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Emini Day Trading – How I Day Trade for a Living
31.03.2010
E Emini D Tr Day rading g – How w I Day y Trad de for a Livin ng I wish I had a simple answer a forr you – butt I don't. Trading T is hard, h very hard – pro obably th he hardest thing you''ll ever try to do in yo our life – and a that's why w I love it.
My Emin M ni day tra ading me ethodolo ogy is ex xplained in the fo ollowing g article.. In n summary: I justt trade S&P P500 index x Emini futtures (ES) – which sim mplifies de ecision mak king My Emini day trrades are discretiona d ary – my sw wing trade es are syste em-based Entry y signals arre based on 3 non-co orrelated in ndicators in n multiple time frame es The indicators measure m price cycles s/trends, vo olume mom mentum an nd trade siize Trend d direction is determined from the cycle in the highest time frrame Entrie es are in th he direction of the trrend from signals s in the t lower ttime frame es I risk k 2.5% perr trade – 4 point stop p loss and 1 contract per US$8k k equity My profit targett is 4 pointts but incre eased to 6 or 8 pointts if I catch h a "runnerr" After 4 points I stop trading; whatever happens I stop trading afte er 4 trades s No two traders are alik ke. No two o traders have the sa ame psycho ology, risk tolerance,, trading ca apital, aptitude or de edication. If you wantt to be a trrader, you need to de evelop you ur own trrading methodology – rules that suit yourr personalitty and circ cumstances s.
Copyright 2010
www.Emini-Watch.com
1 of 11
Emini Day Trading – How I Day Trade for a Living
31.03.2010
Emini Day Trading Chart Setup – 3 Indicators, 3 Time Frames All my charts, whatever time frame, have the same 3 non-correlated indicators: Better Sine Wave – identifies price cycles and trends Better Momentum – measures volume traded at bid/ask Better Pro Am – uses trade size to spot professionals/amateurs Better Sine Wave is plotted in the lowest pane of the chart and shows where the cycle measuring algorithm expects cyclical turning points. Confirmed cyclical support and resistance levels are then plotted on the price bars themselves as dotted horizontal lines. When the Emini breaks into a trend the "Pull Back" (PB) and "End of Trend" warning signals (END) are automatically printed on the chart. Better Momentum is plotted below the price bars and shows the waves of buying and selling volume. Exhaustion volume is show with large cyan dots and bullish/bearish divergence patterns are marked with small red/white dots. These divergence patterns are also plotted on the price bars themselves with red/white dots. Better Pro Am plots Professional and Amateur activity with blue and yellow PaintBars. I'm watching to see who is active at price extremes. If I see Professionals (blue bars) making new highs I know they're taking profits and reversing positions. If I see Amateurs (yellow bars) making new lows I know they're trading a breakout that is likely to fail and reverse. In addition, Better Pro Am automatically plots 4 volume accumulation and distribution patterns with text on the chart. I use these 3 indicators on multiple time frames: 500, 1,500 and 4,500 tick charts. The charts include after hours data and the Emini symbol I use in TradeStation is @ES. Each higher time frame is 3 times the lower time frame. So the 4,500 tick chart is 9 times (3 x 3) larger than the 500 tick starting point. The usual multiple for moving from lower to higher time frame is 5. This was probably chosen because of the daily to weekly relationship; it's also close to the weekly to monthly relationship. However, in practice I've found that 3 times is faster at identifying significant events coinciding on multiple time frames. For me this chart setup works extremely well. I don't find the charts too cluttered, the coloring is intuitive (although I have been looking at the same charts for years) and switching between time frames simple. But chart layout is very personal and you have to do what works for you. Follow this link to a feature article about the advantages of Tick Charts
Copyright 2010
www.Emini-Watch.com
2 of 11
Emini Day Trading – How I Day Trade for a Living
31.03.2010
Use the Highest Time Frame Chart to Determine Trend Direction
Emini Day Trading: Trend Direction from 4,500 Tick Chart
Getting the trend direction right is critical. If you get the trend direction right, you can still make a lot of mistakes (like a poor entry) and be OK. But if you get the trend direction wrong, making a profitable trade will seem like hard work, stressful and take forever. If you've nailed the trend direction, winning trades come quickly, you take minimum "heat" (market going against your entry point) and it feels like you're in the zone. I use cycle signals from the Better Sine Wave indicator in my highest time frame chart to determine trend direction. Remember, a cycle move in high time frame is equivalent to a trend move in a lower time frame – so you can use an oscillator type indicator in a high time frame to determine trend direction. To confirm a change in trend and potential Emini day trading signal I look for 3 things: Cycle turn using the Better Sine Wave indicator Professionals active at price extremes (blue bars on Better Pro Am indicator) Exhaustion volume with declining momentum using the Better Momentum indicator My 3 non-correlated indicators are all confirming the same thing by analyzing different information – price, volume and trade size. This gives me high confidence that a trend change is approaching and an Emini day trade signal is setting up.
