Diary Of An E-Mini Trade

[Leth]

DIARY OF AN E-MINI TRADE
by Mike Paulenoff

One-fifth the contract size of the regular SP index futures contract and requiring far less money down on margin, the E-mini SP contract, with nearly round-the-clock trading, is the most popular equity trading instrument on Wall Street.

A single regular SP contract, which is valued at $250 per point (or about $275,000 on an 1,100 price), requires about $20,000 in margin ($5000 if not holding overnight). An E-mini contract, valued at $50 per point, requires about $4,000 if holding overnight, and far less if day-trading. You can day-trade up to 49 E-mini contracts for $500 on Global Futures Exchange, though the added leverage, of course, increases risk.

To help traders minimize the risks - and improve on the rewards - technicians like myself spend a lot of time studying the technical charts of the E-minis. We look at the price patterns from different timeframes (I use, for example, 15-minute charts for intraday analysis, hourly charts for near-term 1-2 day analysis, and daily charts for 1-2 weeks); we identify price support and resistance levels and where the prices are at relative to these levels as well as to moving averages; and we assess all that in relation to the indicators such as volume intensity, relative strength and stochastics.

An example of my analysis is seen in the chart below of the June E-mini SP from May 18, 2004. This 15-minute chart (each bar representing 15 minutes) showed a micro uptrend consisting of higher lows and higher highs within the 1080 and 1095 range. A potentially bullish pattern, indeed, though my analysis argued for just one more pop to the upside prior into a downside pivot reversal. Why?

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A bigger picture of the index going back to September 2003 (on the daily chart below) showed the index to be in a downchannel of which it had not yet broken out. Though up significantly from the previous day's low at 1078.50, the rally had not violated any important prior rally peaks, near-term trendlines, or resistance levels. Our analysis indicated that unless the index hurdled and sustained 1103.75, the dominant trend would remain down and all the action of the previous several days represented a sideways, bearish congestion area, which would resolve itself in a plunge to the downside.

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So we took a short position in overnight trading at 1097.50 and again the next day when the index momentarily broke 1105.50 but couldn't sustain. At the time this hourly chart below was posted, the E-mini June SP was trading at 1094.25 and pointing lower. The hourly RSI gauge had reversed and was pointing straight down, and we set a target window of 1087 to 1084 prior to the emergence of buying interest. Later that day we covered our trade at 1086.50 for a 19-point gain.

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Viewing the same index from different time frames, studying trendlines and moving averages and special indicators, I was able to execute a successful short-term trade. These are techniques applicable to trading any instrument, but mine happens to be the E-mini with its high liquidity, low margin cost and virtual round-the-clock trading.

[Soverus Khan]

good post.

[Soverus Khan]

I think it is just me and you Leth