become the most popular day trading vehicle due to their liquidity, leverage, and the ease of trading them online. You can go long or short just as easily, unlike stocks, where it is easier to go long than short due to the “up tick” rule.
It is important to understand the temporal relationship of eminis (and “big contracts”) to spot indices. Let’s start from the beginning.
The S&P 500 Stock Index (the Cash Index, symbol SPX) is central to daily futures trading. It has an Exchange Traded Fund (the “Spyders”, symbol SPY) that trades like a stock, but without the “up tick” rule. The price of the S&P 500 Cash Index rises and falls with the 500 stocks that make up the index. SPYders closely follow the S&P 500 cash index. You can trade exchange-traded funds like the SPY (and QQQQ for the Nasdaq 100) online from home. But for day traders, they are not as favorable as day trading futures.
The concept of “futures” is a bit confusing, but it boils down to this: The financial industry has turned the S&P 500 cash index into a “contract” that trades like a stock. The contract (or futures contract) has a price that goes up and down from moment to moment. It has a chart that looks like a stock chart, and you can make money on it by buying low and selling high, or vice versa. That’s as complicated as it needs to be for now.
The “big contracts” or SP Maxis were invented first and still exist. With big contracts, a lot of money changes hands. When the SP Maxis price moves one point, $250 per contract moves with it. SP Maxi contracts are traded in a literal “pit” where traders, called “locals”, yell at each other, buying and selling for everyone who wants a piece of the action.
The locals are not public servants, of course, they earn money for their own accounts. They have the advantage of being able to read the body language of others and the tone of voice of other traders. They see what the strongest traders in the pot are doing. They also have several other advantages, their costs per trade are small compared to commissions from the public.
However, “locals” aren’t born professional traders, they learn to trade just like everyone else, except they also have a huge learning advantage because they learn to make scalps first! Its instant access and low commissions make it possible compared to others, but those online futures trading days can also take advantage of scalping trades.
Scalping is basically limiting your losses to just one or two ticks while taking whatever profit you make as you make it. It is easier than going for several points per trade, I have been using this futures trading strategy with great success.
Locals also use the spread (the difference between the bid price and the ask price) to make quick profits from orders coming in on both sides of the market. This makes the scalp easier on them.
In the past, all of these advantages made it impossible for a “retail” day trader to be a successful reseller. It was crazy to try. And to this day, many traders have the idea that scalping is too difficult for the public because they have to compete against traders with an unfair advantage.
But all that has changed now. If you follow a few simple but important guidelines, then you too can be successful in online futures trading.
They took the concept of Maxi futures contracts and created smaller contracts (the eminis) that move $50.00 per SP instead of $250.00. This allows all traders, large and small, to trade futures on stock indices.
But even more radically, they set it up so that the smallest contracts (the eminis) are traded only through computers. This was revolutionary, they bypassed the moat, taking the advantage away from the “locals” and leveling the playing field in a way that had never been done before. And to level the field even further, retail commission costs dropped like a rock. Today, any futures trader with a small account can pay $4.80 per shift (to enter and exit a trade).
This means that scalping is open to the day trading public for the first time ever. But most people who day trade futures don’t even realize where the new edge really is.
Scalping is one of the keys to making a living trading futures like I do, because I follow one simple rule: “Every operation begins as a scalp until proven otherwise.”
SP emini futures became increasingly popular and more liquid, breaking many records along the way.
SP Maxis futures and SP emini futures are derived from the S&P 500 index (symbol SPX), which, as I said, has an ETF that trades like a stock (symbol SPY).
So the question is: which of these is the leader and which are the followers?
Today, emini futures track Maxi contracts almost ticking, with the emini starting to lead the Maxis at times, and also “outpacing” the Maxis on emotional extremes, such as on the top of an intraday rally. .
Both the SP eminis and the SP Maxis (the futures) lead the S&P 500 cash index for a variable amount of time, often in the range of a fraction of a second. Some people call this “the tail wagging the dog” because futures are derivatives of stock indices, but call it what you will, futures are leading the way.
The fact that futures lead the markets makes their chart patterns more “pure” and reliable for trading support and resistance. This makes a big difference to me.
I use stock index futures (eminis and maxis) to calculate daily support and resistance areas, which are the foundation of my own trading style, a trading style that has paid my bills and built my financial security for about 27 years .
I post my support and resistance levels on RBI Trader’s Updates, along with my daily trading plan. Since 1996, many professional traders, as well as some beginners, have subscribed to my work due to its accuracy.