Copyright 2010
www.Emini-Watch.com
3 of 11
Emini Day Trading – How I Day Trade for a Living
31.03.2010
Use the Lowest Time Frame Chart for Trade Entry
Emini Day Trading: Entry Signal from 500 Tick Chart
In my lowest time frame chart, 500 tick, I'm looking for signs of exhaustion and a potential trend reversal. Exhaustion has to come in the form of both price and volume extremes. Trends always last longer than you expect and you won't see a trend reversal until all the Amateurs are on the wrong side of the trade and the Professionals have gotten out and reversed – and this process takes a while to complete. My favorite Emini day trading set up (in this case a Short signal) is shown above:
"End of Trend" warning signal on the Better Sine Wave indicator Professionals active at the highs (blue bars on Better Pro Am indicator) A final push being led by the Amateurs (yellow bars) and RAMBO (R) price pattern Exhaustion volume then bearish divergence on the Better Momentum indicator
In this case I entered a Short trade at 1,091.75 – a market order, filled immediately with automatic stop and profit target orders following.
Copyright 2010
www.Emini-Watch.com
4 of 11
Emini Day Trading – How I Day Trade for a Living
31.03.2010
Use the Intermediate Time Frame Chart to Block Out the Noise
Emini Day Trading: Entry Confirmation from 1,500 Tick Chart
I use my intermediate time frame chart, 1,500 tick, to see the patterns without all the noise you can get in the lowest time frame chart. In this case:
An overshoot of cyclical resistance on the Better Sine Wave indicator Exhaustion volume on the Better Momentum indicator (large cyan dot) Professionals taking profits at the highs (blue bars on Better Pro Am indicator) Stopping Volume patterns (St) showing Professional distribution of positions
In practice, the market cycles are either in sync in the 500 and 4,500 tick time frames or the 1,500 and 13,500 tick time frames. So I keep an eye out for setups happening in either the 500 or 1,500 tick charts.
Copyright 2010
www.Emini-Watch.com
5 of 11
Emini Day Trading – How I Day Trade for a Living
31.03.2010
If You Missed the Trend Change then Use these Re-Entry Signals
Emini Day Trading: Re-Entry Signals from Better Sine Wave
Copyright 2010
www.Emini-Watch.com
6 of 11
Emini Day Trading – How I Day Trade for a Living
31.03.2010
Emini Day Trading: Re-Entry Signals from Better Momentum
Trend changes take time to develop but the perfect entry point is often over all too quickly. In these cases I don't chase the market – I wait for a high probability re-entry signal in the direction of the trend, shown by either: Cyclical turns using the Better Sine Wave indicator (500 or 1,500 tick chart) Divergence signals using the Better Momentum indicator (500 or 1,500 tick chart) Of course the best re-entry signals occur when these signals both line up, as you can see in the charts above.
