I am working on a price and time model for trading this market. I am concerned initially with trading the open. My statistical analysis shows that there is often a trade within the first seven minutes of the open, and such trade is good for a minimum of 20 points. This is $100/contract gross. Ignoring scaling out for the time being, how many lots could I practically trade? I know exchange initial margin is around $5k and Interactive Brokers give a 50% initial margin discount for a day trade. This means I can trade 1 YM contract per $2,500 balance. So if I am making $96 a day net on each $2,500 this means that I am doubling every 5 trading weeks. After a year, I should be trading 1024 contracts. YM depth seems to be 30-40 contracts, so surely this is not possible. Will I hit problems with my strategy after only six doubling cycles, or 30 weeks? Does anyone here scale in this way and what are their results?
There is a decent amount of correlation with the ES. ES has better liquidity. One suggestion is to open a corresponding position in that market.
Funny. Zen Student, Are you perhaps putting the cart in front of the horse? Provided that you were able to develop such a model, yes, you would eventually run into liquidity problems when day trading the YM contract. I do not have intimate knowledge of the YM contract, but I am quite sure that while it has its idiosyncrasies, it moves in a similar fashion to big brother ES. Why not develop your model for that market instead? Comparable volume from last Friday: ES 2,242,372 NQ 235,043 YM 114,787 Regards, LF
Many brokers offer $500 intra-day margin. No need to trade with IB whose requirements are much higher.
AFAIK those $500 intra-day margin brokers won't let you do 1000 contracts on $500 per contract margin.