This article is a guest post from Joe at EminiEdge.com, an excellent resource for trading education focusing on the electronically traded futures contracts. Joe has been trading the Emini S&P (ES) since 2008, and advocates a strong understanding of the dynamics of price action combined with a few minimal indicators, as well as a mastery of your own psychology, as the key to trading success.
There are a number of things that I try to do or try to avoid while trading the Emini, all of which are aimed at keeping me from making my known mistakes or destructive behavior.
In a nutshell, here’s are what I consider to be the ‘Top 10’ essential behaviors for successful futures trading …
#1 Learn to read market price and correlate this with market strength.
Nothing is more basic to the markets, any market, than price action which is a reflection of everything the market has digested at that moment. This is also a fundamental aspect of my Emini trading strategy. Being able to identify the Support and Resistance levels where professional and amateurs are likely to be and correlating this with buy/sell strength will identify the emotion of the market will take your trading to the next level. I extract the buy/sell strength real time directly from the exchange and use this to pinpoint the timing for entries. If you’re only looking at price, you’re missing half of the information. By understanding the markets movements and seeing the professionals jump, you will build confidence in your ability and taking the “hard trades” will become a lot easier.
#2 Define your entry setups and stick to them and only them.
Market action repeats itself day after day. I have a few specific setups that I rely on for my Emini trading plan, and since they are price action and volume based, they’ll work in any time frame and market. I stick to three time frames and the Emini market for day trading. Sometimes markets are range-bound, sometimes trending, so for me, the techniques and setups used match up with the market type at the time.
#3 There’s no room for stupid mistakes.
Even the best Emini trading edge can be destroyed by getting the simple stuff wrong. This may not seem crucial at first glance, “I’ll remember” you say… Once the market starts dancing it’s a lot harder to keep your head straight. It is for this reason I created a series of indicators to highlight what I consider to be the most important pieces of information that I use in my market analysis. These never leave my desktop.
#4 Simplify your trading.
Clutter or redundant indicators will only lead to “Paralysis by Analysis”. This also pertains to your strategy in general. If you have wildly different entry techniques and an unwieldy trading plan you’ll be shooting at everything and you’ll find yourself either over trading or not trading at all. Simplify for clarity.
#5 Document your mistakes and attack them one by one.
Only by recognizing then confronting your mistakes can you fully understand and eliminate them from your trading. For the longest time, I didn’t even know what I was doing wrong, didn’t even know what question to ask, I just kept blowing out my account. If you are having difficulty even identifying what your problems are, stop and get a mentor.
#6 Set a profit (and loss) target and stop once it’s reached.
My plan requires me to trade the first two hours of the day (8:30 – 10:30 Chicago time) and shoot for 3-5 points per lot and stop if either is reached. In my experience it is common for many traders to make their profit in the morning and give it all back in the afternoon. I set up an indicator specifically to highlight on my chart the key times of the trading session. If your’re thinking “Oh, I’ll remember these times…” then see number 3.
#7 Focus on one market.
I chose to focus exclusively on the Emini S&P 500 futures market for my trading. This allows me to not only to understand the commercial details of the vehicle intimately but perhaps more importantly there is a subtle understanding, kind of a “Zen” like rhythm that can only be gained from staring at the same price action day after day. This intuition or “sixth sense” is an edge in itself that can’t be overstated. This extensive exposure (plus a lot of hard work) is what has allowed me to refine the repeatable Support and Resistance levels that are the absolute foundation of my trading strategy.
#8 If you’re not sure of what’s happening, get out!
When the market (or even you) does the unexpected, sometimes it results in unexpected profits, sometimes not. Regardless, if you’re confused, just dump the position immediately and reassess. Your mind will become clearer when you no longer have a position on. You can always re-enter if your setup still exists.
#9 Take every trade that meets your entry criteria.
Keep the larger market context in mind, but whatever you do, do not try to cherry pick the “best” trades or you’re doomed to fail. I’ve found that sometimes the scariest trades at the time turn out to be the most profitable. This single point is what finally turned my trading around so don’t underestimate this.
#10 Cut your losses short quickly and stretch your profit taking.
I might dart in and out of the market a few times trying to spear the perfect entry, taking a break even or even a tick or two loss before the trade finally takes off. This is probably the area that I keep improving the most in my own trading.