Copyright 2010
www.Emini-Watch.com
7 of 11
Emini Day Trading – How I Day Trade for a Living
31.03.2010
Emini Day Trading and Money Management
Emini Day Trading: Trade "Sweet Spot" (green)
My stop loss is always 4 points and since I trade 1 Emini contract for every US$8k of equity, this corresponds to a 2.5% risk (4x$50/$8,000 = 2.5%). I never move my stop loss. In practice, one of my biggest weaknesses is that I tend to enter the market too early. So sometimes I need the 4 points of "wiggle room". The spreadsheet image above shows the performance metrics I'm trying to hit on the average trade. The horizontal axis is percentage of trades that are profitable. The vertical axis is the profit target in points per contract traded. The figures in the matrix are the average trade profit per Emini contract. The calculations assume: 1 Emini contract traded Stop loss of 4 points Round trip brokerage costs of $4.80 I'm trying to achieve an average profit target of between 4.50 and 6.50 points and a percentage profitable between 60% and 75%. This is my "sweet spot" where the average profit (win or loss) ranges from $50 to $189 per contract traded. In addition to these money management rules, I have a rule to prevent over-trading. I stop trading after making 4 points of profit or after 4 trades. But if I'm up 3 points after 3 trades, I'd much rather stop and live to trade another day than keep pushing when I'm out of sync with the market.
Copyright 2010
www.Emini-Watch.com
8 of 11
Emini Day Trading – How I Day Trade for a Living
31.03.2010
And Finally, my Emini Day Trading Platform
Emini Day Trading: Order Entry "Hotkey" Settings
Although I use TradeStation for charting, I do not use them as my broker. Instead I use Interactive Brokers and their Trader Workstation program for order entry. I have the platform setup with "hotkeys" to buy or sell at market, then automatically enter profit target and stop loss orders. These are linked orders so when either one is triggered the other is automatically canceled ("one cancels all" or OCA). The entry and exit orders are for 100% of my position, as I don't scale in or out of Emini day trades. I find the Emini too volatile to use trailing stops to capture the size of swings I'm looking for. Instead I try to use the Emini's volatility to hit my profit target, get out and wait for another setup. The "hotkey" solution to order entry has reduced my stress Emini day trading enormously. As soon as I get an entry signal I hit "B" or "S" on my keyboard and I'm filled. I no longer worry about getting a good fill and the exit orders are sitting there. Trading platforms and internet connections do go down and this solution is the best I've found. I won't change the exit orders unless a trade moves immediately in my favor and starts to "run" – for example if a significant trend line is broken. In this case I'll move my profit target from 4 to as much as 8 points. The target I pick will be based on previous areas of Emini support or resistance. Good luck with your Emini day trading.
Copyright 2010
www.Emini-Watch.com
9 of 11
Emini Day Trading – How I Day Trade for a Living
31.03.2010
More Emini Day Trading Links More Emini day trading examples: Emini Day Trading with Cycles and Volume – 19 December 2008 Emini Day Trading with Multiple Time Frames – 12 January 2009 Emini Day Trading Video Example – 23 April 2009 Emini Day Trading Setup Video – 25 September 2009 Emini Day Trading Setups & the Bigger Picture Video – 3 February 2010 Feature articles about the Emini day trading indicators: Better Sine Wave – identifies price cycles and trends Better Momentum – measures volume traded at bid/ask Better Pro Am – uses trade size to spot professionals/amateurs
Copyright 2010
www.Emini-Watch.com
10 of 11
Emini Day Trading – How I Day Trade for a Living
31.03.2010
Distribution: You may distribute this report freely, and/or bundle it as a free bonus with other products, as long as it is left completely intact, unaltered and delivered via this PDF file. You may also republish excerpts as long as they are accompanied by an attribution link back to http://Emini–Watch.com. This report contains no affiliate links. Disclaimer: Futures and options trading have large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don't trade with money you can't afford to lose. This is neither a solicitation nor an offer to buy or sell futures, stocks or options. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed here. The past performance of any trading system or methodology is not necessarily indicative of future results. If you decide to invest real money, all trading decisions should be your own. CFTC Required Disclaimer: Hypothetical or simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not actually been executed, the results may have under– or over–compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation in being made that any account will or is likely to achieve profits or losses similar to those shown. Copyright 2010
www.Emini-Watch.com
11 of 11
31.03.2010
E Emini D Tr Day rading g – How w I Day y Trad de for a Livin ng I wish I had a simple answer a forr you – butt I don't. Trading T is hard, h very hard – pro obably th he hardest thing you''ll ever try to do in yo our life – and a that's why w I love it.
