| I could equally well call this article "Emini systems - the | | | | can trade with more contracts and thus can stand a |
| lack of logic behind emini trading systems" as, in fact, | | | | better chance to make more money. |
| sometimes such lack illustrates better what the | | | | Since more and more traders enter the thrilling arena |
| proper logic should be. And that's what this article will | | | | of day trading emini futures, more emini day trading |
| focus on, hoping that by exposing the lack of logic | | | | systems are being made available to them by people |
| behind emini trading systems, we should be able to | | | | who specialize in designing such systems, usually |
| come up with the right logic, the logic needed to | | | | referred to as vendors. We could, in principle, also call |
| produce good, robust emini systems. | | | | them experts, although calling someone that way |
| But, first things first. Let's start from what eminis are | | | | does not necessarily make him or her a true expert. |
| for as opposed to stocks, this is hardly a household | | | | Judging by the quality of what is available out there, |
| term. While a large percentage of American | | | | the field of vendors is hardly crowded with experts. |
| households do maintain some position in stocks, the | | | | One way to judge the quality of a trading system, |
| overwhelming majority of them have never dabbled | | | | whether it is an emini trading system or not, is by |
| in something as esoteric as eminis. Emini futures, to | | | | examining its logic. Systems with a poor logic, that |
| be more specific. | | | | upon a closer inspection can even be found |
| Emini futures are simply smaller-sized contracts of | | | | self-contradictory, are usually poor performers or |
| "full-grown" futures contracts that have been around | | | | have parameters that are rather unappealing to |
| for a few decades. Unlike the latter that have been | | | | serious traders who know their stuff. |
| traded on physical exchanges, eminis have always | | | | A good example of a faulty logic is that of many |
| been traded electronically, allowing retail traders with | | | | simple (or rather simplistic) breakout systems that try |
| access to the Internet to compete against | | | | to capitalize on catching a strong trend in the market. |
| institutional traders from the comfort of their homes | | | | In other words, they attempt to identify periods of |
| or home based offices. That's what the "e" in their | | | | wide range expansion. From the logical point of view, |
| name stands for, namely "electronic." | | | | the problem with such systems is that they usually |
| The most popular such contracts include ES, YM, and | | | | take position on 50-60% of trading days, while such |
| ER2, that is the emini contracts of S&P 500 | | | | expansion periods, or strong trends, occur only about |
| futures, the Dow futures and the Russell 2000 | | | | 30% of the time. There is a clear inconsistency in |
| futures. In other words, these are eminis of stock | | | | what the systems do compared to what they were |
| index futures. | | | | really designed to do. As a result of this, many simple |
| One of the best ways to approach trading eminis is | | | | breakout systems overtrade, which reduces their |
| through mechanical trading systems. A system like | | | | performance. In the long run, this performance can |
| that consists of a set of objective rules that | | | | become too poor to make such systems good |
| determine how to open a position in the emini futures | | | | enough for trading. |
| market and then how to close it. | | | | The reason why overtrading reduces the profits here |
| It is possible to make money trading eminis in a | | | | is quite simple. On the days when the strong trend |
| purely mechanical fashion. This author has designed | | | | does not materialize, but the system is active, three |
| several successful and relatively simple, robust emini | | | | trading outcomes are possible: a small profit, a small |
| systems so this opinion is grounded in his considerable | | | | loss, and a big loss. The small profits are likely to be |
| experience. | | | | offset by small losses and what we are left with are |
| However, not all trading systems are born equal. | | | | only big losses. While these big losses may not be |
| This applies also to mechanical emini trading systems. | | | | frequent, in some systems they can be as big as the |
| One category of such systems consists of day | | | | big profits from strong trends that the systems like |
| trading systems. These are systems that open and | | | | that try to catch, which is clearly bound to affect |
| close their positions the same day, thus allowing | | | | their performance. |
| traders to use the intraday margin, which is much | | | | The way to prevent the system from overtrading |
| lower than the overnight margin. For this reason, | | | | (and thus the degradation of its performance) is to |
| emini day trading systems appeal particularly to retail | | | | ensure that it trades only (in practice, mainly) on the |
| traders, those market participants whose budgets | | | | days the strong trends really occur. Can such a |
| (and so also trading accounts) tend to be smaller. | | | | system be designed? The answer is: yes, it can be, |
| Because of smaller intraday margins, those traders | | | | but you cannot do this with simplistic ideas. |