I am active in the e-mini S&P (amongst others), and my portfolio Sharpe ratio over a statistically significant period of time is 3.96. My strategy is based on an understanding of why markets move in the short term. In my opinion it is purely sentiment and market psychology. Markets are a forward looking discounting mechanism. If you listen to the market and can "get in the head" of what people are thinking and reacting to, you can get an edge. I agree with you that short-term scalping is probably futile, the movements from minute to minute are probably a function of demand and supply which is inherently random. But my results from trading longer swings of 1-2 days is definitely not random.
With the exception of the midday doldrums, I don't think there is anything random in the futures behavior on a minute to minute basis. I have the feeling that not only are there some people who try to conspire against me as a beginner but also machines that trigger orders no matter what when some conditions are met like support and oversold condition or the reverse. Do you feel the same and how can so many fakeouts be explained?
What I found interesting in the above is the comment about "why markets move in the short term." Markets move in the short term because the brokerages and institutions need to keep the money flow going. When a large fund manager gives a brokerage $100M in buy orders, the brokerage then runs to the S&P's which then run up, then the traders buy the stocks, which then run up, then the broker can "accomodate" the big buy order by selling stocks at higher prices (and, btw, they sell their S&P's before "accomadating" sell orders), and the cycle is complete. I really don't think sentiment has anything to do with it. If you look at the last 90 days, the "sentiment" was totally bearish, and the market rebounded in a full bull fashion. IMO
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Don, could you explain the above in a little more detail (i.e, who loses, who wins, who has something to hide, etc.)? And how best as an outsider to take advantage of this scenario? Thanks!
Understanding the money flow in the markets and who the "players" are is fundemental. Simply seeing an "if-then" scenerio will lead to really skewed trading ideas. Just try to visualize the flow of money from a major institution (say Magellan)...they need to go to a broker with it first to purchase equities or debt instruments. The Brokerage usually has some lead time to determine what they can do to accomadate the order. Just imagine in you knew that your rich Uncle was going to buy $1Billion worth of a single issue (dow component) on the opening of the market...the market would have an initial move of several points in the S&P's, so why not buy the S&Ps on the Globex, pre-market (rationale is "hedging purposes" thus it is "ok"), then you sell stock short to the institution after the market rises (now delta neurtral), you can then sell your S&P's causing a short term decline, and then cover your short position in the stock (now you are once again, completely neutral). This is just a simplisitic explanation of how markets work on a daily basis, and without the fundementals traders get caught up in what "has happened" rather than what "is happening."
Toni Hansen from swingtrader.net gives good ideas for trading index products, I don't know how valuable swingtrader.net is but I always read her daily column on Hardrightedge.com, very insightful TA comments even if it's often hindsight 20/20.
Thanks Don. So essentially the brokerage is able to take money both from other traders (buying S&Ps low) and from the institution (selling stock high), due to the fact that it is able to anticipate the rise and fall in prices. Why doesn't the institution object to this and do its own buying? Does the institution partake in the brokerage's profits? Thanks again.
Hey guys half the posts on this thread are off topic. Since this thread is about emini trading strategies (the title) than please keep the comments to that. If you want to comment how trading futures off the floor can't be done than please start a new thread. Thanks in Advance Robert Tharp