My Emin M ni day tra ading me ethodolo ogy is ex xplained in the fo ollowing g article.. In n summary: I justt trade S&P P500 index x Emini futtures (ES) – which sim mplifies de ecision mak king My Emini day trrades are discretiona d ary – my sw wing trade es are syste em-based Entry y signals arre based on 3 non-co orrelated in ndicators in n multiple time frame es The indicators measure m price cycles s/trends, vo olume mom mentum an nd trade siize Trend d direction is determined from the cycle in the highest time frrame Entrie es are in th he direction of the trrend from signals s in the t lower ttime frame es I risk k 2.5% perr trade – 4 point stop p loss and 1 contract per US$8k k equity My profit targett is 4 pointts but incre eased to 6 or 8 pointts if I catch h a "runnerr" After 4 points I stop trading; whatever happens I stop trading afte er 4 trades s No two traders are alik ke. No two o traders have the sa ame psycho ology, risk tolerance,, trading ca apital, aptitude or de edication. If you wantt to be a trrader, you need to de evelop you ur own trrading methodology – rules that suit yourr personalitty and circ cumstances s.
Copyright 2010
www.Emini-Watch.com
1 of 11
Emini Day Trading – How I Day Trade for a Living
31.03.2010
Emini Day Trading Chart Setup – 3 Indicators, 3 Time Frames All my charts, whatever time frame, have the same 3 non-correlated indicators: Better Sine Wave – identifies price cycles and trends Better Momentum – measures volume traded at bid/ask Better Pro Am – uses trade size to spot professionals/amateurs Better Sine Wave is plotted in the lowest pane of the chart and shows where the cycle measuring algorithm expects cyclical turning points. Confirmed cyclical support and resistance levels are then plotted on the price bars themselves as dotted horizontal lines. When the Emini breaks into a trend the "Pull Back" (PB) and "End of Trend" warning signals (END) are automatically printed on the chart. Better Momentum is plotted below the price bars and shows the waves of buying and selling volume. Exhaustion volume is show with large cyan dots and bullish/bearish divergence patterns are marked with small red/white dots. These divergence patterns are also plotted on the price bars themselves with red/white dots. Better Pro Am plots Professional and Amateur activity with blue and yellow PaintBars. I'm watching to see who is active at price extremes. If I see Professionals (blue bars) making new highs I know they're taking profits and reversing positions. If I see Amateurs (yellow bars) making new lows I know they're trading a breakout that is likely to fail and reverse. In addition, Better Pro Am automatically plots 4 volume accumulation and distribution patterns with text on the chart. I use these 3 indicators on multiple time frames: 500, 1,500 and 4,500 tick charts. The charts include after hours data and the Emini symbol I use in TradeStation is @ES. Each higher time frame is 3 times the lower time frame. So the 4,500 tick chart is 9 times (3 x 3) larger than the 500 tick starting point. The usual multiple for moving from lower to higher time frame is 5. This was probably chosen because of the daily to weekly relationship; it's also close to the weekly to monthly relationship. However, in practice I've found that 3 times is faster at identifying significant events coinciding on multiple time frames. For me this chart setup works extremely well. I don't find the charts too cluttered, the coloring is intuitive (although I have been looking at the same charts for years) and switching between time frames simple. But chart layout is very personal and you have to do what works for you. Follow this link to a feature article about the advantages of Tick Charts
Copyright 2010
www.Emini-Watch.com
2 of 11
Emini Day Trading – How I Day Trade for a Living
31.03.2010
Use the Highest Time Frame Chart to Determine Trend Direction
Emini Day Trading: Trend Direction from 4,500 Tick Chart
Getting the trend direction right is critical. If you get the trend direction right, you can still make a lot of mistakes (like a poor entry) and be OK. But if you get the trend direction wrong, making a profitable trade will seem like hard work, stressful and take forever. If you've nailed the trend direction, winning trades come quickly, you take minimum "heat" (market going against your entry point) and it feels like you're in the zone. I use cycle signals from the Better Sine Wave indicator in my highest time frame chart to determine trend direction. Remember, a cycle move in high time frame is equivalent to a trend move in a lower time frame – so you can use an oscillator type indicator in a high time frame to determine trend direction. To confirm a change in trend and potential Emini day trading signal I look for 3 things: Cycle turn using the Better Sine Wave indicator Professionals active at price extremes (blue bars on Better Pro Am indicator) Exhaustion volume with declining momentum using the Better Momentum indicator My 3 non-correlated indicators are all confirming the same thing by analyzing different information – price, volume and trade size. This gives me high confidence that a trend change is approaching and an Emini day trade signal is setting up.
