Daily Trading Futures

When you trade futures on the day, you enter and exit all positions on the same day, you never hold a position overnight. Since nightly market movements are hard 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 trade futures traders make 1-3 trades per day, trying to catch the major intra-day 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 ease of trading them online. 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 spot indices. Let’s start from the beginning.

The S&P 500 stock index (the cash index, symbol SPX) is essential for 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 ETFs 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 one moment to the next. 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 by now.

“Big Contracts” or SP Maxis were invented first and still exist. With big contracts, a lot 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 “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 the 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 the commissions from the public.

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 learn to scalp 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.

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 for 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 some simple but important guidelines, then you too can be successful in trading futures online.

They took the concept of Maxi futures contracts and created smaller contracts (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 moat, taking the advantage away from the “homes” and leveling the playing field in a way that had never been done before. And to level the playing field even more, retail commission costs fell like a rock. Today, any trader trading futures with a small account can pay $4.80 per turn (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 trade futures on the day 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 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 emini starting to lead Maxi at times, and also “outperforming” Maxis at emotional extremes, such as at the top of an intraday rally. .

Both the SP eminis and 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 “tail wagging the dog” because futures are derivatives of stock indices, but call it what you want, futures are leading the way.

The fact that futures lead the markets makes their chart patterns more “pure” and reliable for support and resistance trading. 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.