When trading futures on the day, you enter and exit all positions on the same day, without ever having a position overnight. Since night market movements are difficult to predict, many traders avoid risk in day-to-day trading. Ironically, the public believes that day trading is the riskiest way to trade.
THIS IS A MYTH!
Some traders who trade futures on the day make 1 to 3 trades per day, trying to capture the main intraday movements. Others trade ins and outs very frequently, trying to “scalp” a small profit on each trade. (My style uses a unique combination of these two strategies.)
For those intraday trading futures, Emini Stock Index Futures have become the most popular intraday trading vehicle due to its liquidity, leverage, and ease of online trading. You can go short or long 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 cash ratios. Let’s start from the starting point.
The S&P 500 stock index (the cash index, symbol SPX) is essential for daily futures trading. It has an Exchange Traded Fund (the symbol “Spyders”, SPY) that is traded 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 SPY (and QQQQ for Nasdaq 100) online from home. But for intraday traders, they are not as favorable as intraday 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 is traded like a stock. The contract (or futures contract) has a price that rises and falls from one moment to the next. You have a chart that looks like the stock chart, and you can make money from it by buying low and selling high, or vice versa. That is as complicated as it should be for now.
The “big contracts” or SP Maxis were invented first and still exist. With large contracts, a large amount of money changes hands. When the price of the SP Maxis moves one point, $ 250 per contract moves with it. SP Maxi contracts are traded in a literal “pot” 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 the voices of the other trader. They see what the strongest traders are doing in the hole. They also have several other advantages, their costs per operation are small compared to the public commissions.
However, “locals” are not born as professional traders, they learn to trade like everyone else, except they also have a huge learning advantage because they first learn how to take care of the scalp! Its instant access and low commissions make it possible compared to others, but those online daily trading futures can also take advantage of scalping trades.
Scalping is basically limiting your losses to just one or two ticks while making whatever profit you make as you get it. It is easier than going for several points per trade, I have been using this daily futures trading strategy with great success.
The locals also use the spread (the difference between the bid price and the ask price) to make quick profits on orders entering both sides of the market. This eases the scalp.
In the past, all of these advantages made it impossible for a “retail” merchant to be a successful reseller. It was crazy trying. 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 some simple but important guidelines, you can also be successful in scalping and day trading in futures online online.
They took the concept of Maxi futures contracts and created smaller contracts (the eminis) that move $ 50.00 per SP point instead of $ 250.00. This allows all traders, large and small, to trade stock index futures.
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 hole, taking the advantage of the “locals” and leveling the playing field in a way that had never been done before. And to further level the field, retail commission costs fell like a rock. Today, any day trading futures trader with a small account can pay $ 4.80 per shift (entering and exiting a trade).
This means that scalping is open to the public for the first time in history. But most people who trade futures on a daily basis 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 a simple rule: “Every trade starts out like a scalp until proven otherwise.”
SP emini futures became more and more 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 is traded like a stock (symbol SPY).
So the question is: which of these is the leader and which are the followers?
Today, the emini futures track the Maxi contracts almost tick-to-tick, with the emini starting to lead the Maxi at times, and also “surpassing” the Maxis on emotional extremes, such as at the top of an intraday rally. .
Both the SP eminis and SP Maxis (futures) lead the S&P 500 Cash Index for a variable period of time, often in the range of a fraction of a second. Some people call this “the tail wagging the dog” because futures are derived from stock indices, but call it what you want, futures are leading the way.
The fact that the future leads the markets makes its chart patterns more “pure” and reliable for support and resistance trading. This makes a huge difference to me.
I use stock index futures (eminis and maxis) to calculate daily support and resistance areas, which are the basis for 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 in the RBI Trader Updates, along with my daily trading plan. Since 1996, many professional traders, as well as some beginners, have subscribed to my work because of its accuracy.