Copyright 2010
www.Emini-Watch.com
3 of 11
Emini Day Trading – How I Day Trade for a Living
31.03.2010
Use the Lowest Time Frame Chart for Trade Entry
Emini Day Trading: Entry Signal from 500 Tick Chart
In my lowest time frame chart, 500 tick, I'm looking for signs of exhaustion and a potential trend reversal. Exhaustion has to come in the form of both price and volume extremes. Trends always last longer than you expect and you won't see a trend reversal until all the Amateurs are on the wrong side of the trade and the Professionals have gotten out and reversed – and this process takes a while to complete. My favorite Emini day trading set up (in this case a Short signal) is shown above:
"End of Trend" warning signal on the Better Sine Wave indicator Professionals active at the highs (blue bars on Better Pro Am indicator) A final push being led by the Amateurs (yellow bars) and RAMBO (R) price pattern Exhaustion volume then bearish divergence on the Better Momentum indicator
In this case I entered a Short trade at 1,091.75 – a market order, filled immediately with automatic stop and profit target orders following.
Copyright 2010
www.Emini-Watch.com
4 of 11
Emini Day Trading – How I Day Trade for a Living
31.03.2010
Use the Intermediate Time Frame Chart to Block Out the Noise
Emini Day Trading: Entry Confirmation from 1,500 Tick Chart
I use my intermediate time frame chart, 1,500 tick, to see the patterns without all the noise you can get in the lowest time frame chart. In this case:
An overshoot of cyclical resistance on the Better Sine Wave indicator Exhaustion volume on the Better Momentum indicator (large cyan dot) Professionals taking profits at the highs (blue bars on Better Pro Am indicator) Stopping Volume patterns (St) showing Professional distribution of positions
In practice, the market cycles are either in sync in the 500 and 4,500 tick time frames or the 1,500 and 13,500 tick time frames. So I keep an eye out for setups happening in either the 500 or 1,500 tick charts.
Copyright 2010
www.Emini-Watch.com
5 of 11
Emini Day Trading – How I Day Trade for a Living
31.03.2010
If You Missed the Trend Change then Use these Re-Entry Signals
Emini Day Trading: Re-Entry Signals from Better Sine Wave
Copyright 2010
www.Emini-Watch.com
6 of 11
Emini Day Trading – How I Day Trade for a Living
31.03.2010
Emini Day Trading: Re-Entry Signals from Better Momentum
Trend changes take time to develop but the perfect entry point is often over all too quickly. In these cases I don't chase the market – I wait for a high probability re-entry signal in the direction of the trend, shown by either: Cyclical turns using the Better Sine Wave indicator (500 or 1,500 tick chart) Divergence signals using the Better Momentum indicator (500 or 1,500 tick chart) Of course the best re-entry signals occur when these signals both line up, as you can see in the charts above.
