Emini Learning Curve

Discussion in 'Index Futures' started by Nicodemus, Dec 9, 2001.

  1. I would appreciate it if some of you people who are fairly new at trading the e-mini's would do a journal sort of post and share your experiences. Since so many people recommend trading them for low accounts I guess I must be wrong in my assumptions that they are more risky than trading stocks and more difficult to learn. If some of you have tried them and lost money please share too. Thanks
  2. WarEagle

    WarEagle Moderator

    Hi Nic,

    A lot of stock traders seem to think this (I did too at first). The fact is that they ARE more risky, but not because of anything mysterious about them. Its all due to leverage. They are just more leveraged than stocks. Of course, you can eliminate the difference by having a larger account balance per contract traded. The problem is that for the traders thinking of making the switch because they have less than $25k, the risk WILL be greater than with stocks because they have to use the higher margin.

    However, they are not more difficult to trade. In fact, I would argue that they are easier, in terms of mechanics, for a couple of reasons.

    One is routing. With the minis, you only have one route, through globex. With naz stocks you've got a ridiculously large number of options, that in the hands of an experienced trader can be a great asset, but I found that my skills were lacking in that area. For me it just led to confusion and I ended up using IB's best ecn for everything.

    The second area is speed. My fills are within second or two usually. This is much faster than most NYSE executions, and about on par with my naz trading. I will say that the naz can be faster sometimes, with executions hitting before my finger left the key, but the minis are fast enough.

    Now as far as trading techniques, all trading is difficult and I don't think one has an advantage over the other except on an individual preference level. Some traders are more comfortable with one versus the other for various reasons. Since I prefer trading a mechanical system, I think the futures are better for me because I only have one market to follow, and it has all the elements required for a system to be successful (low costs, liquidity, leverage, etc.). For someone like Hitman, who uses the tape to trade and the futures as an leading indicator then it makes sense that he would prefer NYSE stocks.

    It boils down to finding a comfort zone. I think traders should look at all possible options, but doing so only with as complete an understanding of each area as possible. You never know what you might be better at.

  3. Nicodemus,

    You are already trading the QQQ's, aren't you? I think I saw your post stating that that's what you usually trade. Trading the NQ shouldn't be too different, with the exception of the possibility of using higher leverage (which, as WarEagle said, you are forced to use if you do not have enough funds in your account.)

    I'm attaching a chart that compares percent changes of the lows of 1 minute bars in both the QQQ and NQ.

    Now let's compare other things...

    Volume - 1 contract of NQ equals to 800 shares of the Q's.


    On Friday the volume for NQ was 140005 contracts traded, so in terms of dollar amounts the volume is about the same.


    NQ: .5 minimum
    QQQ: .01 minimum

    .5/40=.0125, again about the same (I haven't checked how often the spread is actually equal to the minimum increment.)

    Commission costs (using IB as an example):

    800 shares of QQQ: (500 shares x .01) + (300 shares x .005) =$6.50 per side
    1 contract of NQ: $2.40 per side

    Seems to me leverage is the only problem (and that's only for underfunded accounts like mine :) )

    This chart shows percent changes, multiply them by 8 (or is it 9 now?) to get the percent changes in your account equity (assuming it's equal to the performance bond.) The range on Friday was a little over 3%. 3x8=24%. Plenty enough to kill yourself with if you're not careful :)


    ps. the chart is for last Friday, 12/07/2001
  4. It's a lot of work I spend more time at night poring over charts than when I was trading stocks. Then there is only a few opportunities in the day and all is done in a few minutes . It's tough to stay focused the whole session, it can get really slow between 11:30 and 2:00pm. How do you attach a chart? Maybe I can post my trades next week. I may cut down on my trading a little though since I am down after a month and a half (-$250), stopped out most of the time and scratched trades.
  5. Brewey



    I have never daytraded equities, although I have two stock accounts. For daytrading, I chose futures because of the inherent leverage, as other replies have noted. As long as the small fry understands that stops are an unfortunate necessity for doing business in futures, I don't think they are any more risky than equities. The problem arises with stop placement strategy. You don't want to bet your whole bankroll with a fat stop, so you often get nabbed by bigger accounts who "Gun the stops," taking you out of the market just when it is about to move your direction. And for those small accounts, I think it would be unwise to trade futures without stops. One or two "tape bombs" could wipe out months of profits, or worse!

    As for personal experiences, I burned through about half of a $6k account trading other commodities (mostly grains, cocoa, some metals) before closing it down and taking a break. I re-opened an account Sept., '01 for the primary purpose of trading the Mini's. After about a month and a half of sporadic trading while still working full time, I managed to generate nearly $2k of profits.

    However, after focusing on trading full time, I've managed to give all that back as of yesterday. The price of tuition has gotten pretty steep! (or, at least I HOPE I'm learning something, or this will be a pretty brief endeavor)

    Here's a few things I think I've learned: I don't think a pure system trader will succeed, unless some intelligent discretionary signals are folded into the "system" to confirm/deny the trade. Many people use the TICK/TRIN/VIX, etc. I have found the TICK to be very reliable at times, but need access to a good backtesting tool (TradeStation?) to build more conviction with a TICK theory. The other lesson is something already mentioned by another reply--it seems most systems generate only a few signals a day. I'm finding it very difficult to focus on the entire trading session with the intensity required to catch those few good trades. So, what happens is you often miss the good trade which catches your attention, so you grab the next trade on a weaker signal and get stopped out. Or, you overtrade, taking every marginal signal in order to stay attune to the market, generating excessive commissions and exhausting yourself. I'm contemplating a solution that would focus on those few hours of the trading day with the most volatility. (the open and the close?) I've seen people hawking systems to trade the open, but haven't looked into them yet.

    One other issue for small accounts: I've traded many different commodities to benefit from the leverage effect. But I enjoyed the most success while focusing on one contract--the S&P E-mini. For the novice and/or small trader, I think this is essential, given the unique aspects of various contracts, like maturity, margin, trading session length, pit psychology, etc.

    So, while it's difficult for me to say that daytrading the minis is easier to learn than stocks, I would have to echo previous replies about ease of execution. As far as a reliable system for trading them profitably, I'll have to get back to you when I'm either broke or much better off.