Copyright 2010
www.Emini-Watch.com
7 of 11
Emini Day Trading – How I Day Trade for a Living
31.03.2010
Emini Day Trading and Money Management
Emini Day Trading: Trade "Sweet Spot" (green)
My stop loss is always 4 points and since I trade 1 Emini contract for every US$8k of equity, this corresponds to a 2.5% risk (4x$50/$8,000 = 2.5%). I never move my stop loss. In practice, one of my biggest weaknesses is that I tend to enter the market too early. So sometimes I need the 4 points of "wiggle room". The spreadsheet image above shows the performance metrics I'm trying to hit on the average trade. The horizontal axis is percentage of trades that are profitable. The vertical axis is the profit target in points per contract traded. The figures in the matrix are the average trade profit per Emini contract. The calculations assume: 1 Emini contract traded Stop loss of 4 points Round trip brokerage costs of $4.80 I'm trying to achieve an average profit target of between 4.50 and 6.50 points and a percentage profitable between 60% and 75%. This is my "sweet spot" where the average profit (win or loss) ranges from $50 to $189 per contract traded. In addition to these money management rules, I have a rule to prevent over-trading. I stop trading after making 4 points of profit or after 4 trades. But if I'm up 3 points after 3 trades, I'd much rather stop and live to trade another day than keep pushing when I'm out of sync with the market.
Copyright 2010
www.Emini-Watch.com
8 of 11
Emini Day Trading – How I Day Trade for a Living
31.03.2010
And Finally, my Emini Day Trading Platform
Emini Day Trading: Order Entry "Hotkey" Settings
Although I use TradeStation for charting, I do not use them as my broker. Instead I use Interactive Brokers and their Trader Workstation program for order entry. I have the platform setup with "hotkeys" to buy or sell at market, then automatically enter profit target and stop loss orders. These are linked orders so when either one is triggered the other is automatically canceled ("one cancels all" or OCA). The entry and exit orders are for 100% of my position, as I don't scale in or out of Emini day trades. I find the Emini too volatile to use trailing stops to capture the size of swings I'm looking for. Instead I try to use the Emini's volatility to hit my profit target, get out and wait for another setup. The "hotkey" solution to order entry has reduced my stress Emini day trading enormously. As soon as I get an entry signal I hit "B" or "S" on my keyboard and I'm filled. I no longer worry about getting a good fill and the exit orders are sitting there. Trading platforms and internet connections do go down and this solution is the best I've found. I won't change the exit orders unless a trade moves immediately in my favor and starts to "run" – for example if a significant trend line is broken. In this case I'll move my profit target from 4 to as much as 8 points. The target I pick will be based on previous areas of Emini support or resistance. Good luck with your Emini day trading.
Copyright 2010
www.Emini-Watch.com
9 of 11
Emini Day Trading – How I Day Trade for a Living
31.03.2010
More Emini Day Trading Links More Emini day trading examples: Emini Day Trading with Cycles and Volume – 19 December 2008 Emini Day Trading with Multiple Time Frames – 12 January 2009 Emini Day Trading Video Example – 23 April 2009 Emini Day Trading Setup Video – 25 September 2009 Emini Day Trading Setups & the Bigger Picture Video – 3 February 2010 Feature articles about the Emini day trading indicators: Better Sine Wave – identifies price cycles and trends Better Momentum – measures volume traded at bid/ask Better Pro Am – uses trade size to spot professionals/amateurs
Copyright 2010
www.Emini-Watch.com
10 of 11
Emini Day Trading – How I Day Trade for a Living
31.03.2010
Distribution: You may distribute this report freely, and/or bundle it as a free bonus with other products, as long as it is left completely intact, unaltered and delivered via this PDF file. You may also republish excerpts as long as they are accompanied by an attribution link back to http://Emini–Watch.com. This report contains no affiliate links. Disclaimer: Futures and options trading have large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don't trade with money you can't afford to lose. This is neither a solicitation nor an offer to buy or sell futures, stocks or options. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed here. The past performance of any trading system or methodology is not necessarily indicative of future results. If you decide to invest real money, all trading decisions should be your own. CFTC Required Disclaimer: Hypothetical or simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not actually been executed, the results may have under– or over–compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation in being made that any account will or is likely to achieve profits or losses similar to those shown. Copyright 2010
www.Emini-Watch.com
11 of 11
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